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COLLEGE OF LAW
Bar Operations 2008
TAXATION LAW
Information Management Chino Baybay [Head] * Simoun Salinas [Deputy] * Rania Joya
Committee [Design & Lay-out] * Ludee Pulido [Documentations] * Linus
Madamba * Des Mayoralgo * Jillian De Dumo * Mike
Ocampo * Abel Maglanque * Edan Marri R. Caete
BASIC CONCEPTS TAXATION
Taxation Law 1
TABLE OF CONTENTS
Who is a taxpayer?
Under Sec 22(N), a taxpayer is any person subject to [income] tax. Income taxpayers, with distinction
based on the amount of income subject to tax, or the applicable tax rates, or both, are classified as
follows:
Primary
Sub-Classification(s)
Classification
Citizens of Residents of the Philippines
the
Not Residents of the Philippines
Philippines
Residents of the Philippines
Not Engaged in Trade or Business in the Philippines
Aliens Residents
Individuals of the Not Engaged in Trade or Business in the Philippines
Philippines
Individual Employed by Regional or Area Headquarters and Regional
Special Operating Headquarters of Multinational Companies
Classes of Individual Employed by Offshore Banking Units
Individuals Individual Employed by a foreign service contractor or by a foreign service
subcontractor engaged in petroleum operations in the Philippines
Estates and
Trusts
Domestic Corporations
Foreign Resident Corporations
Corporations Non-resident Corporations
Proprietary educational institutions and non-profit hospitals
Domestic Depositary Bank (Foreign Currency Deposit Units)
Resident international carriers
Corporations Offshore Banking Units
Resident Depositary Bank (Foreign Currency Deposit Units)
Special Classes
of Corporations Regional or Area Headquarters and Regional Operating Headquarters
of Multinational Companies
Non-resident cinematographic film owners, lessors or distributors
Non-resident owners or lessors of vessels chartered by Philippine
nationals
Non-resident lessors of aircraft, machinery and other equipment
asset (in other words, as an ordinary asset), the A deposit is made of the 6% capital gain
gain or loss is called an ordinary gain or loss. tax otherwise due, in cash or managers
check, in an interest-bearing account with
What are capital assets? those not an Authorized Agent Bank (AAB), under
considered as ordinary assets! an Escrow Agreement between the
taxpayer and the Bureau of Internal
What are ordinary assets? FOUR Revenue that the same shall be released
CATEGORIES OF ORDINARY ASSETS are as to the taxpayer when the proceeds of the
follows [Sec. 39]: (RIDS)Real property used in sale shall have been utilized as intended.
trade or business of the taxpayer (example:
Building used as a factory) The tax exemption can only be availed of
once every 10 years
-Are all sales / dispositions of capital assets
subject to capital gains tax? NO! Only two If there is no full utilization of the
kinds of things held as capital assets are subject proceeds of sale or disposition, the portion
to the capital gains tax, as follows: of the gain presumed to have been
realized from the sale or disposition shall
1. On sale, barter, exchange or other be subject to capital gains tax (CGT). The
disposition of shares of stock of a domestic GSP or FMV at the time of sale, whichever
corporation not listed and traded through is higher, shall be multiplied by a fraction
a local stock exchange, held as a capital which the unutilized amount bears to the
asset: gross selling price in order to determine
the taxable portion.
On the net capital gain:
i.e.,
Not over P100,000 = Final Tax of 5% Unutilized amount x (higher of ) = Taxable
GSP GSP or FMV portion
On any amount in excess of P100,000 =
plus Final Tax of 10% on the excess
ALTERNATIVE TAXATION:
In case of a sale or other disposition of
Key definitions
real property to the government or any
of its political subdivisions or agencies or
Net capital gain selling price less cost
to government-owned or controlled
corporations, the tax shall be EITHER
Selling price consideration on the sale OR
the year-end tax of the individual (i.e.,
fair market value of the shares of stock at the
capital gain to be included in the
time of the sale, whichever is HIGHER
computation of income subject to
schedular rates),
Cost original purchase price
B. Deductions [from Income Subject to Who is a Head of the Family? [Sec 35(A),
Schedular Tax Rates], In General NIRC]
The allowable deductions from the gross income 1. An unmarried or legally separated man or
of an individual taxpayer5 are as follows: woman with dependents who may be
- one or both parents
Business Expenses and Expenses from - one or more brothers or sisters, or
Practice of Profession deductible only - one or more legitimate, illegitimate or
from business gross income and professional legally adopted children
income, respectively but not from
compensation income.6 The expenses to be Note: Senior Citizen Law (RA 7434 as
deducted may either be itemized deductions amended by 9257) provides in section 4
OR the optional standard deduction.7 that senior citizens shall be treated as
dependents provided for in the NIRC, as
Special deduction for actual premium amended and as such, individual
payments for health and/or taxpayers caring for them, be they be
hospitalization insurance taken by an relatives or not shall be accorded the
individual taxpayer provided that the privileges granted by the Code insofar as
following requisites are met: having dependents are concerned.
a. The taxpayers family gross income
does not exceed P250,000 in a 2. Such dependent must be living with AND
taxable year. dependent upon him for chief support
b. The amount deductible should only
be limited to P2,400 per family or - Chief support principal or main
P200 per month. support given regularly such that
In the case of married taxpayers, only withdrawal will result in destitute life
the spouse claiming the additional for dependent; includes situations
exemption for dependents shall be where taxpayer is away from home
entitled to this deduction. on business, or dependent is away at
school
Personal Exemptions are arbitrary
amounts allowed by law to be deducted from more than one-half of the
income to cover personal, living, or family requirements for support. Hence, if
expenses of the taxpayer. These deductions two children contribute equal
are allowed on the theory that the minimum amounts to the support of a parent,
requirements of subsistence of a taxpayer neither of them qualify as head of the
should be free from tax. family.
QUICK GLANCE
RESIDENT NON-RESIDENT
NRANET
CITIZEN ALIEN CITIZEN NRAETB
B
Within the Within the Within the Within the
CATEGORY OF INCOME
All sources Philippine Philippine Philippine Philippine
s s s s
1. Compensation / Business /
GIW
Graduated Tax Rates, except
Other Income, subject to
Profession
Based on Taxable (i.e, Net) Income 25%
Schedular Income Tax Rates (Sec. 24, NIRC)
for NRANETB
income
3 years to less than 4 years 12% on entire
income
less than 3 years 20% on entire income
8. Cash / Property Dividends from a
domestic corporation, etc., OR
share in the distributable net
GIW
income after tax of a partnership GIW 10% Final Withholding Tax
20%
(except a general professional
partnership), etc.
13. Sale of Shares (traded in a of 1% of the Selling Price (Stock Transaction Tax)
domestic stock exchange) Note: Stock Transaction Tax is not an income tax, but a
business (percentage) tax
Legend:
GIW Gross Income within the Philippines
FMV Fair Market Value
traded through a local stock exchange, following the year in which such corporation
held as a capital asset: commenced its business operations
On the net capital gain:
What amount of income tax is paid by
Not over P100,000
the corporation to the BIR? Whichever
Final Tax of 5%
is HIGHER between the normal tax and the
On any amount in excess of P100,000
minimum corporate income tax.
plus 10% Final tax on the excess
ILLUSTRATION: E Co., a domestic trading
b. On the sale, exchange or disposition of corporation, in its fourth year of operations
lands and/or buildings which are not had a gross profit from sales of P300,000 and
actually used in the business of a net taxable income of P100,000. How much
corporation and are treated as capital was the income tax paid by the corporation
assets On the gross selling price, or the for the year?
current fair market value at the time of the
sale, whichever is higher, a final tax of MCIT (P300,000 x 2%) P6,000
6% Normal income tax
NOTE: Tax treatment is the same as
that of individuals. (P100,000 x 35%) P35,000
The capital gains tax is applied on the Income Tax to be paid for the year
gross selling price, or the current fair (whichever is higher) P35,000
market value at the time of the sale,
whichever is higher. Any gain or loss Excess MCIT carry-forward
on the sale is immaterial because Any excess of the minimum corporate income
there is a conclusive presumption tax over the normal income tax shall be
by law that the sale resulted in a carried forward and credited against the
gain. NORMAL TAX for the three (3) immediately
succeeding taxable years. [Sec. 27(E)(2)] In
the year to which carried forward, the normal
2. Passive Income Subject to Final Tax tax should be higher than the MCIT.
Interest Income:
o on any currency bank deposit, yield or ILLUSTRATION: A domestic corporation had
any other monetary benefit from deposit the following data on computations of the
substitutes, trust funds and similar normal tax (NT) and the minimum corporate
arrangements - 20% income tax (MCIT) for five years.
o under the expanded foreign currency
Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
deposit system (EFCDS) - 7.5%
MCIT 80,000 50,000 30,000 40,000 35,000
Dividends received from another NT 20,000 30,000 40,000 20,000 70,000
domestic corporation (Intercompany
Dividend) - EXEMPT
The excess MCIT over NT carry-forward is shown
below:
Royalties (any kind) 20%
Year 4 Year 5 Year 6 Year 7 Year 8
3. Income subject to Normal Tax [OR] MCIT 80,000 50,000 30,000 40,000 35,000
Minimum Corporate Income Tax (MCIT) NT 20,000 30,000 40,000 20,000 70,000
[OR] Gross Income Tax (GIT)
From
What is cost of goods sold? It includes all
Year 5
business expenses DIRECTLY incurred to
produce the merchandise to bring them to From
their present location and use. [Sec. Year 7
27(E)(4)]
MCIT gross income differentiated from the
normal tax gross income the latter would Tax 80,000 50,000 - 40,000 30,000
include other incidental income items, such Due
as rent income, interest, gain on sale of
assets, certain tax refunds, etc. -Arrow pointing downward means that the
When is the MCIT computed? beginning of normal tax is higher so that there can be an excess
the fourth taxable year immediately MCIT carry-forward against it.
-While only P40,000 out of P60,000 excess PENALTY to the corporation for the
MCIT in Year 4 was used in Year 6, the improper accumulation of its earnings, and a
unused P20,000 cannot be used in Year 8 DETERRENT to the avoidance of tax upon
because Year 8 was beyond three years shareholders who are supposed to pay
from Year 4. dividends tax on the earnings distributed to
them.
c) Exception The use of undistributed
Relief from MCIT (LLBM) The Secretary of
earnings and profits for the reasonable
Finance is authorized to suspend the imposition
needs of the business would not generally
of the minimum corporate income tax on any
make the accumulated or undistributed
corporation which suffers LOSSES:
earnings subject to the tax. What is meant by
-on account of prolonged labor dispute (losses reasonable needs of the business is
from a strike staged by employees that lasts for determined by the IMMEDIACY TEST.
more than 6 months and caused the temporary Immediacy Test - It states that the
shutdown of operations), or reasonable needs of the business
are the
-because of force majeure (acts of God and 1) immediate needs of the business;
other calamity; includes armed conflicts like war and
or insurgency), or 2) reasonably anticipated needs.
the Philippines, under the same conditions as o under the expanded foreign currency
domestic corporations. [Sec. 28(A)(1)] deposit system (EFCDS) - EXEMPT
NOTE: The gross income from the sale 2. Depository Banks (Foreign Currency
of real property realized by the non- Deposit Units) [Sec. 27(D)(3) as
resident foreign corporation shall be amended by RA 9294 (2004)]
subject to a 35% final tax imposed on Coverage of the Rule ONLY income
gross income from sources within the derived by a depository bank under the
Philippines. expanded foreign currency deposit system
2. Passive Income Subject to Final Tax from foreign currency transactions with:
Interest - nonresidents,
o on foreign loans contracted on or after - offshore banking units in the Philippines,
August 1, 1986 20% - local commercial banks including branches
of foreign banks that may be authorized
by the Bangko Sentral ng Pilipinas (BSP) Coverage of the Rule ONLY income derived by
to transact business with foreign currency offshore banking units from foreign currency
deposit system units and transactions with:
- other depository banks under the
expanded foreign currency deposit system -nonresidents,
Tax Rate: Exempt from all taxes, -other offshore banking units
except net income from such -local commercial banks including branches of
transactions as may be specified by the foreign banks that may be authorized by the
Secretary of Finance, upon recommendation Bangko Sentral ng Pilipinas (BSP) to transact
by the Monetary Board to be subject to the business with offshore banking units
regular income tax payable by banks
-Tax Rate: Exempt from all taxes, except net
EXCEPTION: Interest income from such transactions as may be
income from foreign currency loans specified by the Secretary of Finance, upon
granted by such depository banks under recommendation by the Monetary Board to be
said expanded system to residents other subject to the regular income tax payable by
than offshore units in the Philippines or banks
other depository banks under the
expanded system shall be subject to a -EXCEPTION: Interest income derived from
final tax at the rate of 10%. foreign currency loans granted to residents other
than offshore banking units or local commercial
B. Special Types of Resident Foreign banks, including local branches of foreign banks
Corporations that may be authorized by the BSP to transact
1. International Carriers business with offshore banking units, shall be
-Tax Rate and Base 2.5% on Gross Philippine subject only to a final tax at the rate of 10%.
Billings (GPB)
What is GPB? 3. Resident Depository Bank (Foreign
In the case of International Air Carriers, GPB Currency Deposit Units) [Sec. 28(D)(7)(b)
refers to the amount of: as amended by RA 9294 (2004)]
-gross revenue derived from carriage of persons, -Coverage of the Rule ONLY income derived by
excess baggage, cargo and mail originating from a depository bank under the expanded foreign
the Philippines in a continuous and uninterrupted currency deposit system from foreign currency
flight, irrespective of the place of sale or issue transactions with:
and the place of payment of the ticket or passage
document -nonresidents,
-offshore banking units in the Philippines,
=gross revenue from tickets revalidated, -local commercial banks including branches of
exchanged and/or indorsed to another foreign banks that may be authorized by the
international airline if the passenger boards a Bangko Sentral ng Pilipinas (BSP) to transact
plane in a port or point in the Philippines business with foreign currency deposit system
units and
-for flights which originate from the Philippines, -other depository banks under the expanded
but transshipment of passenger takes place at foreign currency deposit
any port outside the Philippines on another system
airline, the gross revenue consisting of only the
aliquot portion of the cost of the ticket -Tax Rate: Exempt from all taxes, except net
corresponding to the leg flown from the income from such transactions as may be
Philippines to the point of transshipment [RR specified by the Secretary of Finance, upon
15-2002] recommendation by the Monetary Board to be
subject to the regular income tax payable by
-Air Canada vs. CIR (CTA Case No. 6572) banks
A foreign airline company selling tickets in the
Philippines through their local agents shall be -EXCEPTION: Interest income from foreign
considered as resident foreign corporation currency loans granted by such depository banks
engaged in trade or business in the country. under said expanded system to residents other
The absence of flight operations within the than offshore units in the Philippines or other
Philippine territory cannot alter the fact that the depository banks under the expanded system
income received was derived from activities shall be subject to a final tax at the rate of 10%.
within the Philippines. The test of taxability is
the source, and the source is that activity which 4. Regional or Area Headquarters and
produced the income. Regional Operating Headquarters of
multinational Companies
In the case of International Shipping, GPB
means: Regional or area headquarters not subject to
-gross revenue whether for passenger, cargo or income tax
mail originating from the Philippines up to final
destination, regardless of the place of sale or Regional or area headquarters a branch
payments of the passage or freight documents. established in the Philippines by multinational
companies and which headquarters do not earn
2. Offshore Banking Units authorized by the or derive income from the Philippines and which
Bangko Sentral ng Pilipinas (BSP) [Sec. act as supervisory, communications and
28(A)(4) as amended by RA 9294 (2004)] coordinating center for their affiliates,
subsidiaries, or branches in the Asia-Pacific 10. Data processing and communications, and
Region and other foreign markets. 11. Business development.
