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Professor: Justice Japar B.

Dimaampao

Transcribers:

Marc Roby de Chavez (MARX)


Mon Cristhoper Pasia (MON)
Jean Marionne Bermudez (JAM)
Aileen Grace Pizaa (AILEEN)
Socrates Benjie Marbil (SOC)

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services
except as otherwise provided herein;
(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 this 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 herein;
(n) (n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperatives Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
(i)

TAX2 (1)

ESTATE TAX
What is meant by estate tax?
Estate Tax is a tax on the right of the deceased
person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as
equivalent to testamentary disposition.
What are the characteristics of estate tax?
Excise tax it is imposed upon the privilege to
transfer a property mortis causa
Ad Valorem Tax its tax based is on the fair market
value of the property at the time of the decedents
death
Direct tax
National Tax - it is included in Sec. 133 of the LGC.
One of the common limitations of the taxing power
of the LGU. It is found in NIRC
General/Revenue it is for the purpose of raising
revenue
Progressive It is progressive because as the tax
based increases the tax rate increases

Article X, section 5 of the 1987 Constitution


Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments.

Does progressive tax have constitutional basis of?


Yes, Article VI, Section 28, par 1, sentence 2 The
Congress shall evolve a progressive system of
taxation.

Does the local government units have the power to impose


estate tax or donations mortis causa?
No, because section of the Local Government Code
so provides

Section 28.
1. The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of
taxation.
2. The Congress may, by law, authorize the President to
fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the
framework of the national development program of
the Government.
3. Charitable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall
be exempt from taxation.
4. No law granting any tax exemption shall be passed
without the concurrence of a majority of all the
Members of the Congress.

SEC. 133. Common Limitations on the Taxing Powers of Local


Government Units. - Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(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, or other
taxes, fees or charges in any form whatsoever upon such
goods or merchandise;
(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 six (6)
and four (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;
1

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


How did the Supreme Court construe this Constitutional
provision?
What it simply provides is that Congress shall
"evolve a progressive system of taxation." The
constitutional provision has been interpreted to
mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes
should be minimized. Indeed, the mandate to
Congress is not to prescribe, but to evolve, a
progressive tax system.

Suppose Congress restores inheritance tax, is that a valid law?


Yes, because..
Why is it an estate tax is not a property tax? Isnt the fact that
Section 84 of the NIRC, it takes in consideration the value of
the property?
Because its imposition does not rest upon general
ownership although the amount of the tax is
measured by the value of the property
What is the materiality of such valuation of property?
The purpose was to mitigate the resulting hardship
in the case of the subsequent decline in the value of
estates and thus prevent the danger of their
complete confiscation due to the necessity of paying
the tax on the basis of the value of the estate at the
time of the decedents death

What do we mean by the word evolve?


direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized, what do we
mean by that?
Section 84 of the NIRC are progressive rates, suppose the
Congress change that, from progressive rates to regressive
rates, is that law constitutional?
Constitutional

An estate tax is an excise tax because it is a tax imposed on


the privilege of transmitting property upon the death of the
owner.

Why?

Donation Mortis Causa is the one which is subject to estate


tax. What is the determinative test of donation mortis causa?
Effective from the moment of the death of the
decedent.

What are transfer equivalent to testamentary disposition?


Section 85 of the NIRC
Donation mortis causa is the one subject to estate tax, the
right or privilege to transmit properties at death may be
subject to estate tax. But what about the right or privilege to
receive properties from the decedent, is that taxable? Is that
subject to inheritance tax?
No, because inheritance tax is already abolished by
PD 69

What are the characteristic of donation mortis causa?


Effective upon death
Revocable
Is acceptance required in donation mortis causa?
No
Is the delivery of the property required?
No

Why does PD 69 abolished inheritance tax?


Because the imposition of inheritance tax is
incapable of proper and effective enforcement
(administrative feasibility)

Is there a particular form prescribed under the Civil Code for it


to be considered as a valid donation?
If it is by testamentary succession, there is a
prescribe particular form, but if it is by intestate
succession, there is none

What are the fundamental principles of s sound tax system?


Fiscal Adequacy revenue raised must be sufficient
to meet government expenditures
Administrative feasibility tax laws must be clear
and concise; capable of proper and effective
enforcement and not burdensome
Theoretical Justice tax imposed must be based on
the tax payers ability to pay

Suppose such donation mortis causa is invalid, there is no


donation mortis causa to speak of, can that be a subject of
estate tax? Is it still taxable?
Yes
What kind of tax? Is that subject of income tax?
Income a flow of wealth other a mere return of
capital

Which of the 3 fundamental principles may be used as a basis


for the abolition of inheritance tax?
Administrative feasibility

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Suppose it is a valid form of donation mortis causa, can that
be a subject of income tax?
No, exclusion from the gross income; Gifts, bequest
and devises

What is the basis of estate tax rate under section 84 of the


NIRC?
Net estate
Suppose Congress change from net estate to gross estate, is
there a violation of theoretical justice?
..
How do we know if the tax is just, reasonable, fair,
unconscionable or equitable? What is the determinative test?

Under section 32B of the NIRC, item 3 thereof, suppose a law


is passed deleting such provisions, is that a valid law? It
appears that there can be 2 taxes that can be imposed, estate
tax and income tax on gifts, bequest and devises. (inherent
and constitutional limitations; double taxation) does it
infringe any constitutional limitation? What kind of double
situation?
Indirect tax

4 theories advance in justification of the imposition of estate


tax, what are those 4?
Benefits-received theory based on the power of
the State to demand and receive taxes on the
reciprocal duties to support and protection
State-partnership Theory- the State as a passive and
silent partner in the privilege of accumulating
property, has the right to collect the share which is
properly due it
Ability to pay- the receipt of inheritance is in the
nature of unearned wealth which creates the ability
to pay the tax
Redistribution of wealth- receipt of inheritance
contributes to the widening inequalities in wealth.
By imposing estate tax, the value received by the
successor is thereby reduced and brings said value
into the coffers of the government.

TAX2 (2)
Define Estate Tax
Estate Tax is a tax on the right of the deceased
person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as
equivalent to testamentary disposition.
How do we distinguish estate tax from inheritance tax?
An estate tax is levied upon the privilege of
transferring the net estate of a decedent to his heirs
while an inheritance tax is a tax on the privilege to
receive property from a deceased person. (2009
Golden Notes)

In effect that the purpose of the imposition of estate tax,


which of the 4 theories is a non-revenue raising purpose?

What is the rationale behind the abolition of inheritance tax?


It was abolished because due to administrative
difficulty to its collection.

Under section 84, there are 4 words levied, assessed,


collected and payment. Aspect of taxation
Levy
Assessment and Collection
Payment

Relate the 3 principles of a sound tax system to estate tax


Fiscal Adequacy
Administrative Feasibility
Theoretical Justice

What is the meaning of Levy?


Enactment of a tax law which is a legislative act

Do u think that the proceeds from the imposition of estate tax


will meet the government expenditures?

What is the meaning of Assessment?


A notice to the effect that the amount therein stated
is due as a tax and/or demand for payment thereof

Base on Section 84 and 85, do u think it is enough or


adequate?
Do u think that the imposition of 20% tax rate is enough to
cover the governmental expenditures?

What is the difference between Assessment and Collection?


What is the basic distinction between the 2?
Both differs in the process. 5-year period of
prescription for assessment of deficiency tax, 5-year
period per collection of the same
Collection may be effected within 5 years after
assessment or within the period of collection agreed
upon in writing by the Commissioner and the
taxpayer before the expiration of such 5-year period

Does the principle of theoretical justice has been observed or


complied with?
Yes

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


provide tax situs to particular object/subject of
taxation and in line with the ruling of the SC, we
have section 104. So even if the owner is a nonresident, we can still impose donors or estate tax on
properties mentioned in Sec. 104

What is the meaning of payment?


What is the technical term for levy or imposition?
Impact of taxation
What is the technical term for payment?
Incidence of taxation?

What is the purpose of that latin maxim?


To prevent injustice, for convenience and it must be
to the actual tax situs ___ of those properties

Section 84 classified decedent into 2, these are? 2 kinds of


estate tax payer?
Resident decedent
Non-resident decedent

How do we know whether an alien is a resident of nonresident at the time of his death?

These properties will be taxed because they acquire actual


situs, what are these intangible personal properties which are
in effect exception to the latin maxim?
Franchise which must be exercised in the Philippines
Shares of stocks, obligations or bonds issued by any
corporation or sociedad anomina organized or
constituted in the Philippines in accordance with its
laws
Shares of stocks, obligations or bonds by any foreign
corporation 85% of its business is located in the
Philippines
Shares of stocks, obligations or bonds issued by any
foreign corporation if such shares, bonds or
obligations have acquired business situs in the
Philippines
Shares or rights in any partnership, business or
industry established in the Philippines

What is the purpose of distinguishing the residency and nonresidency of a decedent?


Because not all properties of non-resident decedent
are taxed unlike with resident decedent

These intangible personal properties are in effect exceptions


to the latin maxim of Mobilia Sequuntur Personam, what is
the exception to the exception?
Rule of reciprocity

What is the rule that applies to resident under section 85?


The properties subject to estate tax are the
properties of such decedent wherever situated

TAX2 (3)

At the time of the decedents death, he was not residing in the


Philippines, he died in the US, how do we classify that
decedent?
Resident decedent, because resident decedent
includes:
Resident Citizen
Non-resident Citizen
Resident Alien
What is the basis why Non-resident Citizen is included?

Included in the Gross Estate


Decedents Interest
Transfer in Contemplation of death
Revocable transfer
Property Passing under the General power of
appointment
Proceeds of life insurance
Prior interest
Transfer for insufficient Consideration

What about non-resident?


Only those properties situated in the Philippines are
subject to estate tax
Do we adhere to Mobilia Sequuntur Personam? Section 104 of
the NIRC
No.
What is this maxim says?
Movable follows the owner. If the decedent is not a
resident, we cannot impose tax on such property

DECEDENTS INTEREST
Any interest having value or capable of being valued,
transferred by the decedent at his death

Why is it that we do not adhere to this maxim?


Well fargo vs Collector- the latin maxim is a mere
fiction of law that may be designed to prevent
injustice and for convenience. We are not bound by
this latin maxim because a particular country can
4

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What may be considered decedents interest in a parcel of
land other than title?

At the time of the decedents death, the decedent has


receivables and collectibles, shall we include that in the gross
estate?

When a decedent dies, what is included in the gross estate is


the fair market value of that parcel of land but also fruits
(harvest/natural fruits if it is a farm land)

The decedent was an employee of a particular corporation. At


the time of his death, he had not collected his compensation
income from his employer, should we include that?
Yes

How about a building?


what is included in the gross estate is the fair market
value of that parcel of land but also civil fruits (rents)

He died before the decedent could receive his Christmas


Bonus, should that be included?
No

What about investment in a corporation?


Investment is part of the gross estate as well as
dividends

th

He failed to receive his 13 month pay when he died, should


that be included in the gross estate?
Yes

Suppose dividends were declared after his death, will that


form part of the gross estate?
Yes

What is the basis why Christmas bonus is not included in the


th
gross estate and 13 month pay is included in the gross
estate?
Because there is a law mandating employers to grant
th
13 month pay unlike Christmas bonus, there is no
law requiring it

Suppose dividends were declared before his death, will that


form part of the gross estate?
Yes
What is that factor that determines whether these dividends
should be included in the gross estate or excluded?
Declaration of such dividends

th

Is there a law mandating employers to grant 13 month pay?


Section 32B 7 item e
The decedent met an accident, he died. As a result of the
event, he had an insurance claim. Should that be included in
the gross estate?
Rules in Life insurance proceeds and premiums

Corporation Code, when does a stockholder acquire the right


over such dividend?
When the dividends are declared
In relation to income tax, when are dividends taxable?
When the dividends are declared

An action was filed by the heirs of the decedent against the


person responsible accident, eventually a decision was
rendered in favor of the heirs of the decease, is the award
granted by the court should be included in the gross estate of
the deceased?
No, because the award granted by the court should
not be included in the gross estate because the
decedent has no control over the disposition of such
property

Applying the principle of constructive receipt of income?


When it is constructively realized, it is not the actual receipt.
Corporation law, it is really the accrual of the same, the date
when he acquired vested right over the same.
What about partners interest in the partnership? What will
constitute partnership interest in a partnership?
Art. 1512 of the NCC

The decedent is the naked owner of the property because the


enjoyment of such property is given to another (usufructuary),
should that be included in the gross estate?
Yes

So if the decedent is a partner, what constitute his gross


estate? is it only his contribution?
Sec. 24 of the NIRC

TRANSFERS IN CONTEMPLATION OF DEATH


Cash in banks, should that be included?
Yes, including the interest accrued at the time of his
death

A transfer motivated by the thought of impending death


although death may not be imminent:
1. When the decedent has, at any time, made
a transfer in contemplation of or intended

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

2.

to take effect in possession or enjoyment at


or after death or
When decedent has, at any time, made a
transfer under which he has retained for his
life or for a period not ascertainable
without reference to his death or any
period which does not in fact end before his
death:
Possession, enjoyment or right to
income from the property or
The right alone or in conjunction
with any other person to designate
the person who will possess or
enjoy the property or income there
from

o
o

The interval between the transfer and the


decedents death
The relationship of the donee or donees to
decedent

What happened on April 9, 1928?


A deed of gift covering 22 tracts of land was
executed by Felix Dison in favor of his son
Luis Dison
What happened on April 20, 1928?
Such deed was notarized
What happened on April 21, 1928?
Felix Dison died
How many days?
1 day from the date of notary

What is the other description for transfer in contemplation of


death?
Transfer equivalent to testamentary disposition or
Inter vivos in form Mortis causa in substance

Was there an acceptance?


Yes, 1 day before the death

What is the reason why Section 85 is included in the gross


estate?
Those transfers are intended to evade the payment
of estate tax

Was the transfer made inter vivos?


The transfer is an inter vivos but for
purposes of tax it is a transfer in
contemplation of death

What are the factors to determine whether such transfer is a


transfer in contemplation of death?
Age of the decedent at the time the transfer were
made
Decedents heath, as he knew it at or before the
time of the transfers
The interval between the transfer and the
decedents death
The amount of property transferred in proportion to
the amount of property retained
The nature and disposition of the decedent
The existence of a general testamentary scheme of
which the transfers were a part
The relationship of the donee or donees to decedent
The existence of a desire on the part of the decedent
to escape the burden of managing the property by
transferring the property to others
The existence of a long established gift-making
policy on the part of the decedent
The existence of a desire on the part of the
decedent to vicariously enjoy the enjoyment of the
donees for the property transferred
The existence of the desire by the decedent of
avoiding estate taxes by means of making inter vivos
transfer of property

How many days do the donation was made in


relation to the death?
12 days
Lets say the death occurs 30 days after, will the
ruling of the court be the same? (Hypothetical
question)

Suppose the done not relative but a friend, will the


ruling be the same? (hypothetical question)

DISON VS POSADAS
What was the factor considered by the court?
6

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Age is another factor, suppose the decedent in this
case was 90 years of age, he made a donation
denominated as inter vivos in favor of his
children, can we consider that as transfer in
contemplation of death? (hypothetical question)

donations were made mortis causa, hence,


the properties donated shall be included as
part of the decedents gross estate
Motives which may preclude/negate such transfer as one
made in contemplation of death
To relieved the donor from the burden of
management
To save income or property taxes
To settle family litigated and unlitigated disputes
To provide independent income for dependents
To see the children enjoy the property while the
donor is alive
To protect family from hazards of business
operations
To reward services rendered

Assuming that the decedent was 30 years of age at


the time he made the donation inter vivos, can we
consider that as transfer in contemplation of death
(hypothetical question)

The 3 year presumption rule in PD 1705 is no longer


applicable
In case of a bona fide sale for an adequate and full
consideration in money or moneys worth
Sec 85 B, by trust or otherwise, what may be covered by
that?
It covers donation inter vivos in form but mortis
causa in substance.

Assuming that the decedent was 30 years of age at


the time he made the donation inter vivos, can we
consider that as transfer in contemplation of death
EVEN IF HE WAS SUFFERING FROM A DREADED
DISEASE? (Hypothetical question)

What is the reason why trust is covered?


Because in trust there is no transfer of ownership
Is it possible that the transfer is denominated as sale yet it
is considered as transfer in contemplation of death?

DE ROCES VS POSADAS
What happened in March 1925?
Esperanza Tuazon donated certain parcels
of land
Suppose there is no consideration given, it was a fictitious
sale, will that result to a transfer in contemplation of death?
Is that covered by the phrase or otherwise

Held:
When the donor makes his will within a
short time of simultaneously with, the
making of gifts, the gifts are considered as
having been made in contemplation of
death. Obviously, the intention of the donor
in the making the inter-vivos is to avoid the
imposition of the estate tax and since the
donees are likewise forced heirs who are
called upon to inherit, it will create a
presumption juris tantum that said

. Because there is no contract of sale to


speak of

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What if the price or consideration in a contract of sale is
grossly in adequate considering Art. 1470 of the NCC, will it be
included in the gross estate?

Article 1470. Gross inadequacy of price does not affect a contract


of sale, except as it may indicate a defect in the consent, or that
the parties really intended a donation or some other act or
contract.

transferred property and if the power adds nothing


to the rights the parties possess under local law
When the decedent has completely divested of the
power at the time of his death
Where the exercise of the power by the decedent
was subject to a contingency beyond the decedents
control which did not occur before his death
The mere right to name trustees. Neither the
grantors limited power to appoint himself as trustee
under conditions which did not exist at his death

Remember:
General Rule:
Donation Mortis Causa is Revocable
Donation Intere Vivos is Irrevocable

What are those other 2 transfers covered by Sec. 85 B?


Transfer which he had retained for his life
o the possession, enjoyment or right to
income from the property or
o the right alone or in conjunction with any
other person to designate the person who
will possess or enjoy the property or
income there from
Transfer for any period which does not in fact end
before his death
o the possession, enjoyment or right to
income from the property or
o the right alone or in conjunction with any
other person to designate the person who
will possess or enjoy the property or
income there from

Is there such a thing as irrevocable trust?


Yes, Sec. 60-66 NIRC
Is irrevocable trust included in the gross estate?
No, it is excluded
PROPERTY PASSING UNDER GENERAL POWER OF
APPOINTMENT
Any property passing under a general power of appointment
exercised by the decedent:
(1) by will, or
(2) by deed executed in contemplation of, or
intended to take effect in possession or
enjoyment at, or after his death, or
(3) by deed under which he has retained for his life
or any period not ascertainable without
reference to his death or for any period which
does not in fact end before his death
(a) the possession or enjoyment of, or the
right to the income from, the
property, or
(b) 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 in case of a bona fide sale for an adequate
and full consideration in money or money's worth.

REVOCABLE TRANSFERS
Revocable transfers covers transfers by trust or otherwise,
where the enjoyment thereof was subject at the date of his
death to any change through the exercise of a power (in
whatever capacity exercisable) by the decedent alone or by
the decedent in conjunction with any other person (without
regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where
any such power is relinquished in contemplation of the
decedent's death.
Why is it that revocable transfer forms part of the gross
estate of the decedent?
Because the transferor can amend, alter, revoke or
terminate the transfer anytime as if none was
actually made, he has control over the right to
possess, enjoy, income or fruits.

Power of appointment refers to a right to designate the


person or persons who shall enjoy or possess certain property
from the estate of a prior decedent. It may either be:
General when it gives to the donee the power to
appoint any person as he pleases, including himself,
his spouse, his estate, executor or administrator, and
his creditor, thus having as full dominion over the
property as though he owned it.

Is a notice of alteration, amendment, revocation or


termination required?
What are examples of IRREVOCABLE transfers that is not
subject to estate tax?
If the decedents power could only be exercised with
the consent of all parties having an interest in the
8

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

Sec. 11 Insurance Code - The insured shall have the right to


change the beneficiary he designated in the policy, unless he
has expressly waived this right in said policy.

Special when the donee can appoint only among a


restricted or designated class of persons other than
himself

What are the requisites under sec. 85 D?


There is such a general power of appointment
It is based on

The designation of beneficiary is revocable

What is the reason for the inclusion in the gross estate?


The property passing under a general power of
appointment comes from the donor and the done
(decedent). The power to dispose of property at
death by the exercise of a power of appointment is
he equivalent of ownership. It is a potential source
of wealth to the appointee and the disposition of
wealth effected by its exercise or relinquishment at
death is one form of the enjoyment of wealth

What is covered by Sec 85 G?


Transfer for insufficient consideration. Only the
excess of the fair market value of the property at the
time of the decedents death over the consideration
received shall be included in the gross estate.

TAX2 (4)

Why is it considered includible in the gross estate of the


decent?
Those transfers are intended to evade the payment
of estate tax

LIFE INSURANCE PROCEEDS


Included in the gross estate and therefore subject to
estate tax:
o If the beneficiary designated in the life
insurance policy is the heirs, executor or
administrator of the estate, regardless is
the designation is irrevocable or revocable.
o If a third person is REVOCABLY designated
as beneficiary
Excluded in the gross estate:
rd
o If a 3 person is IRREVOCABLY designated
as beneficiary
o If it partakes of a nature of Group Insurance
policy

Is there such similar rule when it comes to donation


intervivos?
Yes. Sec 100.
What is the difference between transfers for insufficient
consideration for estate tax law and insufficient consideration
in donors tax?
Sec. 85 donation mortis causa
Sec. 100 covered by donation intervivos
The excess of the FMV, at the time of death, of the property
otherwise to be included on account of such transactions,
over the value of the consideration received therefore by the
decedent

Tax implication on Life Insurance Premiums


TAXABLE if the designated beneficiary is the heirs,
estate, executor or administrator of the estate.
o Under Sec 32 A, taxable as compensation
income if the employee is a rank and file
employee
o Under Sec 32 B taxable as Fringe Benefit is
the employee is a managerial or supervisory
employee
o It is a DEDUCTIBLE EXPENSE by the
employer because it may fall under Sec. 32
A [1, a (1)] as other forms of compensation
for personal services rendered

Sec 85 made reference to the preceding items. What are these


items?
Sec 85
B. Transfers in Contemplation of Death
C. Revocable Transfer
D. Property Passing Under General Power of
Appointment
Such items are included in the gross estate because such
transfers are intended to evade the payment of estate tax
How much should be included in the gross estate?
Only the excess of the fair market value of the
property at the time of the decedents death over
the consideration received shall be included in the
gross estate.

rd

NOT TAXABLE if the designated beneficiary is a 3


person (that includes the employer) because it is just
a mere return of capital
o NOT DEDUCTIBLE EXPENSE by the
employer if the designated beneficiary is
the employer concerned.

What are the transfers covered therein?

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


(2) That which each acquires during the marriage by gratuitous
title;
(3) That which is acquired by right of redemption, by barter or by
exchange with property belonging to only one of the spouses; and
(4) That which is purchased with exclusive money of the wife or of
the husband.

How do you know whether the consideration is inadequate?


For as long as the the amount by which the value of
the property exceeded the value of the
consideration shall be deemed a gift for the purpose
of the tax
What is the guiding criteria?
.

Can you apply Sec 85 H this in separation of property?


No, if the property regime is separation of property,
there will be no division

What is the last item under Sec 85?


Sec 85 H. Capital of the Surviving spouse. It speaks of
exclusion not inclusion.

share of the surviving spouse.

What should be included? When you speak of exclusive


property, is this that of the surviving spouse or that of the
decedent?
Exclusive property of the decedent

Gross estate. All properties may be divided by 2. Will this be


included in the Gross estate? Is this taxable?
Add all the properties, Conjugal, Absolute as the
case may be.
Deduct all the allowable deductions.
Divide that into 2. Because of the net estate
represents the share of the surviving spouse.

Why do you have to exclude the exclusive property of the


surviving spouse from the gross estate?
Because he or she is the sole owner of such
properties, it is not part of the conjugal partnership
or community property

What do you do with the share of the surviving spouse?


Deduct it from the net estate to arrive at the taxable
estate.
When the law was drafted official regime was conjugal
partnership of gains. This is why capital or paraphernal is
found therein .

Is it important to know the property relations governing the


properties of the husband and the wife conjugal, separate of
property, absolute community property?
Yes, in order what should be excluded or included in
the gross estate

Now the official regime is absolute community Art 75. This is


why there should be an amendment here. This is why such
item is not accurate.

Is Sec 85 H applicable to all the property regimes?

What is the difference between transfer for insufficient


consideration in estate tax and transfer for insufficient
consideration in donors tax?
It is subject to donors tax if there is no reference to
revocable transfer, contemplation of death or
general power of appointment.
It is subject to estate if the 3 instances mentioned
are present

Are the exclusive properties under the system of absolute


community?
There are 3 under Art 92 FC. This is why the
absolute is not correct. It should be relative
absolute community.
Art. 92. The following shall be excluded from the community
property:
(1) Property acquired during the marriage by gratuitous
title by either spouse, and the fruits as well as the
income thereof, if any, unless it is expressly provided
by the donor, testator or grantor that they shall form
part of the community property;
(2) Property for personal and exclusive use of either
spouse. However, jewelry shall form part of the
community property;
(3) Property acquired before the marriage by either
spouse who has legitimate descendants by a former
marriage, and the fruits as well as the income, if any,
of such property.

Sec 86 deals with allowable deductions. What have you


observed regarding Sec 86?
Sec 86 consider the kind of estate tax payer
In income tax we have adopted gross income taxation under
exceptional cases. Who are those taxpayers who cannot make
a deduction?
Taxpayers earning compensation income arising
from personal services rendered under an employeremployee relationship

What about conjugal partnership of gains?


Art. 109. The following shall be the exclusive property of each
spouse:
(1) That which is brought to the marriage as his or her own;
10

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


In estate tax, are there exceptional cases wherein estate
taxpayers are not allowed to claim nay deductions?
None, both resident decedent and non-resident
decedent may claim deduction allowed for them
under the law

What is vanishing deduction?


It is the deduction allowed from the gross estate of
citizens, resident aliens and non-resident estates for
properties which were previously subject to donors
or estate taxes

Are foreigners entitled to deductions?


Yes, but only those allowed by law
What is the basis for this allowable deduction? What is its
purpose?
Minimize or mitigate the harshness of double
taxation

The same as that of citizens of the Philippines?


No
Non-resident aliens are not allowed to claim any
deductions. Is this a valid law?
No, it is not violative of equal protection of laws?

Is it in this a case of direct or indirect double taxation?


Indirect double taxation

Is the rule on reciprocity recognized under Sec 86 in regards to


non-resident aliens?
Yes, in Section 104 par. 1

What are the common allowable deductions?