QUICK GLANCE
Tax
Type of Corporation Tax Base
Rate
Domestic Corporations
Proprietary Educational Institutions and Hospitals (Non-profit) Taxable Income from all sources 10%
Depository Banks (Foreign Currency Deposit Units)
v With respect to income derived under the expanded Exempt (except that net income
foreign currency deposit system from certain foreign from such transactions is subject -
currency transactions to the regular income tax payable
v With respect to interest income from foreign currency by banks)
loans to residents other than offshore units in the
Philippines or other depository banks under the Amount of interest income 10%
expanded system
Resident Foreign Corporations
International Carriers Gross Philippine Billings 2.5%
Offshore Banking Units
v With respect to income derived by offshore banking Exempt (except that net income
units from certain foreign currency transactions from such transactions is subject -
to the regular income tax payable
v With respect to interest income derived from foreign by banks)
currency loans granted to residents other than offshore
banking units or local commercial banks Amount of interest income 10%
Exempt Corporations [Sec. 30] (CREB-CLEF- BMBEs shall be exempt from income tax for
SMB) income arising from the operations of the
The following organizations shall not be enterprise.
taxed in respect to income received by them BMBE is any business entity or enterprise
as such (e.g. membership fees): engaged in the production, processing or
1. LABOR, agricultural or horticultural manufacturing of products or commodities,
organization not organized principally for including agro-processing trading and
profit services, whose total assets including those
2. MUTUAL savings bank not having a capital arising from loans but exclusive of land on
stock represented by shares, and cooperative which the particular business entitys office,
bank without capital stock organized and plant and equipment are situated, shall not
operated for mutual purposes and without be more that P3M.
profit
3. A BENEFICIARY society, order or
association, operating for the exclusive
benefit of the members such as a fraternal
organization operating under the lodge
system, or mutual aid association or a non-
stock corporation organized by employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or
association, or non-stock corporation or their
dependents
4. CEMETERY company owned and operated
exclusively for the benefit of its members
5. Non-stock corporation or association
organized and operated exclusively for
RELIGIOUS, charitable, scientific,
athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net
income or asset shall belong to or inures to
the benefit of any member, organizer, officer
or any specific person
6. BUSINESS league chamber of commerce,
or board of trade, not organized for profit and
no part of the net income of which inures to
the benefit of any private stock-holder, or
individual
7. CIVIC league or organization not organized
for profit but operated exclusively for the
promotion of social welfare
8. A non-stock and nonprofit EDUCATIONAL
institution
9. Government EDUCATIONAL institution
10. FARMERS' or other mutual typhoon or fire
insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company, or like organization of a purely
local character, the income of which consists
solely of assessments, dues, and fees
collected from members for the sole purpose
of meeting its expenses and
11. Farmers', fruit growers', or like association
organized and operated as a SALES agent
for the purpose of marketing the products of
its members and turning back to them the
proceeds of sales, less the necessary selling
expenses on the basis of the quantity of
produce finished by them;
Summary of Tax Bases, Tax Rates and Applicable Tax Regimes for Corporations
4. Uniforms given to employees by the BIR Ruling 034-02 (Aug 16, 2002):
employer; Representation and Transportation Allowance
5. Medical benefits given to the employees (RATA) and Personnel Economic Relief Allowance
by the employer; (PERA) are not subject to Income Tax and
6. Laundry allowance of P150 per month; Withholding Tax. Additional Compensation
7. Employee achievement awards, e.g. for Allowance (ACA) is part of other benefits under
length of service or safety achievement, Sec. 32(b)(7)(e) of the Tax Code of 1997 which
which must be in the form of a tangible are excluded from gross compensation income
personal property other than cash or gift provided the total amount of such benefits does
certificate, with an annual monetary value not exceed P30,000. It is also not subject to
not exceeding one-half () month of the withholding tax pending its formal integration
basic salary of the employee receiving the into basic pay.
award under an established written plan
Example of Benefits Necessary to the Trade
which does not discriminate in favor of
/ Business of the Employer: BIR Ruling 013-
highly paid employees;
02: Outstation Allowance given by the Philippine
8. Christmas and major anniversary
Gaming Management Corporation to its
celebrations for employees and their
managerial and supervisory employees (who will
guests;
be away from the office site for at least 8 hours
9. Company picnics and sports
to visit the lotto franchise holders for repair
tournaments in the Philippines and are
and/or inspection of equipment) intended to
participated exclusively by employees; and
cover meals and trip related expenses is clearly
10. Flowers, fruits, books or similar items
required by the nature of or necessary to the
given to employees under special
trade or business of the employer and hence, not
circumstances, e.g. on account of illness,
subject to the fringe benefits tax. It is also not
marriage, birth of a baby, etc. [as
subject to withholding tax.
enumerated in RR 03-98, as amended by
RR 10-00]
Examples of Convenience of the Employer
Tax implication of de minimis benefits: Rule:
EXEMPTED from tax. However, should the 1. The value of the meals given to the employee
amount of the benefits given be in EXCESS of the is not taxable, if the employer provides the
ceilings prescribed, the following rules apply: meals for a substantial non-compensatory
business purpose (generally, when employee
-If given to managerial / supervisory employees
is required to be on duty during the meal
The amount in excess of the ceiling prescribed
period).
is taxable as a fringe benefit (i.e., there will be a
2. Lodging is not taxable if the employee must
32% tax imposed on the grossed-up monetary
accept the lodging on the employers business
value of the residual amount).
premises as a condition of his employment.
-If given to rank-and-file employees The
amount in excess of the ceiling prescribed is
taxable as salary or compensation income.
C. QUICK GLANCE
10
Regardless of the residence of the payor, of the place in which the contract for service was made, or of the place of payment.
B. Supplementary Discussion on Some *** (except shares of stock not listed nor
Items Included in Gross Income traded in a local stock exchange and real
property subject to capital gains tax)
1. Compensation Income
a. income arising from an ER-EE relationship.
Taxable = Ordinary + net capital
It means all remuneration for services
net income net income gains
performed by an EE for his ER, including
the cash value of all remuneration paid in If the asset involved is classified as
any medium other than cash. [Sec. 78(A)] ordinary, the entire amount of the gain
It includes: from the transaction shall be included in
1. Salaries and wages the computation of gross income [Sec
2. Commissions 32(A)], and the entire amount of the
3. Tips loss shall be deductible from gross
4. Allowances income. [Sec 34(D)]. (See XI. Allowable
5. Bonuses Deductions from Gross Income -
6. Fringe Benefits of rank and file EEs Losses)
If the property sold is a capital asset
b. It does NOT include remuneration paid: (except shares of stock not listed nor
For agricultural labor paid entirely in traded in a local stock exchange and
products of the farm where the labor is real property subject to capital gains
performed, or tax), the rules on capital gains and
For domestic service in a private home, losses apply in the determination of the
or amount to be included in gross income.
For casual labor not in the course of the (See XIII Capital Gains and Losses)
employer's trade or business, or
For services by a citizen or resident of the Computation of Gain or Loss [Sec.
Philippines for a foreign govt or an intl 40(A)]:
organization. [Sec. 78(A)]
Amount realized from sale or other
Withholding Tax on Compensation Income
disposition of property
The income recipient (i.e., EE) is the Less: basis or adjusted basis_____ ____
person liable to pay the tax income, yet GAIN (LOSS)
to improve the collection of
compensation income of EEs, the State Note: Amount realized from sale or
requires the ER to withhold the tax upon other disposition of property = sum of
payment of the compensation income. money received + fair market value of
the property (other than money)
received
11
It does not include income excluded or exempted by law.
In computing the gain or loss from the 5. Dividends Any dividend which is not
sale or other disposition of property, exempt from income tax, or which is not
the BASIS shall be as follows: subject to final tax, is taxable dividend
1. Property acquired by purchase included in the computation of the taxable
its cost, i.e., the purchase price income (gross income) in the income tax
plus expenses of acquisition. return at the end of the year.
2. Property which should be included
in the inventory its latest NOTE: Liquidating Dividend distribution
inventory value [RR-2 sec 136] of all the property of a corporation. It is
3. Property acquired by devise, strictly not dividend income, but rather a
bequest or inheritance its fair sale of shares of stock resulting in capital
market price or value as of the gain or loss.
date of acquisition
4. Property acquired by gift or 6. Annuities income derived from a capital
donation the same as if it would amount paid to an insurance company.
be in the hands of the donor or at
last preceding owner by whom it 7. Pensions paid for past employment
was not acquired by gift, EXCEPT services rendered.
that if such basis is greater than
the FMV of the property at the 8. Cancellation of debt The cancellation or
time of the gift then, for the forgiveness of indebtedness may have any
purpose of determining loss, the of three possible consequences:
basis shall be such FMV 1. It may amount to payment of income.
5. Property (other than capital asset) If, for example, an individual performs
acquired for less than an adequate services to or for a creditor, who, in
consideration in moneys worth consideration thereof, cancels the debt,
a) the amount paid by the income in that amount is realized by
transferee for the property; or b) the debtor as compensation for
the transferors adjusted basis at personal services.
the time of the transfer whichever 2. It may amount to a gift. If a creditor
is greater wishes merely to benefit the debtor,
6. Property acquired in a transaction and without any consideration
where gain or loss not recognized therefore, cancels the debt, the amount
The basis shall be the same as it of the debt is a gift to the debtor and
would have been in the hands of need not be included in the latters
the transferor increased by the report of income.
amount of gain recognized by the 3. It may amount to a capital transaction.
transferor on the transfer. If a corporation to which a stockholder
is indebted forgives the debt, the
3. Interest Income e.g., Interest income transaction has the effect of a payment
from government securities such as of dividend.
Treasury Bills
9. Prizes and Awards Contest prizes and
4. Rental Income awards received are generally taxable.
Actual rent itself included in gross Such payment constitutes gain derived
income (taxable) from labor. The EXCEPTIONS are as
Payments by lessee of obligations follows:
of lessor to third persons
considered as additional rent income of Prizes and awards received in
the lessor, and therefore included in recognition of religious, charitable,
gross income (taxable). scientific, educational, artistic, literary
Advance Rentals Receipt of or civic achievements are EXCLUSIONS
advance rentals by the lessor may or from gross income if:
may not constitute taxable income to a. The recipient was selected without
him depending on the true nature of any action on his part to enter a
the so-called advance rentals. contest or proceedings; and
o If the advance rental is in the b. The recipient is not required to
nature of prepaid rent (for the render substantial future services
lessee), received by the lessor as a condition to receiving the
under a claim of right and without prize or award.
restriction as to use, the entire Prizes and awards granted to athletes
amount is taxable income of the in local and intl sports competitions
lessor in the year received. and tournaments held in the Philippines
o If the amount received is in the and abroad and sanctioned by their
nature of a security deposit for the national associations shall be EXEMPT
faithful compliance by the lessee of from income tax.
the terms of the contract, there is
no income to the lessor unless the 10. Damage recovery
conditions which make the security Compensatory damages, as constituting
deposit the property of the lessor returns of capital, are not taxable.
occur (i.e., the lessee violates the Thus, amounts received as moral
terms of the lease agreement) damages for personal actions (such as
alienation of affection, libel, slander or
ILLUSTRATION OF NOLCO:
(In Pesos) 2000 2001 2002 2003 2004
Gross Income 500,000 600,000 700,000 500,000 800,000
Less: Deductions 900,000 500,000 750,000 420,000 450,000
Net Loss [OR] (400,000) (50,000)
Net Income before NOLCO* 100,000 80,000 350,000
Less: NOLCO
From 2000
>(100,000) > (80,000)
>
From 2002 (50,000)
Taxable Income 0 0 0 0 300,000
* - whichever is applicable
Explanation:
The unused net operating loss of P220,000 (400,000 100,000 80,000) of the year 2000 could
not be carried over beyond 2003. The net operating loss of 2002 could be carried over to 2004,
since it is within the three-year period.
Q: As of yearend of 2004, what amount of NOLCO is available to the company for offsetting against
(potential) gross income of succeeding taxable years?
Answer: None. While there was an unused portion of the 2000 NOLCO, such had already expired
by yearend of 2003. The 2002 NOLCO (P50,000) was completely used up in 2004. There is,
therefore, no NOLCO available to the company for year 2005 and thereafter.
mere hope probably will not justify will consider ALL PERTINENT
postponement of the deduction, a EVIDENCE, including
reasonable possibility of recovery will
permit the account to be carried along the value of the collateral, if
notwithstanding that the probabilities are any, securing the debt and the
that the debt may not be collected at all. financial condition of the
debtor in determining whether a
Good faith is not enough. Taxpayer debt is worthless, or the
must show also that he had assigning of the case for
reasonably investigated the relevant collection to an independent
facts and had drawn a reasonable collection lawyer who is not
inference from the information thus under the employ of the taxpayer
obtained by him. Where a taxpayer and who shall issue a statement
has failed to attach to his tax returns a under oath showing the propriety
statement showing the propriety of the of the deductions thereon made
deductions therein made for alleged bad for alleged bad debts. (Sec. 3, RR
debts, the account written off will be 5-99 as amended by RR 25-2002)
disallowed. (Collector v. Goodrich
International Rubber Co., 21 SCRA Other factors
1336) The flight or disappearance of the
debtor, the insolvency of the debtor, or
What does good faith require? The the death of the debtor with insufficient
taxpayer may strike a middle course properties to pay creditors, may
between pessimism and optimism and indicate worthlessness of the debt.
determine debts to be worthless in the
exercise of sound business Note: A creditor cannot deduct the
judgment based upon as complete debt of an insolvent debtor as long as it
information as is reasonably is possible to proceed against the
ascertainable. The taxpayer need not guarantor or surety who is insolvent.
have perfect discernment. (Sec. 2, RR 5- All efforts must be exhausted to collect
99 as amended by RR 25-02) from the guarantor or surety.
"Actually charged off from the 4. The debt must be actually CHARGED
taxpayers books of accounts" OFF the books of accounts of the
means that the said receivable has been taxpayer as of the end of the taxable
cancelled and written-off from the said year.
taxpayer's books of account. In no case
may any bad debt deduction be allowed NOTE: The debts due a taxpayer may arise
unless the facts pertaining to the money or out of securities held. But in a case where
property lent and its cancellation or write- securities are ascertained to be worthless
off from the taxpayer's accounting records, and charged off within the taxable year, and
after having been determined that the same are capital assets, the loss to the taxpayer
has actually become worthless, have been (other than a bank or trust company
complied with by the taxpayer. (Sec. 2, RR incorporated under the laws of the
5-99 as amended by RR 25-02) Philippines a substantial part of whose
business is the receipt of deposits) will not
EXCEPTIONS: be treated as bad debts, but as capital loss
The following are not deductible as bad debts: on the last day of the taxable year (See
1. debts not connected with profession, XIII. Capital Gains and Losses for the
trade or business income tax treatment). The date that the
2. debts sustained in a transaction entered securities were written off is immaterial.
into between family members or related [Sec. 34(E)(2)]18
taxpayers [see Sec. 36(B) or discussion
on Losses above-Subsection H] GENERAL RULE: The determination by the
Commissioner of Internal Revenue as to the
REQUISITES: (PICU) worthlessness of bad debt is adequate.
1. There must be an existing
INDEBTEDNESS due to the taxpayer, EXCEPTIONS: Who are required to submit
which must be valid and legally additional documents or to secure approval
demandable. from their regulatory agencies before they
2. The debt must be connected with are allowed to deduct bad debts from gross
PROFESSION, trade or business. income?
3. The debt must be actually ascertained
to be worthless or UNCOLLECTIBLE.
(e.g., bankrupt debtor) 18
ILLUSTRATION: Mr. A purchased bonds of B Co. on March 10,
Determining uncollectibility 2000 for P100,000 and held them as capital assets. On February
2, 2001, B Co. was declared by the Court as insolvent, and the
Before a taxpayer may charge off
bonds were totally worthless. Mr. A wrote off the bonds from his
and deduct a debt, he must ascertain books of accounts on February 4, 2001. There is no bad debt for
and must be able to demonstrate with Mr. A. He would be considered to have a capital loss of P100,000
reasonable degree of certainty the for the year 2001. The holding period of the bonds was from
uncollectibility of the debt. The March 10, 2000 to December 31 2001, or more than 12 months.
The capital loss would be considered at 50%, or at P50,000. (See
Commissioner of Internal Revenue
XIII. Capital Gains and Losses for the detailed explanation on
income tax treatment of capital asset transactions.)
Who may take depreciation: The person Methods and Rates of Depreciation
who sustains an economic loss from the 1. Straight-line method
decrease in property value due to
NOTE: (Cost Salvage Value) is known as the Step 2: Compute for the Declining
depreciable cost.
Balance Rate (DBR).
Alternative Method:
Depreciation = 1 __ Declining = Straight Line Rate Relative to
Rate Estimated Useful Life Balance Rate Depreciation Rate x the Straight Line
of the Property Depreciation Rate
2. Declining-balance method, using a rate *** Since this is the year of the
not exceeding twice the rate for straight acquisition, the book value of the
line method property at the start of the year is
Under this method, the depreciation equal to its original cost.
allowance per year varies. Depreciation
is largest in the first year and continually Year 2003:
decreases towards the end of the useful Original Cost P 400,000
life of the property. The depreciation Less: 150,000
rate under the straight-line method is Accumulated
first computed, and the result is Depreciation
multiplied with the rate relative to the
Book Value of the
straight-line method rate. The product
Property,
(the declining balance rate) is then
start of P 250,000
multiplied to the yearly declining
current year
balance of the property (i.e., book value
Multiplied by: 37.5%
of the property at the start of the
DBR
current year, which is equal to its
Deduction for
original cost minus its accumulated
Depreciation P 93,750
depreciation) to determine the deduction
for depreciation for the current year.
However, in the last year of the assets Year 2004:
estimated life, the depreciation is equal Original Cost P 400,000
to the book value of the property at the Less:
start of that year (i.e., the amount of Accumulated
depreciation must be just enough to Depreciation
reduce the propertys book value to Year 2002
zero). Note that the salvage value is P150,000
ignored in the declining balance Year 2003
method. P93,750 243,750
Book Value of
ILLUSTRATION: the Property,
P Company acquired a machine on start of
January 1, 2002 at a cost of P400,000. current year P 156,250
It had a scrap value of P50,000, and a Multiplied by: 37.5%
useful life of 4 years. The company uses DBR
the declining balance method, at a rate Deduction for
of one and a half that of the straight line Depreciation P58,593.75
method. Determine the depreciation
chargeable in years 2002, 2003, 2004
and 2005.
Year 2005:
Original Cost P 400,000 A B C D
Less: Accumulated (A/15) (= B x C)
Depreciation Year Remainin Resulti Depreciabl Deduction
Year 2002 g Useful ng e Cost for
P150,000 Life Fractio Depreciati
Year 2003 302,343.75 (Reckoni n on
P93,750 ng Point:
Year 2004 Start of
P58,593.75 the Year)
Book Value of the 2001 5 5/15 P105,000 P35,000
Property, start P 97,656.25 2002 4 4/15 P105,000 P28,000
of current year 2003 3 3/15 P105,000 P21,000
2004 2 2/15 P105,000 P14,000
Deduction for 2005 1 1/15 P105,000 P7,000
Depreciation *** P97,656.25
*** The deduction for depreciation in 4. Any other method which may be
2005 is equal to the book value of the prescribed by the Secretary of Finance
property at the start of the year upon recommendation of the
because the machine had a useful life Commissioner
of 4 years, which ended in 2005.
Special Rules:
3. Sum-of-the-years-digit method Depreciation of Properties Used in
Under this method, the annual Petroleum Operations
depreciation is computed by applying a An allowance for depreciation in
changing fraction to the depreciable cost respect of all properties DIRECTLY
of the property (original cost reduced by related to production of petroleum
the salvage value). In the fraction, the shall be allowed under the straight-
numerator is the number of remaining line or declining-balance method of
years of the estimated useful life of the depreciation at the option of the
property and the denominator is the service contractor. However, if the
sum of the numbers representing the service contractor initially elects the
years of the propertys life. declining-balance method, it may
shift to the straight-line method.
ILLUSTRATION: On January 1, 2001, J The useful life of properties used in
Company acquired a machine at a cost or related to production of
of P105,000. It had a salvage value of petroleum shall be ten (10) years
P5,000, and an estimated useful life of 5 or such shorter life as may be
years. The company uses the sum-of- permitted by the Commissioner.
the-years method in determining Properties NOT USED DIRECTLY
depreciation. Determine the depreciation in the production of petroleum shall
chargeable in years 2001, 2002, 2003, be depreciated under the straight-
2004 and 2005. line method on the basis of an
estimated useful life of 5 years.
Step 1: Compute for the sum of the
numbers representing the years of Depreciation of Properties Used in
the propertys life. Mining Operations
The property has an estimated useful An allowance for depreciation in
life of 5 years. The sum, therefore, is 15 respect of all properties used in mining
(5 + 4 + 3 + 2 + 1). This sum will be operations other than petroleum
used as the denominator in the fraction. operations, shall be computed as
follows:
Step 2: Compute for the depreciable At the normal rate of depreciation if
cost of the property. the expected life is ten (10) years
The depreciable cost is P100,000 or less; or
(P105,000 P5,000). Depreciated over any number of
years between five (5) years and
Step 3: Compute for the yearly the expected life if the latter is
deduction for depreciation (Column more than ten (10) years, and the
D). depreciation thereon allowed as
deduction from taxable income:
Provided, That the contractor
notifies the Commissioner at the
beginning of the depreciation period
which depreciation rate allowed will
be used.
SUPPORTING SOLUTION:
Gross Income P1,000,000
Less: Allowable Deductions (except deduction for
contributions) 400,000
Taxable Income before deduction for contributions P
600,000
Multiplied by: Statutory Limit (%)
5%
Statutory Limit (in Pesos) P 30,000
beginning with the year in which the transfer or Assessment Insurance Companies. - Assessment
payment is made; covered by Sec. 34(J) insurance companies, whether domestic or foreign,
[Pension Trusts] may deduct from their gross income the actual
deposit of sums with the officers of the
ILLUSTRATION: Government of the Philippines pursuant to law, as
F Co. established a pension trust in 2001, additions to guarantee or reserve funds.
transferring thereto a lump sum payment of
P500,000 to cover past services rendered by its Allocation of Income and Deductions [Sec. 50]
employees. Additionally, the terms of the trust are - In the case of two or more organizations, trades
such that P20,000 in pension liability would accrue or businesses (whether or not incorporated and
yearly, covering services rendered during the year whether or not organized in the Philippines) owned
by its employees. Determine the total deduction on and controlled directly or indirectly by the same
account of the pension trust allowed to F Co. from interests, the Commissioner is authorized to
2001 onwards. distribute, apportion or allocate gross income or
deductions between or among such organization,
Year Yearly Current TOTAL trade or business, if he determines that such
Amortization Liability / distribution, apportionment or allocation is
of Present necessary in order: (a) to prevent evasion of taxes;
Past Service Service or (b) to clearly reflect the income of any such
Cost Cost organizations, trades or businesses.
(= 1/10 of
P500,000) [covered
[covered by by Sec.
Sec. 34(J)] 34(A)(1)]
2001 P50,000 P20,000 P70,000
2002 P50,000 P20,000 P70,000
2003 P50,000 P20,000 P70,000
2004 P50,000 P20,000 P70,000
2005 P50,000 P20,000 P70,000
2006 P50,000 P20,000 P70,000
2007 P50,000 P20,000 P70,000
2008 P50,000 P20,000 P70,000
2009 P50,000 P20,000 P70,000
2010 P50,000 P20,000 P70,000
2011 - P20,000 P20,000
onwards
XII. NON-
NON-DEDUCTIBLE EXPENSES [Sec. XIII. CAPITAL GAINS AND LOSSES [Sec.
36] 39]
19
A transaction in which a speculator sells securities which he
does not own in anticipation of a decline in its price. The seller
intends to cover the sale by purchasing the securities when the
price declines, in which case he will make a profit.
2001 2002
Net Income, Business 80,000 90,000
Interest Income from notes 4,000 2,000
of clients
Capital Gain on assets:
Shares of foreign 50,000
corporations, held for 3
years 70,000
Jewelry, held for 10
months
Capital Loss on bonds, held 120,000 -
for 4 months
20
Net Income should be understood as taxable income
(Executive Order No. 37)
Mr. Os taxable income for 2001 was P64,000, and for 2002 was P78,000, computed as follows:
2001 2002
Net Income, Business P 80,000 P 90,000
Interest Income 4,000 2,000
Ordinary Net Income P84,000 P92,000
Capital Gain (50%) P25,000
Capital Gain (100%) P70,000
Capital Loss (100%) (120,000)
Legend:
> To determine the maximum that may be carried over to the next year: Taxable Income
Net Capital Loss Carry-Over from the previous year
>
P Co., a domestic corporation, had the following results of operations for a taxable year:
Ordinary Net Income P52,000
Gain on sale of capital asset, held for ten months 2,000
Gain on sale of capital asset, held for eighteen months 2,000
Loss on sale of capital asset, held for six months 1,100
Loss on sale of capital asset, held for twenty months 2,000
and in the preceding year it had a net capital loss of P1,500 and a taxable income of P60,000. The taxable
income of the corporation for the year is computed as follows***:
Ordinary net income P52,000
Gain on sale of capital asset, held for ten months (100%) P2,000
Gain on sale of capital asset, held for eighteen months 2,000
(100%)
Total Capital Gains P4,000
Loss on sale of capital asset, held for six months (100%) P1,100
Loss on sale of capital asset, held for twenty months (100%) 2,000
Total Capital Loss 3,100
Net Capital Gain 900
Taxable Income P52,900
*** For corporations, capital gains and losses are always considered at 100%, and there is
no net capital loss carry-over.
SUMMARY OF RULES
For Corporations:
1. Corporations shall recognize 100% of the capital gain or loss, regardless of the holding period.
2. Corporations cannot carry-over net capital loss.
3. Losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from
such sales or exchanges.
XIV. SITUS OF TAXATION [Sec. 42] funds for use in connection with the conduct or
operation of trade or business in the Philippines.
A. Gross Income From Sources Within the
C. Gross Income From Sources Without the
Philippines
Philippines.
Interests derived from sources within the
(1) Interests other than those derived from
Philippines, and interest on bonds, notes or other
sources within the Philippines as provided in A.
interest-bearing obligations of residents,
(2) Dividends other than those derived from
corporate or otherwise
sources within the Philippines as provided in A.
Dividends
(3) Compensation for labor or personal services
Compensation for labor or personal services
performed without the Philippines;
performed in the Philippines
(4) Rentals or royalties from property located
Rentals and royalties from property located in
without the Philippines or from any interest in
the Philippines or from any interest in such
such property including rentals or royalties for
property, including rentals or royalties for:
the use of or for the privilege of using without
(a) The use of or the right or privilege to use
the Philippines, patents, copyrights, secret
in the Philippines any copyright, patent, design
processes and formulas,
or model, plan, secret formula or process,
goodwill, trademarks, trade brands,
goodwill, trademark, trade brand or other like
franchises and other like properties; and
property or right;
(5) Gains, profits and income from the sale of
(b) The use of, or the right to use in the
real property located without the Philippines.
Philippines any industrial, commercial or
scientific equipment;
D. Taxable Income From Sources Without the
(c) The supply of scientific, technical,
Philippines. - Deduct from the gross income
industrial or commercial knowledge or
from sources without the Philippines
information;
(a) the expenses, losses, and other deductions
(d) The supply of any assistance that is
properly apportioned or allocated thereto
ancillary and subsidiary to, and is furnished as
and
a means of enabling the application or
(b) a ratable part of any expense, loss or other
enjoyment of, any such property or right as is
deduction which cannot definitely be
mentioned in paragraph (a), any such
allocated to some items or classes of gross
equipment as is mentioned in paragraph (b) or
income.
any such knowledge or information as is
The remainder, if any, shall be treated in full as
mentioned in paragraph (c);
taxable income from sources without the
(e) The supply of services by a nonresident
Philippines.
person or his employee in connection with the
use of property or rights belonging to, or the
E. Income From Sources Partly Within and
installation or operation of any brand,
Partly Without the Philippines.
machinery or other apparatus purchased from
Allocated or apportioned to sources within or
such nonresident person;
without the Philippines, under the rules and
(f) Technical advice, assistance or services
regulations prescribed by the Secretary of
rendered in connection with technical
Finance, upon recommendation of the
management or administration of any
Commissioner
scientific, industrial or commercial
For the purpose of computing the taxable
undertaking, venture, project or scheme; and
income therefrom, where items of gross income
(g) The use of or the right to use:
are separately allocated to sources within the
(i) Motion picture films;
Philippines, there shall be deducted:
(ii) Films or video tapes for use in
(a) the expenses, losses and other deductions
connection with television; and
properly apportioned or allocated thereto,
(iii) Tapes for use in connection with radio
and
broadcasting.
(b) a ratable part of other expenses, losses or
Gains, profits and income from the sale of real
other deductions which cannot definitely be
property located in the Philippines
allocated to some items or classes of gross
Gains; profits and income from the sale of
income.
personal property
The remainder, if any, shall be included in full
as taxable income from sources within the
B. Taxable Income From Sources Within the Philippines.
Philippines
GENERAL RULE. Deduct the expenses, losses and In the case of gross income derived from
other deductions properly allocated thereto and a sources partly within and partly without the
ratable part of expenses, interests, losses and Philippines, the taxable income may first be
other deductions effectively connected with the computed by deducting the expenses, losses or
business or trade conducted exclusively within the other deductions apportioned or allocated
Philippines which cannot definitely be allocated to thereto and a ratable part of any expense, loss
some items or class of gross income: Provided, or other deduction which cannot definitely be
That such items of deductions shall be allowed only allocated to some items or classes of gross
if fully substantiated by all the information income; and the portion of such taxable income
necessary for its calculation. The remainder, if any, attributable to sources within the Philippines
shall be treated in full as taxable income from may be determined by processes or formulas of
sources within the Philippines. general apportionment prescribed by the
EXCEPTION. - No deductions for interest paid or Secretary of Finance.
incurred abroad shall be allowed unless
indebtedness was actually incurred to provide Gains, profits and income from the sale of
personal property
(a) produced (in whole or in part) by the XV. INSTALLMENT BASIS [Sec. 49]
taxpayer within and sold without the
Philippines, or
A. Sales of Dealers in Personal Property A
(b) produced (in whole or in part) by the
person who regularly sells or otherwise
taxpayer without and sold within the
disposes of personal property on the installment
Philippines,
plan may return as income therefrom in any
shall be treated as derived partly from sources
taxable year that proportion of the installment
within and partly from sources without the
payments actually received that year, which the
Philippines.
gross profit realized or to be realized when
payment is completed, bears to the total
F. Gains, profits and income derived:
contract price.
(a) from the purchase of personal property within
and its sale without the Philippines, or
(b) from the purchase of personal property without FORMULA:
and its sale within the Philippines
shall be treated as derived entirely form sources Gross Profit Installment payments Income to be
within the country in which sold: Provided, ---------------------- X actually received = reported for
however, That gain from the sale of shares of stock Contract price the year
in a domestic corporation shall be treated as
derived entirely form sources within the Philippines
regardless of where the said shares are sold.
The transfer by a nonresident alien or a foreign B. Sales of Realty and Casual Sales of
corporation to anyone of any share of stock issued Personal Property
by a domestic corporation shall not be effected or 1. A casual sale or other casual disposition of
made in its book unless: personal property (other than property of a kind
the transferor has filed with the Commissioner which would properly be included in the
a bond conditioned upon the future payment by inventory of the taxpayer if on hand at the
him of any income tax that may be due on the close of the taxable year) for a price
gains derived from such transfer, or exceeding One thousand pesos (P1000); or
the Commissioner has certified that the taxes, if 2. A sale or other disposition of real property
any, imposed in this Title and due on the gain
realized from such sale or transfer have been In either case the initial payments must
paid. It shall be the duty of the transferor and NOT exceed 25% of the selling price
the corporation the shares of which are sold or 'Initial payments' means the payment received in
transferred, to advise the transferee of this cash or property other than evidences of
requirement. indebtedness of the purchaser during the taxable
period in which the sale or other disposition is
Definition of Royalties - Philamlife vs. CTA made.
[CA GR SP 31283 April 25, 1995]
The CTA ruled that it is not the presence of any Income Tax Treatment: Income may be
property from which one derives rentals and returned on the same basis as sales of dealers in
royalties that is controlling, but rather it personal property (see section A)
includes royalties for the supply of scientific,
technical, industrial, or commercial knowledge C. Sales of Real Property Considered as
or information . Capital Asset by Individuals An individual
who sells or disposes of real property,
considered as capital asset, and is otherwise
qualified to report the gain therefrom under
Subsection (B) may pay the capital gains tax in
installments.
XVI. RETURNS AND PAYMENTS OF derived from property received from a living parent
shall be included in the return of the parent, except
TAX / WITHHOLDING
WITHHOLDING TAXES
o when the donor's tax has been paid on such
A. Returns and Payment of Tax property, or
1. Individual Return (Sec. 51, NIRC) o when the transfer of such property is exempt
a. Who are required to file from donor's tax.
(a) Every Filipino citizen residing in the
Philippines; 3. Persons Under Disability If the taxpayer is
(b) Every Filipino citizen residing outside the unable to make his own return, the return may be
Philippines, on his income from sources made by his duly authorized agent or
within the Philippines; representative or by the guardian or other
(c) Every alien residing in the Philippines, on person charged with the care of his person or
income derived from sources within the property, the principal and his representative or
Philippines; and guardian assuming the responsibility of making the
(d) Every nonresident alien engaged in trade return and incurring penalties provided for
or business or in the exercise of erroneous, false or fraudulent returns.
profession in the Philippines.
Signature Presumed The fact that an
b. Those not required to file individual's name is signed to a filed return shall be
The following individuals shall not be required to prima facie evidence for all purposes that the return
file an income tax return: was actually signed by him.
(b) From the sale or disposition of real property Return and Payment of Estimated Income Tax
under Section 24(D) shall file a return within by Individuals: The amount of estimated income
thirty (30) days following each sale or other with respect to which a declaration is required shall
disposition. be paid in four (4) installments:
o 1st installment - at the time of the declaration
PAYMENT o 2nd installment - on August 15 of the current
The total amount of tax imposed and prescribed year
shall be paid on the date the return prescribed is o 3rd installment on November 15 of the
filed by the person liable. current year
If the seller submits proof of his intention to o 4th installment - on or before April 15 of the
avail himself of the benefit of exemption of following calendar year when the final
capital gains under existing special laws, no adjusted income tax return is due to be filed
such payments shall be required.
o In case of failure to qualify for exemption h. Substituted filing for ITR of Salaried
under such special laws and implementing Individuals
rules and regulations, the tax due on the RR 19-2002
gains realized from the original transaction Certificate of Compensation Payment/Tax
shall immediately become due and payable. Withheld (BIR Form No. 2316). In general,
o If the seller, having paid the tax, submits every employer required to deduct and withhold
such proof of intent within six (6) months the tax on compensation including fringe benefits
from the registration of the document given to rank and file employees, shall furnish
transferring the real property, he shall be every employee the Certificate of Compensation
entitled to a refund of such tax upon Payment/Tax Withheld (BIR Form No. 2316), on
verification of his compliance with the or before January 31 of the succeeding calendar
requirements for such exemption. year, or if the employment is terminated before
o In case the taxpayer elects and is qualified to the close of such calendar year, on the day on
report the gain by installments, the tax due which the last payment of compensation is
from each installment payment shall be paid made. Failure to furnish the same shall be a
within (30) days from the receipt of such ground for the mandatory audit of payors
payments. income tax liabilities (including withholding tax)
upon verified complaint of the payee.
g. Quarterly declaration of income tax (Sec.
74, NIRC) The Certificate of Compensation Payment/Tax
Every individual subject to income tax under Withheld (BIR Form No. 2316) shall contain a
Sections 24 and 25(A) of this Title, who is certification to the effect that the employers
receiving self-employment income, whether it filing of BIR Form No. 1604-CF shall be
constitutes the sole source of his income or in considered as a substituted filing of the
combination with salaries, wages and other fixed employees income tax return to the extent
or determinable income, shall make and file a that the amount of compensation and tax
declaration of his estimated income for the withheld appearing in BIR Form No. 1604-CF as
current taxable year on or before April 15 of the filed with BIR is consistent with the
same taxable year. corresponding amounts indicated in BIR Form
No. 2316. It shall be signed by both the
In general, self-employment income consists of employee and employer attesting to the fact that
the earnings derived by the individual from the the information stated therein has been verified
practice of profession or conduct of trade or and is true and correct to the best of their
business carried on by him as a sole proprietor knowledge. Withholding agents/employers are
or by a partnership of which he is a member. required to retain copies of the duly signed BIR
1. Nonresident Filipino citizens, with respect to Form No. 2316 for a period of three (3) years.
income from without the Philippines, and
nonresident aliens not engaged in trade or The employee who is qualified for substituted
business in the Philippines, are not required filing of income tax return under these
to render a declaration of estimated income regulations, shall no longer be required to file
tax. income tax return (BIR Form No. 1700) since
2. The declaration shall contain such pertinent BIR Form No. 1604-CF shall be considered a
information as the Secretary of Finance, upon substituted return filed by the employer. BIR
recommendation of the Commissioner, may, Form No. 2316, duly certified by both employee
by rules and regulations prescribe. An and employer, shall serve the same purpose as if
individual may make amendments of a a BIR Form No. 1700 had been filed, such as
declaration filed during the taxable year proof of financial capacity for purposes of loan,
under the rules and regulations prescribed by credit card, or other applications, or for the
the Secretary of Finance, upon purpose of availing tax credit in the employees
recommendation of the Commissioner. home country and for other purposes with
various government agencies. This may also be
Estimated tax means the amount which the used for purposes of securing travel tax
individual declared as income tax in his final exemption, when necessary.
adjusted and annual income tax return for the
preceding taxable year minus the sum of the However, information referring to the
credits allowed under this Title against the said tax. certification, appearing at the bottom of BIR
If, during the current taxable year, the taxpayer Form No. 2316, shall not be signed by both the
reasonably expects to pay a bigger income tax, he employer and the employee if the latter is not
shall file an amended declaration during any qualified for substituted filing. In which case, BIR
interval of installment payment dates. Form No. 2316 furnished by the employer to the
employee shall be attached to the employees
Income Tax Return (BIR Form No. 1700) to be the total tax due on the entire taxable income of
filed on or before April 15 of the following year. that year, the corporation shall either:
(A) Pay the balance of tax still due; or
i. Modes of Payment of Taxes Through (B) Carry-over the excess credit; or
Banks (C) Be credited or refunded with the excess
RR 16-2002 amount paid, as the case may be.