A. Expenses, losses, indebtedness, and taxes
B. Property previously taxed (vanishing deduction)
C. Transfers for public use
D. Net share of the surviving spouse from the net share
in the conjugal or community property

No tax shall be collected under this Title in respect of intangible personal


property:
(a) if the decedent at the time of his death or the donor at the time
of the donation was a citizen and resident of a foreign country
which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign
country, or
(b) if the laws of the foreign country of which the decedent or donor
was a citizen and resident at the time of his death or donation
allows a similar exemption from transfer or death taxes of every
character or description in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign
country. (sec.104)

Is the enumeration of the allowable deductions exclusive?


Sec 86 is construed strictly ______ following the rule
of strictissimi juris. Deductions partake the nature of
exemptions. Those not mentioned therein cannot be
claimed as deductions. Deductions which have not
been mentioned under Sec 86
Hypothetical Question: What do you propose as additional
allowable deduction from the gross estate?

What are those deductions which can be availed of by citizens


of the Philippines and resident alien decedents?
A. Expenses, losses, indebtedness, and taxes
B. Property previously taxed (vanishing deduction)
C. Transfers for public use
D. The family home
E. Standard deduction
F. Medical expenses
G. Amount received by heirs under Republic Act No.
4917
H. Net share of the surviving spouse from the net share
in the conjugal or community property

When a person dies are these the only deductions possible?


Why is it that non-resident decedent is not entitled to the
allowable deduction of family home.
Because aliens are not allowed to own real estate
properties
Expenses, losses, indebtedness, and taxes
Actual funeral expenses (whether paid or
unpaid) up to the time of interment, or an
amount equal to five percent (5%) of the gross
estate, whichever is lower, but in no case to
exceed P200,000.
Judicial expenses of the testamentary or
intestate proceedings.
Claims against the estate.
Claims of the deceased against insolvent
persons where the value of the decedents
interest therein is included in the value of the
gross estate;
Unpaid mortgages, taxes and casualty losses

Which deductions cannot be availed of the non-resident alien


decedents?
A. Expenses, losses, indebtedness, and taxes
B. Property previously taxed (vanishing deduction)
C. Transfers for public use
D. Net share of the surviving spouse from the net share
in the conjugal or community property

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


official receipts for services rendered by the
decedents
attending
physicians,
invoices,
statements of account duly certified by the hospital,
and such other documents in support thereof and
provided, further, that the total amount thereof,
whether paid or unpaid, does not exceed Five
Hundred Thousand Pesos (P500,000).

ACTUAL FUNERAL EXPENSES - actually incurred in connection


with the interment or burial of the deceased.
The expenses must be duly supported by receipts or invoices
or other evidence to show that they were actually incurred.
What are the expenses considered as funeral expenses under
RR 2-2003?
(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.

Suppose the actual is 1M, can you not consider this a part of
the funeral expenses?
In case of funeral expense what is the limitation?
Actual funeral expenses (whether paid or unpaid) up
to the time of interment, or an amount equal to five
percent (5%) of the gross estate, whichever is lower,
but in no case to exceed P200,000.
Any amount of funeral expenses in excess of the
P200,000 threshold, whether the same had actually
been paid or still payable, shall not be allowed as a
deduction under this Subsection. Neither shall the
unpaid portion of the funeral expenses incurred
which is in excess of the P200,000 threshold be
allowed to be claimed as a deduction under claims
against the estate provided under Subsection (C)
hereof.
As distinguished from judicial expenses, there is a limitation
here. Why did the law did not prescribe a limitation in judicial
expenses?
Because such situation implies that there be more
funeral expenses than judicial expenses

The enumeration is not exclusive.


These are the usual/normal expenses.
Example:
Crying ladies

Is 200K are reasonable limitation?


.

What is the determinative test? How do you know that it is a


funeral expense or not?
Expenses incurred for the performance of the rites
and ceremonies incident to interment

If the gross estate is 5M, is 5% (250 k). The actual funeral


expenses 300 K, how much is the allowable funeral expenses?
Only Php 200,000.00

Will this cover hospitalization expenses?


No

Gross estate is 3M, is 5% (150K). Actual funeral expenses 180


K. How much is the allowable funeral expenses?
The lower one, Php 150k

Is this not covered by a separate item?


It is a separate item, Medical expenses as of the last
illness will not form part of funeral expenses but
should be claimed under subsection (F) of this
section (medical expenses).

Must that be actually paid? Are those only actually paid


allowable deduction?
The Law used the terms paid or incurred
Is a non-resident decedent entitled to funeral expenses? Is the
rule the same? Where lies the difference?
In non resident decedent, that proportion of the
total expenses, losses, indebtedness, and taxes
which the value of such part bears to the value of his
entire gross estate wherever situated.

Is there are limitation in hospitalization?


Yes, All medical expenses (cost of medicines,
hospital bills, doctors fees, etc.) incurred (whether
paid or unpaid) within one (1) year before the death
of the decedent shall be allowed as a deduction
provided that the same are duly substantiated with
12

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Can you apply the limitation 5% or 200 K as the case may to
non-resident decedents?

What about Extra-judicial expenses, are these deductible from


the gross estate of the decedent?
Yes, but it is limited to such administration expenses
actually and necessarily incurred inventory-taking of
assets comprising the gross estate, their
administration, the payment of debts of the estate,
as well as the distribution of the estate among the
heirs.

What are those funeral expenses that may be claimed by nonresident decedent (non-resident alien at the time of his
death)?
Only those expenses incurred in the Philippines
because the composition of the properties of a nonresident decedent subject to estate tax are those
properties situated in the Philippines

But if you read sec 86 it says judicial expenses, applying the


principle of stricitissimi juris you should strictly construe such
provision. Since the law did not mention about shall we
exclude this?
We should not construe it literally

JUDICIAL EXPENSES OF THE TESTAMENTARY OR INTESTATE


PROCEEDINGS - those incurred in the inventory-taking of
assets comprising the gross estate, their administration, the
payment of debts of the estate, as well as the distribution of
the estate among the heirs. In short, 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.

What are these judicial expenses in particular?


Collation of the property
Inventory of the properties
Preservation of the properties
Settlement of the estate
Distribution of the properties

JUDICIAL EXPENSES
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the
estate;
(h) Costs of storing or maintaining property of
the estate; and
(i) Brokerage fees for selling property of the
estate.

The rule of the executor or administrator comes into play.


Executor/administrator collates all these properties. In the
collation of these properties, or in determining the properties
includible in the gross estate, what do you think are the
expenses that may be incurred by the estate?
Where does appraisal fee belong?
In determining the value of the property applying Sec 88.
What particular category is covered by that?
Administration of the property. That presupposes that
inventory has been made. All those properties which are
included in the gross estate have been determined by the
executor or administrator as the case may be.

Any unpaid amount for the aforementioned cost


and expenses claimed under Judicial Expenses
should be supported by a sworn statement of
account issued and signed by the creditor.

What are the other expenses that may be incurred during


such administration or preservation of such properties?

Are non-resident alien decedent entitled to judicial expenses?


Yes, but only those expenses incurred in the
settlement of the estate in the Philippines

What are the expenses incurred in extrajudicial settlement of


estate?

What may comprise judicial expenses?


those incurred in the inventory-taking of assets
comprising the gross estate, their administration,
the payment of debts of the estate,

as well as the distribution of the estate among the


heirs.

What is that document that may be drafted that relates to


extrajudicial settlement of estate?
Affidavit of self-adjudication
Legal forms
These need not be prepared by the lawyer.

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


TAX2 (5)

What is the tax implication as far as income tax is


concerned?
It is excluded in the gross income of the
recipient of such benefit

What are the common requirements for deductibility for


claims against the estate?
They were contracted in good faith and for an
adequate and full consideration in money or
moneys worth
They must be existing against the estate
They must be enforced by the claimants
They must be reasonably certain in amount
At the time the indebtedness was incurred, the debt
instrument was duly notarized and, if the loan was
contracted within 3 years before the death of the
decedent, the administrator or executor shall submit
a statement showing the disposition of the proceeds
of the loan

If the loan is found to be merely an accommodation


loan where the loan proceeds went to another
person, the value of the unpaid loan must be
included as a receivable of the estate
If there is a legal impediment to recognize the same
as receivable of the estate, said unpaid
obligation/mortgage payable SHALL NOT BE
ALLOWED AS A DEDUCTION from the gross estate.
In all instances, the mortgaged property, TO THE
EXTENT OF THE DECEDENTS INTEREST THEREIN,
should always form part of the gross taxable estate.

What are the possible sources of the claims?


Contract
Torts
By operation of law

What is the purpose of that certification that may be issued


regarding claims against the estate?
To establish the unpaid balance of the debt and
including the interest as of the time of debt

Explain torts as a possible source of claims


Explain by operation of law as a possible source of claims
In case of a solidary obligation or in assignment or in
negotiorum gestio

What is the 3 year period?


If the loan was contracted within the period of 3
years prior to the death of the decedent, a
statement under oath executed by the administrator
or executor of the estate reflecting the disposition of
the proceeds of the loan

These allowable deductions require that such amount or value


must first be included in the gross estate before it can be
claim as deductions, what are these?
Claims against insolvent persons
Unpaid mortgages

What are the requisites for LOSSES?


Incurred during the settlement of the estate
Arise from shipwreck, fire, storm or other fortuitous
event or robber, theft or embezzlement
Are not compensated by insurance
Are not claimed as deduction for income tax
purposes in the income tax return at the time of the
filing of the return
Occur not later the last day for payment of estate
tax. (last day to pay: 6 months after the decedents
death)

What should be included or declared in the gross


estate?
The fair market value of the property
mortgaged

Family Home
How much must be included in the gross estate?
Allowable deduction must be in the amount
equivalent to:
 The current fair market value of
the family home as declared or
included in the gross estate OR
 To the extent of the decedents
interest, whichever is lower, but
not exceeding Php 1,000,000

Accommodation loan

Losses are allowable deductions in the gross income


BASIC RULE IN DEDUCTIONS: Deductions can only be claimed
once
What are these deductible taxes?
Taxes which have accrued as of the death of the
decedent which were unpaid as of the time of death

Amounts received by heirs under RA 4917

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

Are the taxes limited only to income and property taxes?


No, the law does not make any specification
(transcribers answer)

What is a property tax?


Tax imposed on real properties

What are the non-deductible taxes?


income tax upon income received after death, or
property taxes not accrued before his death, or
the estate tax due from the transmission of his
estate

Property Previously Tax (Vanishing/diminishing deduction)

What is the nature of Vanishing deduction?


Exclusive deduction

Identity of the property the property with respect


to which deduction is sought can be identified as the
one received from prior decedent or from the donor,
or as the property acquired in exchange for the
original property so received
Inclusion of the property - the property must have
formed part of the gross estate situated in the
Philippines of the prior decedent, or have been
included in the total amount of the gifts of the donor
within 5 years prior to the present decedents death
Previous taxation of the property the estate tax
on the prior succession, or the donors tax on the
gift, must have been finally determined and paid by
the prior decedent or by the donor, as the case may
be
No previous vanishing deduction on the property

Can this be claimed by a nonresident decedent alien?


Yes, but only with respect to the properties located
in the Philippines

Why exclusive deduction?


Because it is a deduction from the exclusive
properties of the decedent that was acquired during
the marriage by lucrative title (thru succession or
donation).

TAX2 (6)
Transfer for public use

What are the 2 situations that may give rise to vanishing


deduction?
The property was acquired by the present decedent
from the previous decedent thru succession
The property was acquired by the present decedent
from the previous decedent thru donation inter
vivos

What is the rule regarding the deductibility of transfer for


public use?
The law allows the deduction from the gross estate
the amount of all bequests, legacies, or transfers, to
or for the use of the government of the Philippines
or any political subdivisions thereof for exclusively
public purpose

What is the purpose of allowing this vanishing deduction?


To minimize the harsh effects of indirect double
taxation

Requisites
The disposition is in a last will and testament
To take effect after death
In favor of the government of the Philippines or any
political subdivision thereof
For exclusive public purposes
The value of the property given is included in the
gross estate

Why indirect double taxation?


Because the subject of taxation. The property
previously tax will be tax again
What is this 5 year period?
Within 1 year or less
More than 1 year but less than 2 years
More than 2 years but less than 3 years
More than 3 year but less than 4 years
More than 4 year but less than 5 years

Who may be the transferee?


Government of the Philippines or any political
subdivision thereof

100%
80%
60%
40%
20%

Is this an exclusive deduction, conjugal or absolute


community?
Exclusive. It must be a deduction from the exclusive
property

Requisites
Death the present decedent died within 5 years
from date of death of the prior decedent or date of
gift
15

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What does government of the Philippines as defined by the
Revised Administrative Code 1987? Is this the same as
national government?
No
Government of the Republic of the Philippines defines as the corporate governmental entity
through which the functions of government are
exercised throughout the Philippines, including, save
as the contrary appears from the context, the
various arms through which political authority is
made affective in the Philippines, whether pertaining
to the autonomous regions, the provincial, city,
municipal or barangay subdivisions or other forms of
local government. These autonomous regions,
provincial, city, municipal or barangay subdivisions
are the political subdivisions.

What should be credited against the Philippine estate tax?


the amounts of any estate tax imposed by the
authority of a foreign country
If a Filipino citizen has properties in the US and in the
Philippines, applying the rules wherever situated, is he liable
to pay estate tax on the properties he left in the US?
Yes
If the estate will pay estate tax to US is that not the one
creditable against the Philippines estate tax?
the amounts of any estate tax imposed by U.S. but
there is a limitation
What are the limitations?
(a) 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 decedent's net estate situated
within such country taxable under this Title bears to
his entire net estate; and
(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such
credit is taken, which the decedent's net estate
situated outside the Philippines taxable under this
Title bears to his entire net estate.

National Government refers to the entire


machinery of the central government, as
distinguished from the different forms of local
governments. The National Government then is
composed of the three great departments: the
executive, the legislative and the judicial.
What is the tax treatment on the share of the surviving
spouse?
It is deductible

Is that that always the amount allowable as tax credit?


No. There is a limitation. It is not always the actual
foreign estate tax paid to the foreign government. If
there are 2 countries you have to apply the
limitation.

How do you determine the share of the surviving spouse?


By dividing the net estate into 2
Deducted from what?
Net estate of the decedent

Why is it that non-resident decedent is not allowed to claim


tax credit?
Remember the rule on the taxability of estate of
non-resident. Can we tax the property situated
outside? No, therefore he is not liable to pay estate
tax. There being no foreign estate tax paid, there is
nothing to credit against the Philippine estate tax.

Gross estate less allowable deduction, what is the result?


Net Estate
What are examples of miscellaneous deductions (other than
those provided)?
Implies that the preceding enumeration is not
exclusive

Sec 87 enumerates the exempt transmissions, what are


these?
(A) The merger of usufruct in the owner of the naked
title;
(B) The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance
with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part
of the net income of which insures to the benefit of

What the tax credit in estate tax?


The tax imposed in the Philippines shall be credited
with the amounts of any estate tax imposed by the
authority of a foreign country.
Who can claim the same?
Resident decedent
Are non-resident decedent entitled to tax credit?
No

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


any individual: Provided, however, That not more
than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such
institutions for administration purposes.

What are the exempt transfers of properties under Special


laws (meaning other than the tax code)?
Benefits received by members from the GSIS by
reason of death
Benefits received by members from the SSS by
reason of death
Amounts received from the Philippines and United
States Government for damages suffered during the
last was
Benefits received by beneficiaries residing in the
Philippines under laws administered by the U.S.
veterans Administration
Grants and donations to the Intramuros
Administration

What are the grounds that may give rise to such merger?
Death of the usufructuary
What are the grounds for extinguishment of usufruct under
the Civil Code Art 603?
Art. 603. Usufruct is extinguished:
(1) By the death of the usufructuary, unless a contrary intention
clearly appears;
(2) By the expiration of the period for which it was constituted,
or by the fulfillment of any resolutory condition provided in
the title creating the usufruct;
(3) By merger of the usufruct and ownership in the same
person;
(4) By renunciation of the usufructuary;
(5) By the total loss of the thing in usufruct;
(6) By the termination of the right of the person constituting
the usufruct;
(7) By prescription.

TAX2 (7)
What are the rules regarding valuation of property for the
purpose of estate tax?
Real Property
If the property is a real property, the fair market
value shall be:
the fair market value as determined by the
Commissioner or
the fair market value as shown in the
schedule of values fixed by the provincial
and city assessors, whichever is higher.

Who the parties in a contract of usufruct?


Usufructuary and the naked owner
Why does the tax code grants exemption to transfer by the
heir, legatee or devisee according the Instrumentalities of the
national government, will this form part of the government of
the Philippines or the national government?

For purposes of prescribing real property values, the


Commissioner is authorized to divide the Philippines into
different zones or areas and shall, upon consultation with
competent appraisers, both from the private and public
sectors, determine the fair market value of real properties
located in each zone or area.

Government owned and controlled corporations, do they form


part of the national government or government of the
Philippines?
National Government
If a transfer is made in the form of a devise or legacy in favor
a GOCC is that deductible under Sec 86 A 3?
No, the law says government of the Philippines not
National government

Personal Property
Tangible
o In the case of shares of stocks, the fair
market value shall depend on whether the
shares are listed or unlisted in the stock
exchanges.
 Unlisted Shares
Unlisted common shares
are valued based on their
book value
unlisted preferred shares
are valued at par value.

Under Sec 87 D what is exempt?


social welfare institutions
cultural institutions
charitable institutions
How many institutions are covered?
4
What about educational institutions?
It is not subject to estate tax provided that such
bequest is to be used actually, directly and
exclusively for educational purposes

In determining the book value


of common shares, appraisal
surplus shall not be considered
as well as the value assigned
to preferred shares, if there
are any.

Basis?
Art. XIV Sec. 4 par.4
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

When is estate tax return required?


Transfers subject to tax
Where gross value of the estate exceeds php
200,000.00
Where estate consists of registered or registrable
property, regardless of the amount

For shares which are listed in the


stock exchanges, the fair market
value shall be the arithmetic mean
between the highest and lowest
quotation at a date nearest the
date of death, if none is available
on the date of death itself.

in addition to Estate Tax return, what is to be filed by the


executor or administrator?
If the gross value of the estate exceeds Php
2,000,000.00. The ETR is supported with a
Certification by a CPA containing:
Itemized assets of the decedent with their
corresponding gross value at the time of his
death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his
gross estate situated in the Philippines
Itemized deductions from gross estate allowed
in Sec. 86
The amount of Tax due whether paid or still due
and outstanding

Intangible:
o To determine the value of the right to
usufruct, use or habitation, as well as that
of annuity, there shall be taken into account
the probable life of the beneficiary in
accordance with the latest basic standard
mortality table, to be approved by the
Secretary
of
Finance,
upon
recommendation
of
the
Insurance
Commissioner.

What is the importance of these rules in valuation of


property?
Are the rules in valuation of property the same with donors
tax?
Yes

What about the amount of Php 200,000.00, what is the


materiality of such amount?
Those estates which has a gross value of NOT
exceeding Php 200,000.00 is exempt

When is Notice of Death required?


In all cases of transfers subject to tax
If the gross value of he estate exceeds Php 20,000.00

When should estate tax return be filed?


Within 6 months after the death of the decedent
Who has the legal obligation to file the same?
Executor, Administrator or any legal heirs

Why is notice of death required?


To inform the Commissioner that the estate of the
decedent is subject to tax

Can that be extended? Is a request for extension allowed?


Yes, in meritorious cases, a reasonable extension not
exceeding 30 days

Who has the obligation to file the Notice of death?


Executor, Administrator or any legal heirs

Example of meritorious case?


Claims against the estate pending appeal

When are the heirs oblige to give notice of death?


When there is no appointed executor or
administrator or
when the executor or administrator refuses to file

In the case of donors tax, is there an extension?


None, a donors tax return is filed within 30 days. No
extension allowed

When to file notice of death?


within two (2) months after the decedent's death, or
within a like period after qualifying as such executor
or administrator

Payment of Tax
Pay as you file
Is payment of tax subject to extension?
Yes.
In case the estate is settled through court (judicial)
Not to exceed 5 years
In case the estate is settled extrajudicially
Not to exceed 2 years

to whom must notice of death be filed?


Commissioner of Internal Revenue

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Why is it that in judicial settlement is longer than extrajudicial
settlement?
Judicial settlement is longer to be resolve that
extrajudicial settlement

What are the requirements of extension in payment of estate


tax?
It must not be by reason of negligence, intentional
disregard of rules and regulations or fraud on the
part of the taxpayer
If such extension is granted, the executor,
administrator or the heirs may be required to furnish
a bond conditioned upon the payment of the said
tax in accordance with the terms of extension

Payment of the estate tax by installment


In case the available cash of the estate is not
sufficient to pay its total estate tax liability and a
clearance shall be released only with respect to the
property the corresponding/computed tax on which
has been paid

the preparation or acknowledgment of documents


regarding partition or disposal of donation inter
vivos or mortis causa, legacy or inheritance
a debtor of the deceased pay his debts to the heirs,
legatee, executor or administrator of his creditor
before a transfer to any new owner in the books of
any corporation, sociedad anonima, partnership,
business, or industry organized or established in the
Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or
inheritance
If a bank has knowledge of the death of a person,
who maintained a bank deposit account alone, or
jointly with another, it shall not allow any
withdrawal from the said deposit account

What is the purpose of such certification of payment of tax?


To ensure that the estate tax liability has been paid.
It is considered as condition sine qua non for the
following cases above

DONORS TAX
What is the meaning of deficiency?
Deficiency arises when tax paid is less than the
amount due

What is Donors tax?


An excise tax imposed on the privilege transfer of
property by way of a gift intervivos based on pure
act of liberality without any or less than adequate
consideration and without any legal compulsion to
give

Deficiency vs deliquency
Deficiency arises when tax paid is less than the
amount due while delinquency arises when there is
either failure to pay amount due or refusal to pay
the tax due.

What are the characteristics of donors tax?


Excise tax it is imposed upon the privilege to
transfer a property gratuitously intervivos based on
pure act of liberality without any or less than
adequate consideration
Ad Valorem Tax its tax based is on the fair market
value of the property at the time the donation was
made
Direct tax it is imposed upon the donor and the
donor cannot shift the burden to another
National Tax - it is included in Sec. 133 of the LGC.
One of the common limitations of the taxing power
of the LGU. It is found in NIRC
General/Revenue it is for the purpose of raising
revenue
Progressive as the tax base increases, tax rate
increases

When does deficiency arise?


A return was filed but paid less than the amount tax
due
A return was filed but did not pay any tax
No return was filed, therefore, no tax was paid
When there is fraud employed, will that result to deficiency or
delinquency?
Delinquency
Common requirement for certification that estate tax has
been paid, what are the instances?
Before a judge could authorize the executor or
administrator to deliver a distributive share to any
party interested in the estate
Before the registry of deeds register in the registry of
property any document transferring real property or
real rights therein or any chattel mortgage, by way
of gifts inter vivos or mortis causa, legacy or
inheritance.
Any lawyer, notary public, or any government officer
who, by reason of his official duties, intervenes in

When the donee or beneficiary is stranger, the tax payable by


the donor shall be thirty percent (30%) of the net gifts.
Why is it when it comes to strangers, the tax rate is 30%?
The increased rate to 30% in effect discourages
donations to stranger conversely the tax code
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


encourages donations to family members or
relatives

The withholding agents are:


Candidates;
Political parties; and
Individuals or juridical persons who give
political contributions to candidates and
political parties.

Who is a stranger?
For the purpose of this tax, a "stranger", is a person
who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line
within the fourth degree of relationship.
(3) Donation made between business organizations
and
(4) those made between an individual and a
business organization

Commentaries
The new tax law is anti-democratic and violates the
people's right to free expression.
[Financially] Supporting candidates, this is not just
part of the electoral process, it's part of the right of
free expression. Increasing the burden on our
citizens, which makes it difficult for them to
participate in the electoral process, is antidemocratic

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.

Senator Pia S. Cayetano today called on the Bureau


of Internal Revenue (BIR) to defer its order to
impose a five percent tax on political campaign
contributions, a move which she branded as
"unconstitutional" and an "unjust exaction on the
legitimate exercise of democracy."

How about an uncle/aunt?


Donation made in favor of a relative not a stranger
because they are relatives by consanguinity in the
collateral line within the fourth degree of
relationship
Why are political contributions not subject to donors tax?
Because, if we maintain the rule that donations
given to political party, coalition or candidates to be
subject to donors tax, based on moral grounds that
such tax discriminates against "struggling candidates
and political parties."

"The Constitution (Sec.24, Art. VI) mandates that all


tax measures shall originate exclusively from the
House of Representatives, to which the Senate can
concur or propose amendments. Without a clear-cut
law approved by Congress, where did the BIR base
its new poll tax?" asked Cayetano, Chairperson of
the Senate Committee on Social Justice. Moreover,
she noted that under RA 7166 (An Act providing for
synchronized national and local elections and for
electoral reforms), electoral contributions are not
subject to the payment of any gift tax.

Current Events 5% tax on political campaign distribution


Based on the recently issued revenue regulation by
the BIR, candidates, political parties and contributors
are required to withhold a 5% withholding tax on
their campaign expenses and contributions.

Is the right or privilege to receive donation subject to tax?


Only the right or privilege to transfer donation is
subject to DONORS TAX. The right or privilege to
receive donation subject to tax is NOT also subject to
income tax because it is one of the exclusions in the
gross income.

Payment of proper taxes by candidates during


election campaign is viewed as a civic duty. RR 8-09
declares that the candidates have the civic duty of
assisting in nation building which can be attained
with them being involved in complying with their tax
obligations.

Perfection of donation inter vivos


The contract of donation inter vivos is perfected
upon knowledge of the donor of the acceptance of
the donee. Such contract is consensual in nature.

RR 8-09 imposes a 5% withholding tax on election


campaign-related goods and services including
advertisements. Briefly, in a withholding tax system,
taxes are collected by the BIR through a withholding
agent. A portion of the amount paid to the seller of
goods or services is withheld by the designated
withholding agent. The amount withheld is later
turned-over by the withholding agent to the BIR.

Formalities of donation
Personal property
o Either by oral or in writing
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


transfer of any right or interest in property, but less
than title

If the value of the personal property


exceeds Php 5000.00, the donation and
acceptance must be in writing
Real Property
o Must be in a Public Instrument
o

Where property, other than a real property that has been


subjected to the final capital gains tax, what is this real
properties?
Those properties considered as capital assets.
Capital assets are those not included in ordinary
assets such ash Stock in trade or inventoriable
properties, properties in the ordinary course of
business, properties used in business and real
property used in trade or business. For purposes of
our topic in donors tax, it must be real property

When does donation inter vivos subject to donors tax? Upon


perfection or upon delivery of the subject of donation?
Upon delivery
What are the requisites for a gift to be taxable?
Capacity of donor to donate
Donative intent
Acceptance by the donee
Actual or constructive delivery of the gift

What are examples of real property Capital assets?