SECTION 3. Modes Of Payment To
Authorized Agent Banks. Aside from the In case the corporation is entitled to a tax credit
electronic payment system currently used by or refund of the excess estimated quarterly
some taxpayers in paying their BIR taxes, the income taxes paid, the excess amount shown on
rest shall pay their tax liabilities through any of its final adjustment return may be carried over
the following modes: and credited against the estimated quarterly
a) "Overthecounter cash payment" - income tax liabilities for the taxable quarters of
payment of taxes to an authorized agent the succeeding taxable years. Once the option to
bank in the currencies that are legal tender carry-over and apply the excess quarterly
in the Philippines. The maximum amount income tax against income tax due for the
allowed per tax payment shall not exceed taxable quarters of the succeeding taxable years
ten thousand pesos (P10,000.00) has been made, such option shall be
b) "Bank debit system" - taxpayer, through considered irrevocable for that taxable
a bank debit memo/advice, authorizes period and no application for cash refund or
withdrawals from his bank accounts for issuance of a tax credit certificate shall be
payment of tax liabilities. allowed.
c) "Checks" refers to a bill of exchange or
Order Instrument drawn on a bank payable c. When to File (Sec. 77, NIRC)
on demand. Quarterly declaration shall be filed within
sixty (60) days following the close of each of the
The following checks are, however, NOT first three (3) quarters of the taxable year.
acceptable as check payments for internal
revenue taxes: (SUESAP) The final adjustment return shall be filed on
1. Accommodation checks checks issued or or before the fifteenth (15th) day of April, or on
drawn by a party other than the taxpayer or before the fifteenth (15th) day of the fourth
making the payment; (4th) month following the close of the fiscal year,
2. Second endorsed checks checks issued to as the case may be.
the taxpayer as payee who indorses the
same as payment for taxes; Extension of Time to File Returns The
3. Stale checks checks dated more than six Commissioner may, in meritorious cases, grant a
(6) months prior to presentation to the reasonable extension of time for filing returns of
authorized agent bank; income (or final and adjustment returns in case
4. Postdated checks checks dated a day or of corporations)
several days after the date of presentation
to the authorized agent bank; d. Where to File (Sec. 77, NIRC)
5. Unsigned checks Except as the Commissioner otherwise permits,
6. Checks with alterations/Erasures. the quarterly income tax declaration required in
Section 75 and the final adjustment return
AABs accepting checks as payment must see to required in Section 76 shall be filed with:
it that the check covers one tax type for one o the authorized agent banks or
return period only. Second indorsement of o Revenue District Officer or
checks which are payable to the BIR or o Collection Agent or
Commissioner of Internal Revenue is absolutely o duly authorized Treasurer of the city or
prohibited municipality having jurisdiction over the
location of the principal office of the
2. Corporation Regular Returns corporation filing the return or place where
a. Quarterly Income Tax (Sec. 75, NIRC) its main books of accounts and other data
Every corporation shall file in duplicate a from which the return is prepared are
quarterly summary declaration of its gross kept.
income and deductions on a cumulative basis
for the preceding quarter or quarters upon which e. When to Pay (Sec. 77, NIRC)
the income tax, shall be levied, collected and The income tax due on the corporate quarterly
paid. returns and the final adjustment income tax shall
be paid at the time the declaration or return is
The tax so computed shall be decreased by filed in a manner prescribed by the
the amount of tax previously paid or Commissioner.
assessed during the preceding quarters and
shall be paid not later than sixty (60) days from f. Capital Gains on Shares of Stock
the close of each of the first three (3) quarters of Every corporation deriving capital gains from the
the taxable year, whether calendar or fiscal year. sale or exchange of shares of stock not traded
thru a local stock exchange as prescribed under
b. Final Adjustment Return (Sec. 76, Sections 24 (c), 25 (A)(3), 27 (E)(2),
NIRC) 28(A)(8)(c) and 28 (B)(5)(c), shall file a return
Every corporation liable to tax shall file a final within thirty (30) days after each transaction and
adjustment return covering the total taxable a final consolidated return of all transactions
income for the preceding calendar or fiscal during the taxable year on or before the fifteenth
year. If the sum of the quarterly tax payments (15th) day of the fourth (4th) month following
made during the said taxable year is not equal to the close of the taxable year.
include amounts paid to them in consideration Statement of Income Payments Made and
for the use of their names or pictures in print, Taxes Withheld. - Every withholding agent
broadcast, or other media or for public required to deduct and withhold taxes under
appearances, for purposes of advertisements or Section 57 shall furnish each recipient, in respect
sales proportion. to his or its receipts during the calendar quarter
or year, a written statement showing the income
Furthermore, in order to determine the or other payments made by the withholding
applicable tax rate (10% or 20%) to be agent during such quarter or year, and the
applied/withheld by the withholding agent, every amount of the tax deducted and withheld
professional entertainer, professional athlete, therefrom, simultaneously upon payment at the
director involved in movies, stage, radio, request of the payee, but not later than the
television and musical productions and other twentieth (20th) day following the close of
recipients of talent fees shall annually disclose the quarter in the case of corporate payee,
his gross income for the current year to the BIR, or not later than March 1 of the following
by submitting a notarized sworn declaration year in the case of individual payee for
thereof, copy furnished all the current payors of creditable withholding taxes. For final
the declaration duly stamped received by the withholding taxes, the statement should be
BIR. The disclosure should be filed on June 30 of given to the payee on or before January 31
each year or within fifteen (15) days after the of the succeeding year.
end of the month the talent's income reaches
P720,000, whichever comes earlier. In case his Annual Information Return. - Every
total gross income is less than P720,000 as of withholding agent required to deduct and
June 30, he/she shall submit a second disclosure withhold taxes under Section 57 shall submit to
within fifteen (15) days after the end of the the Commissioner an annual information return
month that his/her gross income for the current containing the list of payees and income
year to date reaches P720,000. The initial payments, amount of taxes withheld from each
disclosure after the effectivity of these payee and such other pertinent information as
Regulations shall be filed on or before September may be required by the Commissioner. In the
30, 2001 or within fifteen (15) days after the case of final withholding taxes, the return shall
effectivity of these Regulations, whichever comes be filed on or before January 31 of the
later. In case of failure to submit the annual succeeding year, and for creditable
declaration/disclosure to the BIR, the payor shall withholding taxes, not later than March 1 of
withhold the tax at the rate of 20%. the year following the year for which the
annual report is being submitted. This
If an individual recipient receives talent fees in return, if made and filed in accordance with the
addition to salaries from the same payor, the rules and regulations approved by the Secretary
said talent fees shall be considered as of Finance, upon recommendation of the
supplemental compensation and, thus, be Commissioner, shall be sufficient compliance
subject to the withholding tax on compensation." with the requirements of Section 68 of the NIRC
in respect to the income payments.
3. Return and Payment of Tax
Sec. 58 The Commissioner may, by rules and
Quarterly Returns and Payments of Taxes regulations, grant to any withholding agent a
Withheld. - Taxes deducted and withheld under reasonable extension of time to furnish and
Section 57 by withholding agents shall be submit the return required in this Subsection.
covered by a return and paid to, except in cases
where the Commissioner otherwise permits, an Income of Recipient. - Income upon which any
authorized Treasurer of the city or municipality creditable tax is required to be withheld at
where the withholding agent has his legal source under Section 57 shall be included in the
residence or principal place of business, or, return of its recipient but the excess of the
where the withholding agent is a corporation, amount of tax so withheld over the tax due on
where the principal office is located. his return shall be refunded to him subject to the
provisions of Section 204; if the income tax
The taxes deducted and withheld by the collected at source is less than the tax due on his
withholding agent shall be held as a special fund return, the difference shall be paid in accordance
in trust for the government until paid to the with the provisions of Section 56.
collecting officers.
All taxes withheld pursuant to the provisions of
The return for final withholding tax shall be filed this Code and its implementing rules and
and the payment made within twenty-five regulations are hereby considered trust funds
(25) days from the close of each calendar and shall be maintained in a separate account
quarter, while the return for creditable and not commingled with any other funds of the
withholding taxes shall be filed and the payment withholding agent.
made not later than the last day of the
month following the close of the quarter Registration with Register of Deeds. - No
during which withholding was made: registration of any document transferring real
Provided, That the Commissioner, with the property shall be effected by the Register of
approval of the Secretary of Finance, may Deeds unless the Commissioner or his duly
require these withholding agents to pay or authorized representative has certified that such
deposit the taxes deducted or withheld at more transfer has been reported, and the capital gains
frequent intervals when necessary to protect the or creditable withholding tax, if any, has been
interest of the government. paid: Provided, however, That the information as
may be required by rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, shall be services, the term "employer" (except for the
annotated by the Register of Deeds in the purpose of Subsection (A)) means the person
Transfer Certificate of Title or Condominium having control of the payment of such wages;
Certificate of Title: Provided, further, That in and
cases of transfer of property to a corporation, (2) In the case of a person paying wages on
pursuant to a merger, consolidation or behalf of a nonresident alien individual, foreign
reorganization, and where the law allows partnership or foreign corporation not engaged
deferred recognition of income in accordance in trade or business within the Philippines, the
with Section 40, the information as may be term "employer" (except for the purpose of
required by rules and regulations to be Subsection (A)) means such person.
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, shall be Sec. 79. Income Tax Collected at Source
annotated by the Register of Deeds at the back Requirement of Withholding - Every employer
of the Transfer Certificate of Title or making payment of wages shall deduct and
Condominium Certificate of Title of the real withhold upon such wages a tax determined in
property involved: Provided, finally, That any accordance with the rules and regulations to be
violation of this provision by the Register of prescribed by the Secretary of Finance, upon
Deeds shall be subject to the penalties imposed recommendation of the Commissioner: Provided,
under Section 269 of this Code. however, That no withholding of a tax shall be
required where the total compensation income of
C. Withholding on Wages an individual does not exceed the statutory
Sec. 78. Definitions. minimum wage, or five thousand pesos
Wages - The term 'wages' means all remuneration (P5,000.00) per month, whichever is higher.
(other than fees paid to a public official) for
services performed by an employee for his Tax Paid by Recipient - If the employer, in
employer, including the cash value of all violation of the provisions of this Chapter, fails to
remuneration paid in any medium other than cash, deduct and withhold the tax as required under this
except that such term shall not include Chapter, and thereafter the tax against which such
remuneration paid: tax may be credited is paid, the tax so required to
be deducted and withheld shall not be collected
(1) For agricultural labor paid entirely in products from the employer; but this Subsection shall in no
of the farm where the labor is performed, or case relieve the employer from liability for any
(2) For domestic service in a private home, or penalty or addition to the tax otherwise applicable
(3) For casual labor not in the course of the in respect of such failure to deduct and withhold.
employer's trade or business, or
(4) For services by a citizen or resident of the Refunds or Credits -
Philippines for a foreign government or an (1) Employer. - When there has been an
international organization. overpayment of tax under this Section, refund
or credit shall be made to the employer only
If the remuneration paid by an employer to an to the extent that the amount of such
employee for services performed during one-half overpayment was not deducted and withheld
(1/2) or more of any payroll period of not more hereunder by the employer.
than thirty-one (31) consecutive days constitutes
wages, all the remuneration paid by such employer (2) Employees. - The amount deducted and
to such employee for such period shall be deemed withheld under this Chapter during any
to be wages; but if the remuneration paid by an calendar year shall be allowed as a credit to
employer to an employee for services performed the recipient of such income against the tax
during more than one-half (1/2) of any such payroll imposed under Section 24(A) of this Title.
period does not constitute wages, then none of the Refunds and credits in cases of excessive
remuneration paid by such employer to such withholding shall be granted under rules and
employee for such period shall be deemed to be regulations promulgated by the Secretary of
wages. Finance, upon recommendation of the
Commissioner.
Payroll Period - a period for which payment of
wages is ordinarily made to the employee by his Any excess of the taxes withheld over the tax due
employer, and the term "miscellaneous payroll from the taxpayer shall be returned or credited
period" means a payroll period other than, a daily, within three (3) months from the fifteenth (15th)
weekly, biweekly, semi-monthly, monthly, day of April. Refunds or credits made after such
quarterly, semi-annual, or annual period. time shall earn interest at the rate of six percent
(6%) per annum, starting after the lapse of the
Employee - any individual who is the recipient of three-month period to the date the refund of credit
wages and includes an officer, employee or elected is made.
official of the Government of the Philippines or any
political subdivision, agency or instrumentality Refunds shall be made upon warrants drawn by the
thereof. The term "employee" also includes an Commissioner or by his duly authorized
officer of a corporation. representative without the necessity of counter-
signature by the Chairman, Commission on Audit or
Employer - means the person for whom an the latter's duly authorized representative as an
individual performs or performed any service, of exception to the requirement prescribed by Section
whatever nature, as the employee of such person, 49, Chapter 8, Subtitle B, Title 1 of Book V of
except that: Executive Order No. 292, otherwise known as the
(1) If the person for whom the individual performs Administrative Code of 1987.
or performed any service does not have
control of the payment of the wages for such
Taxation Law 2
TABLE OF CONTENTS
I. Transfer Taxes 65
II. Value-
Value-Added Tax 78
III. Percentage Tax 99
IV. Excise Tax 103
103
V. Documentary Stamp Tax 106
VI. Remedies 110
110
VII. Local Taxation 128
VIII. Real Property Taxation 139
IX. Tariff and Customs Code 151
whom is given the right to exercise the power inures to the benefit of any individual,
(donee). provided that not more than 30% of the said
bequests, devises, legacies or transfers shall
Two Kinds of Appointment and their Effects: be used for administrative purposes
It refers to the permanent home, the place to availed of. Reciprocity has to be total. (CIR v.
which whenever absent, for business or pleasure, Fisher, 110 Phil 686)
one intends to return, and depends on facts and Reciprocity in exemption does not require the
circumstances, in the sense that they disclose foreign country to possess international
intent. (Corre v. Tan Corre, 100 Phil 321) It is, personality in the traditional sense (i.e.,
therefore, not necessarily the actual place of compliance with the requisites of statehood).
residence. The term residence and domicile Thus, Tangier, Morroco (Collector v. Campos-
are synonymous and are used interchangeably Rueda, 42 SCRA 23) and California, a state in
without distinction. (Collector v. Lara, 102 Phil the American Union (Collector v. de Lara, 102
813; Velilla v. Posadas, 62 Phil 624). Phil 813) were held to be foreign countries
within the meaning of Section 104.
Q: What is the situs of intangible personal
property?
GR: situs is at the domicile or residence of the Valuation of the Gross Estate (88 of the
owner. Exception: NIRC and 5 of RR 2-2003)
When it is inconsistent with the express
provisions of statute, or GENERAL RULE: The properties comprising the
Justice does not demand that it should be, as gross estate shall be valued based on FAIR
where the property has in fact a situs MARKET VALUE (FMV) as of the time of death.
elsewhere.
Real property-FMV as determined by the
CASE LAW: Collector v. Lara (102 Phil 813) Commissioner OR FMV as shown in the schedule
When the owner of personal property, during his of values fixed by the provincial and city
lifetime, extended his activities with respect to assessors, whichever is HIGHER.
his interests so as to avail himself of the
protection and benefits of the laws of the Shares of Stock
Philippines, so as to bring his person or property o Listed shares FMV is the arithmetic mean
within the reach of the Philippines, the reason for between the highest and lowest quotation at
a single place of taxation no longer obtains. His a date of death, OR the date nearest the date
property in the Philippines enjoys the protection of death, if none is available on the date of
of the government so that the right to collect the death itself
estate tax cannot be questioned. o Unlisted shares - COMMON shares are
valued based on BOOK VALUE; while
Q: What are the intangible properties which PREFERRED shares are valued at PAR VALUE
are considered by law as situated in the
Philippines? Right to usufruct, use or habitation,
Franchise which must be exercised in the annuity - the probable life of the beneficiary
Philippines in accordance with the latest basic standard
Obligations or bonds issued by any mortality table is to be taken into account, to
corporation or sociedad anonima organized or be approved by the Secretary of Finance,
constituted in the Philippines upon recommendation of the Insurance
Shares, obligations or bonds issued by any Commissioner.
foreign corporation 85% of the business of
which is located in the Philippines Decedents interest Value to be included in
Shares, obligations or bonds issued by any the gross estate is the extent of the interest
foreign corporation if such shares, obligations therein of the decedent at the time of his death
or bonds have acquired a business situs in
the Philippines
DEDUCTIONS [ELIT VTMSFH]
Shares or rights in any partnership, business
or industry established in the Philippines
1. Expenses, Losses, Indebtedness and
Q: What is the reciprocity rule? (Sec. 104, Taxes [ELIT] [fjc cult]
NIRC)
There is reciprocity if the foreign country of which a. Funeral expenses (86-A1) (max.
the decedent was a citizen and resident at the P2ook)
time of his death: Allowable deduction is whichever is lower of
did not impose a transfer tax of any -the actual funeral expenses (WON paid)
character, in respect of intangible personal up to the time of interment, or
property of citizens of the Philippines not -an amount equal to 5% of the gross
residing in that foreign country; or estate, but in no case to exceed P200,000.
allowed a similar exemption from transfer tax
in respect of intangible personal property NOTE: The unpaid portion of the funeral
owned by citizens of the Philippines not expenses incurred which is in excess of the
residing in that country P200,000 threshold is NOT allowed to be
[In sum, both states must exempt nonresidents claimed as a deduction under claims against
(citizens of the other state) from transfer taxes in the estate (see 1(c) below). (Sec. 6(A)(1) of
respect of intangible personal property.] RR 02-2003)
NOTE:
For the reciprocity rule to apply, there must Examples of funeral expenses
be TOTAL reciprocity. (RR 2-2003, Sec. 6-A1)
[For instance,] in the Philippines, both estate o The MOURNING APPAREL of the surviving
and inheritance taxes are imposed on the spouse and unmarried minor children of
estate while in California only inheritance tax the deceased, bought and used on the
is imposed. The reciprocity rule may not be occasion of the burial
o EXPENSES for the deceaseds WAKE, o Brokerage fees for selling property of the
including food and drinks estate
o PUBLICATION CHARGES for death notices
o TELECOMMUNICATIONS EXPENSES CASE LAW: Commissioner v. CA (328 SCRA 666)
incurred in informing relatives of the The notarial fee paid for the extrajudicial
deceased settlement is deductible since such settlement
o Cost of BURIAL PLOT, TOMBSTONES, effected a distribution of the estate to the lawful
MONUMENT or MAUSOLEUM but not their heirs. Attorneys fees to be deductible from the
upkeep. In case the deceased owns a gross estate must be essential to the collection of
family estate or several burial lots, only assets, payment of debts or the distribution of
the value corresponding to the plot where property to the persons entitled to it
he is buried is deductible
o INTERMENT and/or CREMATION FEES c. Claims against the estate (86-A1)
and CHARGES Claims debts or demands of a
o All other expenses incurred for the pecuniary nature which could have been
performance of the RITES and enforced against the deceased in his
CEREMONIES incident to interment lifetime and could have been reduced to
simple money judgments. May arise out
Expenses NOT deductible as funeral of contract, tort or operation of law.
expenses
o Expenses incurred AFTER INTERMENT, Requisites for deductibility [PVN GF](RR
such as for prayers, masses, 2-2003, Sec. 6-A3):
entertainment, or the like 1) must be a PERSONAL OBLIGATION of the
o Any portion of the funeral and burial deceased existing at the time of his
expenses BORNE or DEFRAYED by death (except unpaid funeral expenses
RELATIVES and FRIENDS of the deceased and unpaid medical expenses, which are
classified into their own separate
ILLUSTRATIONS: categories)
o If five percent (5%) of the gross estate is 2) liability must have been contracted in
P220,000 and the amount actually GOOD FAITH and for adequate and full
incurred is P215,000, the maximum consideration in money or moneys worth
amount that may be deducted is only 3) the claim must be a debt or claim which
P200,000; is VALID IN LAW and ENFORCEABLE IN
o If five percent (5%) of the gross estate is COURT
P 100,000 and the total amount incurred 4) indebtedness NOT CONDONED by the
is P150,000 where P20,000 thereof is still creditor or the action to collect from the
unpaid, the only amount that can be decedent must not have prescribed.
claimed as deduction for funeral
expenses is P100,000. The entire Substantiation Requirements
P50,000 excess amount consisting of 1) The duly-notarized debt instrument, If
P30,000 paid amount and P20,000 the claim arose out of a debt instrument
unpaid amount can no longer be claimed 2) A statement showing the disposition of
as FUNERAL EXPENSES. Neither can the the proceeds of the loan, if the
P20,000 unpaid portion be deducted from indebtedness was incurred within 3 years
the gross estate as CLAIMS AGAINST THE before the death of the decedent.