Sale of a building or parcel of land by a real estate
dealer

Donative intent is a requisite, what is the exception?


If the donation is indirect

Is an invalid donation intervivos subject to donors tax?


No, there is nothing to tax because there is no
donation to speak of

Is there a concept of presumed donation under the civil code?


None

Can that be subject to other forms of tax?


Yes, income tax. It may be a form of an income.
Basis: Gross income means all income derived from
whatever source

What are the transfers subject to donors tax?


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.
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/s is subject to donors tax
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.
Where property, other than a real property that has
been subjected to 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.
Transfer subject to donors tax include not only
transfer of ownership in the fullest sense but also

What is an example of invalid donation?


No acceptance by the donee
The transfer is in trust or otherwise, what does it mean?
Such trust amounting to donation
Sabi ni Allen: if the trustor gives certain control over the
property held in trust in favor of the trustee
What is an example of indirect donation?
Condonation of a debt
Renunciation of inheritance MAY or MAY NOT subject to
donors tax
It is NOT subject to donors tax if it is a general
renunciation by an heir, including the surviving
spouse, of his/her share in the hereditary estate left
by the decedent
It is subject to Donors tax if it is specifically and
categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in
the hereditary estate
Exempt donations:
(1) Contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


(2) Gifts made by resident
(1) Dowries or gifts made on account of marriage
and 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 Ten thousand pesos
(P10,000):
(2) Gifts made to or for the use of 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;
and
(3) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation,
institution,
accredited
nongovernment
organization,
trust
or
philanthropic
organization
or
research
institution or organization: Provided, however,
That not more than thirty percent (30%) of said
gifts shall be used by such donee for
administration purposes. For the purpose of the
exemption, a 'non-profit educational and/or
charitable corporation, institution, accredited
nongovernment
organization,
trust
or
philanthropic organization and/or research
institution or organization' is a school, college or
university and/or charitable corporation,
accredited nongovernment organization, trust
or philanthropic organization and/or research
institution or organization, incorporated as a
nonstock entity, paying no dividends, governed
by trustees who receive no compensation, and
devoting all its income, whether students' fees
or gifts, donation, subsidies or other forms of
philanthropy, to the accomplishment and
promotion of the purposes enumerated in its
Articles of Incorporation
(3) Gifts made by non-residents
(1) Gifts made to or for the use of 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.
(2) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or
philanthropic
organization
or
research
institution or organization: Provided, however,
That not more than thirty percent (30%) of said
gifts shall be used by such donee for
administration purposes.
(4) Exemptions under special law
(1) Aquaculture Department of the Southeast
Asian Fisheries Development Center of the
Philippines

(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

Development Academy of the Philippines


Integrated Bar of the Philippines
International Rice Research Institute
National Social Action Council
Ramon Magsaysay Foundation
Philippine Inventors Commission
Philippine American Cultural Foundation
Task Force on Human Settlement on the
donation of equipment, materials and
services
5 reasons why there is a need to know whether the donor is a
resident and nonresident?
(1) Gifts made by resident includes properties wherever
situated (within and outside the Philippines). As to
non resident only those situated in the Philippines
(2) There are only 2 properties that are exempted in
favor of a non-resident donor. 3 properties for
resident donor
o Exempt donations made by resident
 Dowries or gifts made on account of
marriage
 Gifts made to or for the use of the
National Government or any entity
created by any of its agencies
 Gifts in favor of an educational and/or
charitable, religious, cultural or social
welfare
corporation,
institution,
accredited
nongovernment
organization, trust or philanthropic
organization or research institution or
organization
o Exempt donations made by non-resident
 Gifts made to or for the use of the
National Government or any entity
created by any of its agencies
 Gifts in favor of an educational and/or
charitable, religious, cultural or social
welfare
corporation,
institution,
accredited
nongovernment
organization, trust or philanthropic
organization or research institution or
organization
(3) As to claim for donors tax credit: only resident
donors may claim for donors tax credit. A donor
who was a citizen or a resident at the time of
donation shall be credited with the amount of any
donor's tax of any character and description
imposed by the authority of a foreign country.
(4) Where to file such tax return
o Resident:
 Revenue District Office
 Accredited Agent Bank
 Collection Officer
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


duly authorized Treasurer of the city or
municipality where the decedent was
domiciled
o Non resident:
 Philippine Embassy or Consulate in the
country where he is domiciled at the
time of the transfer, or
 Office of the Commissioner.
(5) Application of reciprocity clause. Requisites:
o The foreign country of which the donor is a
citizen and resident at the time of the gift
 Did not impose a donors tax
 Allowed a similar exemption from
donors tax with respect to intangible
personal property owned by Filipino
citizens not residing in that foreign
country
o The property is an intangible
o The donor is a non-resident

o
o

any entity created by any of its agencies


which is not conducted for profit, or to
any political subdivision of the said
Government
Not necessarily for public use

What are the entities or agencies not conducted for profit


that forms part of the national government?
charitable institution,
accredited nongovernment organization,
Religious Institutions
trust foundations
Educational institutions
research institution or organization
cultural foundations
philanthropic organization
social welfare corporations
What are the requisites for the exemption of gifts made to the
entities or agencies not conducted for profit that forms part of
the national government?
Donee is incorporated as a non-stock, non-profit
entity
Governed by trustees
Trustees receive no compensation
Donee devotes all its income for the
accomplishment of furtherance and promotion of
the purposes or end enumerated in the AOI
Not more than 30% of the donation is used for
administrative purposes

Exempt donations made by resident: Dowries or gifts made on


account of marriage. Requisites:
gifts made on account of marriage
gifts is given before its celebration or within one
year thereafter
donor is the parents or both parents
donee is the legitimate, recognized natural, or
adopted children
amount of gift should not exceed php 10,000.00
does it matter whether the gift comes from exclusive property
of the spouses, conjugal partnership or absolute community?
If the gift was from exclusive property both spouses
as individual can claim exemption Php10,000.00
each
If the gift was from conjugal partnership or absolute
community both spouses can claim exemption of
Php10,000.00 or Php 5000 each

A gift that is incomplete because of reserved powers, becomes


complete when either:
(1) the donor renounces the power; or
(2) his right to exercise the reserved power ceases
because of the happening of some event or
contingency or the fulfillment of some condition,
other than because of the donors death

Distinction between transfer for public use under section 86


and donation intervivos under section 101 A item 2?
section 86
o The amount of all the bequests, legacies,
devises or transfers to or for the use of the
Government of the Republic of the
Philippines, or
o any political subdivision thereof
o entity created by any of its agencies which
is not conducted for profit IS NOT
INCLUDED
o exclusively public purposes
section 101 A item 2
o Gifts made to or for the use of the National
Government or

Deductions from donors tax


encumbrance on the property donated, if assumed
by the donee
amount specifically provided by the donor as a
diminution of the property donated
filing of tax return?
Within thirty days (30) after the date the gift
(donation) is made
Who is oblige to file tax return?
Any person making a donation
Amount exempt?
Php100,000.00
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Does that mean that the obligation to pay tax can be
transferred to another? Is that not violative of the rule that
the obligation to pay tax is personal in character and
therefore it cannot be delegated or transferred?
In the case of Maceda v. Macaraig wherein the Court
said, it is transferred or shifted not as a tax but as
part of the purchase price. That is why there is no
violation of the rule. That is the trouble with Section
105, it did not expound on that. You have to return
to jurisprudence.
The burden is transferred not as a tax but as part of
the purchase price

FINALS
VALUE-ADDED TAX
Under the NIRC as amended, there are 11 provisions
governing this law on VAT from Section 105-115.
What do you mean by VAT?
-VAT is a percentage tax imposed at every stage of
the distribution process on the sale, barter,
exchange or lease of goods or properties and
rendition of services in the course of trade or
business, or the importation of goods. It is an
indirect tax which may be shifted to the
buyer,transferee, or lessee of the goods, properties,
or services but the party directly liable for the
payment of the tax is the seller.

If the transferee is tax-exempt, can he invoke such an


exemption, such that the tax should not be transferred to
him?
Can one who is exempt from taxation prevent or avoid the
transfer of such burden, invoking ones exemption privilege?

What are the characteristics of VAT?


Indirect tax
Excise tax
Percentage tax
Ad valorem tax
National
Revenue or for general purposes
Regressive

Is VAT imposed on the buyer/transferee?


One cannot invoke ones exemption privilege to avoid the
passing on or shifting of VAT by the manufacture of the goods
he purchased. What does that mean?
1. Meralco v Vera 67 s 351
2. Commissioner v PLDT 478 s 61
3. Acetylene Corporation 20 s 1056
4. BIR Ruling 91-151

It is not a property tax, it is not a capitation tax, its an excise


tax.

The reason for this according to the cases decided by the SC,
is that once the tax is shifted to the buyer as an addition to
the cost of goods sold, it is no longer a tax, but an additional
cost which the purchaser must pay in order to obtain the
goods. Technically there is no such transfer of tax, because as
an addition to the cost of goods sold, it ceases to be a tax, but
an additional cost.

Why? How do you define an excise tax?


It is one that is imposed on the exercise of a right or
privilege
Apply that to VAT.
VAT is an excise tax because it is a tax on
the privilege of a person to sell, barter,
exchange, lease goods or properties, render
service in the course of trade or business,
and import goods.

If the seller is tax-exempt, will such an exemption be invoked


by the buyer?
No, because such an exemption is personal to the
seller

The most important characteristic is that it is an indirect tax,


not a direct tax. What is the legal basis?
Section 105, second paragraph
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties
or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or
services at the time of the effectivity of RA No.
7716.

landmark cases on VAT


1. Tolentino v Sec of Finance
2. Abakada Guro v Ermita
What is that constitutional provision which has been the basis
for such decision of the court in the case of Tolentino et al v
Sec of Finance?
Article VI, Section 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall
originate
exclusively
in
the
House
of
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Representatives, but the Senate may propose or
concur with amendments.

Can you apply the principle of qualified agency in political


law?
No. In making his recommendation to the President,
the Secretary of Finance is not acting as an alter ego
of the President or even her subordinate. In such
instance, he is not subject to the power of control
and direction of the President. He is acting as the
agent of the legislative department, to determine
and declare the event upon which its expressed will
is to take effect.

There are 3 cases on VAT:


1. Kapatiran vs Tan
2. Tolentino et al vs Sec of Finance
3. Abakada Guro vs. Ermita
RA 7716: Expanded Value Added Tax Law was challenged on
the ground that it is violative of Article VI Section 24.
The court ruled that it is not violative of Article VI,
Section 24.

In the case of Kapatiran vs. Tan, the petitioner questioned the


validity of the first VAT Law (EO 273) on the ground that it is
violative of due process clause and equal protection clause of
the Constitution. How did the Court pass upon such issues?

The majority view advanced 2 reasons:


1. Under the Constitution, the Senate has the
power not only to concur amendments but
to propose amendments. It can make its
own version.
2. Co-equality of legislative powers

What were the bases for such assertion or claim that EO 273
imposes arbitrary tax. The petitioner relied on what?
The petitioner relied on newspaper opinions,
newspaper clippings and reviews

Is there a violation of that? That the House version must be


substantially the same as the tax statute. So will there be a
violation of co-equality of legislative powers?

Do these proofs have evidentiary value?


No. They are actually hearsay and have no
evidentiary value. They are highly speculative.

In Abakada Guro vs Ermita, what is the main issue raised in


the consolidated petitions?
Whether or not the increase of VAT rate from 10% to
12% effective January 1, 2005 constitutes undue
delegation of legislative power

What is the requisite proof of arbitrariness? How do you


prove that such particular tax is indeed arbitrary, excessive
and confiscatory and therefore violate the due process clause
under the Constitution?
To justify a nullification of a law, there must be a
clear and unequivocal breach of the Constitution,
not a doubtful and argumentative implication.

Based on RA 9337, who has the power to increase such VAT


rate?
The President

It is settled in this case that VAT is not an arbitrary,


confiscatory and excessive tax, therefore there is no violation
of due process.

According to the petitioners, there is a violation of undue


delegation of legislative power to the President.
SC ruled that there is no such violation because:
1. The two tests of permissible delegation are
complied with:
a. Completeness Test
b. Sufficient Standards Test
2. No discretion would be exercised by the
President. The use of the word shall connotes
a mandatory order. Thus it is the ministerial
duty of the President to immediately impose the
12% rate upon the existence of any of the
conditions specified by the Congress

Do you know of a case wherein the SC declared a tax as


arbitrary, confiscatory, excessive and unjust?
Reyes vs Almanzor --The Court declared tax
assessment as unjust, oppressive, arbitrary and
confiscatory.
SC held that the due process clause may be
invoked where a taxing statute is so
arbitrary that it finds no support in the
Constitution. An obvious example is where
it can be shown to amount to confiscation
of property.
The appraisal and assessment of real
property for taxation purposes is that the
property must be appraised at its current
and fair market value.

Who will make such recommendation?


The Secretary of Finance

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


The rule of regularity, to the contrary notwithstanding, services as defined in
this Code rendered in the Philippines by nonresident foreign persons shall be
considered as being course of trade or business.

TAX2 (9)
Art VI Section 28, paragraph 1, second sentence: The
Congress shall evolve a progressive system of taxation. How
did the Court construe such constitutional provision in the
case of Tolentino et al vs Secretary of Finance?
The mandate of Congress in not to prescribe, but to
evolve a progressive system of taxation.

Are all sales of goods or properties, subject to VAT?


No, only those made in the course of trade or
business.
What are the prerequisites to be in the course of trade or
business?
Economic activity
o Except: Gross receipts not exceeding
P100,000
Regularity
o Except: Non-resident persons who perform
services in the Philippines are deemed to be
making sales in the course of trade or
business

Evolve
means
that
it
is
a mere directive to Congress. It is not mandatory.
Since it is a mere directive, it does not involve or
entail justiciable right or a legally enforceable one. In
other words, we cannot minimize the imposition of
regressive tax.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall evolve a progressive
system of taxation. The constitutional provision has been
interpreted to mean simply that direct taxes are to be
preferred and as much as possible, indirect taxes should be
minimized. Indeed, the mandate to Congress is not to
prescribe, but to evolve, a progressive tax system. Resort to
indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers ability to
pay.

SEC. 4.105-3. Meaning of In the Course of Trade or Business. The term


in the course of trade or business means the regular conduct or pursuit of a
commercial or economic activity, including transactions incidental thereto,
by any person regardless of whether or not the person engaged therein is a
non-stock, non-profit private organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to members or their
guests), or government entity.
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. (rev reg 16-2005)

A is engaged in the business of buy and sell of real estate.


Within a period of 2 months, he made only one transaction.
Does that comply with the requisite of regularity?
Yes

We cannot avoid the imposition of VAT. If we do not impose


VAT, what would be the effect of the same?
The government will not have enough revenues
since VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale, barter,
exchange or lease of goods or properties and
rendition of services in the course of trade or
business, or the importation of goods.

What is the determinative test of regularity?


What does economic activity imply?
It implies that it is conducted for profit
Are all sales of services subject to VAT?
No, because services must be made in the course of
trade or business

SEC. 105. Persons Liable. - Any person who, in the course of trade or
business, sells barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 to 108 of this Code.

What about lease of property?


It must also be made in the course of trade or
business

The value-added tax is an indirect tax and the amount of tax may be shifted
or passed on to the buyer, transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity of Republic Act No.
7716.

Barter or exchange?
It must also be in the course of trade or business

The phrase "in the course of trade or business" means 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 nonstock, nonprofit private organization (irrespective of
the disposition of its net income and whether or not it sells exclusively to
members or their guests), or government entity.

Contract of Sale
Contract whereby one party obligates himself to
transfer ownership or to deliver a determinate thing
and the other to pay therefore a price certain in
money or its equivalent
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What are the distinctions between tax-exempt transactions
and zero-rated transactions?

Are sales subject to VAT limited only to sales as defined under


the Civil Code?
The meaning of sale has been extended to include
the deemed sale transactions

EXEMPT
ZERO-RATED
Nature of transaction
Not taxable; removes Transaction is taxable for
VAT at the exempt stage
VAT purposes although
the tax levied is 0%
By whom made
Need not be VAT- Made
by
a
VATregistered person
registered person
Tax credit/ Refund
Cannot avail of tax credit Can claim or enjoy tax
or refund. Thus, may credit/refund
result in increased prices

Barter or Exchange
contract by which one of the parties binds himself to
give one thing in consideration of the others
promise to give another thing.
Contract of Lease
contract by which one of the parties agrees to give
to the other for a fixed time and price, the use or
profit of a thing, or of his service.
Are all importations of goods subject to VAT?
Yes

May a non VAT-registered person avail of this creditable input


tax?
No, he must be a VAT-registered person

What is meant by importation? When does it begin and when


does it end?
It is defined under Tariff and Customs Code

One of the salient features of VAT system is the tax credit


method. It is exemplified in Section 110. Explain the tax credit
method.

What is the difference between importation and exportation?


What is the importance in determining whether it is an
imported article/good or an exported article/good for
purposes of VAT? As to tax treatment, where lies the
difference?
Export sales are not subject to VAT

Before, the method we adopted is Cost deduction method.


That was before 1988, before the effectivity of EO 273. Now,
we changed to Tax credit method.

How does this law on VAT treat such export sale?


It depends. It may be tax-exempt or it may be zeropercent.

SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

TAX2 (10)

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor.
(1) The term "goods" or "properties" shall mean all tangible and
intangible objects which are capable of pecuniary estimation and
shall include:
(a) Real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or
business;
(b) 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;
(c) The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films,
tapes and discs; and
(e) Radio, television, satellite transmission and cable
television time.

When is it tax-exempt? When is it zero-percent?


In the case of importation of goods, does it matter whether it
is for business or for personal use?
No
What about export sale?
1. Export sale is tax-exempt when the seller is non
VAT-registered person (Section 109)
2. Export sale is subject to zero-percent tax if the
seller is VAT-registered person

The term "gross selling price" means the total amount of


money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale,
barter or exchange of the goods or properties, excluding the
27

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


value-added tax. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.

(2) Sales Returns, Allowances and Sales Discounts. - The value of


goods or properties sold and subsequently returned or for which
allowances were granted by a VAT-registered person may be
deducted from the gross sales or receipts for the quarter in which
a refund is made or a credit memorandum or refund is issued.
Sales discount granted and indicated in the invoice at the time of
sale and the grant of which does not depend upon the happening
of a future event may be excluded from the gross sales within the
same quarter it was given.
(3) Authority of the Commissioner to Determine the Appropriate
Tax Base. - The Commissioner shall, by rules and regulations
prescribed by the Secretary of Finance, determine the appropriate
tax base in cases where a transaction is deemed a sale, barter or
exchange of goods or properties under Subsection (B) hereof, or
where the gross selling price is unreasonably lower than the
actual market value.

(2) The following sales by VAT-registered persons shall be subject


to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership
of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas
(BSP); and
(5) Those considered export sales under Executive
Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.

Section 106, as amended by RA 9337: Sales of goods or


properties subject to VAT. What will be the subject of that
sale subject to value added tax?
All sales of goods or properties.
Goods or properties are defined therein. What is the
definition?
All tangible and intangible objects which are capable
of pecuniary estimation and shall include:
a.

(b) Foreign Currency Denominated Sale. - The phrase "foreign


currency denominated sale" means sale to a nonresident of
goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).

b.

(c) Sales to persons or entities whose exemption under special


laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate.

c.

(B) Transactions Deemed Sale. - The following transactions shall be 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;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the
VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.

d.
e.

Real properties held primarily for sale


to customers or held for lease in the
ordinary course of trade or business;
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;
The right or the privilege to use in the
Philippines
of
any
industrial,
commercial or scientific equipment;
The right or the privilege to use motion
picture films, films, tapes and discs; and
Radio, television, satellite transmission
and cable television time.

Letter A refers to tangible, immovable properties. B, C, D, E


are intangible personal properties.
In real property primarily held for sale to customers in the
ordinary course of trade or business, recall your knowledge of
tax1. In so far as income tax is concerned, what is the tax
treatment of this? This is mentioned in Section 31. Is that an
ordinary asset or a capital asset?
Ordinary asset.

(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax


imposed in Subsection (A) of this Section shall also apply to goods disposed
of or existing as of a certain date if under circumstances to be prescribed in
rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VATregistered person changes or is terminated.

Its one of the 4 exclusive kinds of ordinary assets. So what is


the tax implication under the law on income? Is the gain or
income derived from such real properties subject to income
tax?
Yes.

(D) Determination of the Tax. (1) The tax shall be computed by multiplying the total amount
indicated in the invoice by one-eleventh (1/11).
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


take place when VAT-registered person withdraws
goods from his business for his personal use;

Here it is subject to VAT. Does that amount to double


taxation?
Yes. It is indirect double taxation in the sense that
the same property is taxed twice for a different
purpose. Moreover, the nature of the tax is also
different.

(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 properties primarily held for sale
or lease declared out of retained earnings
on or after January 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.

If one of the requisites of direct taxation is absent,


that may constitute indirect double taxation.
The enumeration is not exclusive. B, C, D, and E are intangible
assets. It does not mention any tangible personal property.
What may be an example of sale of tangible personal
property subject to VAT?
sale of motor vehicles, furniture and fixtures,

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;

(Re: Grocery items. Not all grocery items are subject to VAT.
They may belong to those exempt.)

(4) Retirement from or cessation of business with


respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the
business is continued by the new owner or successor.
The following circumstances shall, among others, give
rise to transactions deemed sale for purposes of this
Section;
i. Change of ownership of the business.
There is a change in the ownership of the
business when a single proprietorship
incorporates; or the proprietor of a single
proprietorship sells his entire business.

What may be a specific example of real property?


Land.
What is the condition?
The sale of land or real property must be made in
the usual course of trade or business.
Other than land, what else?
Buildings.
What about machinery?
It depends. Art. 415 of the Civil Code provides that
the following are immovable property:
xxx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried on in
a building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works;
xxx

ii. Dissolution of a partnership and creation


of a new partnership which takes over the
business. (rev reg 16-2005)

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;
Can you give an example?
(Ex. of person reciting: Manufacturer of sugar who
held 5 sacks of sugar in his residence intended for his
personal use.)

Should the machinery be permanently attached to the


ground?
There is no such word as permanent.

Is there really an actual sale?


No. Since the manufacturer is the owner of the
sugar.

Deemed sale transactions. Here, there is no actual sale


involved. So by fiction of law, there is a sale. What are these?

Is that not arbitrary? There is no actual sale but he is subject


to value added tax?
No.

SEC. 4.106-7. Transactions Deemed Sale.


(a) The following transactions shall be deemed sale pursuant to
Sec. 106 (B) of the Tax Code:
(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
29

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Apply what you learned in tax1. When congress passed a law
imposing tax on a particular subject, ________ question the
wisdom, motive behind the same. What is that?

Pays or is obligated to pay. There must be a difference


between that, where lies the difference?
pay in installment

2. The distribution or transfer to:


a. Shareholders or investors as share in the profits
of the VAT-registered persons;

Does that mean that conditional sale is subject to value added


tax? Payment in installment, is that not the situation? Sale of
real estate the price of which is payable in installment.
Yes.

Under Revenue Regulation 16-2005, that may


amount to what?
When goods are transferred or distributed
to investors by the transferor-corporation,
it partakes of the nature of a property
dividend. There is no actual sale. When the
investor made that investment, he is after
such dividend or profits made in cash or in
kind. In lieu of cash, he is given goods or
property.

When will that occur?


Imported articles are subject to excise tax.

b. Creditors in payment of debt.

Excise tax is mentioned in Section 129. Read Section 129.

Under the Civil Code, that may amount to what?


Article 1245: Dacion en pago (Dation in
payment) In lieu of cash, goods are
transferred to the creditors in payment of
debt.

(The following are subject to excise tax under Sec. 129)

What are those taxes which may form part of the gross selling
price based on the definition?
Excise taxes. The property which the seller will sell
has already been subjected to excise tax so you
include that in the gross selling price.

1. Goods manufactured or produced in the Philippines for domestic sale or


consumption;
2. Things imported.

Deemed sale transactions: What is the tax base for the 12%
VAT?
Depends, Market value of the goods or acquisition
cost

3. Consignment of goods if actual sale is no made within 60


days following the date such goods were consigned.
IF after the 60 day period, no actual sale took place. is that
subject to VAT?
Yes. Because the transaction is already deemed sale.

Sec. 4 106-7 (rev reg 2005)


For transactions deemed sale, the output tax shall be
based on the market value of the goods deemed
sold as of the time of the occurrence of the
transactions enumerated in Sec. 4.106-7(a)(1),(2),
and (3) of these Regulations.

What are you supposed to do to avoid payment of the VAT?


Withdraw the goods from the consignment.
4. Retirement from or cessation of business with respect to
inventories of taxable goods existing as of such retirement
or cessation.

However, in the case of retirement or cessation of


business, the tax base shall be the acquisition cost or
the current market price of the goods or properties,
whichever is lower.

Revenue Regulation 16-2005 prescribes the tax base. We have


a problem about actual sale. Its the gross selling price. What
is meant by gross selling price?
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 the
sale, barter or exchange of the goods or properties,
excluding the value added tax.

In the case of a sale where the gross selling price is


unreasonably lower than the fair market value, the
actual market value shall be the tax base.
When the seller transfers his goods in the ordinary course of
trade or business, goods for sale to his residence for his
personal consumption, what is the basis of the 12%?
There is no actual sale so the basis is not the Gross
selling price but is the Market value of the goods.

Total amount of money or its equivalent, what does that


mean? Must that always be in cash?
No. It may also be in kind or property. Thats why we
have this exchange or barter.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


rating, such as local sales of goods and properties to persons or entities
covered under pars. (a) no. (3) - (sale to export-oriented enterprises), (a) no.
(6) - (sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations), (b) (Foreign
Currency Denominated Sale) and (c) (Sales to Tax-Exempt Persons or Entities)
of the preceding section.

Re: Retirement from or cessation of business with respect to


inventories of taxable goods existing as of such retirement or
cessation. Revenue Regulation 16-2005 gave two examples of
this, what are these examples?
1. Dissolution of partnership and formation of new
partnership;
2. Change of ownership

Except for Export Sale under Sec. 4.106-5(a) and Foreign Currency
Denominated Sale under Sec. 4.106-5(b), other cases of zero-rated sales shall
require prior application with the appropriate BIR office for effective zerorating. Without an approved application for effective zero-rating, the
transaction otherwise entitled to zero-rating shall be considered exempt. The
foregoing rule notwithstanding, the Commissioner may prescribe such rules
to effectively implement the processing of applications for effective zerorating.