ESTATE.
d. Claims against insolvent persons (86-
b. Judicial expenses of testamentary and A1)
intestate proceedings (86-A1) Deductible from the gross estate,
Allowable deductions are expenses provided that the value of the decedents
incurred, in the inventory-taking of interest in the claim is included in the
the assets comprising the gross estate, value of the gross estate.
their administration, the payment of
debts of the estate, as well as the e. Unpaid mortgages. losses and
distribution of the estate among the taxes(86-A1 and RR 2-2003, Sec. 6-
heirs, A5)
DURING THE SETTLEMENT OF THE UNPAID MORTGAGES Deductible
ESTATE BUT NOT BEYOND THE LAST DAY from gross estate, provided:
PRESCRIBED BY LAW, or the extension o That the value of the decedents
thereof, FOR THE FILING OF THE ESTATE interest in the property encumbered
TAX RETURN (RR 2-2003, Sec. 6-A2) by such mortgage or indebtedness is
included in the value of the gross
Examples of judicial expenses estate
o Fees of executor or administrator o That the deduction shall be limited to
o Attorneys fees the extent that they were contracted
o Court fees bona fide and for an adequate and full
o Accountants fees consideration in money or moneys
o Appraisers fees worth, if such unpaid mortgages or
o Clerk hire indebtedness were founded upon a
o Costs of preserving and distributing the promise or an agreement.
estate
o Costs of storing or maintaining property LOSSES deductible from the gross
of the estate estate if ALL of the following conditions
are satisfied:
Deduction allowed on the property left behind 1) First, compare the values of the
by the decedent which he had acquired property at the time of the prior
previously by inheritance or donation. decedents death and at the time of
the present decedents death. The
Previously, a transfer tax had already been lower amount shall be the initial
imposed on the property, either the estate basis.
tax (if property inherited) or the donors tax in the example, the initial basis shall
(if property donated). Now that the recipient be P800,000 for the land and
of the inheritance or donation has died, the P70,000 for the car, for a total of
same property will again be subjected to a P870,000
transfer tax, the estate tax. Thus, to NOTE: The value used as initial basis
minimize the effects of a double tax on the is significant only for purposes of
same property within a short period of time, computing the amount of vanishing
i.e. five (5) years, the law allows a deduction deduction. The value included in the
to be claimed on the said property. decedents gross estate is ALWAYS
Example: Mr. A died in December 2003. In the fair market value at the time of
March 2003, Mr. B (Mr. As father) died and his death.
left Mr. A some properties as inheritance.
May vanishing deductions be claimed as 2) Then, the value in (1) shall be
deductions in computing Mr. As net taxable reduced by any payment made by
estate? the present decedent on any
YES, vanishing deductions shall be allowed if mortgage or lien on the property
the following conditions are met Mr. A paid P70,000 of the mortgage.
(REQUISITES FOR DEDUCTIBILITY): [PINID] Thus, P870,000 less 70,000 is
P800,000
1) Death the present decedent (Mr. A)
died within five years from the receipt of 3) The value as reduced in (2) shall be
the property from a prior decedent (Mr. further reduced by an amount equal
B) or donor; to:
2) Identity of the property The property
with respect to which deduction is sought Value as reduced in (2) X Total amount of
can be identified as the one received Gross Estate deductions*
from the prior decedent or the donor, or
as the property acquired in exchange for * excluding family home, medical
the original property so received. expenses, standard deduction and
3) Inclusion of the property The property amounts received under RA 4917
must have formed part of the gross 800/3200 x 600,000 equals 150,000.
estate situated in the Philippines of the This will be deducted from P800,000,
prior decedent, or the total amount of the which gives a balance of P650,000
gifts of the donor
4) Previous taxation of the property the 4) Finally, the remaining balance shall
donor's tax on the gift or estate tax on be multiplied by the corresponding
percentage:
shall be subject to interest but not to be due, and shall be entitled to a receipt or
surcharge. writing showing such discharge. (92)
2. Enforcement of Tax Lien Another remedy, EXCEPTION: the administrator or any heir may,
pursuant to the lien created by Sec. 219 of with the authorization of the Commissioner,
the Tax Code upon all property and rights to withdraw an amount NOT EXCEEDING P20,000.
property belonging to the taxpayer, is by (95)
subjecting said property of the estate which is
in the hands of an heir or transferee to the 5. Lawyer, Notary Public or any
payment of the tax due on the estate. This Government Officer
remedy seeks only the payment of the tax. As Any lawyer, notary public, or any government
a holder of property belonging to the estate, officer who, by reason of his official duties,
an heir is liable for the tax up to the amount intervenes in the preparation or acknowledgment
of the property in his hands. He is individually of documents regarding partition or disposal of
answerable for the part of the tax donations mortis causa, legacy or inheritance,
proportionate to the share he received from shall furnish the BIR with copies of such
the inheritance. His liability, however, cannot documents and any information whatsoever
exceed the amount of his share. After which may facilitate the collection of estate tax.
payment of the tax, he will have a right of (95)
contribution from his co-heirs, to achieve an
adjustment of the proper share of each heir in 6. Debtor
the distributable estate. (Commissioner v. A debtor shall not pay his debts to the heirs,
Pineda, 21 SCRA 105) legatees, executor or administrator of his
creditor-decedent without a certification from the
BIR that the estate tax has been paid.
OBLIGATIONS OF EXECUTOR,
ADMINISTRATOR, OFFICERS, OTHERS EXCEPTION: if the credit is included in the
inventory of estate of the decedent. (95)
1. Executor or Administrator
When the gross estate is more than P20,000, the 7. Corporate Secretary of other
executor, administrator or any of the legal heirs responsible officer
shall: No transfer to any new owner in the books of any
a) give a written notice of death to the BIR corporation, sociedad anonima, partnership,
within two months after the decedents business or industry organized or established in
death OR after the executor or administrator the Philippines, of any shares, obligations, bonds
shall have qualified or rights by way of donations mortis causa,
b) file the estate tax return within the time legacy or inheritance shall be made, UNLESS a
prescribed by law certification from the BIR that the estate tax has
c) pay the estate tax within the time prescribed been paid is shown. (97)
by law
If the executor or administrator makes a written
application to the Commissioner for
determination of the amount of estate tax and
discharge from personal liability therefor, the
Commissioner shall notify the executor or
administrator of the amount of the tax. Upon
payment of the tax, the executor or administrator
shall be DISCHARGED from PERSONAL LIABILITY
for any deficiency in the tax thereafter found to
Yes. If both spouses made the gift, then the Net Gifts
gift is taxable one-half to each donor spouse. Net Gift is the net economic benefit from the
Separate donors tax returns must be filed; transfer that accrues to the donee.
husband and wife are considered as separate Accordingly, if a mortgaged property is
and distinct taxpayers for purposes of donors transferred as a gift, but imposing upon the
tax. (Section 12, RR 2-2003) However, where donee the obligation to pay the mortgage
there is failure to prove that the donation was liability, then the net gift is measured by
actually made by both spouses, the donation deducting from the fair market value of the
is taxable as an exclusive act of the husband property the amount of the mortgage assumed.
(Tang Ho v. BTA, 97 Phil 890), without (Section 11, RR 2-2003)
prejudice to the right of the wife to question
the validity of the donation without her COMPUTATION
consent pursuant to the provisions of the Civil How is donors tax computed?
Code and the Family Code. (Section 12, This general formula shall be followed:
supra)
Gross gifts made
2. Gifts made to or for the use of the National
Less: Deductions from the gross gifts
Government or any entity created by any of
Net gifts made
its agencies which is not conducted for profit,
Multiplied by applicable rate
or to any political subdivision of the said
Donors tax on the net gifts
Government
If there were several gifts made during the year,
3. Gifts in favor of an educational and/or
this formula is followed:
charitable, religious, cultural or social welfare
corporation, institution, accredited non-
Gross gifts made on this date
government organization, trust or
Less: Deductions from the gross gifts
philanthropic organization or research
Net gifts made on this date
institution or organization, provided not more
Add: all prior net gifts during the year
than 30% of said gifts will be used by such
Aggregate net gifts
donee for administration purposes
Multiplied by applicable rate
Donors tax on the aggregate net gifts
Q: What is a non-profit educational
Less: donors tax paid on prior net gifts
and/or charitable corporation, etc?
Donors tax due on the net gifts to date
It is a school, college or university and/or
charitable corporation, accredited NGO, trust
or philanthropic organization and/or research RATES OF TAX
institution or organization: The applicable donors tax rate is dependent
Incorporated as a non-stock entity, upon the relationship between the donor and the
Paying no dividends, donee.
Governed by trustees who receive no
compensation, and 1. If the donee is a stranger to the donor,
Devoting all its income, whether students the tax rate is equivalent to 30 % of the net
fees or gifts, donations, subsidies or other gifts.
forms of philanthropy, to the
accomplishment and promotion of the A stranger for purposes of the donors
purposes enumerated in its Articles of tax
Incorporation a. a person who is not a brother, sister
(whether by whole or half-blood), spouse,
4. Encumbrances on the property donated if ancestor or lineal descendant, or
assumed by the donee in the deed of b. a person who is not a relative by
donation consanguinity in the collateral line within
the fourth degree of relationship. (Sec.
5. Donations made to entities exempted under 99(B))
special laws, e.g.: Note that donations made between
o Aquaculture Department of the Southeast business organizations and those made
Asian Fisheries Development Center of the between an individual and a business
Philippines organization shall be considered as
o Development Academy of the Philippines donations made to a stranger (RR 2-
o Integrated Bar of the Philippines 2003)
o International Rice Research Institute
o National Museum 2. If the donee is not a stranger to the
o National Library donor, the tax for each calendar year shall
o National Social Action Council be computed on the basis of the total net
o Ramon Magsaysay Foundation gifts made during the calendar year:
o Philippine Inventors Commission
o Philippine American Cultural Foundation
o Task Force on Human Settlement on the
donation of equipment, materials and
services
Over But not Tax Is Plus Of the Correspon 124,000 P 204,000 P254,000
Over Excess ding
Over Donors
Tax (refer
0 100,000 Exempt
to
100,000 200,000 0 2% 100,000 schedule)
200,000 500,000 2,000 4% 200,000 Tax Due / 124,000 Donors Tax Donors Tax
500,000 1 million 14,000 6% 500,000 Payable P 204,000 P 254,000
Less: Tax Less: Tax
1 million 3 million 44,000 8% 1 million
Previously Previously
3 million 5 million 204,000 10% 3 million Paid paid
124,000 (124k+80k)
5 million 10 M 404,000 12% 5 million
204,000
10 M 1,004,000 15% 10 million Tax Due Tax Due
P80,000 P50,000
22
Credits: 2008 AD, C2005
23
Revenue Regulations (RR) No. 4-2007 dated February 7,
2007 introduced changes to RR No. 16-2005. SUCH as: SEC.
4.106-1. VAT on Sale of Goods or Properties. VAT is imposed
and collected on every sale, barter or exchange, or transactions
deemed sale of taxable goods or properties at the rate of
twelve percent (12%) (starting February 1, 2006) of the gross
selling price or gross value in money of the goods or properties
sold, bartered, or exchanged, or deemed sold in the
Philippines.
With respect to Sec. 8, amending Sec. 110 (A), III. TRANSACTIONS SUBJECT TO VAT
which provides for 60-month amortization of the A. Any sale, barter or exchange of goods and
input tax on capital goods purchased: It is not properties, or similar transactions in the
oppressive, arbitrary, and confiscatory. The course of trade or business
taxpayer is not permanently deprived of his B. Any sale of services, or similar transactions,
privilege to credit the input tax. For whatever is in the course of trade or business
the purpose, it involves executive economic C. Any lease of goods and properties or similar
policy and legislative wisdom in which the Court transactions, in the course of trade or
cannot intervene. business
D. Any importation of goods, whether in the
The tax law is uniform: it provides a standard course of trade or business or not
rate of 0% or 10% (or 12% now) on all goods or
services. The law does not make any distinction RMC 9-2006: Reimbursable expenses
as to the type of industry or trade that will bear
Transactions and amounts that are subject to
24
VAT:
The rate was indeed increased to 12%, effective Feb. 1,
1. If the reimbursable expenses and/or
2006, as per Revenue Memorandum (RMC) No. 7-06, dated
January 31, 2006 advanced payments for certain expenses
25
This, however, is not accurate. The option to apply for tax (e.g. arrastre, wharfage, documentation,
credit certificate or refund is available to the VAT taxpayer only trucking, handling charges, storage fees,
in case his VAT registration is cancelled, unless he is subject to
VAT zero-rate.
duties and taxes, etc.) made by brokers on
a) Change of business activity from VAT The tax due on such importation shall constitute
taxable status to VAT-exempt status. a lien on the goods superior to all charges or
b) Approval of a request for cancellation of liens on the goods, irrespective of the possessor
registration due to reversion to exempt thereof. (as amended by RA 9337)
status
c) Approval of a request for cancellation of iii. SALE OF SERVICES & USE/LEASE
registration due to a desire to revert to OF PROPERTIES ( 108, A)
exempt status AFTER the lapse of 3
consecutive years from the time of On sale or exchange of services, use of lease
registration by a person who voluntarily properties
registered despite being exempt under
Sec. 109 (2) Rate: 12% (as amended)
d) Approval of request for cancellation of
registration of one who commenced Basis: gross receipts derived from the sale or
business with the expectation of gross exchange of services, including the use of lease
sales/receipts exceeding P1.5M but who of properties.
failed to exceed this amount during the
first 12 months of operation PROVIDED, That the President, upon the
recommendation of the Sec. of Finance, shall,
2) NOT subject to output tax effective January 1, 2006, raise the rate of value-
a) Change of control of a corporation by the added tax to 12%, after any of the following
acquisition of the controlling interest of conditions has been satisfied:
such corporation by another stockholder 1. Value-added tax collection as a percentage of
or group of stockholders. Gross Domestic Product (GDP) of the previous
b) Change in the trade or corporate name of year exceeds 2 4/5%; or
the business 2. National government deficit as a percentage of
c) Merger or consolidation of corporations. GP of the previous year exceeds 1 %.
The unused input tax of the dissolved
corporation, as of the date of merger or Sale or Exchange of Services
consolidation, shall be absorbed the The performance of all kinds of services in the
surviving or new corp. Philippines for others for a fee, remuneration or
consideration, including those performed or
TAX BASE in case of retirement/cessation of rendered by: (CLIMB-SCHERD-TFF)
business 1. Construction and service contractors;
Tax Base= acquisition cost or current market 2. stock, real estate, commercial, customs and
price of the goods or properties, whichever is immigration Brokers;
lower. 3. Lessors of property, whether personal or real;
warehousing services;
4. lessors or distributors of cinematographic
ii. IMPORTATION OF GOODS (107, A) Films;
On every importation of goods (WON goods 5. persons engaged in Milling, processing,
are for use in business) manufacturing or repacking goods for others;
6. proprietors, operators or keepers of Hotels,
Rate: 12% (as amended) motels, rest-houses, pension houses, inns,
resorts;
Basis: total value used by the Bureau of 7. proprietors or operators of Restaurants,
Customs in determining tariff and customs refreshment parlors, cafes and other eating
duties, plus customs duties, excise taxes, if any, places, including clubs and caterers;
and other charges, 8. Dealers in securities;
Where the customs duties are determined 9. lending Investors;
on the basis of the quantity or volume of the 10. Transportation contractors on their transport
goods, the value-added tax shall be based on the of goods or cargoes, including persons who
landed cost plus excise taxes, if any. transport goods or cargoes for hire and other
domestic common carriers by land relative to
PROVIDED, That the President, upon the their transport of goods or cargoes;
recommendation of the Sec. of Finance, shall, 11. Common carriers by air and sea relative to
effective January 1, 2006, raise the rate of value- their transport of passengers, goods or
added tax to 12%, after any of the following cargoes from one place in the Philippines to
conditions has been satisfied: another place in the Philippines;
1. Value-added tax collection as a percentage of 12. sales of Electricity by generation companies,
Gross Domestic Product (GDP) of the previous transmission, and distribution companies;
year exceeds 2 4/5%; or 13. services of Franchise grantees of electric
2. National government deficit as a percentage of utilities, telephone and telegraph, radio and
GP of the previous year exceeds 1 %. television broadcasting and all other franchise
grantees except those under Section 119 of
Who Pays: Paid by the importer prior to the this Code and non-life insurance companies
release of such goods from customs custody (except their crop insurances), including
surety, fidelity, indemnity and bonding
Transfer of Goods by Tax-Exempt Persons companies;
(107, B) 14. and Similar services regardless of whether or
If importer is tax-exempt, the subsequent not the performance thereof calls for the
purchasers, transferees or recipients of such exercise or use of the physical or mental
imported goods shall be considered as importers faculties.
who shall be liable for the tax on importation.