These goods forming part of the inventory, what is the tax


base?
Acquisition cost.
Compare that with the current market price. Which ever is
higher or lower?
Whichever is lower.

Zero-rated sales, what are these?


1. Export sales
2. Foreign currency denominated sales
3. Effectively zero-rated sales

SEC. 106 A(2) NIRC


(2) The following sales by VAT-registered persons shall be subject to zero
percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1)
The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(2)
Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(3)
Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
(4)
Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
and
(5)
Those considered export sales under Executive
Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The phrase "foreign
currency denominated sale" means sale to a nonresident of
goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws
or international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.

Under Export sales, that may cover what? What is the


meaning of export sales? It is not confined to the ordinary
meaning of export sales or the shipment of goods from the
Philippines to the other country.
1. The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance
with the Bangko Sentral ng Pilipinas;
2. Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
3. Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
Where do you apply the 70%?
On the total annual production.
4.
5.

SEC. 4.106-6. Meaning of the Term Effectively Zero-rated Sale of Goods


and Properties. The term effectively zero-rated sale of goods and
properties shall refer to the local sale of goods and properties by a VATregistered person to a person or entity who was granted indirect tax
exemption under special laws or international agreement. Under these
Regulations, transactions which, although not involving actual export, are
considered as constructive export shall be entitled to the benefit of zero-

6.

31

Sale of gold to the Bangko Sentral ng Pilipinas (BSP);


and
Those considered export sales under Executive
Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.
The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations.

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


if it is made by a non-vat registered person, applying
section 109.

What is this concept of this Foreign Currency Denominated


Sale? This is also known as internal export.
Where the sale to a non-resident of goods, except
those mentioned in Sections 149 150, assembled
or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral
ng Pilipinas.

What is advantage in terms of tax benefit of this zero-rated


transaction over than exempt export sale?
For transactions imposed with 0%, the taxpayer may
be granted refund or tax credit such input tax from
the output tax, while in transactions which are taxexempt, there is no input tax which may be credited
from the output tax.

The goods are brought back. Can you explain that? Who may
be the seller, who may be the buyer? What are the goods that
may be covered by this?
Seller is a resident. Buyer is a non-resident. Such
goods to be sold are manufactured or assembled in
the Philippines to be sold to a non-resident, who will
deliver the goods to a resident, which is why it is an
internal export. The goods are exported back to the
Philippines.

Because it is clear here that only the vat registered persons


may claim the so-called creditable input taxes.
Section 107 speaks of importation. What is importation?
Where can you find the meaning of importation? When does
it begin, when does it end?
Section 1202, Tariff and Customs Code: Importation
begins when the carrying vessel or aircraft enters the
jurisdiction of the Philippines with intention to
unlade therein. Importation is deemed terminated
upon payment of duties, taxes and other charges
due upon the articles, or secured to be paid, at a
port of entry and the legal permit for withdrawal
shall have been granted, or in case said articles are
free of duties, taxes and other charges, until they
have legally left the jurisdiction of the customs.

See section 149 and 150.


What are those effectively zero-rated sales of goods under
special law or international agreement?
Philippine Economic Zone Authority (PEZA), Subic
Bay Metropolitan Authority (SBMA) under special
laws, and Asian Development Bank (ADB), and
International Rice Research Institute (IRRI) under
international agreements.
RA 273, RA 7616, RA 8241, RA 9337

It is clear under section 107 that imported articles are subject


to customs duties. Again, the concept of indirect double
taxation comes into play.

What is the reason behind the imposition of 0% VAT?


To encourage export activities or sales increase in
revenue and if there will be more export sales, the
government will receive consequential benefit,
which is the increase of our dollar reserve which we
need to pay off foreign dates.

What may be the tax base?


It depends on whether it is based on volume or
quantity or not. If it is not based on volume or
quantity, it is based on the total value used by the
Bureau of Customs in determining tariff and customs
duties, plus customs duties, excise tax, if any, and
other charges such as postage, commission, and
similar charges, prior to the release of the goods
from customs custody.

What is the advantage of the imposition of 0% over


transactions which are tax-exempt?
For transactions imposed with 0%, the taxpayer may
be granted refund or tax credit such input tax from
the output tax, while in transactions which are taxexempt, there is no input tax which may be credited
from the output tax.

In case the valuation used by the Bureau of Customs is based


on volume or quantity of the imported goods, the landed cost
shall be the basis for computing VAT. Landed cost consists of
the invoice amount, customs duties, freight, insurance and
other charges. If the goods imported are subject to excise tax,
the excise tax shall form part of the tax base.

What is that export sale that is exempt?


Export sales by a non-vat registered person (section
109)

What is the total value used by the Bureau of Customs (Bar


question 2008)?
Before it is based on Home (?) Consumption Value. It
has been changed to Transaction Value.

When is export sale zero-rated, when is it tax-exempt?


It is zero-rated if the transaction is made by a vatregistered person, applying Section 106. It is exempt
32

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Are excise taxes included?
Yes.

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 ninety (90) days before or
after their arrival, upon the production of evidence
satisfactory to the Commissioner, that such persons
are actually coming to settle in the Philippines and
that the change of residence is bona fide;

What are these articles that are subject to excise tax? The
importation of the same may also be subject to VAT?
Sections 133 155 of the NIRC.
Section 107, item B, what is this situation contemplated
therein?
Transfer of goods by tax exempt persons. In case of
tax-free importation of goods into the Philippines by
persons , entities, agencies exempt from tax where
such goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons
or entities, the purchasers, transferees or recipients
shall be considered importers thereof, who shall be
liable for any internal revenue tax on such
importation.
There lies the importance of knowing those importations
which are exempt under section 109. Applying that rule, the
importers of these goods are exempt but once these goods
are subsequently sold or transferred, the purchasers,
transferees or recipients shall be the one to pay the tax on
these goods.
Tax dues, what may comprise this?
Customs duties, other charges,
Does that include value added tax?
What are the exempt importations?
1. importation of agricultural and marine food products
in their original state, livestock and poultry of or king
generally used as, or yielding or producing foods for
human consumption; and breeding stock and
genetic materials therefor;
2.

3.

4.

5.

Importation by agricultural cooperatives authorized


by the Cooperative Development Authority 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;

6.

Importation of books and any newspaper, magazine


review or bulletin which appears at regular intervals
with fixed prices for subscription and sale and which
is not devoted principally to the publication of paid
advertisements;

7.

Importation of passenger or cargo vessels and


aircraft, including engine, equipment and spare arts
thereof for domestic or international transport
operations; and

8.

Importation of fuel, goods, and supplies by persons


engaged in international shipping or air transport
operations.

What about importation of copra?


Yes, importation is exempt under Section 109(a)
second paragraph.
Is that an agricultural food product?
No.

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;

It seems that it is misplaced provision. If you read the first


paragraph of the first exemption, it covers agricultural food
product.

Importation of personal and household effects


belonging to the residents of the Philippines
returning from abroad and nonresident citizens
coming to resettle in the Philippines: Provided, That
such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines;

TAX2 (11)
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services, including the use or lease of
properties.

Importation of professional instruments and


implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle,
vessel, aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in

The phrase "sale or exchange of services" means the performance of all kinds
or services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services;
33

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


lessors or distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire another
domestic common carriers by land, air and water relative to their transport
of goods or cargoes; services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; services of banks, non-bank
financial intermediaries and finance companies; and non-life insurance
companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. The phrase 'sale or exchange of services' shall
likewise include:
(1) The 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;
(2) The lease of the use of, or the right to use of any industrial,
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial
knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and
is furnished as a means of enabling the application or enjoyment
of any such property, or right as is mentioned in subparagraph (2)
or any such knowledge or information as is mentioned in
subparagraph (3);
(5) 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.
(6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project
or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.

5.
6.
7.

8.

9.
10.
11.

12.

13.
14.

15.

16.

lessors or distributors of cinematographic films;


persons engaged in millings, processing,
manufacturing, or repacking goods for others;
proprietors, operators or keepers of hotels,
motels, rest houses, pension houses, inns,
resorts;
proprietors or operators of restaurants,
refreshment parlors, cafes, and other eating
places, including clubs and caterers;
dealers in securities;
lending investors;
transportation contractors on their transport of
goods or cargoes, including persons who
transport goods or cargoes for hire and other
domestic common cariers by land relative to
their transport of cargoes;
common carriers by air and sea relative to their
support of passengers, goods, or cargoes from
one place in the Philippines to another place in
the Philippines;
sales of electricity by generation companies;
services of franchise grantees of electric utilities,
telephone, telegraph, radio and television and
all other franchise except under SEC 119 of
NIRC.; and
non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity
and bonding companies; and
similar services regardless whether or not
performance thereof calls for the exercise or use
of physical or mental faculties.

Lets focus regarding transportation of goods and cargoes.


When is it subject to 12% VAT and when is it 0%? Bear in mind
that such transportation by land, sea and air---consider that.
There are two factors you have to consider 1.) whether it is of
passengers or cargoes and 2.) whether by land, sea or air of
transportation.
If it involves domestic transport of passengers by
land that is subject to percentage tax and thus if it is
subject to percentage tax it is exempted from VAT.
If it involve transport of passengers or cargoes by
sea or water or air is subject to VAT
If it involves international transport of passengers
and/or cargoes by air or by sea, it is subject to 0%
(international transport not domestic)

Lease of properties shall be subject to the tax herein imposed irrespective of


the place where the contract of lease or licensing agreement was executed if
the property is leased or used in the Philippines.
The term "gross receipts" means the 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 and advanced payments actually or constructively received during
the taxable quarter for the services performed or to be performed for
another person, excluding value-added tax.

What are those transactions involving sales of services subject


to 12% VAT?
Performance of all kinds of services in the Phil for
others for a fee, remuneration or consideration This emphasizes the Tax Situs of VAT which includes
the following:
1. Construction and service contractors
2. Stock, Real Estate, Commercial, customs and
immigration brokers;
3. lessors of property, whether personal or real;
4. warehousing services;

Franchise holders, when is it subject to 12% or when is it tax


exempt because it is subject to percentage tax?---consider the
gross receipt, the 10M threshold amount. Sec.109
Services 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
34

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

in lieu of franchise tax, pursuant to Sec. 20 of RA


No.7716, as amended. Gross Receipts is above
P10,000,000.00
Franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos
(P10,000,000.00) shall not be subject to VAT,

Radio, television, satellite


transmission
and
cable
television time.

What about insurance companies?


Non-life insurance companies including surety,
fidelity, indemnity and bonding companies are
subject to VAT. They are not liable to the payment of
the premium tax under Sec. 123 of the Tax Code.

---------------------------------------

Insurance on human lives, health, accident and


insurance appertaining thereto or connected
therewith which shall be subject to the percentage
tax under Sec. 123 of the Tax Code. Hence VAT
exempt
Similar services regardless whether or not performance
thereof calls for the exercise or use of physical or mental
faculties, ---meaning the enumeration is not exclusive. What
are some examples?
Barbershop, car services, beauty parlor, salon

--------------------------------------

Comparison between sec 106 and 108


106
Real
properties
held
primarily
for
sale
to
customers or held for lease in
the ordinary course of trade
or business;
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;

The lease or the use of, or


the right to use, radio,
television,
satellite
transmission
and cable television time.
The supply of any assistance
that is ancillary and
subsidiary to and is
furnished as a means of
enabling the application or
enjoyment of any such
property, or right as is
mentioned in subparagraph
(2) hereof or any such
knowledge or information
as is mentioned in
subparagraph (3) hereof;
The supply of services by a
non-resident 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;

108

-----------------------------------

The supply of technical


advice,
assistance
or
services
rendered
in
connection with technical
management
or
administration
of
any
scientific,
industrial or
commercial
undertaking,
venture, project or scheme;

Tax Base is Gross Selling Price

Tax Base is Gross Receipts

-----------------------------------

The 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;

The right or the privilege to


use
any
industrial
commercial or scientific
equipment;

The lease or the use of, or


the right to use any
industrial, commercial or
scientific equipment;

The right or the privilege to


use motion picture films,
films, tapes and discs;

The lease of motion picture


films, films, tapes, and
discs;

Gross receipts refers to the 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.
Gross receipt does not only constitute actual receipt but also
constructively receipt.
35

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Example of constructively receipt?
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. The following are
examples of constructive receipts:
(1) deposit in banks which are made
available to the seller of services
without restrictions;
(2) issuance by the debtor of a notice to
offset any debt or obligation and
acceptance thereof by the seller as
payment for services rendered; and
(3) transfer of the amounts retained by the
payor to the account of the contractor.

6.) transport of passengers and cargo by air or sea


vessels from the Philippines to a foreign country;
7.) sale of power or fuel generated through renewable
sources of energy such as but not limited to.
Biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen
fuels.
TAX2 (12)
Sec 109---Exempt Transaction
This is categorized into four
I. Sales of Goods and Properties:

Services performed or to be performed, what does it imply?


services performed may refer to that amount
actually received;
services to be performed may account for
advance deposit

a.

sales of agricultural product 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 material therefor and copra.

You should exclude VAT in Gross receipts


Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking, or stripping.
Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall be
considered in their original state.

Under sec 106, there are 8 transactions which are subject to


zero rated sales of properties. How about zero rated sales of
services there are 7, what are these?
1.) processing, manufacturing, or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported where the
services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and
regulations of the BSP;
2.) services other than those mentioned in the
preceeding paragraph rendered to a person engaged
in the 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, the consideration for which is paid for in
accordance with the rules and regulations of the
BSP;
3.) services rendered to persons or entities whose
exemption 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 international air-transport
operations, including leases of property for use
thereof;
5.) services performed by subcontractors and/or
contractors
in
processing,
converting,
or
manufacturing goods for an enterprise whose export
sales exceed 70% of total annual production;
36

b.

sale of fertilizer; 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 fish, zoo animals and other animals
generally considered.

c.

transactions which are exempt under international


agreements to which the Philippines is a signatory or
under special laws. except those under PD No 529

d.

sales by agricultural cooperatives duly registered


with the Cooperative Development Authority to
their members as well as sale of 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.

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


e.

sales by non-agricultural, non-electric and non-credit


cooperatives duly registered with the Cooperative
Development Authority: provided, that the share
capital contribution of each member does not
exceed 15,000 pesos and regardless of the aggregate
capital and net surplus ratably distributed among the
members.

f.

export sale by persons who are not vat-registered.

g.

sale of real properties not primarily held for sale to


customers or held for lease in the ordinary course of
trade or business or real property utilized for law
cost and socialized housing as defined by RA 7279,
otherwisw known as Urban Development Housing
Act of 1992 and other related laws, residential lot
valued at 1.5M and below, house and lot and other
residential dwellings valued at 2.5M and below
provided, that not later than Jan 31, 2009 and every
3 years thereafter, the amounts herein stated shall
be adjusted to their present value using the
Consumer Price Index, as published by NSO

h.

d.

e.

sale of books and any news paper, magazine, review


or bulletin which appears at regular intervals with fix
prices for subscription and sale and which is not
devoted principally to the publication of paid
advertisements.

i.

sale of passenger or cargo vessels and aircraft,


including engine, equipment and spare parts thereof
for domestic or international transport operations.

j.

sale of goods or properties other than the


transaction mentioned in the preceding paragraphs,
the gross annual sale and/or receipts do not exceed
the amount of 1.5M: provided, that not later than
Jan 31, 2009 and every 3 years thereafter, the
amount herein stated shall be adjusted to its present
value using Consumer Price Index, as published by
NSO.

educational services rendered by private educational


institutions, duly accredited by the DEPED, CHED,
TESDA and those rendered by government
educational institutions.
services rendered by individuals pursuant to an
employer-employee relationship

f.

services rendered by regional or area headquarters


established in the Philippines by multi-national
corporations
which
act
as
supervisory,
communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific
region and do not earn or derive income from the
Philippines.

g.

transactions which are exempt under international


agreements to which the Philippines is a signatory or
under special laws. except those under PD No 529

h.

gross receipts from lending activities by credit or


multi-purpose cooperatives duly registered with the
Cooperative Development Authority.

i.

services of banks, non-bank financial intermediaries


performing quasi- banking functions, and other nonbank financial intermediaries

j.

performance of services other than the transaction


mentioned in the preceding paragraphs, the gross
annual sale and/or receipts do not exceed the
amount of 1.5M: provided, that not later than Jan
31, 2009 and every 3 years thereafter, the amount
herein stated shall be adjusted to its present value
using Consumer Price Index, as published by NSO.

III. Importation:
a.

sales of agricultural product 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 material therefore and copra.

II. Sale of services


a.

services subject to percentage tax under title V ( par.


E) * correlate this with secs 116-127

b.

Services by agricultural contract growers and milling


for others of palay into rice, corn into grits and sugar
cane into raw sugar. ( par. F)

c.

products classified under this paragraph shall be


considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking, or stripping.
polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall be
considered in their original state.

medical, dental, hospital and veterinaty services


except those rendered by professionals ( par. G)

37

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


b.

sale of fertilizer; seeds, seedlings and fingerlings;


fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported,
used in the manufacture of finished feeds.

Distinguish VAT exempt importation from zero rated


importation?
Zero Rated - Services rendered to persons engaged
in international shipping or air transport operations,
including leases of property for use thereof;
Exempt - importation of fuel, goods and supplies by
persons engaged in international shipping or air
transport operations.

except specialty feeds for race horses, fighting cocks,


aquarium fish, zoo animals and other animals
generally considered.
c.

importation of personal and household effects


belonging to the residents of the Philippines
returning from abroad and non-resident citizens
coming to resettle in the Philippines; provided that
such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines.

IV. Lease
a.

Lease of residential unit with a monthly rental not


exceeding 10k: provided, that not later than Jan
31,2009 and every 3 years thereafter, the amount
herein stated shall be adjusted to its present value
using the Consumer Price Index as published by NSO

b.

lease of passenger or cargo vessels and aircraft,


including engine, equipment, and spare parts
thereof for domestic or international transport
operations.

c.

lease of goods or properties other than the


transaction mentioned in the preceding paragraphs,
the gross annual sale and/or receipts do not exceed
the amount of 1.5M: provided, that not later than
Jan 31, 2009 and every 3 years thereafter, the
amount herein stated shall be adjusted to its present
value using Consumer Price Index, as published by
NSO.

read sec 105 of the custom and tariff code


d.

Importation of professional instrument and


implements, wearing apparel, domestic animals and
personal household effects (except any vehicle,
vessel, aircraft, machinery, 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 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
commissioner, that such persons are actually coming
to settle in the Philippines and that the change of
residence is bona fide.
read the Tariff and Custom Code you will see the
difference.

e.

f.

g.

Item which may cover two exempt transactions involving sale


of goods and sale of services?
Part K of sec 109

importation, printing or publication of books and any


news paper, magazine, review or bulletin which
appears at regular intervals with fix prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements.

Item which covers sale and importation which are exempt?


Percentage Tax
Transaction subject to percentage tax, what is the first
exempt transaction there?

importation of passenger or cargo vessels and


aircraft, including engine, equipment, and spare
parts thereof for domestic or international transport
operations.

SEC. 116. Tax on Persons Exempt From Value-Added Tax (VAT). Any person whose sales or receipts are exempt under Section
109(z) of this Code from the payment of value-added tax and who
is not a VAT-registered person shall pay a tax equivalent to three
percent (3%) of his gross quarterly sales or receipts: Provided,
That cooperatives shall be exempt from the three percent
(3%)gross receipts tax herein imposed.

importation of fuel, goods and supplies by persons


engaged in international shipping or air transport
operations.

what is the last one which is exempted from percentage tax?


SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed
and Traded Through the Local Stock Exchange or Through Initial
Public Offering. (A)
38

Tax on Sale, Barter or Exchange of Shares of Stock Listed and


Traded Through the Local Stock Exchange. - There shall be

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


levied, assessed and collected on every sale, barter,
exchange, or other disposition of shares of stock listed and
traded through the local stock exchange other than the sale
by a dealer in securities, a tax at the rate of one-half of one
percent (1/2 of 1%) of the gross selling price or gross value
in money of the shares of stock sold, bartered, exchanged or
otherwise disposed which shall be paid by the seller or
transferor.
(B)

(C)

Tax on Shares of Stock Sold or Exchanged Through Initial


Public Offering. - There shall be levied, assessed and
collected on every sale, barter, exchange or other
disposition through initial public offering of shares of stock
in closely held corporations, as defined herein, a tax at the
rates provided hereunder based on the gross selling price or
gross value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed in accordance with the
proportion of shares of stock sold, bartered, exchanged or
otherwise disposed to the total outstanding shares of stock
after the listing in the local stock exchange:
Up to twenty-five percent (25%)
4%

of paragraph (2) hereof shall not be treated as owned


by him for purposes of again applying such paragraph
in order to make another the constructive owner of
such stock.
Return on Capital Gains Realized from Sale of Shares of
Stocks. (1) Return on Capital Gains Realized from Sale of Shares
of Stock Listed and Traded in the Local Stock
Exchange. - It shall be the duty of every stock broker
who effected the sale subject to the tax imposed
herein to collect the tax and remit the same to the
Bureau of Internal Revenue within five (5) banking
days from the date of collection thereof and to
submit on Mondays of each week to the secretary
of the stock exchange, of which he is a member, a
true and complete return which shall contain a
declaration of all the transactions effected through
him during the preceding week and of taxes
collected by him and turned over to the Bureau Of
Internal Revenue.
(2)

Over twenty-five percent (25%)


but not over thirty-three and
one third percent (33 1/3%)

2%

Over thirty-three and one


third percent (33 1/3%)

1%

The tax herein imposed shall be paid by the issuing


corporation in primary offering or by the seller in secondary
offering.

Return on Public Offerings of Share Stock. - In case


of primary offering, the corporate issuer shall file
the return and pay the corresponding tax within
thirty (30) days from the date of listing of the shares
of stock in the local stock exchange. In the case of
secondary offering, the provision of Subsection
(C)(1) of this Section shall apply as to the time and
manner of the payment of the tax.

(D) Common Provisions. - Any gain derived from the sale, barter,
exchange or other disposition of shares of stock under this
Section shall be exempt from the tax imposed in Sections
24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code and
from the regular individual or corporate income tax. Tax
paid under this Section shall not be deductible for income
tax purposes.

For purposes of this Section, the term "closely held


corporation" means any corporation at least fifty percent
(50%) in value of outstanding capital stock or at least fifty
percent (505) 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 twenty (20) individuals.

in sale of share of stocks which one is considered income tax


or percentage tax?
it depends whether the share of stocks is listed or
not listed in the Security and Stock Exchange. If
listed is subject to percentage tax; if not income tax.

For purposes of determining whether the corporation is a


closely held corporation, insofar as such determination is
based on stock ownership, the following rules shall be
applied:
(1) Stock Not Owned by Individuals. - Stock owned
directly or indirectly by or for a corporation,
partnership, estate or trust shall be considered as
being owned proportionately by its shareholders,
partners or beneficiaries.
(2) Family and Partnership Ownerships. - An individual
shall be considered as owning the stock owned,
directly or indirectly, by or for his family, or by or for
his partner. For purposes of the paragraph, the
'family of an individual' includes only his brothers and
sisters (whether by whole or half-blood), spouse,
ancestors and lineal descendants.
(3) Option. - If any person has an option acquire stock,
such stock shall be considered as owned by such
person. For purposes of this paragraph, an option to
acquire such an option and each one of a series of
options shall be considered as an option to acquire
such stock.
(4) Constructive Ownership as Actual Ownership. - Stock
constructively owned by reason of the application of
paragraph (1) or (3) hereof shall, for purposes of
applying paragraph (1) or (2), be treated as actually
owned by such person; but stock constructively
owned by the individual by reason of the application

What are the transactions exempted from percentage tax?


there are 12. sec 116-127
General Rule: if the transaction is subject to percentage tax it
is exempted from income tax.
what is the difference between VAT and percentage tax?
both are considered excise tax. The transactions
covered by sec 109 (v) and who is not vat-registered
is subject to percentage tax
what is the transaction subject to percentage tax?
any person whose sales or receipt are exempt under
section 109 (v) of this code from payment of VAT
and who is not a VAT-registered person---sec 116

39

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What is that transaction involving sale of services specifically
transport of passenger of sec. 108?
Transportation by land

When does Input tax arise? When does output tax arise?
input tax arises from the purchase of services or
goods.
output tax arises from sale of goods or properties or
lease of properties

What about insurance company in relation to sec 108?


May be life or non-life.

Base on 110 (a), what are the creditable taxes which may be
transferred to seller of services, goods and lessor of property?
purchase of goods or lease;
materials used in the course of business;
those allowed by the laws

Which one is covered by VAT which is not because Covered by


percentage tax?
Services rendered by non-life is VAT exempt because
it is subject to Percentage Tax
What about franchise holders under sec 119 in relation to 108
when it is subject to percentage tax because it is VAT exempt?
Apply the 10M threshold amount. It is subject to
Percentage tax when the gross receipt of the
franchise holders does not exceed 10M.

What about on the seller of services subject to VAT?


Supplies
Give example.
Electricity

Winnings may be subject to income tax and Percentage Tax?


This is subject to indirect double income taxation
because it is subject to income and percentages
taxes.

What are those machineries and equipment?


In spa---- foot massager
What about lessor of property? Is he entitled to Creditable
input tax?
He can claim, only to those necessary expense.

Recall the rule of imposition of income tax on tax winnings,


what are those exempt tax winnings because covered of
special laws?
sec 24 and 30

TAX2 (13)
SEC. 111. Transitional/Presumptive Input Tax Credits. -

if winnings are exempt from income tax, does it follow that


they are also exempt from PT?
No, the rule is that exemption is strictly construed
against the taxpayer and in favor of the government.

(A) Transitional Input Tax Credits. - A person who becomes liable to valueadded tax or any person who elects to be a VAT-registered person shall,
subject to the filing of an inventory according to rules and regulations
prescribed by the Secretary of finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent for eight percent (8%) of the value of such
inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output
tax.

Tax credit method


what is meant by input tax?
Input tax means 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 his trade
or business. It shall also include the transitional input
tax and the presumptive input tax determined in
accordance with Sec. 111 of the Tax Code.

(B) Presumptive Input Tax Credits. Persons or firms engaged in the processing of sardines, mackerel
and milk, and in manufacturing refined sugar and cooking oil, shall
be allowed a presumptive input tax, creditable against the output
tax, equivalent to one and one-half percent (1 1/2%) of the gross
value in money of their purchases of primary agricultural products
which are used as inputs to their production.
As used in this Subsection, the term "processing" shall mean
pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for special
use to which it could not have been put in its original form or
condition.

what is output tax?