The phrase 'sale or exchange of services' functions who make a practice of lending
shall likewise include: (A- FACT-PIE) money for themselves or others at interest
1. The lease or the use of or the right or
privilege to use any Copyright, patent, design 4. Subject to VAT: Franchise grantees of electric
or model plan, secret formula or process, utilities, telephone and telegraph, radio
goodwill, trademark, trade brand or other like and/or TV broadcasting and all other
property or right franchise grantees (including PAGCOR and its
2. The lease or the use of, or the right to use of licensees/franchisees) EXCEPT franchise
any industrial, commercial or, scientific grantees of radio and/or TV broadcasting
Equipment; whose annual gross receipts of the preceding
3. The supply of scientific, technical, industrial year do not exceed P10M (which shall be
or commercial knowledge or Information; subject to 3% franchise tax under Sec. 119,
4. The supply of any Assistance that is ancillary subject to optional registration), and
and subsidiary to and is furnished as a means franchise grantees of gas and water facilities
of enabling the application or enjoyment of (under Sec. 109, subject to 2% franchise
any such property, or right as is mentioned in tax). With respect to franchise grantees of
subparagraph (2) or any such knowledge or telephone and telegraph services, amounts
information as is mentioned in subparagraph received for overseas dispatch, message, or
(3); conversation originating from the Philippines
5. The supply of services by a nonresident are subject to the percentage tax under Sec.
person or his employee in connection with the 120 and hence exempt from VAT.
use of Property or rights belonging to, or the
installation or operation of any brand, 5. In a lease contract, the advance payment by
machinery or other apparatus purchased from the lessee may be:
such nonresident person; a) a loan to the lessor from the lessee
6. The supply of technical Advice, assistance or NOT subject to VAT
services rendered in connection with technical b) an option money for the property NOT
management or administration of any subject to VAT
scientific, industrial or commercial c) a security deposit to insure the faithful
undertaking, venture, project or scheme; performance of certain obligations of the
7. The lease of motion picture Films, films, tapes lessee to the lessor NOT subject to
and discs; and VAT. BUT if the security deposit is applied
8. The lease or the use of or the right to use to rental, it shall be subject to VAT at the
radio, television, satellite transmission and time of its application.
cable television Time. d) or pre-paid rental subject to VAT when
received, irrespective of the accounting
Lease of Properties method employed by the lessor
- subject to the tax herein imposed irrespective
of the place where the contract of lease or 6. On transportation:
licensing agreement was executed if the property All receipts from service, hire, or
is leased or used in the Philippines. operating lease of transportation
equipment not subject to the percentage
'Gross Receipts' -the total amount of money or tax on domestic common carriers and
its equivalent representing the contract price, keepers of garages shall be subject to
compensation, service fee, rental or royalty, VAT. (Pls refer to Sec. 117 for other
including the amount charged for materials percentage taxes.
supplied with the services and deposits and
advanced payments actually or constructively Common Transporting Kind of Tax
received during the taxable quarter for the carrier carrier Liability
services performed or to be performed for By land Persons Domestic 3%, Sec.
another person, excluding value-added 117
taxxxx. (as amended by RA 9337, Goods/cargo Domestic 12% VAT
underscored parts amended or added by RA By sea Domestic Domestic
9337) trip - 12%
VAT
Notes: (unless otherwise indicated, from RR 16- International
2005) trip zero-
Whether rated
transporting International 3%, Sec.
1. Persons engaged in milling, processing, persons or 118
manufacturing or repacking goods for others By air
goods/cargo
Domestic Domestic
are subject to VAT, EXCEPT palay into rice, flight -
corn into corn grits, and sugarcane into raw 12% VAT
sugar International
flight
2. For dealers in securities, gross receipts zero-rated
means gross selling price less cost of the International 3%, Sec.
securities sold. RR 7-95: Pre-need 118
companies are considered dealers in
securities. 7. Sale of electricity by generation,
transmission, and distribution companies
3. Lending investors all persons OTHER than shall be subject to 12% VAT, EXCEPT sale of
banks, non-bank financial intermediaries, power or fuel generated through renewable
finance companies and other financial sources of energy, such as, but not limited
intermediaries NOT performing quasi-banking to, biomass, solar, wind hydropower,
whether or not the PEZA registered buyer is 9337]; Provided, however, that the services
subject to taxes under the NIRC or enjoying referred to herein shall not pertain to those
the 5% special tax regime. made to common carriers by air and sea
relative to their transport of passengers,
goods or cargoes from one place in the Phil.
C. By a PEZA Registered Enterprise to another place in the Phil., the same being
subject to 12% VAT under Sec. 108
1) Sale of Goods by a PEZA registered 5) Services performed by subcontractors and/or
enterprise to a buyer from the Customs contractors in processing, converting, of
Territory (ie domestic sales) -- this case manufacturing goods for an enterprise whose
shall be treated as a technical export sales exceed seventy percent (70%)
IMPORTATION made by the buyer. Such of total annual production.
buyer shall be treated as an IMPORTER 6) Transport of passengers and cargo by air or
thereof and shall be imposed with the sea vessels from the Philippines to a foreign
corresponding VAT. country [as added by RA 9337]; (pls see
2) Sale of Services by a PEZA registered table on page 29) and;
enterprise to a buyer from the Customs 7) Sale of power or fuel generated through
Territory this is NOT embraced by the renewable sources of energy such as, but not
5% special tax regime, hence, such seller limited to, biomass, solar, wind, hydropower,
shall be SUBJECT TO 10% VAT. geothermal, ocean energy, and other
emerging energy sources using technologies
such as fuel cells and hydrogen fuels. [as
3) Sale of Goods by a PEZA registered added by RA 9337] Zero-rating shall apply
enterprise to Another PEZA registered strictly to the sale of power or fuel generated
enterprise (ie Intra-ECOZONE Sales of through renewable sources of energy, and
Goods) this shall be EXEMPT from VAT. shall not extend to the sale of services
related to the maintenance or operation of
4) Sale of Services by ECOZONE enterprise, plants generating said power.
to Another ECOZONE enterprise (Intra-
ECOZONE enterprise Sale of Service)
(a) if PEZA registered seller is subject to RR 4-2007 removed the distinction between
5% special tax regime EXEMPT automatic and effectively zero-rated transactions
from VAT found in prior Revenue Regulations (inc. RR 16-
(b) if PEZA registered seller is subject to 2005) with respect to prior application.
taxes under NIRC (ie not subject to
5% special tax regime) subject to
0% VAT pursuant to cross border C. FINAL WITHHOLDING VAT-5% (
doctrine 114, C)
payment, the difference must be closed to (g) Importation of passenger and/or cargo
expense or cost, in effect reducing it. vessels of more than five thousand tons
(5,000) whether coastwise or ocean-going,
However, 12% shall be withheld with respect to including engine and spare parts of said
the following: vessel to be used by the importer himself as
1) Lease or use of properties or property rights operator thereof; [DELETED]
owned by non-residents
(h) Importation of personal and household
2) Services rendered to local insurance
effects belonging to the residents of the
companies, with respect to reinsurance
Philippines returning from abroad and
premiums payable to non-residents; and
nonresident citizens coming to resettle in the
3) Other services rendered in the Philippines by
Philippines: Provided, That such goods are
non-residents.
exempt from customs duties under the Tariff
and Customs Code of the Philippines;
V. TRANSACTIONS EXEMPT FROM VAT (i) Importation of professional instruments
( 109) and implements, wearing apparel, domestic
animals, and personal household effects
(amendments introduced by RA 9337 indicated, (except any vehicle, vessel, aircraft,
text in ALL CAPS added by RA 9337) machinery other goods for use in the
manufacture and merchandise of any kind in
SEC. 109. Exempt Transactions. commercial quantity) belonging to persons
coming to settle in the Philippines, for their
1) SUBJECT TO THE PROVISIONS OF
own use and not for sale, barter or exchange,
SUBSECTION (2) HEREOF, The following shall be
accompanying such persons, or arriving
exempt from the value-added tax:
within ninety (90) days before or after their
(a) Sale of nonfood agricultural products; arrival, upon the production of evidence
marine and forest products in their original satisfactory to the Commissioner, that such
state by the primary producer or the owner persons are actually coming to settle in the
of the land where the same are produced; Philippines and that the change of residence
[DELETED BY RA 9337] is bona fide;
(b) Sale of cotton seeds in their original (j) Services subject to percentage tax under
state; and copra; [DELETED] Title V;
(c) Sale or importation of agricultural and (k) Services by agricultural contract growers
marine food products in their original state, and milling for others of palay into rice, corn
livestock and poultry of or kind generally into grits and sugar cane into raw sugar;
used as, or yielding or producing foods for
(l) Medical, dental, hospital and veterinary
human consumption; and breeding stock and
services subject to the provisions of Section
genetic materials therefor.
17 of Republic Act No. 7716, as amended
Products classified under this paragraph and EXCEPT THOSE RENDERED BY
paragraph (a) shall be considered in their PROFESSIONALS: [AMENDED]
original state even if they have undergone
(m) Educational services rendered by private
the simple processes of preparation or
educational institutions, duly accredited by
preservation for the market, such as freezing,
the Department of Education, Culture and
drying, salting, broiling, roasting, smoking or
Sports (DECS) Department of Education
stripping.
(DEPED), the Commission on Higher
Polished and/or husked rice, corn grits, raw Education (CHED), THE TECHNICAL
cane sugar and molasses, ordinary salt, AND EDUCATION AND SKILLS DEVELOPMENT
COPRA shall be considered in their original AUTHORITY (TESDA), and those rendered by
state; [AMENDED] government educational institutions;
[AMENDED]
(d) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, (n) Sale by the artist himself of his works of
livestock and poultry feeds, including art, literary works, musical compositions and
ingredients, whether locally produced or similar creations, or his services performed
imported, used in the manufacture of finished for the production of such works; [DELETED]
feeds (except specialty feeds for race horses,
(o) Services rendered by individuals
fighting cocks, aquarium fish, zoo animals
pursuant to an employer-employee
and other animals generally considered as
relationship;
pets);
(p) Services rendered by regional or area
(e) Sale or importation of coal and natural
headquarters established in the Philippines by
gas, in whatever form or state, and
multinational corporations which act as
petroleum products (except lubricating oil,
supervisory, communications and
processed gas, grease, wax and petrolatum)
coordinating centers for their affiliates,
subject to excise tax imposed under Title VI;
subsidiaries or branches in the Asia-Pacific
[DELETED]
Region and do not earn or derive income
(f) Sale or importation of raw materials to be from the Philippines;
used by the buyer or importer himself in the
(q) Transactions which are exempt under
manufacture of petroleum products subject to
international agreements to which the
excise tax, except lubricating oil, processed
Philippines is a signatory or under special
gas, grease, wax and petrolatum; [DELETED]
laws, except those under Presidential Decree
Nos. 66, 529 [Petroleum Exploration calendar year thereafter, the amount of Eight
Concessionaires under the Petroleum Act of thousand pesos (P8,000) JANUARY 31, 2009
1949] and 1590; [AMENDED] AND EVERY THREE (3) YEARS THEREAFTER,
THE AMOUNT HEREIN STATED shall be
(r) Sales by agricultural cooperatives duly
adjusted to its present value using the
registered with the Cooperative Development
Consumer Price Index as published by the
Authority to their members as well as sale of
National Statistics Office (NS0); [AMENDED]
their produce, whether in its original state or
processed form, to non-members; their (y) Sale, importation, printing or publication
importation of direct farm inputs, machineries of books and any newspaper, magazine
and equipment, including spare parts thereof, review or bulletin which appears at regular
to be used directly and exclusively in the intervals with fixed prices for subscription
production and/or processing of their and sale and which is not devoted principally
produce; to the publication of paid advertisements;
and
(s) Sales by electric cooperatives duly
registered with the Cooperative Development [RA 9337 ADDED THE FOLLOWING TWO
authority or National Electrification SUBSECTIONS]
Administration, relative to the generation and
(S) SALE, IMPORTATION OR LEASE OF
distribution of electricity as well as their
PASSENGER OR CARGO VESSELS AND
importation of machineries and equipment,
AIRCRAFT, INCLUDING ENGINE, EQUIPMENT
including spare parts, which shall be directly
AND SPARE PARTS THEREOF FOR DOMESTIC
used in the generation and distribution of
OR INTERNATIONAL TRANSPORT
electricity; [DELETED]
OPERATIONS;
(t) Gross receipts from lending activities by
(T) IMPORTATION OF FUEL, GOODS, AND
credit or multi-purpose cooperatives duly
SUPPLIES BY PERSONS ENGAGED IN
registered with the Cooperative Development
INTERNATIONAL SHIPPING OR AIR
Authority whose lending operation is limited
TRANSPORT OPERATIONS;
to their members; [AMENDED]
(U) Services of banks, non-bank financial
(u) Sales by non-agricultural, non- electric
intermediaries performing quasi-banking
and non-credit cooperatives duly registered
functions and other non-bank financial
with the Cooperative Development Authority:
intermediaries; and
Provided, That the share capital contribution
of each member does not exceed Fifteen (z) Sale or lease of goods or properties or
thousand pesos (P15,000) and regardless of the performance of services other than the
the aggregate capital and net surplus ratably transactions mentioned in the preceding
distributed among the members; paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Five
(v) Export sales by persons who are not
hundred fifty thousand pesos (P550,000)
VAT-registered;
ONE MILLION FIVE HUNDRED THOUSAND
(w) Sale of real properties not primarily held PESOS (P1,500,0000: Provided, That not
for sale to customers or held for lease in the later than January 31st of the calendar year
ordinary course of trade or business or real subsequent to the effectivity of Republic Act
property utilized for low-cost and socialized No. 8241 and each calendar year thereafter,
housing as defined by Republic Act No. 7279, the amount of Five hundred fifty thousand
otherwise known as the Urban Development pesos (550,000) JANUARY 31, 2009 AND
and Housing Act of 1992, and other related EVERY THREE (3) YEARS THEREAFTER, THE
laws, house and lot and other residential AMOUNT HEREIN STATED shall be adjusted
dwellings valued at One million pesos to its present value using the Consumer Price
(P1,000,000) and below RESIDENTIAL LOT Index, as published by the National Statistics
VALUED AT ONE MILLION FIVE HUNDRED Office (NSO). [AMENDED]
THOUSAND PESOS (P1,500,000) AND
The foregoing exemptions to the contrary
BELOW, HOUSE AND LOT, AND OTHER
notwithstanding, any person whose sale of goods
RESIDENTIAL DWELLINGS VALUED AT TWO
or properties or services which are otherwise not
MILLION FIVE HUNDRED THOUSAND PESOS
subject to VAT, but who issues a VAT invoice or
(P2,500,000) AND BELOW: Provided, That
receipt therefor shall, in addition to his liability to
not later than January 31st of the calendar
other applicable percentage tax, if any, be liable
year subsequent to the effectivity of this Act
to the tax imposed in Section 106 or 108 without
and each calendar year thereafter, the
the benefit of input tax credit, and such tax shall
amount of One million pesos (P1,000,000)
also be recognized as input tax credit to the
shall be adjusted to its present value
purchaser under Section 110, all of this Code.
JANUARY 31, 2009 AND EVERY THREE (3)
[DELETED]
YEARS THEREAFTER, THE AMOUNTS HEREIN
STATED SHALL BE ADJUSTED TO THEIR
(2) A VAT-REGISTERED PERSON MAY ELECT
PRESENT VALUES using the Consumer Price
THAT SUBSECTION (1) NOT APPLY TO ITS SALE
Index, as published by the national Statistics
OF GOODS OR PROPERTIES OR SERVICES:
Office (NSO); [AMENDED]
PROVIDED, THAT AN ELECTION MADE UNDER
(x) Lease of a residential unit with a monthly THIS SUBSECTION SHALL BE IRREVOCABLE FOR
rental not exceeding TEN THOUSAND PESOS A PERIOD OF THREE (3) YEARS FROM THE
(10,000) Eight thousand pesos (P8,000); QUARTER THE ELECTION WAS MADE. [ADDED BY
Provided, That not later than January 31st of RA 9337]
the calendar year subsequent to the
effectivity of Republic Act No. 8241 and each
Notes on exempt transactions (from RR 16- and other similar services rendered by
2005): persons who are not accredited by the
DepED, CHED, and/or TESDA. [RR 16-2005]
VAT-EXEMPT TRANSACTIONS
- Refer to sale of goods or properties and/or 9. Services rendered by individuals pursuant to
services and the use or lease of properties that is an employer-employee relationship;
NOT subject to VAT (output tax) and the seller is
10. Services rendered by regional or area
not allowed any tax credit of VAT (input tax) on
headquarters established in the Philippines by
purchases. The person making the exempt sale
multinational corporations which act as
of goods, properties or services shall not bill any
supervisory, communications and coordinating
output tax to his customers because the said
centers for their affiliates, subsidiaries or
transaction is not subject to VAT.
branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
1. Sale/ import of agricultural, marine food
11. Transactions which are exempt under
products in original state; of livestock and poultry
international agreements to which the Philippines
Original state even if they have undergone the is a signatory or under special laws, except those
simple processes of preparation or preservation under Presidential Decree No., 529 [Petroleum
for the market, such as freezing, drying, salting, Exploration Concessionaires under the Petroleum
broiling, roasting, smoking or stripping. Act of 1949]; [AMENDED]
Polished and/or husked rice, corn grits, raw cane 12. Sales by agricultural cooperatives duly
sugar and molasses, ordinary salt, AND COPRA registered with the Cooperative Development
shall be considered in their original state; Authority to their members as well as sale of
[AMENDED] their produce. Exemption includes importation of
direct farm inputs, machineries and equipment,
Livestock or poultry does not include fighting
including spare parts thereof, to be used directly
cocks, race horses, zoo animals and other
and exclusively in the production and/or
animals generally considered as pets. [RR 16-
processing of their produce.