"output tax" means the value-added tax due on the
sale or lease of taxable goods or properties or
services by any person registered or required to
register under Section 236 of this Code.

Public works contractors shall be allowed a presumptive input tax


equivalent to one and one-half percent (1 1/2%) of the contract
price with respect to government contracts only in lieu of actual
input taxes therefrom.

40

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

REV-REG 16-2005
SEC. 4.111-1. Transitional/Presumptive Input Tax Credits.-(a) Transitional Input Tax Credits on Beginning Inventories
Taxpayers who became VAT-registered persons upon exceeding the
minimum turnover of P1,500,000.00 in any 12-month period, or who
voluntarily register even if their turnover does not exceed P1,500,000.00
(except franchise grantees of radio and television broadcasting whose
threshold is P10,000,000.00) shall be entitled to a transitional input tax on
the inventory on hand as of the effectivity of their VAT registration, on the
following:
(1) goods purchased 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; or
(5) goods and supplies for use in the course of the taxpayers trade or
business as a VAT-registered person.

Whichever is higher
When he becomes liable of the VAT, there is that existing
inventory of goods, materials and supplies. There were actual
input taxes of these.
What is the basis of that 2%?
Two percent (2%) of the value of the beginning
inventory on hand

The transitional input tax shall be two percent (2%) of the value of the
beginning inventory on hand or actual VAT paid on such, goods, materials
and supplies, whichever is higher, which amount shall be creditable against
the output tax of VAT-registered person. The value allowed for income tax
purposes on inventories shall be the basis for the computation of the 2%
transitional input tax, excluding goods that are exempt from VAT under Sec.
109 of the Tax Code.

The Two percent (2%) of the value of the beginning inventory


on hand is compared to the actual input taxes imposed on
these.
Is it the higher amount or the lower amount?
Higher amount

The threshold amount of P1,500,000.00 shall be adjusted, not later than


January 31, 2009 and every three years thereafter, to its present value using
the Consumer Price Index as published by the NSO.

What is the purpose of transitional input tax?


To recover from the losses he incurred from the time
he is not liable to VAT.
To offset losses he incurred from expenses which
were subject to VAT
Designed to alleviate the impact of AVT on the
taxpayer

(b) Presumptive Input Tax Credits


Persons or firms engaged in the processing of sardines, mackerel, and milk,
and in manufacturing refined sugar, cooking oil and packed noodle-based
instant meals, shall be allowed a presumptive input tax, creditable against
the output tax, equivalent to four percent (4%) of the gross value in money
of their purchases of primary agricultural products which are used as inputs
to their production.
As used in this paragraph, the term processing shall mean pasteurization,
canning and activities which through physical or chemical process alter the
exterior texture or form or inner substance of a product in such manner as to
prepare it for special use to which it could not have been put in its original
form or condition. (rev reg 16-2005)

What about presumptive income tax?


Persons or firms engaged in the processing of
sardines, mackerel, and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based
instant meals, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to
four percent (4%) of the gross value in money of
their purchases of primary agricultural products
which are used as inputs to their production.

What is Transitional Input Tax? Who may be entitled to this


Transitional Input Tax?
Persons who become liable to VAT as his gross sales
or receipts exceeds Php 1.5M during that particular
taxable year or
who voluntarily register even if their turnover does
not exceed P1,500,000.00 (except franchise grantees
of radio and television broadcasting whose threshold
is P10,000,000.00)
How do we explain the word transitional? what is
situation contemplated therein?
The person becomes liable because at
beginning of the taxable year, the person is
exempt because his gross sales or receipts do
exceed Php 1.5M.

two percent (2%) of the value of the


beginning inventory on hand or
actual VAT paid on such, goods, materials
and supplies,

Manufacturers of what?
sardines,
mackerel,
milk
refined sugar,
cooking oil and
packed noodle-based instant meals

the
the
tax
not

How do we explain the word presumptive? Are there actual


input taxes transferred?
None, presumptive because it is by legal fiction.
There is no actual input tax

How do we determine based on that provision of law, the


transitional input tax? How do we apply this 2%?
The transitional input tax shall be:
41

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What is the source of that?
Primary agricultural products

Suppose the input tax is more than the output tax?


If the input tax inclusive of input tax carried over
from the previous quarter exceeds the output tax,
the input tax inclusive of input tax carried over from
the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of
the output tax; Provided, That, the excess input tax
shall be carried over to the succeeding quarter or
quarters; Provided, however, that any input tax
attributable to zero-rated sales by a VAT registered
person may at his option be refunded or applied for
a tax credit certificate which may be used in the
payment of internal revenue taxes, subject to the
limitations as may be provided for by law, as well as,
other implementing rules. (rev-reg 16-2005, Sec.
4.110.7)

How much is the creditable?


4% of the gross value in money of their purchases of
primary agricultural products which are used as
inputs to their production
Sale of agricultural products, is that subject to VAT?
No, that is tax exempt
Thats why the law says it is presumed because it is exempt
What is the difference between presumptive input tax and
transitional input tax?
In transitional Input tax, there is an actual VAT that
is paid while in presumptive input tax, there is no
actual VAT paid because it is exempt

What about the input tax on capital goods? Under the old
provision, that would still be carried over, but such provision
has been deleted

What is the rationale of Presumptive Input tax?


if the seller will sell this products, he could not claim
his input tax for these purchase of agricultural
products because the seller has nothing to transfer
because he is tax exempt

SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. -- Where


a VAT registered person purchases or imports capital goods,
which are depreciable assets for income tax purposes, the
aggregate acquisition cost of which (exclusive of VAT) in a
calendar month exceeds One Million pesos (P1,000,000.00),
regardless of the acquisition cost of each capital good, shall be
claimed as credit against output tax in the following manner:

Suppose that transitional and presumptive input tax is


withdrawn by congress is that withdrawal violative of due
process?
No, because it is not a vested right but a mere
privilege such that the Congress can withdraw
anytime

(a)

TAX2 (14)
(b)

Section 112 deals with what? What are the rules laid down
therein?
Tax refund or tax credit
When will tax refund arise?

If the estimated useful life of a capital good is five (5)


years or more The input tax shall be spread evenly
over a period of sixty (60) months and the claim for
input tax credit will commence in the calendar month
when the capital good is acquired. The total input
taxes on purchases or importations of this type of
capital goods shall be divided by 60 and the quotient
will be the amount to be claimed monthly.
If the estimated useful life of a capital good is less than
five (5) years The input tax shall be spread evenly on
a monthly basis by dividing the input tax by the actual
number of months comprising the estimated useful life
of the capital good. The claim for input tax credit shall
commence in the calendar month that the capital
goods were acquired.

Where the aggregate acquisition cost (exclusive of VAT) of the


existing or finished depreciable capital goods purchased or
imported during any calendar month does not exceed One million
pesos (P 1,000,000.00), the total input taxes will be allowable as
credit against output tax in the month of acquisition; Provided,
however, that the total amount of input taxes (input tax on
depreciable capital goods plus other allowable input taxes)
allowed to be claimed against the output tax in the quarterly VAT
Returns shall be subject to the limitation prescribed under Sec.
4.110-7 of these Regulations.

What registered person is entitled to tax refund or tax credit


certificate under the following cases?
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a tax credit
certificate/refund of input tax attributable to such
sales.
Remember that the effect of the imposition of zero percent is
that there is really no VAT due.

The 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. Thus, an asset acquired in installment
for an acquisition cost of more than P 1,000,000.00 will be subject
to the amortization of input tax despite the fact that the monthly
payments/installments may not exceed P 1,000,000.00.

First lets recall again the basic formula. To arrive at VAT due
or payable, output tax less input tax. SO there will be VAT due
or payable if the output tax is more than the input tax.
42

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


tax: Provided, however, That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of
goods of properties or services, and the amount of creditable
input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales.

If the depreciable capital good is sold/transferred within a period


of five (5) years or prior to the exhaustion of the amortizable
input tax thereon, the entire unamortized input tax on the capital
goods sold/transferred can be claimed as input tax credit during
the month/quarter when the sale or transfer was made but
subject to the limitation prescribed under Sec. 4.110-7 of these
Regulations.

What about this zero-rated transaction?


SEC. 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax.
-(a) Zero-rated and Effectively Zero-rated Sales of Goods,
Properties or Services
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively zero-rated may
apply for the issuance of a tax credit certificate/refund of input
tax attributable to such sales. The input tax that may be subject of
the claim shall exclude the portion of input tax that has been
applied against the output tax. The application should be filed
within two (2) years after the close of the taxable quarter when
such sales were made.

That should be filed before whom?


the Commissioner of Internal Revenue
Is there a period prescribed for the BIR Commissioner to
render decision thereon?
What are those other periods mentioned therein?
There are two possible situations that may arise
wherein such tax refund filed before BIR
Commissioner according to Section 112(c) is given
120 days from the date of submission of complete
documents filed thereon

In case of zero-rated sales under Secs. 106(A)(2)(a)(1)


and (2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1) and (2) of the Tax
Code, the payments for the sales must have been made
in acceptable foreign currency duly accounted for in accordance
with the BSP rules and regulations.

Suppose no decision is rendered within that period or suppose


no decision has been rendered, what is the remedy?
In case of full or partial denial of the claim for tax
credit certificate/refund as decided by the
Commissioner of Internal Revenue, the taxpayer
may appeal to the Court of Tax Appeals (CTA) within
thirty (30) days from the receipt of said denial,
otherwise the decision shall become final. However,
if no action on the claim for tax credit
certificate/refund has been taken by the
Commissioner of Internal Revenue after the one
hundred twenty (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 lapse of the 120-day period.

Where the taxpayer is engaged in both zero-rated or


effectively zero-rated sales and in taxable (including sales subject
to final withholding VAT) or exempt sales of goods, properties or
services, 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 zero-rated or effectively zero-rated sales can be claimed for
refund or issuance of a tax credit certificate.
In the case of a person engaged in the transport of
passenger and cargo by air or sea vessels from the Philippines to a
foreign country, the input taxes shall be allocated ratably
between his zero-rated sales and non-zero-rated sales

What may be the possible sources of this tax refund in case of


zero-rated persons engaged in this zero-rated transactions?
Whats the difference between tax refund and tax credit?
-When a taxpayer seeks for tax refund, in effect he is asking
for ___ so it entails that the taxpayer will get actual
disbursement
Whereas tax credit does not involve disbursement because as
the word credit connotes, it is credited against, it is applied
to other revenues.

If a decision has been rendered within that period, what is the


remedy of the taxpayer assuming the decision is adverse?
The taxpayer may appeal to the Court of Tax Appeals
within 30 days from the receipt of the decision
If no decision has been rendered within that period? (Inaction)
The taxpayer may still appeal to the Court of Tax
Appeals

When is there a prescriptive period?


SEC. 112. Refunds or Tax Credits of Input Tax. -

What is the prescriptive period?


within 30 days from the lapse of the 120 day period

(A) Zero-Rated or Effectively Zero-Rated Sales. - any VATregistered person, whose sales are zero-rated or effectively zerorated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output

*Inaction can be the subject of an appeal before the Court of


Tax Appeals. This is clear under RA 9282 unlike before

43

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

Again, persons who engage in zero-rated transactions are


entitled to tax refund or tax credit, as the case may be, under
what situations? (Implementing Regulations 16-2005)
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a tax credit
certificate/refund of input tax attributable to such
sales. The input tax that may be subject of the claim
shall exclude the portion of input tax that has been
applied against the output tax. The application
should be filed within two (2) years after the close of
the taxable quarter when such sales were made.

A VAT official receipt for every lease of goods or


properties, and for every sale, barter or
exchange of services

What are those information that must be stated therein?


Section 113(B)
1. A statement that the seller is a VAT-registered person, followed
by his TIN
2. The total amount which the purchaser pays or is obligated to pay
to the seller with the indication that such amount includes the
VAT; Provided that:
a.
The amount of tax shall be shown as a separate item in
the invoice or receipt
b. If the sale is exempt from VAT, the term VAT-exempt
sale shall be written or printed prominently on the
invoice or receipt
c.
If the sale is subject to zero-percent (0%) VAT, the term
zero-rated sale shall be written or printed
prominently on the invoice or receipt
d. If the sale involves goods, properties or services some
of which are subject to and some of which are VAT
zero-rated or VAT-exempt, the invoice or receipt shall
clearly indicate the breakdown of its sale price
between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or
receipt: Provided, That the seller may issue separate
invoices or receipts for the taxable, exempt and zerorated components of the sale
3. The date of transaction, quantity, unit cost and description of the
goods or properties or nature of the service
4. In the case of sales in the amount of P1,000 or more where the
sale or transfer is made to a VAT-registered person, the name,
business style, if any, address and TIN of the purchaser, customer
or client.

In case of zero-rated sales under Secs.


106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and
Sec. 108(B)(1) and (2) of the Tax Code, the payments
for the sales must have been made in acceptable
foreign currency duly accounted for in accordance
with the BSP rules and regulations.

In this not possible that these persons engaged in zero-rated


transactions will have imported goods?
There is VAT on these imported goods since the tax
applicable with zero percent, it is as if there is no
output tax.
That input tax on imported goods that is transferred to this
person, can that be subject of a tax refund or tax credit as the
case may be?
Like output tax zero, input tax P10,000. In effect
there is an excess of input tax to the output tax
That can be subject of tax credit

The old rule was, the VAT is deemed included in the receipt
or the price as the case may be. That is the tax-inclusive
concept.

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.


(A) Invoicing Requirements. - A VAT-registered person shall, for every sale,
issue an invoice or receipt. In addition to the information required under
Section 237, the following information shall be indicated in the invoice or
receipt:
(1) A statement that the seller is a VAT-registered person,
followed by his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount
includes the value-added tax.
(B) Accounting Requirements. - Notwithstanding the provisions of Section
233, all persons subject to the value-added tax under Sections 106 and 108
shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily
sales and purchases are recorded. The subsidiary journals shall contain such
information as may be required by the Secretary of Finance.

Now it is clear under Section 113 that VAT shall be indicated


as a separate item so that simplifies the procedure because
before, you have to multiply that by 1/11 to arrive at the VAT.
This simplified the rule that can easily discern from the
invoice or receipt which is now 12%
What is the penalty if there is a violation of this provision
under Sec 113 in that the VAT-registered person failed to
indicate in the invoice or receipt those information mentioned
therein?
Issuance of a VAT Invoice or VAT Receipt by a non-VAT
person. If a person who is not VAT-registered issues an
invoice or receipt showing his TIN, followed by the word
VAT, the erroneous issuance shall result to the following:
(1) The non-VAT person shall be liable to:
i.
the percentage taxes applicable to his
transactions;

What is the difference between invoice and receipt? When is


it issued?
A VAT registered person shall issue:
A VAT invoice for every sale, barter or exchange
of goods or properties
44

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


ii.

VAT due on the transactions under Sec. 106


or 108 of the Tax Code, without the benefit
of any input tax credit; and
iii.
a 50% surcharge under Sec. 248 (B) of the
Tax Code;
(2) VAT shall be recognized as an input tax credit to the
purchaser under Sec. 110 of the Tax Code, provided
the requisite information required under Subsection
4.113 (B) of these Regulations is shown on the
invoice or receipt.

Provided, That the payment for lease or use of


properties or property rights to nonresident owners
shall be subject to 12% withholding tax at the time
of payment.
This has been questioned in the case of ABAKADA GURO V
ERMITA in the change of the system from creditable
withholding tax to final withholding tax system. What is the
ruling of the court?
Is there a violation of the Constitution?
No, because ..

(B) Issuance of a VAT Invoice or VAT Receipt on an Exempt


Transaction by a VAT-registered Person If a VAT-registered
person issues a VAT invoice or VAT official receipt for a VATexempt transaction, but fails to display prominently on the
invoice or receipt the words VAT-exempt sale, the
transaction shall become taxable and the issuer shall be liable
to pay VAT thereon. The purchaser shall be entitled to claim
an input tax credit on his purchase.

What do you think is the advantage of final withholding tax


system over the creditable withholding tax system?
This is not discussed in the Abakada case. In Tax 1,
you have come across passive investment income,
they are those items of income subject to final tax so
this must be governed by final withholding tax
system.

criminal offense under Section 255 if there is evidence to the


effect that such non-compliance is willful and deliberate

In the case of interest income from bank deposit, the bank is


the withholding agent of the government so the tax is
automatically withheld, deducted and thereafter the same is
remitted to the BIR. So, its a sure revenue to the
government. The government need not wait for the filing of
income tax return by these taxpayers. Now you apply that to
this. The government is the buyer or purchaser, the tax is
automatically withheld, the government need not wait for
the filing of VAT return which is

What would be the defense of the seller in case a charge is


filed by the BIR for alleged violation of Section 113 regarding
information contained in VAT invoice or official receipt? Can
he raise the defense of good faith?
You will note there, this withholding tax system. Before, what
was adopted here was creditable withholding tax system,
now it has been changed to final withholding tax system. Can
you explain the rule regarding this final withholding tax
system in VAT? Consider the buyer or purchaser. Consider the
final tax rates, which may either be 5% or 10%
As a general rule, withholding tax does not apply on
transactions subject to value added tax. The exceptions
to this rule are:
Gross payments by the government shall be
subject to the 5% final withholding tax
Gross payments by resident VAT-taxpayers to
non-resident foreign persons of rentals,
royalties, reinsurance premiums and services
done in the Philippines 12%

The rule before was Pay as you file, is that the prevailing rule?
Filing quarterly payment monthly
SEC. 114. Return and Payment of Value-Added Tax. (A) In General. - Every person liable to pay the value-added tax
imposed under this Title shall file a quarterly return of the amount
of his gross sales or receipts within twenty-five (25) days following
the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the
value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance
with Section 236, shall file a return and pay the tax due thereon
within twenty-five (25) days from the date of cancellation of
registration: Provided, That only one consolidated return shall be
filed by the taxpayer for his principal place of business or head
office and all branches.

When do you apply 5% final withholding tax, and when do


you apply 10% final withholding tax?
The Government or any of its political subdivisions,
instrumentalities or agencies, including governmentowned or -controlled corporations (GOCCs) shall,
before making payment on account of each
purchase of goods services which are subject to the
value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold the value-added tax
due at the rate of 5% of the gross payment thereof:

What is the reason why such rule on payment has been


changed from quarterly to monthly? Do you know of system
of taxation or principle that may be cited or used as a basis
for such change?
lifeblood doctrine

45

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Do you
system?

recall these fundamental principles of sound tax


Every person who becomes liable to be registered
under paragraph (1) of this subsection shall register
with the RDO which has jurisdiction over the head
office or branch of that person, and shall pay the
annual registration fee prescribed in subsection
9.236-1(a) hereof. If he fails to register, he shall be
liable to pay the output tax under Secs. 106 and/or
108 of the Tax Code as if he were a VAT-registered
person, but without the benefit of input tax credits
for the period in which he was not properly
registered.
Moreover, franchise grantees of radio and television
broadcasting, whose gross annual receipt for the
preceding calendar year exceeded P10,000,000.00,
shall register within thirty (30) days from the end of
the calendar year.

Administrative Feasibility
Fiscal Adequacy
Theoretical justice or equality

Which one is applicable here or may be used as basis or


justification?
Section 115 has not been amended by RA 9337. This refers to
sanctions that may be imposed upon VAT registered persons
in case of non-compliance with certain provisions under the
law on VAT. What are the situations covered therein?
1. Failure to issue receipts or invoices;
2. Failure to file a value-added tax return as required
under Section 114;
3. Understatement of taxable sales or receipts by thirty
percent (30%) or more of his correct taxable sales or
receipts for the taxable quarter.
4. Failure to register under Section 236

(c) Optional VAT Registration.


(1) Any person who is VAT-exempt under Sec.
4.109-1 (B) (1) (V) not required to register
for VAT may, in relation to Sec. 4.109-2,
elect to be VAT-registered by registering
with the RDO that has jurisdiction over the
head office of that person, and pay the
annual registration fee of P500.00 for every
separate and distinct establishment.

What rules required to register as VAT-registered persons?


When is registration required?
In general. Any person who, in the course of
trade or business, sells, barters, exchanges goods or
properties, or engages in the sale of services subject
to VAT imposed in Secs. 106 and 108 of the Tax Code
shall register with the appropriate RDO using the
appropriate BIR forms and pay an annual registration
fee in the amount of Five Hundred Pesos (P500)
using BIR Form No. 0605 for every separate or
distinct establishment or place of business (save a
warehouse without sale transactions) before the
start of such business and every year thereafter on
or before the 31st day of January.

(2) Any person who is VAT-registered but


enters into transactions which are exempt
from VAT (mixed transactions) may opt that
the VAT apply to his transactions which
would have been exempt under Section
109(1) of the Tax Code, as amended. [Sec.
109(2)]
(3) Franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the preceding year do not
exceed ten million pesos (P10,000,000.00)
derived from the business covered by the
law granting the franchise may opt for VAT
registration. This option, once exercised,
shall be irrevocable. (Sec. 119, Tax Code)

(b) Mandatory:
Any person who, in the course of trade or business,
sells, barters or exchanges goods or properties or
engages in the sale or exchange of services shall be
liable to register if:
i.
His gross sales or receipts for the past
twelve (12) months, other than those that
are exempt under Sec. 109 (1)(A) to (U) of
the Tax Code, have exceeded One million
five
hundred
thousand
pesos
(P1,500,000.00); or
ii.
There are reasonable grounds to believe
that his gross sales or receipts for the next
twelve (12) months, other than those that
are exempt under Sec. 109 (1)(A) to (U) of
the Tax Code, will exceed One million five
hundred thousand pesos (P1,500,000.00).

Any person who elects to register under this


subsections (1) and (2) above shall not be allowed to
cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT
registration not later than ten (10) days before the
beginning of the calendar quarter and shall pay the
registration fee prescribed under sub-paragraph (a)
of this Section, unless they have already paid at the
46

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


beginning of the year. In any case, the Commissioner
of Internal Revenue may, for administrative reason
deny any application for registration. Once
registered as a VAT person, the taxpayer shall be
liable to output tax and be entitled to input tax
credit beginning on the first day of the month
following registration.

What must be the reason behind the imposition of this 0% tax


rate?
to encourage export sales that will in effect bring
about more dollars that will eventually increase our
dollar reserve

What is the common characteristic of those transactions


covered on sale of goods, sale of services?

Is there a fee imposed under this law for such registration?


Yes.

In imposing this requisite, I refer to this indispensable


requisite in the course of trade or business. What does it
imply?
It implies that isolated transactions are not covered.
This is in effect just an equitable tax system. And
increasing the threshold amount to 500 to 1.5
million, what does it indicate or imply?
That it is consistent with the ability to pay
principle

Is that not violative of due process?


Tolentino et al v Secretary of Finance: there is no
violation of due process because..
Is that in a form of a tax, this administrative fee, registration
fee?
Administrative in nature
Is that an exaction in the exercise of the power of taxation?
No

In exempting 31 transactions from VAT, what must be the


purpose of the law?

So what is the nature of registration fee? P1000


it is merely for administrative purposes, not an
exaction in the form of a tax

In expanding the coverage, the expanded value added tax or


reformed value added tax law, such that those previously
exempt are now taxable. What do you think would be the
purpose of the law in withdrawing some of those previously
exempt transactions from the enumeration of those exempt
transactions?

What is the penalty or sanction?


Commissioner or his authorized representative may
temporarily suspend or close the business in case
there is a violation of the taxpayer

Why is there a need to change the old rule from deduction


method to tax credit method?

What is the extent of such power? How long?


the temporary closure should not be less than 5 days

BAR QUESTIONS:
Newtex International (Phils), Inc, is an American firm duly
authorized to engage in business in the Philippines as a
branch office. In its activity of acting as a buying agent for
foreign buyers of shirts and dresses abroad and performing
liaison work between its home office and the Filipino garment
manufacturers and exporters, Newtex does not generate
income. To finance its office expenses here, its head office
abroad regularly remits to it the needed amount. To oversee
its operations and manage its office here, which had been in
operation for 2 years, the head office assigned three foreign
personnel. Is Newtex subject to VAT?
Newtex is not subject to VAT. The VAT is imposed on
sellers and not to buyers. The branch office did not
derive any income or compensation so as to possibly
permit the imposition of a value added tax on
compensation for services rendered. In addition,
since the transactions are direct export sales, the
VAT does not apply. Ex port sales are among those
that either zero-rated or exempt from value added
tax (suggested answer)

Will that amount to a statutory offense in case of failure to


register of a VAT person?
-.Read again Section 255
Based on what we discussed from Section 105 to Section 115,
can you now tell us by way of recapitulation, these salient
features of our present VAT system?
Our law on VAT imposes this indirect VAT, a form of
regressive tax
What about tax rates?
There are 2 tax rates imposed under VAT.
a. 12%
b. 0%
Can you expound on 0% tax rate?

47

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

An alien employee of the Asian Development Bank (ADB) who


is retiring soon has offered to sell his car to you, which he
imported tax-free for his personal use. The privilege of
exemption from tax is granted to qualified personal use under
the ADB Charter, which is recognized by the tax authorities. If
you decide to purchase the car, is the sale subject to tax?
Explain
Yes, the sale is subject to tax. Section 107B of the tax
code provides that In the case of tax-free
importation of goods into the Philippines by persons,
entities or agencies exempt from tax where such
goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons
or entities, the purchasers, transferees or recipients
shall be considered the importers thereof, who shall
be liable for any internal revenue tax on such
importation.

Tax remedies notes will be distributed


thru e-mail. WAG KYONG DEMANDING!
Hahaha

Master Transcriber Marx

ADD US IN FACEBOOK or FRIENDSTER AS A SIGN OF


GRATITUDE
Marx de Chavez
Mon Pasia
Jen Reyes
Angela dela Cruz
April Gerero
Soc Marbil
Jam Bermudez
Aileen Pizania
Donna Masilungan
Theena Martinez
Me-an Ayos

Your client, United Market Cooperative, is requesting the


Commissioner of Internal Revenue to exempt it from the
payment of VAT on its purchases of prince commodities from
food suppliers/manufacturers on the ground that it is exempt
from all taxes, including VAT, under RA 6938, the Cooperative
Code of the Philippines.
Do you think your client can obtain the necessary exemption
from the BIR? If your answer is in the affirmative, explain the
basis for the grant. If your answer is in the negative, state the
basis for the rejection of the request.
1. An exemption is not necessary. The VAT is not
imposed on the purchaser but on the seller, except
in importation of goods
2. No, the exemption to which the taxpayers are
entitled to refers to those that are levied on the
exempt taxpayer or directly imposed on the
exempted goods. The value added tax is imposed on
the sellers on the sellers of goods and services, not
on the purchasers.

atty_dcmrg@yahoo.com
monbpasia@yahoo.com.ph
jenjrey2004@yahoo.com
mabdlcrz@yahoo.com
boogapops@yahoo.com
soc_benj@yahoo.com
kawaii_shoujo03@yahoo.com
aillen_pizana@yahoo.com
donnarence15@yahoo.com
theena_martinez@yahoo.com
meandayos@yahoo.com.ph

ANG HINDI MAG-ADD MAG-INGAT SA PAGTAWID

Royal Mining is a VAT-registered domestic mining entity. One


of its products is silver being sold to the Bangko Sentral ng
Pilipinas. It filed a claim with the BIR for tax refund on the
ground that under Section 106 of the Tax Code, sales of
precious metals to the Bangko Sentral are considered export
sales subject to zero-rated VAT.
Is Royal Minings claim meritorious? Explain.
No, Royal Minings claim is not meritorious because
it is the sale of gold (and not silver) to the BSP that is
considered as export sale subject to zero-rated VAT.

48

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


In the case of COMMISSIONER VS PINEDA, the SC explained
the importance or advantage of one of the administrative
remedies which is the enforcement of a tax lien. It is also in
that case where the SC cited the lifeblood doctrine.
Taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need

TAX REMEDIES
Tax remedies may be categorized into:
Administrative remedies
Judicial remedies
These apply to both government and taxpayer.

What is now the link between the lifeblood doctrine and this
availment of administrative remedy of enforcement of a tax
lien. But before we come to that, we ought to know the
meaning of a tax lien? What is the authoritative definition of
a tax lien?
It is a legal claim or charge on property, personal or
real, established by law as a sort of security for the
payment of tax obligations

Lets start with remedies that may be availed by the


government.
What do you think may be the importance of these tax
remedies insofar as the government is concerned?
1. To ensure the regular collection of revenue
necessary for the existence of the government
2. In the proper pursuit of judicial and extrajudicial
remedies, to enforce taxpayer liabilities and certain
matters that relate to it, such as the imposition of
surcharges and interests
3. In the application of the Statute of Limitations
4. In the establishment of tax liens
5. In estimating the revenues that may be collected by
the government in the coming year.

In the case of COMMISSIONER VS PINEDA, the BIR Collector


opted to avail of this administrative remedy but there was
nothing that could prevent BIR from resorting to judicial
remedy by filing an action in court. So, what could have
prompted the BIR to resort to this administrative remedy of
enforcement of tax lien?
The BIR has the discretion to avail itself of the most
expeditious way of collecting payment of taxes

In collecting taxes, what are the guiding principles that must


be observed by the government?
That taxes must be collected in accordance with law

What is the implication of such pronouncement of the court


that the BIR has the necessary discretion to avail itself of the
most expeditious way of collecting taxes?
Because of the lifeblood doctrine?

Do you know of specific principles that must be observed by


the government in the assessment collection of taxes?
Assessments are prima facie presumed correct and
made in good faith
Assessments should be made on actual facts
Assessment is discretionary on the part of the
Commissioner
The authority vested in the Commissioner to assess
taxes may be delegated
Assessments must be directed to the right party

So what is the distinction between administrative remedies


and judicial remedies?
Administrative remedies require no courts
intervention, while judicial remedies require the
courts intervention
Will administrative remedies always result in the speedy
collection of taxes?
No

There should be no arbitrariness in the collection of taxes.


What does that mean? It is mandated by due process.
There must be notice and hearing

What are the factors that may be considered?


When is it wise, proper or judicious to avail of the
administrative remedies? Judicial remedies? Consider the
amount, the taxpayer, the property, whether the taxpayer is
residing in the Philippines or he is abroad.
In case of administrative remedy, the case of CIR VS
PINEDA is a classic situation wherein the SC extend
the availment of administrative remedy

Is demand a condition sine qua non for the payment of


internal revenue tax?
Is a prior assessment required before these internal revenue
taxes may be claimed?
Taxes may be collected with or without prior
assessment

What is the situation that may warrant such resort to judicial


remedy, meaning, it is wise that the BIR to file an action in
court in lieu of availment of administrative remedy.

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


examination and investigation or inquiry into any tax return filed
in accordance with the provisions of any tax amnesty law or
decree.

TAX2 (15)
Whats the difference between an assessment and collection?
Assessment a written notice addressed to the
taxpayer containing the computation of tax liabilities
and demand for payment within a prescribed period.
It signals the time when penalties and interests
begin to accrue against the taxpayer. It must be duly
sent to and received by the taxpayer. (CIR VS.
PASCOR, 304 SCRA 402)

So what is the importance of the assessment made based on


section 222?
The BIR will resort to administrative or judicial
remedies
Items c and d of section 222: if no prior assessment is made,
can the government or the BIR resort to administrative and
judicial remedies?
No

Collection the act of the government in


accumulating the tax due from the taxpayers.

If no prior assessment was made, can the BIR avail of


administrative remedies such as enforcement of tax lien,
distraint of personal properties, and levy of real properties?
No. Because under Section 219 and Section 207 (A),
and Section 207 (B),

Which one is considered as an action or a proceeding?


Collection.
Is assessment required before collection?
Section 203 in relation to Section 222: It is clear
therein that collection of taxes may be made even
without prior assessment.

Section 207(A): Distraint of Personal Property. Upon the failure


of the person owing any delinquent tax or delinquent revenue to
pay the same at the time required, xxx

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as


provided in Section 222, internal revenue taxes shall be assessed within three
(3) years after the last day prescribed by law for the filing of the return, and
no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)year period shall be counted from the day the return was filed. For purposes
of this Section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day.

Section 207(B): Levy on Real Property. After the expiration of


the time required to pay the delinquent tax or delinquent revenue
xxx
Section 219: Nature and Extent of Tax Lien. If any person,
corporation, partnership, joint-account, association or insurance
company liable to pay an internal revenue tax, neglects to pay the
same after demand xxx

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection


of Taxes. (a) In the case of a false or fraudulent return with intent to evade tax
or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for
the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed upon. The
period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously
agreed upon.
(c) Any internal revenue tax which has been assessed within the
period of limitation as prescribed in paragraph (a) hereof may be
collected by distraint or levy or by a proceeding in court within
five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the
period agreed upon as provided in paragraph (b) hereinabove,
may be collected by distraint or levy or by a proceeding in court
within the period agreed upon in writing before the expiration of
the five (5) -year period. The period so agreed upon may be
extended by subsequent written agreements made before the
expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding
and paragraph (a) hereof shall be construed to authorize the

It presupposes that PRE-ASSESSMENT NOTICE is required.


These all involve seizure of properties, what does due process
require?
Due process requires that, before ones properties
may be seized by the government through distraint
or levy as the case may be, there must be prior
notice to the property owner.
What are the requisites of a valid assessment?
1. The assessment must contain the tax due and
penalties and interests thereon;
2. The assessment must contain a demand for payment
addressed to the taxpayer;
3. The assessment must contain the law and the facts
on which the assessment is based (Section 228);
4. The assessment must be duly sent to and received
by the taxpayer. (CIR vs. Pascor)
Consider Section 228. What does that section 228 require?
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made;
otherwise the assessment shall be void.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on
the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(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 on exciseable articles has not been paid;
or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.

Section 203: The period for assessment is within 3 years after the
last day prescribed by law for the filing of the return or the date
when the return was filed, whichever is later.
Section 222: In case of a false or fraudulent return with intent to
evade tax or of failure to return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be filed
without assessment, at any time within 10 years after the
discovery of the falsity, fraud or omission.

When is it considered filed on the deadline fixed by the tax


code?
Section 203:
1. In case the return is filed BEYOND the
period prescribed by law, the 3-year period
shall be counted from the day the return
was FILED.
2. A return filed BEFORE the last day
prescribed by law for the filing thereof shall
be considered FILED on SUCH LAST DAY.

The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void.

Such assessment may be protested administratively by filing a request for


reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations.

Suppose the return was filed, let us say it was an Income Tax
Return, on February 23, 2009, how do you apply the 3-year
prescriptive period under Section 203?
The 3-year period shall commence to run from the
last day prescribed by law because it shall be
considered filed on such last day, meaning April 15,
2009. (April 15 is the deadline fixed for the filing of
Income Tax Return under Section 51.)

Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall
become final.

From the actual filing?


No.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.

Suppose it was filed after April 15. Let us say it was filed on
May 14, 2009. How do you apply the 3-year period?
The 3-year period shall reckon from May 14, 2009
because it was filed beyond the period prescribed by
law. Hence, the period shall be counted from the day
the return was filed. (Actual filing)

Within a period to be prescribed by implementing rules and regulations, the


taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.

Is assessment prescriptible or imprescriptible?


It is prescriptible based on Section 203 and Section
222 of the NIRC.

Is such a rule favorable to the government or to the taxpayer?


It is favorable to the government because the
government can collect the tax due with
corresponding penalties if in case the return was
filed beyond the period prescribed by law.

So there are two applicable prescriptive periods: 3 years,


under Section 203, and 10 years, under section 222. How do
you apply those?
Section 203: 3 years covers tax returns which are neither false
nor fraudulent.

Will that encourage the filing of tax return before or on the


last day fixed by the tax code?
(Transcribers notes: Yes, because the taxpayer will
incur penalties if he does not file the tax return on or
before such last day.)

Section 222: 10 years covers fraudulent returns, false returns


and failure to file a return.

How do you apply that? 3 years from what date? 10 years


from what date? Is it counted from the date of actual filing of
the return?
No.
51

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What about the 10-year period under section 222, how do you
apply it?
The 10-year period shall commence after the
discovery of the falsity or fraud in the return or
omission to file such return.

5.

6.
7.

Bar question: Distinction between false return and fraudulent


return.
AZNAR VS. COMMISSIONER, 58 SCRA 519
False return implies a deviation from truth or
fact whether intentional or not.
Fraudulent return intentional and deceitful
with the aim of evading the correct tax due.

When the warrant of distraint any levy is duly served


upon the taxpayer, his authorized representative or
a member of his household with sufficient discretion
and no property is located (NB: this one is proper
only for suspension of the period to COLLECT)
When the taxpayer is out of the Philippines.
When there is an answer filed by the BIR to the
petition for review in the CTA (Hermanos vs. CIR)
where the court justified this by saying that in the
answer filed by the BIR, it prayed for the collection
of taxes. (See Dimaampao book)

SEC. 223. Suspension of Running of Statute of Limitations. - The running of


the Statute of Limitations provided in Sections 203 and 222 on the making of
assessment and the beginning of distraint or levy a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter; when the taxpayer requests for a reinvestigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the Commissioner of any
change in address, the running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.

Suppose the return was amended, how do you apply the 3year period under Section 203?
It depends on whether the amendment is substantial
or not. If the amendment is not substantial, the
period shall be reckoned from the day the original
return was filed. If the return was amended
substantially, the period starts from the filing of the
amended return. (COMMISSIONER V. PHOENIX
ASSURANCE CO., LTD. 14 SCRA 52)
What is an example of substantial amendment?
1. under declaration (exceeding 30% of that declared)
of taxable sales, receipts or income;
2. overstatement (exceeding 30%) of deductions or
expenses. (Section 248, NIRC)

What does xxx CIR is prohibited from making the assessment


or beginning distraint xxx mean? Is the BIR or the
government prohibited from collecting such unpaid internal
revenue taxes? Can we restrain the collection of internal
revenue taxes?
Yes.

What is an example of immaterial amendment?

When will that arise, that the BIR may be enjoined from
collecting internal revenue taxes?
When such collection or assessment shall jeopardize
the interest of the government and/or the taxpayer.
In such case, the CTA at any stage of the proceedings
may suspend the collection of the tax 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.

Section 203, Section 222, which provide for prescriptive


periods, these prescriptive periods are suspended those
grounds stated under Section 223. You ought to know those
grounds that may suspend the running of the prescriptive
periods. What are these grounds?
1. Where the CIR and the taxpayer agreed in writing to
assessment of tax after the time prescribed, the tax
may be assessed within the period so agreed upon.
(Sec. 222 b)
2. Where the CIR is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter, such as
where there is a pending petition for review in the
CTA from the decision on the protested assessment.
(Republic vs. Ker & Co. 25 SCRA 208)
3. When the taxpayer requests for reinvestigation
which is granted by the Commissioner. (NB: A
request for reconsideration does NOT suspend the
running of the period.) (Section 223)
4. 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.

Which court has the authority to restrain the collection of


internal revenue taxes (to your charge?)?
Court of Tax Appeals
Applying Section 223, what would be the effect of that
injunctive relief rendered by the CA?
The prescriptive period under Sections 203 and 222
shall be deemed suspended.

52

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


In the book, there is another instance cited. What is the ruling
in the case of HERMANOS VS. CIR, 29 SCRA 552?
Filing of answer to taxpayers petition for review to
the Court of Tax Appeals.

Reinvestigation must be based on newly-discovered evidence.


Reconsideration is a plea. You are asking the BIR to review its
ruling process, findings based on what? reconsideration.
Existing records or evidence.

The enumeration under 223 is not exclusive.

Its proper to file or request for reconsideration or


reinvestigation if there is such newly discovered evidence
upon which they will be based otherwise just file a request
for reconsideration, which is a plea for reevaluation of the
finding of the BIR based on the existing record or evidence.

It presupposes that an appeal was made before the Court of


Tax Appeals. The petition for review under the provision of
law RA 9282 shall be filed before the CTA. So what is that
action by the BIR that will suspend the running of the
prescriptive period?

In one case the Supreme Court, in your book, explained the


underlying reason why its request for reinvestigation that
may suspend the running of the prescriptive period thats the
point for reconsideration. 506 SCRA 524. Global
communications case. 473 SCRA 205 (Case title?)
If the taxpayer fails to file a protest, then the
erroneous assessment would become final and
unappealable. On the other hand, if the taxpayer
does not file the protest on a patently erroneous
assessment, the statute of limitations would
automatically be suspended and the tax thereon
may be collected long after it was assessed.

Waiver of statute of limitations, this is allowed under Section


222. How is it effected?
Section 222 (b): If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the Commissioner
and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed
upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period
previously agreed upon.

It must be valid based on decided case or cases, the requisite


of the valid waiver of the statute of limitations are as follows.
Can you enumerate those requisites?

Whats the connection (erroneous assessment) with the


reconsideration or reinvestigation?

Can that be waived, this statute of limitations, outside the


prescriptive period? Is there a basis? Or is it an indispensable
requisite?
No. The waiver must be executed within the 3-year
prescriptive period under section 203, otherwise
said waiver shall be ineffectual.

Tax Lien
How is this administrative remedy - enforcement of tax lien
perfected based on Section 219?
Section 219: If any person, corporation, partnership, joint
account, association or insurance company liable to pay an
internal revenue tax, neglects or refuses to pay the same after
demand, the amount shall be lien in favor of the Government of
the Philippines from the time when the assessment was made by
the Commissioner until paid, with interests, penalties, and costs
that may accrue in addition thereto upon all property and rights
to property belonging to the taxpayer: Provided, that this lien
shall not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of the
province or city where the property of the taxpayer is situated or
located.

Otherwise there is nothing to suspend.


It is very clear under section 223 that it is the request for
reinvestigation that will suspend the running of the
prescriptive period that is written in your book, the decided
case of Global Communications. What do you think is the
difference between request for reinvestigation, thats the one
that will suspend the running of the prescriptive period, and
request for reconsideration that will not suspend the running
of the prescriptive period?
The main difference between these two types of
protests lies in the records or evidence to be
examined by internal revenue officers whether
these are existing records or newly discovered or
additional evidence. A re-evaluation of existing
records which results from a request for
reconsideration does not toll the running of the
prescriptive period for the collection of an assessed
tax. (CIR VS. PHILIPPINE GLOBAL COMMUNICATION,
INC. 506 SCRA 427)

In your book I cited the case of Maritime Shipping Lines. If you


recall the ruling of the court, when that such tax lien attach to
the property of the delinquent taxpayer?
The tax lien attaches not only from the service of the
warrant of distraint of personal property but from
the time the tax became due and payable. (CIR VS.
NLRC, 238 SCRA 42 MARITIME COMPANY OF THE
PHILIPPINES)
So what does Section 219 provide?
when the assessment
Commissioner until paid
53

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made

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC

Will that cover real property? What would be the legal effect
of such tax lien?
The property shall serve as security for the tax due.

Constructive

Redemption
Suppose the property of the delinquent taxpayer has been
mortgaged or transferred or has been the subject of trade of
institution based on judgment rendered by a court.
Sec. 219: Provided, that this lien shall not be valid against any
mortgagee, purchaser or judgment creditor until notice of such
lien shall be filed by the Commissioner in the office of the Register
of Deeds of the province or city where the property of the
taxpayer is situated or located.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the


amount bid for the property under distraint is not equal to the amount of the
tax or is very much less than the actual market value of the articles offered
for sale, the Commissioner or his deputy may purchase the same in behalf of
the national Government for the amount of taxes, penalties and costs due
thereon.
Property so purchased may be resold by the Commissioner or his deputy,
subject to the rules and regulations prescribed by the Secretary of Finance,
the net proceeds therefrom shall be remitted to the National Treasury and
accounted for as internal revenue.
SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no
bidder for real property exposed for sale as herein above provided or if the
highest bid is for an amount insufficient to pay the taxes, penalties and costs,
the Internal Revenue Officer conducting the sale shall declare the property
forfeited to the Government in satisfaction of the claim in question and
within two (2) days thereafter, shall make a return of his proceedings and the
forfeiture which shall be spread upon the records of his office. It shall be the
duty of the Register of Deeds concerned, upon registration with his office of
any such declaration of forfeiture, to transfer the title of the property
forfeited to the Government without the necessity of an order from a
competent court.

What are the distinctions between distraint of personal


property and levy on real properties? There may be six
distinctions. Can you point out significant distinctions? Is
there such thing as constructive levy of real property?

Document
issued by the
BIR
Notice of sale

If the bid is not


equal to the
tax

Posting in
public places

Posting in 2 public
places; Publication
for 3 weeks
BIR may forfeit the
property.
When
there is no bidder or
when the highest bid
is insufficient to

BIR
may
purchase
and
may re-sell the
same. Forfeiture
is not available.

There is right of
redemption
(sec.
214)

What is the difference now between Section 212 and Section


215? (Section) 212 applies to distraint. (Section) 215 is
entitled forfeiture. Does it apply to real property? Where lies
the distinction. Here, under the restrictions of the government
may what? In the case of Section 215, shall be forfeited, and
212 the government may purchase. Where lies the distinction
there?

Distraint and Levy

Levy
Real property

of

cover the tax due.


No constructive levy

Madz Montesa: Because it is violative of the due process of


law since what is involved is real property, wherein there
must be actual delinquency on his part before his real
property may be seized by the government.

Because that will bring about the speedy collection of taxes.


His remedy, once he is made to pay the entire unpaid tax
liability of the estate of his deceased father is what?
To seek reimbursement from his co-heirs to the
extent of their proportionate shares.

Distraint
Personal
Property
Warrant
of
Distraint

is

Why is there no constructive levy of real property?

If you will recall, Commissioner vs. Pineda, the tax lien was
enforced against only one of the heirs. Atty. Pineda
questioned that. What is the ruling of the court?
The government can require Pineda to pay the full
amount of the taxes assessed. As an heir, he is
individually answerable for the part of the tax
proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the
amount of his share. The reason is that the
government has a lien on the P2,500 received by him
from the estate as his share in the inheritance for
unpaid taxes for which the estate is liable, pursuant
to Sec. 219.

AS to:
Subject matter

There
constructive
distraint
No
Right
Redemption

Within one (1) year from the date of such forfeiture, the taxpayer, or any one
for him may redeem said property by paying to the Commissioner or the
latter's Revenue Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the property be
not thus redeemed, the forfeiture shall become absolute.

Authenticated
Certificate of Levy

If there is no bidder in that public or auction sale involving


personal property, can the government purchase the same?
Section 212: When the amount bid for the property under
distraint is not equal to the amount of the tax or is very much less
than the actual market value of the articles offered for sale, the
Commissioner or his deputy may purchase the same in behalf of
the National Government for the amount of taxes, penalties and
cost due thereon.
54

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


What are the distinctions between constructive distraint and
actual distraint?

Property so purchased may be resold by the Commissioner or his


deputy, subject to the rules and regulations prescribed the
Secretary of Finance, the net proceeds therefrom shall be
remitted to the National Treasury and accounted for as internal
revenue.

Nature
Subject matter
Availability

Under 212 there are two situations under which the


government may purchase through BIR. What are these?
When the amount bid is:
1. not equal to the amount of the tax; or
2. is very much less than the actual market value
of the articles offered for sale.

To whom made

What about 215? What are the situations?


1. When there is no bidder; or
2. When the highest bid is insufficient to cover the tax
due.

How effected

How made

Do you know the meaning of forfeiture? Why can we not use


that in distraint of personal property?

Effect on
collection

What is the provision under Section 214 regarding the right of


redemption?
Within one year from the date of sale, the
delinquent taxpayer, or any one for him, shall have
the right of paying to the Revenue District Officer
the amount of the public taxes, penalties, and
interest thereon from the date of delinquency to the
date of sale, together with interest on said purchase
price at the rate of 15% per annum from the date of
purchase to the date of redemption

Actual
Constructive
Summary Remedy
Personal property
Can only be availed of if the tax is more
than P100.
Delinquent TP
Any
taxpayer
(delinquent/not)
Taking
of Mere
prohibition
possession OR from disposing the
transfer
of property
control
Leaving a list of Requiring the TP to
property
sign a receipt OR
distrained
or leaving a list of such
Service
of property
warrant
Immediate step Merely a prevention
of collection
on the disposition on
the property

Constructive distraint: It is a preliminary remedy in what


sense?
In a sense that there is no taking of the property. It is
merely availed of to prevent the dissipation of the
property.
against whom?
In the case of actual distraint, it may be effected
against the delinquent taxpayer.

How do you describe that redemption? Is that a conventional


redemption? It is the one that applies to pacto de retro sales.
How do you describe this? This is not a conventional
redemption? You must have come across preemption, right of
preemption which applies to co-owners. This is an example of
what?
Legal redemption. Because it is the law that says that
this property may be redeemed.

What about constructive distraint? Is delinquency required?


No.
If the taxpayer is not yet delinquent, how do you effect this
constructive distraint? against whom?
Against the taxpayer or person in possession of the
property.
What are other distinctions? This can be inferred from the
provision, section 206. The property, as the word connotes,
constructive, is deemed under distraint. How? There is really
no actual distraint of property.

So the interest there is _____ imposed, in addition to the


interest on the delinquent unpaid taxes?
15%

Section 206 2nd paragraph: By requiring the taxpayer or any


person having possession or control of such property to sign a
receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the
same in any manner whatever, without the express authority of
the Commissioner.
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard
the interest of the Government, the Commissioner may place under
constructive distraint the property of a delinquent taxpayer or any taxpayer
who, in his opinion, is retiring from any business subject to tax, or is
55

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


intending to leave the Philippines or to remove his property therefrom or to
hide or conceal his property or to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from him.

Huge amount of assessment, what does that mean?


An assessment is huge if the amount
thereof is equal to or bigger than the net
worth or equity of the taxpayer.

The constructive distraint of personal property shall be affected by requiring


the taxpayer or any person having possession or control of such property to
sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same ;in
any manner whatever, without the express authority of the Commissioner.

2.

In case the taxpayer or the person having the possession and control of the
property sought to be placed under constructive distraint refuses or fails to
sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and, in
the presence of two (2) witnessed, leave a copy thereof in the premises
where the property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.

When a taxpayer who is under tax investigation has


a record of leaving the Philippines at least twice a
year unless such trips are justified and/or connected
with his business, profession or employment;

3.

When a taxpayer, other than a banking institution,


who is under tax investigation has a record of
transferring his bank deposits and other valuable
personal property/ies from the Philippines to any
foreign country;

4.

When the taxpayer uses aliases in bank accounts,


other than the name for which he is legally and/or
popularly known;

5.

When the taxpayer keeps bank deposits and owns


other property/ies under the name of other persons,
whether or not related to him, and the same are not
under any lawful fiduciary or trust capacity;

6.

When a taxpayers big amount of undeclared income


is known to the public or to the BIR by credible
means and there is a strong reason to believe that
the taxpayer, in the natural course of events, will
have a great tendency to hide or conceal his
property/ies.

What is that document that must be signed by this person in


possession of the property? He is bound by that thats why he
cannot dispose of the same without express authority from
the BIR commissioner. That must be in the nature of what?
Must that be reduced in writing?
Yes. It is in the nature of an undertaking
undertaking to preserve the property intact,
unaltered, and undertaking not to dispose of the
same without the express authority from the BIR
Commissioner.
What are the grounds under which the constructive distraint
may be resorted to?
Under section 206, the Commissioner, to safeguard
the interest of the government, may place under
constructive distraint the property of a delinquent
taxpayer or any taxpayer or any taxpayer who, in his
opinion is:
1. retiring from any business subject to the
tax;
2. intending to leave the Philippines or to
remove his property therefrom or to hide or
conceal his property;
3. intending to perform any act tending to
obstruct the proceedings for collecting the
tax due or which may be due from him.

**For this purpose, the term big amount of


undeclared income means an amount exceeding
30% of the gross sales, gross receipts or gross
revenue declared per return;
7.

The grounds under section 206 have been expanded by


Revenue Memorandum Circular no. 5-2001 to 7 grounds.
Any act which will obstruct the collection proceedings that
may be made by the BIR. This covers three cases. What are
these fraudulent methods, schemes or devises?
1. When a taxpayer who applies for retirement from
business has a huge amount of assessment pending
with the BIR.

When the BIR receives information or complaint


pertaining to undeclared income in an amount
exceeding 30% of gross sales, gross receipts or gross
revenue declared per return of a particular taxpayer
and there is enough reason to believe that the said
information is correct as when the complaint or
information is supported by substantial and credible
evidence.

(Revenue Memorandum Circular no. 5-2001)

56

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


230 of this Code: Provided, That the original copy of the Tax Credit Certificate
showing a creditable balance is surrendered to the appropriate revenue
officer for verification and cancellation: Provided, further, That in no case
shall a tax refund be given resulting from availment of incentives granted
pursuant to special laws for which no actual payment was made.

TAX2 (16) LECTURE


Were still on administrative remedies that may be availed of
by the government. You have to memorize those cases under
which the Commissioner of the BIR can resort to the so-called
Constructive Distraint (Revenue Memorandum Circular 52001).
Section 206 has been implemented
Memorandum Circular 5-2001.

by

The Commissioner shall submit to the Chairmen of the Committee on Ways


and Means of both the Senate and House of Representatives, every six (6)
months, a report on the exercise of his powers under this Section, stating
therein the following facts and information, among others: names and
addresses of taxpayers whose cases have been the subject of abatement or
compromise; amount involved; amount compromised or abated; and reasons
for the exercise of power: Provided, That the said report shall be presented
to the Oversight Committee in Congress that shall be constituted to
determine that said powers are reasonably exercised and that the
government is not unduly deprived of revenues.