2005]
Original state including preservation using 13. Gross receipts from lending activities by
advanced technological means of packaging, such credit or multi-purpose cooperatives duly
as shrink wrapping in plastics, vacuum packing, registered with the Cooperative Development
tetra-pack, and other similar packaging methods. Authority; [AMENDED]
[RR 16-2005]
14. Sales by non-agricultural, non- electric and
non-credit cooperatives duly registered with the
2. Sale/ import of fertilizers; seeds, seedlings and Cooperative Development Authority are exempt
fingerlings; fish, prawn, livestock and poultry BUT their importation of machineries and
feeds equipment, including spare parts thereof, to be
used by them are SUBJECT to VAT.
3. Import of personal and household effects of
Phil resident returning from abroad and
15. Export sales by persons who are not VAT-
nonresident citizens coming to resettle in the
registered;
Philippines
4. Import of professional instruments and 16. Sale of real properties the ff. sales are
implements, wearing apparel, domestic animals, exempt:
and personal household effects belonging to (1) Sale of real properties NOT primarily held for
persons coming to settle in the Philippines, for sale to customers or held for lease in the
their own use and not for sale, barter or ordinary course of trade or business.
exchange (2) Sale of real properties utilized for low-cost
housing as defined by RA No. 7279,
otherwise known as the "Urban
5. Services subject to percentage tax under Title Development and Housing Act of 1992" and
V:[refer to percentage tax, next part] other related laws, such as RA No. 7835 and
RA No. 8763. Low-cost housing" refers to
6. Services by agricultural contract growers and housing projects intended for homeless low-
milling for others of palay into rice, corn into grits income family beneficiaries, undertaken by
and sugar cane into raw sugar; the Government or private developers,
7. Medical, dental, hospital and veterinary which may either be a subdivision or a
services EXCEPT THOSE RENDERED BY condominium registered and licensed by the
PROFESSIONALS: [AMENDED] Housing and Land Use Regulatory
Laboratory services are exempted. If the Board/Housing (HLURB) under BP Blg. 220,
hospital or PD No. 957 or any other similar law, wherein
clinic operates a pharmacy or drug store, the sale the unit selling price is within the selling
of price ceiling per unit of P750,000.00 under
drugs and medicine is subject to VAT. [RR 16- RA No. 7279, and other laws, such as RA
2005] No. 7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized
8. Educational services rendered by private housing as defined under RA No. 7279, and
educational institutions, duly accredited by other related laws, such as RA No. 7835 and
DEPED, CHED, TESDA, and those rendered by RA No. 8763, wherein the price ceiling per
government educational institutions; [AMENDED] unit is P225,000.00 or as may from time to
Educational services does not include time be determined by the HUDCC and the
seminars, in-service training, review classes NEDA and other related laws. "Socialized
housing" refers to housing programs and dwelling places (e.g., dormitories, rooms
projects covering houses and lots or home and bed spaces) except motels, motel
lots only undertaken by the Government or rooms, hotels and hotel rooms.
the private sector for the underprivileged The term 'unit' shall mean an apartment
and homeless citizens which shall include unit in the case of apartments, house in
sites and services development, long-term the case of residential houses; per person
financing, liberated terms on interest in the case of dormitories, boarding
payments, and such other benefits in houses and bed spaces; and per room in
accordance with the provisions of RA No. case of rooms for rent. [RR 16-2005]
7279and RA No. 7835 and RA No. 8763.
"Socialized housing" shall also refer to 18. Sale, importation, printing or publication of
projects intended for the underprivileged books and any newspaper, magazine review or
and homeless wherein the housing package bulletin which appears at regular intervals with
selling price is within the lowest interest fixed prices for subscription and sale and which is
rates under the Unified Home Lending not devoted principally to the publication of paid
Program (UHLP) or any equivalent housing advertisements;
program of the Government, the private
sector or non-government organizations. 19. SALE, IMPORTATION OR LEASE OF
(4) Sale of residential lot valued at P1.5M and PASSENGER OR CARGO VESSELS AND
below, or house & lot and other residential AIRCRAFT, INCLUDING ENGINE, EQUIPMENT
dwellings valued at P2.5M and below, where AND SPARE PARTS THEREOF FOR DOMESTIC OR
the instrument of sale/transfer/disposition INTERNATIONAL TRANSPORT
was executed on or after July 1, 2005; [to OPERATIONS;[added by RA 9337]
be adjusted every 3 years from Jan 31, The exemption from VAT on the importation and
2009]; If two or more adjacent residential local purchase of passenger and/or cargo vessels
lots are sold or disposed in favor of one shall be limited to those of 150 tons and above,
buyer, for the purpose of utilizing the lots as including engine and spare parts of said vessels;
one residential lot, the sale shall be exempt Provided, further, that the vessels to be imported
from VAT only if the aggregate value of the shall comply with the age limit requirement, at
lots does not exceed P1.5M. Adjacent the time of acquisition counted from the date of
residential lots, although covered by the vessel's original commissioning, as follows:
separate titles and/or separate tax (i) for passenger and/or cargo vessels,
declarations, when sold or disposed to one the age limit is 15 years old, (ii) for
and the same buyer, whether covered by tankers, the age limit is 10 years old, and
one or separate Deed of Conveyance, shall (iii) for high-speed passenger crafts, the
be presumed as a sale of one residential lot. age limit is 5 years old [RR 16-2005]
[RR 16-2005]
20. IMPORTATION OF FUEL, GOODS, AND
17. Lease of residential units with a monthly SUPPLIES BY PERSONS ENGAGED IN
rental per unit not exceeding P10K, INTERNATIONAL SHIPPING OR AIR TRANSPORT
regardless of the amount of aggregate OPERATIONS; [added by RA 9337]
rentals received by the lessor during the
Provided, that the said fuel, goods and supplies
year.
shall be used exclusively or shall pertain to the
Lease of residential units where the monthly
transport of goods and/or passenger from a port
rental per unit exceeds 10K but the
in the Philippines directly to a foreign port
aggregate of such rentals of the lessor during
without stopping at any other port in the
the year do not exceed One Million Five
Philippines; Provided, further, that if any portion
Hundred Pesos P1.5M shall likewise be
of such fuel, goods or supplies is used for
exempt from VAT, however, the same shall
purposes other than that mentioned in this
be subjected to three percent (3%)
paragraph, such portion of fuel, goods and
percentage tax.
supplies shall be subject to 10% VAT [RR 16-
In cases where a lessor has several
2005]
residential units for lease, some are leased
out for a monthly rental per unit of not
exceeding P10K while others are leased out 21. Services of banks, non-bank financial
for more than P10K per unit, his tax liability intermediaries performing quasi-banking
will be as follows: functions and other non-bank financial
a. The gross receipts from rentals not intermediaries; and
exceeding P10K per month per unit shall
be exempt from VAT regardless of the 22. Sale or lease of goods or properties or the
aggregate annual gross receipts. performance of services other than the
b. The gross receipts from rentals exceeding transactions mentioned in the preceding
P10K per month per unit shall be subject paragraphs, the gross annual sales and/or
to VAT IF the aggregate annual gross receipts do not exceed the amount
receipts from said units only (not ofP1,500,0000: [to be adjusted every 3 years
including the gross receipts from units from Jan 31, 2009] [AMENDED]
leased for not more than P10K) exceeds For purposes of the threshold of P1,5M, the
P1.5M. Otherwise, the gross receipts will husband and the wife shall be considered
be subject to the 3% tax imposed under separate taxpayers. However, the aggregation
Section 116 of the Tax Code. rule for each taxpayer shall apply. For instance,
The term 'residential units' shall refer to if a professional, aside from the practice of his
apartments and houses & lots used for profession, also derives revenue from other lines
residential purposes, and buildings or of business which are otherwise subject to VAT,
parts or units thereof used solely as the same shall be combined for purposes of
determining whether the threshold has been Invoice or if so included, these should
exceeded. The VAT-exempt sales shall NOT be be clearly indicated in the VAT
included in determining the threshold. [RR 16- Invoice as reimbursable expenses.
2005]
c) Importation of Goods
VI. DETERMINING THE VAT BASE VAT Base = total value (used by Bureau
of Customs in determining tariff and
a) Sale of Goods customs duties) + customs duties +
VAT Base = gross selling price or gross excise tax (if any) + other charges
value in money of the goods sold or
exchanged In case the valuation used by Bureau of
Customs in computing customs duties is
Gross selling price shall include: by volume or quantity, the LANDED
charges for packaging, delivery & COST* shall be the tax base.
insurance
excise taxes if goods are subject *LANDED COST = invoice amount +
to excise tax customs duties + freight + insurance +
other charges + excise tax (if any)
For transactions deemed sale, the output tax
shall be based on the market value of the goods NOTE: The VAT on importation shall be
deemed sold as of the time of the occurrence of paid by the importer PRIOR to the release
the transactions. However, in case of retirement of such goods from customs custody.
or cessation of business, the tax base shall be (RR 16-2005)
the acquisition cost or the current market price of
the goods or properties, whichever is LOWER. VII. INPUT TAXES
In the case of a sale where the gross selling price (amendments introduced by RA 9337 indicated,
is unreasonably lower than the fair market value, text in ALL CAPS added by RA 9337)
the actual market value shall be the tax base.
CREDITABLE INPUT TAX ( 110, A)
b) Sale of Services
VAT Base = Gross Receipts (1) Any INPUT TAX evidenced by a VAT
invoice or official receipt issued in accordance
Gross receipts means the total amount with Section 113 hereof on the following
of money or its equivalent representing transactions shall be creditable against the
the contract price, compensation, service OUTPUT TAX:
fee, rental or royalty, including the (a) Purchase or importation of goods:
amount charged for materials supplied (i) For sale; or
with the services and deposits and (ii) For conversion into or intended to
advance payments actually or form part of a finished product for sale
constructively received during the taxable including packaging materials; or
quarter for the services performed or to (iii) For use as supplies in the course of
be performed for another person, business; or
excluding VAT. (iv) For use as materials supplied in the
sale of service; or
Constructive receipt occurs when the
(v) For use in trade or business for
money consideration or its equivalent is
which deduction for depreciation or
placed at the control of the person who
amortization is allowed under this Code,
rendered the service without restrictions
except automobiles, aircraft and yachts.
by the payor. Examples:
[AMENDED]
1) deposit in banks which are made
(b) Purchase of services on which a VAT has
available to the seller of services
been actually paid.
without restrictions
2) issuance by the debtor of a notice to
(2) Input tax on domestic purchase OR
offset any debt or obligation and
IMPORTATION of goods or properties shall be
acceptance thereof by the seller as
creditable: [AMENDED]
payment for services rendered
(a) To the purchaser upon consummation of
3) transfer of the amounts retained by
sale and on importation of goods or
the contractee to the account of the
properties; and
contractor.
(b) To the importer upon payment of the
value-added tax prior to the release of the
Reimbursable expenses may be
goods from the custody of the Bureau of
EXCLUDED from the tax base IF the ff.
Customs.
conditions are complied with:
Provided, That the input tax on goods purchased
1) the expenses are supported by
or imported in a calendar month for use in
invoices/receipts in the name of the
trade or business for which deduction for
customer
depreciation is allowed under this Code, shall
2) the expenses are paid or will be paid
be spread evenly over the month of acquisition
to a 3rd party
and the fifty-nine (59) succeeding months if
3) there is no mark-up on the amounts
the aggregate acquisition cost for such goods,
billed, and
excluding the VAT component thereof, exceeds
4) the reimbursable expenses should
One million pesos (P1,000,000):
NOT be included in the Sellers VAT
Provided, however, That if the estimated useful Determination of Creditable Input Tax (
life of the capital good is less than five (5) 110, C)
years, as used for depreciation purposes, then
the input VAT shall be spread over such a - The sum of the excess input tax carried over
shorter period: from the preceding month or quarter and the
Provided, finally, that in the case of purchase of input tax creditable to a VAT-registered person
services, lease or use of properties, the input during the taxable month or quarter shall be
tax shall be creditable to the purchaser, lessee reduced by the amount of claim for refund or tax
or licensee upon payment of the compensation, credit for value-added tax and other
rental, royalty or fee. [AMENDED] adjustments, such as purchase returns or
allowances and input tax attributable to exempt
(3) A VAT-registered person who is also sale.
engaged in transactions not subject to the value- The claim for tax credit referred to includes not
added tax shall be allowed tax credit as follows: only those filed with the BIR but also those filed
(a) Total input tax which can be directly with other government agencies, such as the
attributed to transactions subject to Board of Investments the Bureau of Customs.
value-added tax; and
(b) A ratable portion of any input tax Transitional Input Tax Credits ( 111, A)
which cannot be directly attributed to
either activity. Any person liable for VAT or who elects to be a
VAT-registered person shall be allowed INPUT
INPUT TAX- the VAT due from or paid by a VAT- TAX in his beginning inventory of goods,
registered person in the course of his trade or materials and supplies
business on importation of goods or local equivalent to eight percent (8%) TWO
purchase of goods or services, including lease or PERCENT (2%) of the value of such
use of property, from a VAT-registered person. It inventory OR
includes the transitional input tax determined in the actual VAT paid on such goods,
accordance with Section 111 of this Code. materials and supplies, whichever is
higher,
It includes input taxes which can be directly which shall be creditable against the OUTPUT
attributed to transactions subject to the VAT plus TAX. [AMENDED]
a ratable portion of any input tax which cannot
be directly attributed to either the taxable or [NOTE: subject to the filing of an inventory
exempt activity. Input tax must evidenced by a according to rules and regulations prescribed by
VAT invoice or official receipt issued by a VAT- the Secretary of finance, upon recommendation
registered person in accordance with Secs. 113 of the Commissioner]
and 237 of the Tax. [RR 16-2005]
Presumptive Input Tax Credits ( 111, B)
OUTPUT TAX- the VAT due on the sale or lease
of taxable goods or properties or services by any (1) Persons or firms engaged in the processing
person registered or required to register under of sardines, mackerel and milk, and in
Section 236 of this Code. manufacturing refined sugar and cooking oil AND
PACKED NOODLE BASED INSTANT MEALS, shall
EXCESS OUTPUT OR INPUT TAX ( 110, C) be allowed a presumptive input tax, creditable
against the output tax, equivalent to one and
If at the end of any taxable quarter: one-half percent (1 1/2%) FOUR PERCENT (4%)
the output tax exceeds the input tax, the of the gross value in money of their purchases of
excess shall be paid by the VAT-registered primary agricultural products which are used as
person. inputs to their production. [AMENDED]
the input tax exceeds the output tax, the
excess shall be carried over to the succeeding "Processing" shall mean pasteurization, canning
quarter or quarters: and activities which through physical or chemical
Provided, however, that any input tax process alter the exterior texture or form or inner
attributable to the purchase of capital goods or to substance of a product in such manner as to
zero-rated sales by a VAT-registered person may prepare it for special use to which it could not
at his option be refunded or credited against have been put in its original form or condition.
other internal revenue taxes, subject to the
provisions of Section 112.28 [AMENDED] (2) 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
28
As amended by RA 9361. RA 9337, effective July 1, 2005, respect to government contracts only in lieu of
amended this subsection to read as follows: If at the end of actual input taxes therefrom. [DELETED]
any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: Provided, That the input REFUNDS OR TAX CREDITS OF INPUT TAX
tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: Provided, however,
Zero-Rated Sales ( 112, A)
That any input tax attributable to zero-rated sales by a VAT- Any VAT-registered person, whose sales are
registered person may at his option be refunded or credited zero-rated or effectively zero-rated may apply
against other internal revenue taxes, subject to the provisions
of Section 112. HOWEVER, this was again amended by
Congress through RA 9361 passed on Nov. 21, 2006. RR 2-
2007, dated January 11, 2007, provides that this regulation after its publication) except VAT returns covering taxable
enforcing the amendment introduced by RA 9361 shall take quarters ending earlier than December 2006.
effect immediately and shall apply to the quarterly VAT returns
to be filed after the effectivity of RA 9361 (which is 15 days
for the issuance of a tax credit certificate or In proper cases, the Commissioner of Internal
refund of creditable input tax due or paid Revenue shall grant a tax credit
attributable to such sales, except transitional certificate/refund for creditable input taxes
input tax, to the extent that such input tax has within one hundred twenty (120) days from the
not been applied against output tax: [within date of submission of complete documents in
two (2) years after the close of the taxable support of the application filed in accordance
quarter when the sales were made] with subparagraph (a) above.
PROVIDED, however, That in the case of zero- In case of full or partial denial of the claim for
rated sales under Section 106(A)(2)(a)(1), (2) tax credit certificate/refund as decided by the
and (B) and Section 108 (B)(1) and (2), the Commissioner of Internal Revenue, the
acceptable foreign currency exchange proceeds taxpayer may appeal to the Court of Tax
thereof had been duly accounted for in Appeals (CTA) within thirty (30) days from the
accordance with the rules and regulations of receipt of said denial, otherwise the decision
the Bangko Sentral ng Pilipinas (BSP): shall become final. However, if no action on
PROVIDED, further, That where the taxpayer is the claim for tax credit certificate/refund has
engaged in zero-rated or effectively zero-rated been taken by the Commissioner of Internal
sale and also in taxable or exempt sale of Revenue after the one hundred twenty (120)
goods of properties or services, and the day period from the date of submission of the
amount of creditable input tax due or paid application with complete documents, the
cannot be directly and entirely attributed to any taxpayer may appeal to the CTA within 30
one of the transactions, it shall be allocated days from the lapse of the 120-day period. [RR
proportionately on the basis of the volume of 16-2005]
sales.