Revenue

COMPROMISE

Its very clear now that the BIR Commissioner has the
authority to compromise tax liabilities. You will note that it
covers not only civil liability but also criminal liability. You can
easily recall the grounds:
1. doubtful validity;
2. financial incapacity.

Lets focus on the provision on Compromise (Section 204;


pages 166 174 of Dimaampao Book).
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund
or Credit Taxes. - The Commissioner may (A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the
taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.

You have to know this because as amended, the compromise


rate insofar as these grounds regarding financial incapacity is
10%, minimum compromise rate, 40% for doubtful validity
cases.

The compromise settlement of any tax liability shall be subject to the


following minimum amounts:

For cases of financial incapacity, a minimum compromise rate


equivalent to ten percent (10%) of the basic assessed tax; and

For other cases, a minimum compromise rate equivalent to forty


percent (40%) of the basic assessed tax.

How do you apply that?


The word is minimum. It must not be lower than
10% or 40%.
More than 10% is within the bounds of the law.

Where the basic tax involved exceeds One million pesos (P1,000.000) or
where the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the Evaluation Board which
shall be composed of the Commissioner and the four (4) Deputy
Commissioners.

What is not allowed is to lower that to 9, 8, 7%. So


12% is within the limitation. Three revenue
regulations clarified this provision.

(B) Abate or Cancel a Tax Liability, when:


(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.

Regarding this doubtful validity cases, there are now 7


situations covered by the particular ground. Financial
incapacity cases, there are 5. According to Revenue
Regulations 7-2001 as amended by Revenue Regulations 302002. I want you to mark, master and memorize the meaning
of Jeopardy assessment.

All criminal violations may be compromised except:


(a) those already filed in court, or
(b) those involving fraud.
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps
when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit
for use and refund their value upon proof of destruction. No credit or refund
of taxes or penalties shall be allowed unless the taxpayer files in writing with
the Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or
refund.

Sec. 3. Basis for acceptance of Compromise Settlement. The Commissioner


may compromise the payment of any internal revenue tax on the following
grounds:
(1) Doubtful validity of the assessment. the offer to compromise a
delinquent account of disputed assessment under these
Regulations on the ground of reasonable doubt as to the validity
of the assessment may be accepted when it is shown that:

A Tax Credit Certificate validly issued under the provisions of this Code may
be applied against any internal revenue tax, excluding withholding taxes, for
which the taxpayer is directly liable. Any request for conversion into refund
of unutilized tax credits may be allowed, subject to the provisions of Section

Jeopardy assessment a tax assessment which was


assessed without the benefit of complete or partial audit by
an authorized revenue officer, who has reason to believe
that the assessment and collection of a deficiency tax will be

(a)

57

The delinquent account or disputed assessment is one


resulting from a jeopardy assessment.

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


jeopardized by delay because of the taxpayers failure
comply with the audit and investigation requirements
present his books of accounts and/or pertinent records,
to substantiate all or any of the deductions, exemptions,
credits claimed in his return.
(b)

other leviable/distrainable assets, other than his family


home
(e)

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

(c)

The taxpayer failed to file an administrative protest on


account of the alleged failure to receive notice of
assessment or preliminary assessment and there is reason to
believe that the assessment is lacking in legal and/or factual
basis

(d)

The taxpayer failed to file a request for


reinvestigation/reconsideration within 30 days from receipt
of final assessment notice and there is reason to believe that
the assessment is lacking in legal and/or factual basis

(e)

The taxpayer failed to elevate to the CTA an adverse


decision of the Commissioner, or his authorized
representative, in some cases, within 30 days from receipt
thereof and there is reason to believe that the assessment is
lacking in legal and/or factual basis

(f)

The assessment were issued on or after January 1, 1998,


where the demand notice allegedly failed to comply with the
formalities prescribed under sec. 228 of the Tax code.

(g)

Assessment made based on the Best Evidence Obtainable


Rule and there is reason to believe that the same can be
disputed by sufficient and competent evidence

(h)

The Assessment was issued within the prescriptive period of


assessment as extended by the taxpayers execution of
Waiver of the Statute of Limitations the validity or
authenticity of which is being questioned or at issue and
there is strong reason to believe and evidence to prove that
it is not authentic

(i)

(2)

to
to
or
or

The taxpayer has been granted by the Securities and


Exchange Commission or by any competent tribunal a
moratorium or suspension of payments to creditors, or
otherwise declared bankrupt or insolvent

The Commissioner shall not consider any offer for compromise settlement by
reason of financial incapacity unless and until the taxpayer waives in writing
his privilege of the secrecy of bank deposits under Republic Act. No. 1405 or
under other general or special laws, and such waiver shall constitute as the
authority of the Commissioner to inquire into the bank deposits of the
taxpayer.
For purposes of these Regulations, the term assessment includes the
preliminary assessment notice (PAN) issued as of June 30, 2001 by the
appropriate Review Office. In fine, it does not include the post reporting
notice issued by the head of the investigating unit.

Jeopardy assessment is an example of doubtful validity case.


What must be the reason? Jeopardy Assessment vs Ordinary
Assessment
It is different from ordinary assessment. In ordinary
assessment, there is that tax audit. Here (in jeopardy
assessment), there is no audit to doubtful question.
That makes it a doubtful assessment. If it is justified
by demand that such delay in submitting this
documents by the taxpayer will jeopardize the
collection of such tax. You should know how that
word jeopardize is being used in such definition. If it
is that delay that may bring by such assessment.
You should also underscore this item G, the application of the
Best Evidence Obtainable Rule. You refer to section 6(B) of
the Tax Code, there you will find this provision regarding Best
Evidence Obtainable Rule.

The Assessment is based on an issue where a court of


competent jurisdiction made an adverse decision against the
bureau, but for which the Supreme Court has not decided
upon with finality

(g). Assessment made based on the Best Evidence Obtainable Rule and there
is reason to believe that the same can be disputed by sufficient and
competent evidence

Financial Incapacity the offer to compromise based on financial


incapacity may be accepted upon showing that:

SEC. 6. Power of the Commissioner to Make assessments and Prescribe


additional Requirements for Tax Administration and Enforcement.

(a)

The corporation ceased operation or is already dissolved

xxxxxx

(b)

The taxpayer is suffering from surplus or earnings deficit


resulting to impairment in the original capital by at least 50%

(c)

The taxpayer is suffering from networth deficit computed by


deducting total liabilities (net of deferred credits) from total
assets (net of prepaid expenses, deferred charges, preoperating expenses, as well as appraisal increases in fixed
assets), taken from the latest audited financial statements

(B) Failure to Submit Required Returns, Statements, Reports and other


Documents. - When a report required by law as a basis for the assessment of
any national internal revenue tax shall not be forthcoming within the time
fixed by laws or rules and regulations or when there is reason to believe that
any such report is false, incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence obtainable.

(d)

In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise files a false or fraudulent return
or other document, the Commissioner shall make or amend the return from
his own knowledge and from such information as he can obtain through
testimony or otherwise, which shall be prima facie correct and sufficient for
all legal purposes.

The taxpayer is a compensation income earner with no


other source of income and the familys gross monthly
compensation income does not exceed the levels of
compensation income provided for under sec 4.1.1 of these
regulations, and it appears that the taxpayers possesses no
58

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe
Presumptive Gross Sales and Receipts. - The Commissioner may, at any time
during the taxable year, order inventory-taking of goods of any taxpayer as a
basis for determining his internal revenue tax liabilities, or may place the
business operations of any person, natural or juridical, under observation or
surveillance if there is reason to believe that such person is not declaring his
correct income, sales or receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing the taxes for the other
months or quarters of the same or different taxable years and such
assessment shall be deemed prima facie correct.

taxpayer. It places no limit or condition on the type


or form of the medium by which the record subject
to the order of the BIR is kept. The purpose of the
law is to enable the BIR to get at the taxpayers
records in whatever form they may be kept. Such
records include computer tapes of the said records
prepared by the taxpayer in the course of
business.68 In this era of developing informationstorage technology, there is no valid reason to
immunize companies with computer-based, recordkeeping capabilities from BIR scrutiny. The standard
is not the form of the record but where it might shed
light on the accuracy of the taxpayers return.
What may be used by the BIR is the information that may be
gotten from taxpayers who engage in the same business.

When it is found that a person has failed to issue receipts and invoices in
violation of the requirements of Sections 113 and 237 of this Code, or when
there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to
be filed under the provisions of this Code, the Commissioner, after taking
into account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or
circumstances or after considering other relevant information may prescribe
a minimum amount of such gross receipts, sales and taxable base, and such
amount so prescribed shall be prima facie correct for purposes of
determining the internal revenue tax liabilities of such person.

You should also read Section 6(C) which is really an


amplification of that.

xxxxxxxxx

If a taxpayer failed to maintain books of accounts, the BIR can


resort to other information. Just to search the gross sales or
receipts of these taxpayers. The Best Evidence Obtainable
Rule requires information may be gotten from persons who
engage in the same or similar business.

It is one of those doubtful validity cases because as explained


by the Supreme Court in the case of COMMISSIONER VS.
HANTEX TRADING CO., INC., G.R. NO. 136975, March 31,
2005, 454 SCRA 301, this is a departure from such observance
of the technical rules of procedure. Here, best evidence may
be covered by this as this might come from third persons.

The new provision there is the last item, item I, but there is
such an adverse decision, adverse to the BIR.

COMMISSIONER VS. HANTEX TRADING CO


the general rule is that administrative agencies such
as the BIR are not bound by the technical rules of
evidence. It can accept documents which cannot be
admitted in a judicial proceeding where the Rules of
Court are strictly observed. It can choose to give
weight or disregard such evidence, depending on its
trustworthiness.

i. The Assessment is based on an issue where a court of competent


jurisdiction made an adverse decision against the bureau, but for which the
Supreme Court has not decided upon with finality

If you go over those cases that fall under the financial


incapacity, you will notice that these grounds are justifiable.
For instance, if a corporation ceased to commence its
business, has been dissolved, financial incapacity may be
invoked as a ground. It files a petition for suspension of
payments, insolvency, it is but just and fair to invoke this as a
ground for compromise.

The "best evidence" envisaged in Section 16 of the


1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the
subject of the assessment process, the accounting
records of other taxpayers engaged in the same line
of business, including their gross profit and net profit
sales.67 Such evidence also includes data, record,
paper, document or any evidence gathered by
internal revenue officers from other taxpayers who
had personal transactions or from whom the subject
taxpayer received any income; and record, data,
document and information secured from
government offices or agencies, such as the SEC, the
Central Bank of the Philippines, the Bureau of
Customs, and the Tariff and Customs Commission.

As you can see under section 204, the BIR Commissioner can
compromise criminal liability. Here, you should group those
cases which can be compromised, cases which cannot be
compromised. There are 6 cases, according to Rev. Reg. 52001, which can be compromised. On the other hand, there
are 7 cases which cannot be compromised.
Sec. 2 Cases which may be Compromised - the following cases may, upon
taxpayers compliance with the basis set forth under Section 3 of these
Regulations, be the subject matter of compromise settlement

The law allows the BIR access to all relevant or


material records and data in the person of the
59

1.

Delinquent accounts

2.

Cases under administrative protest pending in the Regional


Offices, Revenue District Offices, Legal Service, large Taxpayer

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Service (LTS), Collection Service, Enforcement Service, and other
offices in the National office\
3.

Civil tax cases being disputed before the courts, e.g., MTC, RTC,
CTA, CA, SC

4.

Collection case filed in courts

5.

Criminal Violations other than those already filed in court or those


involving criminal tax fraud

6.

Cases covered by pre-assessment notices but taxpayer is not


agreeable to the findings of the audit office as confirmed by the
review office

executor or administrator or the heirs to pay such tax, they


cannot thereafter invoke the same as ground. That must be, I
think, the reason behind this.
In section 204, if there was fraud, it cannot be compromised.
Even if no fraud was involved, once the case is filed in court,
i.e., criminal case is filed in court that can no longer be
compromised. This provision has been explained, simplified,
under this brand new regulation 7-2001. Approved schedule
of payment in installment. There is such an adjustment, you
agree to that, you could not later on request for a
compromise.

Cases which cannot be compromised


1.

Withholding tax cases, unless the applicant-taxpayer invokes


provisions of law that cast doubt on the taxpayers obligations to
withhold

2.

Criminal tax fraud cases confirmed as such by the Commissioner


of Internal Revenue or his duly authorized representative

3.

Criminal violation already filed in court

4.

Delinquent accounts with duly approved schedule of installment


payments

5.

Cases where final reports of revinvestigation or reconsiderations


have been issued resulting to reduction in the original assessment
and the taxpayer is agreeable to such decision by signing the
required agreement form for the purpose. On the other hand,
other protested cases shall be handled by the Regional Evaluation
Board or the National Evaluation Board on a case to case basis

6.

Cases which become final and executor after final judgment of a


court, where compromise is requested on the ground of doubtful
validity of the assessment

7.

Estate tax cases where compromise is requested on the ground of


financial incapacity of the taxpayer

P1,000,000 basic tax or P1,000,000 that is within the


authority of this National Evaluation Board that is the BIR
Commissioner ____ for additional members is no longer
within the authority of the BIR Commissioner. It falls under
the authority if the National Evaluation Board even if the
compromise rate is below that minimum 40%, that can still
be compromised. This time it is within the authority of the
National Evaluation Board.
I want you to read Section 7 of the Tax Code. A, B, C. There
you will find the amount that can be compromised: P500,000.
The question there is, as discussed by the SC in the case of
Republic vs. Hizon, 320 SCRA 574, the jurisdiction, those
powers of the BIR which cannot be delegated. Thats where
you find expressio unius est exclusio alterius. Those are
powers which cannot be delegated. They are mentioned
under Section 7. As long as the amount is not more than
P500,000, the paragraph C, they can be the subject of
delegation.
SEC. 7. Authority of the Commissioner to Delegate Power. - The
Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated:
(a) The power to recommend the promulgation of rules and
regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke
or modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of
this Code, any tax liability: Provided, however, That assessments
issued by the regional offices involving basic deficiency taxes of
Five hundred thousand pesos (P500,000) or less, and minor
criminal violations, as may be determined by rules and regulations
to be promulgated by the Secretary of finance, upon
recommendation of the Commissioner, discovered by regional
and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, the heads
of the Legal, Assessment and Collection Divisions and the Revenue
District Officer having jurisdiction over the taxpayer, as members;
and

Cases which cannot be compromised, it used to be 5. Rev.


Reg. 20-2002 added 2 grounds. The 2 grounds:
1.

2.

When such judgment has become final, this has


been qualified, that is if the ground is a doubtful
validity if the request for compromise is grounded
on doubtful validity.
Estate tax cases. Take note of the qualification that is
if the request for compromise is based on financial
incapacity. You should read this in relation to that
section we discussed regarding Estate tax
particularly sections 90 and 91. There you will find
this 5-year, 2-year period. These are the periods that
may be counted for such extension of time to pay
estate tax.

The trouble with this rev. reg. is that it failed to give the
reason, read section 91, by allowing the granting of 2 or 5
year period extension, the law has given ample time for the
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(d)

The power to assign or reassign internal revenue officers to


establishments where articles subject to excise tax are produced
or kept.

commission of a crime is a source of civil liability. Every


person criminally liable is also civilly liable. Article 1157 is a
source of civil obligation. Such criminal liability resulted from
taxpayers failure to pay his tax liabilities. Here you consider
Sections 254 and 255. If you will be asked What is that
provision under the tax code regarding tax evasion?, thats
the one. 254. Attempt to evade the payment of tax. Failure to
file tax return is Section 255. So failure to file taxes, that will
result in criminal liability. So it is the source. It is the failure of
the taxpayer to pay his tax that may result in criminal
violation.

Lets have this provision under Section 205. Its clear that the
BIR can resort to judicial remedies or administrative remedies
and it is allowed for BIR to avail of the same simultaneously.
Section 205 must be read in relation to Section 220. This has
something to do with the filing of an action court which really
requires the approval of the BIR commission, whether civil
action or the institution of criminal proceedings. That has
been amended. Before, the prosecution of such violations of
the tax code was supervised by the Department of Justice. It
must be prosecuted by the legal officers of the BIR. That
provision under the supervision of the DOJ has been deleted.
They lacked prosecutorial skills. You read Section 220, it
seems that the CTA is not strictly adhering to this provision.

Republic vs. Patano, 20 SCRA 712


In applying the principle underlying the civil liability
of an offender under the penal Code to a case
involving the collection of taxes, the court a quo fell
into error. The two cases are circumscribed by
factual premises which are diametrically opposed to
each other, and are founded on entirely different
philosophies. Under the Penal Code, the civil liability
is incurred by reason of the offenders 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 be
civilly liable thereunder. The situation under x x x x
the 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 infraction of the tax law.

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil
remedies for the collection of internal revenue taxes, fees or charges, and
any increment thereto resulting from delinquency shall be:
(e) By distraint of goods, chattels, or effects, and other personal
property of whatever character, including stocks and other
securities, debts, credits, bank accounts and interest in and rights
to personal property, and by levy upon real property and interest
in rights to real property; and
(f)

By civil or criminal action.

Either of these remedies or both simultaneously may be pursued in the


discretion of the authorities charged with the collection of such taxes:
Provided, however, That the remedies of distraint and levy shall not be
availed of where the amount of tax involve is not more than One
hundred pesos (P100).
The judgment in the criminal case shall not only impose the penalty but
shall also order payment of the taxes subject of the criminal case as
finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to
defray costs of collection by means of civil or criminal action, including
the preservation or transportation of personal property distrained and
the advertisement and sale thereof, as well as of real property and
improvements thereon.

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully
attempts in any manner to evade or defeat any tax imposed under this Code
or the payment thereof shall, in addition to other penalties provided by law,
upon conviction thereof, be punished by a fine not less than Thirty thousand
(P30,000) but not more than One hunderd thousand pesos (P100,000) and
suffer imprisonment of not less than two (2) years but not more than four (4)
years: Provided, That 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.

SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. Civil and criminal actions and proceedings instituted in behalf of the
Government under the authority of this Code or other law enforced by the
Bureau of Internal Revenue shall be brought in the name of the Government
of the Philippines and shall be conducted by legal officers of the Bureau of
Internal Revenue but no civil or criminal action for the recovery of taxes or
the enforcement of any fine, penalty or forfeiture under this Code shall be
filed in court without the approval of the Commissioner.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay
Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on
Compensation. - Any person required under this Code or by rules and
regulations promulgated thereunder to pay any tax make a return, keep any
record, or supply correct the accurate information, who willfully fails to pay
such tax, make such return, keep such record, or supply correct and accurate
information, or withhold or remit taxes withheld, or refund excess taxes
withheld on compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more
than ten (10) years.

This brings us to the meaning of criminal proceedings


involving tax cases. You read the case of Republic vs. Patano,
20 SCRA 712. What you learned under the Revised Penal
Code, Article 100, is different. As pointed out by the SC,
criminal cases under the Revised Penal Code are based on the
legal foundations different from that of criminal cases
involving violations of the NIRC. They are founded on
different legal philosophies. What youve learned is that, such

Any person who attempts to make it appear for any reason that he or
another has in fact filed a return or statement, or actually files a return or
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


statement and subsequently withdraws the same return or statement after
securing the official receiving seal or stamp of receipt of internal revenue
office wherein the same was actually filed shall, upon conviction therefor, be
punished by a fine of not less than Ten thousand pesos (P10,000) but not
more than Twenty thousand pesos (P20,000) and suffer imprisonment of not
less than one (1) year but not more than three (3) years.

assessment in such form and manner as may be prescribed by implementing


rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall
become final.

I have to ask you about the prescriptive period regarding a


criminal action. You refer to Section 281. There youll find the
5-year period. You read the case of Lim vs. CA, 190 SCRA 616.
The SC made its observation and the court really is correct
when it commended that given that the word and has been
used there, these two conditions must conform. The five-year
period should commence to run from such discovery of that
violation AND the institution of judicial proceedings or its
punishment or investigation. So that will never commence to
run if no judicial proceedings have been commenced or
executed by the government. So that makes it imprescriptible
as far as the government is concerned. It should be amended.
Because it would appear that may be the subject of whimsical
discretion or comprising part of the BIR.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.

Again the case involving that prescriptive period now has


these two important provisions: Section 228 and Section 229.
These are administrative remedies _____ in judicial
proceedings. It is Revenue Regulations 12-99 that implements
this provision regarding Section 228, request for
investigation, request for reconsideration.

In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.

So when a taxpayer receives assessment, he has two


remedies. He may question the same. So he should file
request for investigation or reconsideration as the case may
be. Or pay the tax and if he believes that the tax is erroneous
or illegally collected. He can file record to enforce such.
___________

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly


authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on
the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(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 on exciseable articles has not been paid;
or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.

Section 228 has deficiency in that it never discussed or


defined request for reinvestigation as distinguished from
request for reconsideration. In the case of BPI vs.
Commissioner, 473 SCRA 21 and that of Global
Communication, 506 SCRA 427 - those are the notable cases
regarding this request for investigation, request for
reconsideration. The SC pointed out revenue regulations 1285. As explained in the BPI case, it is proper to file a request
for investigation if there is the so-called newly discovered
evidence. Request for reconsideration, on the other hand, is
just a plea for the BIR to go over the case, review such
evidence as it might ______. Now this is important in the light
of Section 223. Its clear therein that the one that will
suspend the running of the prescriptive periods laid down in
Section 203 and 222 is request for reinvestigation. It is not
request for reconsideration. The request for reconsideration
will not suspend the running of the prescriptive period, laid
down in Section 203 and 222.

The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall
be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.

I hold you responsible about these cases which did not pass
this pre-assessment notice (Section 228). There are five

Such assessment may be protested administratively by filing a request for


reconsideration or reinvestigation within thirty (30) days from receipt of the
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


1.

2.

3.

4.
5.

When the finding for any deficiency tax is the result


of mathematical error in the computation of the tax
as appearing on the face of the return; or
When a discrepancy has been determined between
the tax withheld and the amount actually remitted
by the withholding agent; or
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
When the excise tax due on excisable articles has not
been paid; or
When an article locally purchased or imported by an
exempt person such as but not limited to vehicles,
capital equipment, machineries and spare parts has
been sold, traded or transferred to non-exempt
persons.

BPI vs. Commissioner, 521 SCRA 373. (presumption of


correctness in case of taxpayers failure to protest the
assessments)
Tax assessments by tax examiners are presumed
correct and made in good faith. Tax taxpayer has the
duty to prove otherwise. In the absence of proof of
any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
If you read this case of BPI, the court will mention this rule
that such provision, being remedial in character may be given
retroactive application. But in another case, it says you
cannot read into law what has not been expressly stated.
But in the latest case, it appeared that the court did not give
retroactive application. Can we give retroactive application to
this provision that such assessment must state the facts and
the law upon which it is based?
You learned this in Remedial Law that as long as it
does not impair vested rights that may be given
retroactive application.

If it is not covered by any of five, it must pass through the socalled pre-assessment notice. The importance of a revenue
regulation, you really have to read revenue regulation 12-99,
is its so-called informal notice of conference. And that will be
followed by the ___ pre-assessment notice.

The last two paragraphs are new ones because under the old
tax code, it made no mention about this 60-day period, 180day period. The 60-day period applies to the submission of
these pertinent and relevant documents. The 180-day period
applies to the rendition of judgment, decision, by the BIR
Commission. In this regard, you read this case, regarding this
180-day period: RCBC vs. Commissioner, 522 SCRA 144. That
pronouncement of the court citing the rules of Court of Tax
Appeals may not be consistent with this provision, last part of
Section 228. Here it is clear that if no decision has been
rendered, you may appeal such inaction of the BIR within 30
days from the lapse of that 180-day period. There seems to
be a deviation from this provision. This is substantive law. If
we follow these rules of CTA, these are just rules; these must
not contravene this substantive provision, section 228. The
trouble with the SC is that once it commits an error, it
becomes the ______ thereof. It remains as jurisprudence. The
SC is not infallible. It is supreme because its decision is final.
Have you heard about that statement of Justice Holmes? The
Supreme Court is final but it is not infallible. It is infallible
because its decision is final.

In regard to paragraph 2 of Section 228, this is a new


provision because in the old tax code, the provision about the
facts and the law upon which the assessment is based. You
read the case of Commissioner vs. Reyes, 480 SCRA 382. The
SC explained the meaning of this. If an assessment fails to
state the facts and the law upon which it was based, the
assessment is not valid. It is mandated by the standard of due
process. And you should read that in relation to another case,
BPI vs. Commissioner, 521 SCRA 373.
Commissioner vs. Reyes, 480 SCRA 382. (the assessment
notice and the demand letter should state the facts and the
law on which they are based; otherwise, they are deemed
void)
While administrative agencies, like the BIR, were not
bound by procedural requirements, they were still
required by law and equity to observe substantive
due process. On this score, the assessment should
state the facts and the law on which it is based. The
rationale behind this requirement was to ensure that
taxpayers would be duly apprised of and could
effectively protest - the basis of tax assessments
against them. A void assessment renders subsequent
proceedings invalid and any order emanating from it
could never attain finality

It is clear that, we are now in the provision relative to the


jurisdiction of the CTA, it is clear that in Section 228 that such
decision of the BIR Commissioner is appealable to the CTA
within 30 days from receipt of such decision or 30 days from
the lapse of the 180-day period. What should be filed?
According to RA 9282, the petition should be filed involving
this decision of the BIR Commissioner upon the tax credit (?)
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


assessment made must be petition for review under Rule 42
of the Rules of Court. 15 days. But dont follow that. You
follow the 30-day period. You only apply Rule 42 in
suppletory character. Here it is very clear, you apply the 30day period.

income tax due, to be adjusted at the end of the


calendar or fiscal year
SEC. 74. Declaration of Income Tax for Individuals. (A) In General. - Except as otherwise provided in this Section, every
individual subject to income tax under Sections 24 and 25(A) of this Title,
who is receiving self-employment income, whether it constitutes the sole
source of his income or in combination with salaries, wages and other fixed
or determinable income, shall make and file a declaration of his estimated
income for the current taxable year on or before April 15 of the same taxable
year. In general, self-employment income consists of the earnings derived by
the individual from the practice of profession or conduct of trade or business
carried on by him as a sole proprietor or by a partnership of which he is a
member. Nonresident Filipino citizens, with respect to income from without
the Philippines, and nonresident aliens not engaged in trade or business in
the Philippines, are not required to render a declaration of estimated income
tax. The declaration shall contain such pertinent information as the Secretary
of Finance, upon recommendation of the Commissioner, may, by rules and
regulations prescribe. An individual may make amendments of a declaration
filed during the taxable year under the rules and regulations prescribed by
the Secretary of Finance, upon recommendation of the Commissioner.

If you compare section 228 with section 229, you will notice
this distinction. In section 229 it made no mention about such
an appeal to the CTA. Nonetheless, it is clear under RA 9282
that such distinction of the BIR Commissioner on tax refund is
appealable to the CTA. The prescriptive period is 2 years from
the date of payment. Now this is the case that you should
master. The case of Commissioner vs. TMX Sales, Inc. 205
SCRA 184. This applies to corporate taxpayers. What do you
mean by the word payment? In so far as corporate taxpayers
are concerned, when is there payment? Read sections 75 and
76. Corporate taxpayers are allowed to file their income tax
returns quarterly. They are allowed to pay corporate taxes in
installments. This is not so in the case of individual taxpayers.
What is meant by payment? Suppose, as asked in the bar
exams, excess was made with this particular corporate
taxpayer filed in the first quarterly income tax return or
excess payment, erroneous payment, illegal payment,
rd
wrongful payment, arose when it filed its 3 corporate tax
return. Must the 2 year period commence to run from the
st
filing of the 1 ?
No. Because there was no payment in contemplation
of law.

(B) Return and Payment of Estimated Income Tax by Individuals. - The


amount of estimated income as defined in Subsection (C) with respect to
which a declaration is required under Subsection (A) shall be paid in four (4)
installments. The first installment shall be paid at the time of the declaration
and the second and third shall be paid on August 15 and November 15 of the
current year, respectively. The fourth installment shall be paid on or before
April 15 of the following calendar year when the final adjusted income tax
return is due to be filed.
(C) Definition of Estimated Tax. - In the case of an individual, the term
"estimated tax" means the amount which the individual declared as income
tax in his final adjusted and annual income tax return for the preceding
taxable year minus the sum of the credits allowed under this Title against the
said tax. If, during the current taxable year, the taxpayer reasonable expects
to pay a bigger income tax, he shall file an amended declaration during any
interval of installment payment dates.

The trouble with this case is that it never discussed the


meaning of payment under the civil code. In obligations and
contracts, the characteristics of payment: integrity of
payment, indivisibility of payment, identity of payment. There
is no payment if it is made in installment. Integrity of
payment dictates that it must be payment in full. It merely
says that there is payment when the tax liability of the
corporate taxpayer is determined with certainty and it is only
upon the filing of its Final Adjustment Corporate Tax returns
(Sec. 76). That is when you commence this 2-year period. In
the case of corporate taxpayers, this section 229 has to be
amended. In the case of corporate taxpayers, there is
payment upon the filing of this Final Adjustment Corporate
Tax Return.

SEC. 75. Declaration of Quarterly Corporate Income Tax. - Every corporation


shall file in duplicate a quarterly summary declaration of its gross income and
deductions on a cumulative basis for the preceding quarter or quarters upon
which the income tax, as provided in Title II of this Code, shall be levied,
collected and paid. The tax so computed shall be decreased by the amount of
tax previously paid or assessed during the preceding quarters and shall be
paid not later than sixty (60) days from the close of each of the first three (3)
quarters of the taxable year, whether calendar or fiscal year.

It is also clear under Section 229, the second paragraph


thereof, that in such payment, the 2-year period shall not be
suspended by any supervening event. It shall always
commence from the date of payment. This two-year period is
mandatory according to the SC. This two-year period applies
to these two cases: filing of the written claim for refund
before the BIR Commissioner and when an appeal is made
through a petition for review under Rule 42 before the Court
of Tax Appeals.

Commissioner vs. TMX Sales, Inc. 205 SCRA 184.


Therefore, the filing of quarterly income tax returns
required in Section 75 of the NIRC and implemented
per BIR Form 1702-Q and payment of quarterly
income tax should only be considered mere
installments of the annual tax due. These quarterly
tax payments which are computed based on the
cumulative figures of gross receipts and deductions
in order to arrive at a net taxable income, should be
treated as advances or portions of the annual

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or


proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of any sum alleged to
64

TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.

motion for reconsideration. That is not allowed under the


1997 Rules of Civil Procedure. It should have been presented
before the plaintiff has rested his case. But this is a tax case,
the court believed that the claim for refund is meritorious.

In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.

On the other hand, in Commissioner vs. Hantex Trading, 454


SCRA 301, the court ruled that these photocopies of records
or documents, these are consumption entries, are
inadmissible evidence and no probative value. This is not
sanctioned by the Best Evidence Obtainable Rule. In other
words, in recognizing that the rule should be relaxed, this is
the liberality of procedure, the court ____ however, that
these photocopies of consumption entries are inadmissible in
evidence. The court, with all due respect, shouldnt have
made this pronouncement. Liberality of procedure is not
absolute. This should not be used as a license to disregard
certain fundamental evidential rules. You should present the
original documents or receipts based on fundamental
evidential rules. You cannot relax the rule. As in the Hantex
case, the court is absolutely correct in ruling that inadmissible
evidence.

When an appeal is made before the CTA, there are 2 periods


that must be observed. A decision has been rendered on tax
refund; your remedy is to appeal the same to the CTA. The 2
periods must be observed: Within 30 days from receipt of
such decision AND within 2 years from the date of payment.
As emphasized by the SC, if such an appeal is now a Petition
for Review under Rule 42 according to RA 9282, if made
beyond the two-year period, it should be considered a filed
out of time. But it is not clear under Section 229. Since it is
mandatory, it may happen that no action is ____. If you read
Section 228, there is this period within which the BIR _______
the 180-day period. If no action has been rendered, you
appeal such inaction within 30 days from the lapse of that
180-day period.

RA 9282 is entitled Expanded Jurisdiction of the CTA.


Expanded because the CTA has jurisdiction over cases, civil or
criminal, the amount of tax liability is P1,000,000 exclusive of
interest charge. That was, under the old rule, cognizable by
the RTC. So that, in effect, expanded the jurisdiction of the
CTA. Decisions of the Central Board of Assessment Appeals,
under the old rule, were appealable to the CA or the SC. Its
now clear then that such decisions of the Central Board of
Assessment Appeals are appealable to the CTA. Decisions of
RTCs regarding tax cases, election cases, are also appealable
to the CTA. You should make a distinction here as I pointed
out in your book. There appears to be 9 decisions that may be
appealed to the CTA. There are only 2 that may be appealed
under Rule 43: Decisions of the CBAA and decisions of the
RTC, otherwise apply Section 42.

So lets apply that to tax refund. It should be filed within two


years from the date of payment. Suppose no decision has
been rendered, the two-year period shall not be suspended
by such inaction. Considered that appeal as denied. You can
appeal such inaction to the CTA. It must be within the twoyear period. The trouble is there is no period, corresponding
period insofar as Section 229 is concerned. Since the Section
229 is the same, you have to resort to settled jurisprudence,
i.e., old case: Commissioner vs. Gibbs, 107 Phil 232 and Gibbs
vs. Commissioner, 15 SCRA 318. If the two-year period,
according to the SC, is about to lapse, dont wait for such
decision. You can appeal such inaction to the CTA. In other
words, your claim for tax refund is deemed as denied. It is
now clear under RA 9282 that such inaction of the BIR is
appealable to the CTA.

I want you to mark this provision regarding automatic review


cases. Its one of those cases that may be appealed to the
CTA. PD 1464, amending RA 1937, (Tariff and Customs Code)
made mention about these cases that may be appealed to
the CTA. The situation is this: the decision of the Collector of
Customs is favorable to the importer. No importer in his right
mind will appeal the same. It is favorable to him. If that
happens, given that the importer is the winning party,
nobody will appeal the same. Thats prejudicial to the
government if it turns out the decision of the collector of
Customs is erroneous. Thats the concept of automatic
review. To protect the entrance of the government, there is
this presidential decree, PD 1 as implemented by the Bureau
of Customs Memorandum Order 929, such decision of the
collector of customs that is favorable to the importer is

COURT OF TAX APPEALS


CTA is a specialized court. Try to observe the proceedings
there. Is it really an appellate court? It conducts hearings,
trial. That is inconsistent with its name. It is a trial court.
I want you to read this old provision: Section 8 of RA 1125.
Thats the old law creating the CTA. This has been expanded.
Its jurisdiction has been expanded under RA 9282. What does
it say? Proceedings in the CTA are not bound by the technical
rules of evidence. In this regard, you read these two cases:
One, the SC applied the liberality of procedure - BPI Family
Bank vs. Commissioner, 330 SCRA 507. The court relaxed the
rule, and it allowed the presentation of evidence in that
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


automatically appealed or elevated to the Customs
Commission. (We are not yet there.)

The decision of the CTA is appealable to the SC. If you read


the old book, the old rule was that the decision of the CTA
was appealable to the CA. That has been abandoned by RA
9282. The case of DBP vs. Quezon City, 180 SCRA 608 has
abandoned the doctrine saying that the decision of the CTA is
appealable to the CA is no longer appealable. It is clear under
RA 9282, the decision of the CTA is appealable to the SC
under Rule 45. You apply the 15 day period from the receipt
of such decision. It is clear under Rule 45 that an appeal to
the SC can only raise questions of law. Is there an exception
to that?
Yes. Abra Valley College vs. Aquino, 162 SCRA 106.
Factual issues can be raised for the first time on
appeal before the SC. The key phrase is in the
interest of substantial justice. Substantial justice
dictates that this must be cognizance of the SC in
order to arrive at just and fair decision. The tax issue
involved has something to do with exemption from
real property tax.

It may happen that the decision of the customs commissioner


is favorable again to the taxpayer or importer. To protect the
interest of the government, such favorable decision of the BIR
commissioner, favorable to the taxpayer is automatically
appealed or elevated to the Secretary of Finance. Thats the
one.
It may happen that the decision of the customs commissioner
is adverse to the taxpayer or importer, meaning he reversed
the decision of the collector. Such decision of the customs
commissioner, reversing the decision of the collector of
customs, is appealable to the CTA within 30 days from receipt
of the same by the importer/taxpayer. But if it is favorable to
the taxpayer/importer, pangalawa na yan, first collector then
customs commissioner, that is automatically appealed or
elevated to the Secretary of Finance.
The decision of the Secretary of Finance may either be
favorable to the taxpayer or importer or adverse to the same.
The one that is appealable to the CTA must be a decision of
the Secretary of Finance that is adverse to the taxpayer. His
remedy is to appeal the same, thats the one contemplated
under RA 9282. The remedy of the importer, the aggrieved
party in that case. Aggrieved party because such decision of
the Secretary of Finance is adverse to him, he can appeal it to
the CTA within 30 days from the receipt of the same.
In this regard, dont forget to read this case: Yaokasin vs.
Customs Commissioner, 180 SCRA 591. In that case, the SC
explained the rationale behind this automatic review
procedure. Its now clear, the correlation between Section 9
of RA 9282, the last paragraph of the law, must be read in
relation to Section 218 of the National Internal Revenue Code
as amended. Section 218 of the NIRC states that no court
shall have the authority to grant an injunction to restrain, or
do any collection of national internal revenue. The word
court does not include CTA because under RA 9282, Section
9, the last paragraph, it confers upon CTA the authority to
restrain the collection of internal revenue tax. First, such
collection may jeopardize the interest of the taxpayer and/or
government. Second, taxpayer must post a bond, double the
amount of such tax liability, i.e., surety bond. These are the
conditions upon which the CTA may grant such prayer or
application for injunctive relief. Unlike before it only covers
the old rule, old provision covered only in RA 1125, i.e.,
Custom duties, national internal revenue taxes, et al. Here it
covers local taxes, Bureau of Customs, internal revenue taxes,
dumping or countervailing duties. It expanded the coverage.
Regarding procedures, just read Sections 18 and 19 of RA
9282.

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Republic Act No. 9282

March 30 2004

removed for the same causes and in the same


manner provided by law for members of the
judiciary of equivalent rank."

AN ACT EXPANDING THE JURISDICTION OF THE COURT OF


TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF
A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND
ENLARGING ITS MEMBERSHIP, AMENDING FOR THE
PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125,
AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING
THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES

Section 2. Section 2 of the same Act is hereby amended to


read as follows:
"SEC. 2. Sitting En Banc or Division; Quorum;
Proceedings. - The CTA may sit en banc or in two (2)
Divisions, each Division consisting of three (3)
Justices.

Be it enacted by the Senate and House of Representatives of


the Philippines in Congress assembled:

"Four (4) Justices shall constitute a quorum for


sessions en banc and two (2) Justices for sessions of
a Division: Provided, That when the required quorum
cannot be constituted due to any vacancy,
disqualification, inhibition, disability, or any other
lawful cause, the Presiding Justice shall designate
any Justice of other Divisions of the Court to sit
temporarily therein.

Section 1. Section 1 of Republic Act No. 1125, as amended is


hereby further amended to read as follows:
"SECTION 1. Court; Justices; Qualifications; Salary;
Tenure. - There is hereby created a Court of Tax
Appeals (CTA) which shall be of the same level as the
Court of Appeals, possessing all the inherent powers
of a Court of Justice, and shall consist of a Presiding
Justice and five (5) Associate Justices. The incumbent
Presiding Judge and Associate Judges shall continue
in office and bear the new titles of Presiding Justice
and Associate Justices. The Presiding Justice and the
most Senior Associate Justice shall serve as chairmen
of the two (2) Divisions. The additional three (3)
Justices and succeeding members of the Court shall
be appointed by the President upon nomination by
the Judicial and Bar Council. The Presiding Justice
shall be so designated in his appointment, and the
Associate Justices shall have precedence according
to the date of their respective appointments, or
when the appointments of two (2) or more of them
shall bear the same date, according to the order in
which their appointments were issued by the
President. They shall have the same qualifications,
rank, category, salary, emoluments and other
privileges, be subject to the same inhibitions and
disqualifications, and enjoy the same retirements
and other benefits as those provided for under
existing laws for the Presiding Justice and Associate
Justices of the Court of Appeals.

"The affirmative votes of four (4) members of the


Court en banc or two (2) members of a Division, as
the case may be, shall be necessary for the rendition
of a decision or resolution."
Section 3. Section 3 of the same Act is hereby amended to
read as follows:
"SEC. 3. Clerk of Court; Division Clerks of Court;
Appointment; Qualification; Compensation. - The
CTA shall have a Clerk of Court and three (3) Division
Clerks of Court who shall be appointed by the
Supreme Court. No person shall be appointed Clerk
of Court or Division Clerk of Court unless he is duly
authorized to practice law in the Philippines. The
Clerk of Court and Division Clerks of Court shall
exercise the same powers and perform the same
duties in regard to all matters within the Court's
jurisdiction, as are exercised and performed by the
Clerk of Court and Division Clerks of Court of the
Court of Appeals, in so far as the same may be
applicable or analogous; and in the exercise of those
powers and the performance of those duties they
shall be under the direction of the Court. The Clerk
of Court and the Division Clerks of Court shall have
the same rank, privileges, salary, emoluments,
retirement and other benefits as those provided for
the Clerk of Court and Division Clerks of Court of the
Court of Appeals, respectively.'

"Whenever the salaries of the Presiding Justice and


the Associate Justices of the Court of Appeals are
increased, such increases in salaries shall be deemed
correspondingly extended to and enjoyed by the
Presiding Justice and Associate Justices of the CTA.
"The Presiding Justice and Associate Justices shall
hold office during good behavior, until they reach
the age of seventy (70), or become incapacitated to
discharge the duties of their office, unless sooner
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Section 4. Section 4 of the same Act is hereby amended to
read as follows:

"2. Inaction by the Commissioner of


Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relations thereto, or other
matters arising under the National
Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue, where the National Internal
Revenue Code provides a specific period
of action, in which case the inaction shall
be deemed a denial;

"SEC. 4. Other Subordinate Employees. - The


Supreme Court shall appoint all officials and
employees of the CTA, in accordance with the Civil
Service Law. The Supreme Court shall fix their
salaries and prescribe their duties."
Section 5. Section 5 of the same Act is hereby amended to
read as follows:
"SEC. 5. Disqualifications. - No Justice or other officer
or employee of the CTA shall intervene, directly or
indirectly, in the management or control of any
private enterprise which in any way may be affected
by the functions of the Court. Justices of the Court
shall be disqualified from sitting in any case on the
same grounds provided under Rule one hundred
thirty-seven of the Rules of Court for the
disqualification of judicial officers. No person who
has once served in the Court in a permanent
capacity, either as Presiding Justice or as Associate
Justice thereof, shall be qualified to practice as
counsel before the Court for a period of one (1) year
from his retirement or resignation."

"3. Decisions, orders or resolutions of the


Regional Trial Courts in local tax cases
originally decided or resolved by them in
the exercise of their original or appellate
jurisdiction;
"4. Decisions of the Commissioner of
Customs in cases involving liability for
customs duties, fees or other money
charges, seizure, detention or release of
property affected, fines, forfeitures or
other penalties in relation thereto, or
other matters arising under the Customs
Law or other laws administered by the
Bureau of Customs;

Section 6. Section 6 of the same Act is hereby amended to


read as follows:

"5. Decisions of the Central Board of


Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving
the assessment and taxation of real
property originally decided by the
provincial or city board of assessment
appeals;

"SEC. 6. Place of Office. - The CTA shall have its


principal office in Metro Manila and shall hold
hearings at such time and place as it may, by order in
writing, designate."
Section 7. Section 7 of the same Act is hereby amended to
read as follows:

"6. Decisions of the Secretary of Finance


on customs cases elevated to him
automatically for review from decisions
of the Commissioner of Customs which
are adverse to the Government under
Section 2315 of the Tariff and Customs
Code;

"Sec. 7. Jurisdiction. - The CTA shall exercise:


"a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
"1. Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National
Internal Revenue or other laws
administered by the Bureau of Internal
Revenue;

"7. Decisions of the Secretary of Trade


and Industry, in the case of
nonagricultural product, commodity or
article, and the Secretary of Agriculture in
the case of agricultural product,
commodity or article, involving dumping
and countervailing duties under Section
301 and 302, respectively, of the Tariff
and Customs Code, and safeguard
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


measures under Republic Act No. 8800,
where either party may appeal the
decision to impose or not to impose said
duties.

"c. Jurisdiction over tax collection cases


as herein provided:
"1. Exclusive original jurisdiction in
tax collection cases involving final
and executory assessments for
taxes, fees, charges and penalties:
Provided, however, That collection
cases where the principal amount
of taxes and fees, exclusive of
charges and penalties, claimed is
less than One million pesos
(P1,000,000.00) shall be tried by
the proper Municipal Trial Court,
Metropolitan Trial Court and
Regional Trial Court.

"b. Jurisdiction over cases involving criminal


offenses as herein provided:
"1. Exclusive original jurisdiction over all
criminal offenses arising from violations of
the National Internal Revenue Code or
Tariff and Customs Code and other laws
administered by the Bureau of Internal
Revenue or the Bureau of Customs:
Provided, however, That offenses or
felonies mentioned in this paragraph where
the principal amount o taxes and fees,
exclusive of charges and penalties, claimed
is less than One million pesos
(P1,000,000.00) or where there is no
specified amount claimed shall be tried by
the regular Courts and the jurisdiction of
the CTA shall be appellate. Any provision of
law or the Rules of Court to the contrary
notwithstanding, the criminal action and
the corresponding civil action for the
recovery of civil liability for taxes and
penalties shall at all times be
simultaneously instituted with, and jointly
determined in the same proceeding by the
CTA, the filing of the criminal action being
deemed to necessarily carry with it the
filing of the civil action, and no right to
reserve the filling of such civil action
separately from the criminal action will be
recognized.
"2. Exclusive appellate
criminal offenses:

jurisdiction

"2. Exclusive appellate jurisdiction


in tax collection cases:
"a. Over appeals from the
judgments, resolutions or
orders of the Regional
Trial Courts in tax
collection cases originally
decided by them, in their
respective
territorial
jurisdiction.
"b. Over petitions for
review of the judgments,
resolutions or orders of
the Regional Trial Courts
in the Exercise of their
appellate jurisdiction over
tax
collection
cases
originally decided by the
Metropolitan Trial Courts,
Municipal Trial Courts and
Municipal Circuit Trial
Courts, in their respective
jurisdiction."

in

"a. Over appeals from the judgments,


resolutions or orders of the Regional
Trial Courts in tax cases originally
decided by them, in their respected
territorial jurisdiction.

Section 8. Section 10 of the same Act is hereby amended to


read as follows:

"b. Over petitions for review of the


judgments, resolutions or orders of the
Regional Trial Courts in the exercise of
their appellate jurisdiction over tax
cases originally decided by the
Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial
Courts in their respective jurisdiction.

"SEC. 10. Power to Administer Oaths; Issue


Subpoena; Punish for Contempt. - The Court shall
have the power to administer oaths, receive
evidence, summon witnesses by subpoena duces
tecum, subject in all respects to the same
restrictions and qualifications as applied in judicial
proceedings of a similar nature. The Court shall, in
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


accordance with Rule seventy-one of the Rules of
Court, have the power to punish for contempt for
the same causes, under the same procedure and
with the same penalties provided therein."

and/or sale of any property of the taxpayer for the


satisfaction of his tax liability as provided by existing
law: Provided, however, That when in the opinion of
the Court the collection by the aforementioned
government agencies 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.

Section 9. Section 11 of the same Act is hereby amended to


read as follows:
"SEC. 11. Who May Appeal; Mode of Appeal; Effect
of Appeal. - Any party adversely affected by a
decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the
Central Board of Assessment Appeals or the Regional
Trial Courts may file an appeal with the CTA within
thirty (30) days after the receipt of such decision or
ruling or after the expiration of the period fixed by
law for action as referred to in Section 7(a)(2) herein.

"In criminal and collection cases covered


respectively by Section 7(b) and (c) of this Act, the
Government may directly file the said cases with the
CTA covering amounts within its exclusive and
original jurisdiction."
Section 10. Section 13 of the same Act is hereby amended to
read as follows:

"Appeal shall be made by filing a petition for review


under a procedure analogous to that provided for
under Rule 42 of the 1997 Rules of Civil Procedure
with the CTA within thirty (30) days from the receipt
of the decision or ruling or in the case of inaction as
herein provided, from the expiration of the period
fixed by law to act thereon. A Division of the CTA
shall hear the appeal: Provided, however, That with
respect to decisions or rulings of the Central Board
of Assessment Appeals and the Regional Trial Court
in the exercise of its appellate jurisdiction appeal
shall be made by filing a petition for review under a
procedure analogous to that provided for under rule
43 of the 1997 Rules of Civil Procedure with the CTA,
which shall hear the case en banc.

"SEC. 13. Decision, Maximum Period for Termination


of Cases. - Cases brought before the Court shall be
decided in accordance with Section 15, paragraph
(1), Article VIII (Judicial Department) of the 1987
Constitution. Decisions of the Court shall be in
writing, stating clearly and distinctly the facts and
the law on which they are based, and signed by the
Justices concurring therein. The Court shall provide
for the publication of its decision in the Official
Gazette in such form and manner as may best be
adopted for public information and use.
"The Justices of the Court shall each certify on their
applications for leave, and upon salary vouchers
presented by them for payment, or upon the
payrolls under which their salaries are paid, that all
proceedings, petitions and motions which have been
submitted to the Court for determination or decision
for a period required by the law or the Constitution,
as the case may be, have been determined or
decided by the Court on or before the date of
making the certificate, and no leave shall be granted
and no salary shall be paid without such certificate."

"All other cases involving rulings, orders or decisions


filed with the CTA as provided for in Section 7 shall
be raffled to its Divisions. A party adversely affected
by a ruling, order or decision of a Division of the CTA
may file a motion for reconsideration of new trial
before the same Division of the CTA within fifteens
(15) days from notice thereof: Provide, however,
That in criminal cases, the general rule applicable in
regular Courts on matters of prosecution and appeal
shall likewise apply.

Section 11. Section 18 of the same Act is hereby amended as


follows:

"No appeal taken to the CTA from the decision of the


Commissioner of Internal Revenue or the
Commissioner of Customs or the Regional Trial
Court, provincial, city or municipal treasurer or the
Secretary of Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as the case
may be shall suspend the payment, levy, distraint,

"SEC. 18. Appeal to the Court of Tax Appeals En


Banc. - No civil proceeding involving matter arising
under the National Internal Revenue Code, the Tariff
and Customs Code or the Local Government Code
shall be maintained, except as herein provided, until
and unless an appeal has been previously filed with

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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC


Section 18. Separability Clause. - If for any reason, any
section or provision of this Act shall be declared
unconstitutional or invalid, the other parts thereof not
affected thereby shall remain valid.

the CTA and disposed of in accordance with the


provisions of this Act.
"A party adversely affected by a resolution of a
Division of the CTA on a motion for reconsideration
or new trial, may file a petition for review with the
CTA en banc."

Section 19. Effectivity Clause - This Act shall take effect after
fifteen (15) days following its publication in at least (2)
newspapers of general circulation.

"SEC. 19. Review by Certiorari. - A party adversely


affected by a decision or ruling of the CTA en banc
may file with the Supreme Court a verified petition
for review on certiorari pursuant to Rule 45 of the
1997 Rules of Civil Procedure."
Section 13. Distraint of Personal Property and/or Levy on Real
Property. - Upon the issuance of any ruling, order or decision
by the CTA favorable to the national government, the CTA
shall issue an order authorizing the Bureau of Internal
Revenue, through the Commissioner to seize and distraint
any goods, chattels, or effects, and the personal property,
including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property
and/or levy the real property of such persons in sufficient
quantity to satisfy the tax or charge together with any
increment thereto incident to delinquency. This remedy shall
not be exclusive and shall not preclude the Court from
availing of other means under the Rules of Court.
Section 14. Retention of Personnel; Security of Tenure;
Upgrading of Positions and Salaries. - All existing permanent
personnel of the CTA shall not be adversely affected by this
Act. They shall continue in office and shall not be removed or
separated from the service except for cause as provided for
by existing laws. Further, the present positions and salaries of
personnel shall be upgraded to the level of their counterparts
in the Court of Appeals.
Section 15. Transitory Provisions. - In consonance with the
above provision, the incumbent Presiding Judge and
Associate Judges shall comprise a Division pending the
constitution of the entire Court.
Section 16. Appropriations. - The amount necessary to carry
out the provisions of this Act shall be included in the General
Appropriations Act of the year following its enactment into
law and thereafter.
Section 17. Repealing Clause. - All laws, executive orders,
executive issuances or letter of instructions, or any part
thereof, inconsistent with or contrary to the provisions of this
Act are hereby deemed repealed, amended or modified
accordingly.

71