PROVIDED, FINALLY, THAT FOR A PERSON Manner of Giving Refund ( 112, E)-
MAKING SALES THAT ARE ZERO-RATED UNDER Refunds shall be made upon warrants drawn by
SECTION 108 (B)(6), THE INPUT TAXES SHALL the Commissioner or by his duly authorized
BE ALLOCATED RATABLY BETWEEN HIS ZERO- representative without the necessity of being
RATED AND NON-ZERO-RATED SALES. countersigned by the Chairman, Commission on
[AMENDED] audit, the provisions of the Administrative Code
of 1987 to the contrary notwithstanding:
(B) Capital Goods. - A VAT-registered person Provided, That refunds under this paragraph shall
may apply for the issuance of a tax credit be subject to post audit by the Commission on
certificate or refund of input taxes paid on capital Audit.
goods imported or locally purchased, to the
extent that such input taxes have not been Notes from RR 16-2005:
applied against output taxes. The application may
be made only within two (2) years after the close Apportionment of Input Tax on Mixed
of the taxable quarter when the importation or Transactions. A VAT-registered person who is
purchase was made. [DELETED] also engaged in transactions not subject to VAT
shall be allowed to recognize input tax credit on
Cancellation of VAT Registration. ( 112, C) transactions subject to VAT as follows:
A person whose registration has been cancelled 1. All the input taxes that can be directly
due to retirement from or cessation of attributed to transactions subject to VAT may
business, or due to changes in or cessation of be recognized for input tax credit; Provided,
status under Section 106(C) of this Code may, that input taxes that can be directly
within two (2) years from the date of attributable to VAT taxable sales of goods
cancellation, apply for the issuance of a tax and services to the Government or any of its
credit certificate for any unused input tax which political subdivisions, instrumentalities or
may be used in payment of his other internal agencies, including government-owned or
revenue taxes. controlled corporations (GOCCs) shall not be
Provided, however, that he shall be entitled to a credited against output taxes arising from
refund if he has no internal revenue tax sales to non-Government entities; and
liabilities against which the tax credit certificate 2. If any input tax cannot be directly attributed
may be utilized. to either a VAT taxable or VAT-exempt
transaction, the input tax shall be pro-rated
Where to file the claim for refund/tax credit to the VAT taxable and VAT-exempt
certificate ( 112, D) transactions and only the ratable portion
Claims for refunds/tax credit certificate shall be pertaining to transactions subject to VAT may
filed with the appropriate BIR office (Large be recognized for input tax credit.
Taxpayers Service (LTS) or Revenue District
Office (RDO)) having jurisdiction over the Illustration: ERA Corporation has the following
principal place of business of the taxpayer; sales during the month:
Provided, however, that direct exporters may
also file their claim for tax credit certificate with Sale to private entities subject to 12% 100,000.00
the One Stop Shop Center of the Department of Sale to private entities subject to 0% 100,000.00
Finance; Provided, finally, that the filing of the Sale of exempt goods 100,000.00
claim with one office shall preclude the filing of Sale to gov't. subjected to 5% final
the same claim with another office. VAT w/holding 100,000.00
Total sales for the month 400,000.00
Period within which refund or tax credit
certificate/refund of input taxes shall be The following were its input taxes (or passed on
made by its VAT suppliers):
( 112, D) Input tax on taxable goods (12%) 5,000.00
Input tax on zero-rated sales 3,000.00
Input tax on sale of exempt goods 2,000.00 All creditable input taxes29 xxx
Input tax on sale to government 4,000.00 (as illustrated in the previous example
Input tax on depreciable capital good to be P18K) during the month or quarter
not attributable to any specific activity
any amount of input tax carried-over xxx
(monthly amortization for 60 months) 20,000.00
from the preceding month or quarter
Total creditable input tax for the month (a) INPUT TAXES must be substantiated and
(P5,000+ P3,000 +P10,000) P18,000.00 supported by the following documents, and must
be reported in the information returns required
B. The input tax attributable to sales to to be submitted to the Bureau:
government for the month shall be computed as (1) For the importation of goods import
follows: entry or other equivalent document showing
actual payment of VAT on the imported
Input tax on sale to gov't. P4,000.00 goods.
(2) For the domestic purchase of goods
Ratable portion of the input tax not directly and properties invoice showing the
attributable to any activity, computed as follows: information required under Secs. 113 and
237 of the Tax Code.
Taxable sales to government X Amount of (3) For the purchase of real property
input tax public instrument i.e., deed of absolute
Total Sales not directly sale, deed of conditional sale,
attributable contract/agreement to sell, etc., together
with VAT invoice issued by the seller.
P100,000.00 X P20,000.00 = P5,000.00 (4) For the purchase of services official
receipt showing the information required
400,000.00 under Secs. 113 and 237 of the Tax Code.
A cash register machine tape issued to a
Total input tax attributable to sales to registered buyer shall constitute valid proof
government P9,000.00 (P4,000 + P5,000) of substantiation of tax credit only if it shows
These amounts are not available for input tax the information required under Secs. 113 and
credit but may be recognized as cost or expense. 237 of the Tax Code.
That is because as far as sales to government are
concerned, there is a VAT that is finally withheld (b) TRANSITIONAL INPUT TAX shall be supported
(at 5%). by an inventory of goods as shown in a
detailed list to be submitted to the BIR.
C. The input tax attributable to VAT-exempt
sales for the month shall be computed as follows: (c) Input tax on "deemed sale" transactions shall
Input tax on VAT-exempt sales P2,000.00 be substantiated with the invoice required
Ratable portion of the input tax not directly (please refer to the table on page 46).
attributable to any activity, computed below:
(d) Input tax from payments made to non-
VAT-exempt sales X Amount of residents (such as for services, rentals and
input tax royalties) shall be supported by a copy of the
Total Sales not directly attributable Monthly Remittance Return of Value Added Tax
Withheld (BIR Form 1600) filed by the resident
P100,000.00 X P20,000.00 = P5,000.00 payor in behalf of the non-resident evidencing
--- remittance of VAT due which was withheld by the
400,000.00 payor.
Total input tax attributable to P7,000.00 (e) Advance VAT on sugar shall be supported by
VAT-exempt sales (P2,000+ P5,000) the Payment Order showing payment of the
- These amounts are not available for input tax advance VAT.
credit but may be recognized as cost or expense.
29
Determination of Input Tax Creditable Remember, this does NOT include input tax attributable to
exempt sales, and input tax attributable to sales subject to final
during a Taxable Month or Quarter. withholding VAT
every year thereafter on or before the 31st day of * quarterly return of the amount of his gross
January. Individuals engaged in business where sales or receipts within twenty-five (25) days
the gross sales or receipts do NOT exceed after the close of each taxable quarter30
P100,000.00 during any 12-month period, and prescribed for each taxpayer:
cooperatives other than electric cooperatives, are NOTE: VAT paid on a monthly basis31
required to register but will not be made to pay
the P500.00 fee. Short Period Return
Franchise grantees of radio and television Any person, whose registration has been
broadcasting whose gross annual receipt for the cancelled in accordance with Section 236, shall
preceding calendar year exceeded P10M shall file a return and pay the tax due thereon within
register within 30 days from the end of the twenty-five (25) days from the date of
calendar year. Franchise grantees of the same cancellation of registration:
whose annual gross receipts do not exceed P10M Provided, That only one consolidated return shall
derived from the business covered by the law be filed by the taxpayer for his principal place of
granting the franchise may opt for VAT business or head office and all branches.32
registration. This option, once exercised, shall be
irrevocable (as opposed to VAT-exempt persons, Persons Required to Submit Summary Lists
in general, who choose to be VAT-registered, in of Sales/Purchases.
which case VAT registration cannot be cancelled (1) Persons Required to Submit Summary Lists of
for 3 years only). Sales. All persons liable for VAT such as
manufacturers, wholesalers, service-providers,
Any person who is VAT-registered but enters into among others, with quarterly total sales/receipts
transactions which are exempt from VAT (mixed (net of VAT) exceeding Two Million Five Hundred
transactions) may opt that the VAT apply to his Thousand Pesos (P2,500,000.00).
transactions which would have been exempt. (2) Persons Required to Submit Summary Lists of
Purchases. All persons liable for VAT such as
Cancellation of VAT registration: manufacturers, service-providers, among others,
A VAT-registered person may cancel his with quarterly total purchases (net of VAT)
registration for VAT as provided for in Sec. 236 exceeding One Million Pesos (P 1,000,000.00).
(F) (2), and also in the following instances:
1. A change of ownership, in the case of a When and Where to File the Summary Lists of
single proprietorship; Sales/Purchases.
2. Dissolution of a partnership or corporation; shall be submitted in diskette form to the RDO or
3. Merger or consolidation with respect to the LTDO or LTAD having jurisdiction over the
dissolved corporation(s); taxpayer, on or before the twenty-fifth (25th)
4. A person who has registered prior to day of the month following the close of the
planned business commencement, but failed taxable quarter (VAT quarter. However,
to actually start his business taxpayers under the jurisdiction of the LTS, and
those enrolled under the EFPS, shall, through
Some instances where taxpayer will update his electronic filing facility submit their Summary List
registration by submitting a duly accomplished of Sales/Purchases to the RDO/LTDO/LTAD, on or
Registration Update Form: before the thirtieth (30th) day of the month
1. A person's business has become exempt in following the close of the taxable quarter.
accordance with Sec. 109
2. A change in the nature of the business itself Information that Must be Contained in the
from sale of taxable goods and/or services to Quarterly Summary List of Sales to be
exempt sales and/or services; Submitted: the monthly total sales generated
3. A person whose transactions are exempt from regular buyers/customers, regardless of the
from VAT who voluntarily registered under amount of sale per buyer/customer, as well as
VAT system, who after the lapse of three from casual buyers/customers with individual
years after his registration, applies for
cancellation of his registration as such; and
30
4. A VAT-registered person whose gross sales or The term "taxable quarter" shall mean the quarter
receipts for three consecutive years did not that is synchronized to the income tax quarter of the
exceed P1,500,000.00 beginning July 1, taxpayer (i.e., the calendar quarter or fiscal quarter).
2005, which amount shall be adjusted to its [RR 16-2005]
31
present value every three years using the The monthly VAT Declarations (BIR Form 2550M) of
Consumer Price Index, as published by the taxpayers whether large or non-large shall be filed and
NSO. the taxes paid not later than the 20th day following the
Upon updating his registration, the taxpayer shall end of each month.
become liable to the percentage tax imposed in The return for withholding of VAT shall be filed and the
withholding VAT paid on or before the tenth (10th) day
Sec. 116 of the Tax Code. A short period return
of the following month. [RR 16-2005]
for the remaining period that he was VAT-
registered shall be filed within twenty five (25) 32
Any person who retires from business with due notice
days from the date of cancellation of his
to the BIR office where the taxpayer (head office) is
registration. registered or whose VAT registration has been cancelled
shall file a final quarterly return and pay the tax due
thereon within twenty five (25) days from the end of
XIV. FILING OF RETURNS & PAYMENT OF VAT the month when the business ceases to operate or
when VAT registration has been officially cancelled;
VAT RETURNS( 114) Provided, however, that subsequent monthly
declarations/quarterly returns are still required to be
filed if the results of the winding up of the
- Filed by person liable to pay the VAT
affairs/business of the taxpayer reveal taxable
transactions. [RR 16-2005]
sales amounting to P100,000.00 or more. For this For the claimed input tax arising from services
purpose, the term "regular buyers/customers" rendered in the Philippines by nonresidents, no
shall refer to buyers/customers who are engaged summary list is required to be submitted.
in business or exercise of profession AND those
with whom the taxpayer has transacted at least 6 Once any of the taxable quarters total sales
transactions regardless of amount per transaction and/or purchases exceed the threshold amounts
either in the previous year or current year. The as provided above, VAT taxpayer shall be
term "casual buyers/customers", on the other required to submit the summary lists for the next
hand, shall refer to buyers/customers who are 3 succeeding quarters, regardless of whether or
engaged in business or exercise of profession not such succeeding taxable quarter sales and/or
BUT did not qualify as regular buyers/customers purchases exceed the herein set threshold
as defined in the preceding statement. amounts of P2,500,000.00 for sales and
P1,000,000.00 for purchases.
The Quarterly Summary List of Sales to Regular
Buyers/Customers and Casual Buyers/Customers Penalties in case of failure to submit quarterly
and Output Tax shall reflect the following: summary list of sales and purchases.
(1) BIR-registered name of the buyer who is A person who fails to file, keep or supply
engaged in business/exercise of profession; a statement, list, or information required herein
(2) TIN of the buyer (Only for sales that are on the date prescribed therefor shall pay, upon
subject to VAT); notice and demand by the Commissioner of
(3) Exempt Sales; Internal Revenue, an administrative penalty of
(4) Zero-rated Sales; P1,000.00 for each such failure, unless it is
(5) Sales Subject to VAT (exclusive of VAT); shown that such failure is due to reasonable
(6) Sales Subject to Final VAT Withheld; and cause and not to willful neglect. For this
(7) Output Tax (VAT on sales subject to 10%). purpose, the failure to supply the required
(The total amount of sales shall be system- information for each buyer or seller of goods and
generated) services shall constitute a single act or omission
punishable hereof. However, the aggregate
Information that must be Contained in the amount to be imposed for all such failures during
Quarterly Summary List of Purchases a taxable year shall not exceed P25,000.00.
(1) The Quarterly Summary List of Local In addition to the imposition of the
Purchases and Input Tax administrative penalty, willful failure by such
a. BIR-registered name of the person to keep any record and to supply the
seller/supplier/service-provider; correct and accurate information at the time or
b. Address of seller/supplier/service- times as required herein, shall be subject to the
provider; criminal penalty under the relevant provisions
c. TIN of the seller; of the Tax Code (e.g., Sec. 255, Sec. 256, etc.,),
d. Exempt Purchases; upon conviction of the offender.
e. Zero-rated Purchases; The imposition of any of the penalties under the
f. (i) Purchases Subject to VAT (exclusive of Tax Code and the compromise of the criminal
VAT) on services; penalty on such violations, notwithstanding, shall
(ii) Purchases Subject to VAT (exclusive not in any manner relieve the violating taxpayer
of VAT) on capital goods; and from the obligation to submit the required
(iii) Purchases Subject to VAT (exclusive documents.
of VAT) on goods other than capital goods Finally, the administrative penalty shall be
(iv) Purchases Subject to Final VAT imposed at all times, upon due notice and
Withheld demand by the Commissioner of Internal
g. Creditable Input Tax; and (to be Revenue. A subpoena duces tecum for the
computed not on a per supplier basis submission of the required documents shall be
but on a per month basis) issued on the second offense. A third offense
h. Non-Creditable Input Tax (to be shall set the motion for a criminal prosecution of
computed not on a per supplier basis the offender.
but on a per month basis)
(The total amount of purchases shall be
system-generated) XV. ENFORCEMENT MEASURES
(2) The Quarterly Summary List of
Importations. RR 16-2005:
(a) The import entry declaration number; Administrative and Penal Provisions.
(b) Assessment/Release Date;
(c) The date of importation; (a) Suspension of business operations. In
(d) The name of the seller; addition to other administrative and penal
(e) Country of Origin; sanctions provided for in the Tax Code and
(f) Dutiable Value; implementing regulations, the Commissioner of
(g) All Charges Before Release From Internal Revenue or his duly authorized
Customs' Custody; representative may order suspension or closure
(h) Landed cost: of a business establishment for a period of not
(i) Exempt; less than five (5) days for any of the following
(ii) Taxable (Subject to VAT); violations:
(i) VAT paid; (1) Failure to issue receipts and invoices.
(j) Official Receipt (OR) Number of the OR (2) Failure to file VAT return as required
evidencing payment of the tax; and under the provisions of Sec. 114 of the Tax
(k) Date of VAT payment Code.
(3) Understatement of taxable sales or
receipts by 30% or more of his correct
- cannot be deducted on net trading gain 1. Premiums Refunded within 6 months after
earned on any taxable year other than the payment on account of rejection of risks
year it was incurred 2. Premiums paid upon reinsurance by a
- may not be carried over to the succeeding company that has Already paid the tax.
taxable year. 3. Premiums collected or received by any
branch of a domestic corporation, firm or
association doing business OUTSIDE the
RULE ON PRETERMINATION: Phils. on account of any life insurance of
In case the maturity period of an instrument the insured who is a NON-RESIDENT, if any
is shortened by pretermination, the maturity tax on such premiums is imposed by the
period shall be reckoned to end as of the foreign country where the branch is
date of pretermination for purposes of established.
classifying the transaction and applying the 4. Premiums collected or received on account
correct rate of tax. (RR 09-04, Sec. 5) of any reinsurance, if the insured of
personal insurance, RESIDES OUTSIDE THE
CASE LAW: China Bank v. CTA (GR 146749, PHILS., if any tax on such premiums is
June 10, 3003) The 20% withholding tax on imposed by the foreign country where the
interest income shall form part of the gross original insurance has been issued or
receipts in computing gross receipts tax on perfected.
banks. Gross Receipts is commonly understood 5. Portions of premiums collected or received
as the entire receipts without any deductions. by insurance companies on VARIABLE
CONTRACTS in excess of the amounts
TAX ON OTHER NON-BANK FINANCE necessary to insure the lives of variable
INTERMEDIARIES (Sec. 122, NIRC) contract owners.
tax on gross receipts derived by other non-
bank finance intermediaries, DOING Variable Contracts benefits under the
BUSINESS IN THE PHILIPPINES, from: contract vary as to reflect investment results of
- interest any segregated portfolios of investments.
- commissions (PD612)
- discounts from lending activities
- financial leasing CASE LAW: CIR v. Insular Life Assurance (CA
tax is based on the remaining maturities of GR SP 46516) MUTUALIZED LIFE INSURANCE
the instruments from which receipts are COMPANY is not subject to premium tax or DST
derived on policies as cooperatives. If a mutualized
MATURITY RATES life insurance company satisfies all the
maturity period is 5 5% elements of cooperative [1. managed by
yrs or less members; 2. operated with money collected from
maturity period is 3% members; 3. has for its main purpose the mutual
more than 5 yrs protection of members and not for profit] as
defined in Sec. 123, it shall not be subject to
[Note: The same rule on pretermination applies.] premiums tax.
return should be filed and tax paid within covers sale, barter, exchange of shares of
20 days after the end of every stock of CLOSELY HELD CORPORATIONS
quarter tax shall be paid by the issuing
corporation in the primary offering or by
SOURCE RATES the seller in the secondary offering
Cockpits 18% tax base is the GSP/GVM
cabarets, night or day clubs 18% levied in accordance with the proportion
boxing exhibitions 10% of shares sold, bartered, exchanged or
professional basketball games (in 15% disposed, to the total outstanding shares
lieu of all other percentage taxes) after the listing in the local stock
Jai-Alai & racetracks (WON they 30% exchange:
charge for admissions)
NUMBER OF SHARES RATES
EXEMPTION: If boxing exhibition is a World or up to 25% of all 4% GSP/GVM
Oriental Championship in any division featuring shares
at least 1 Filipino contender and promoted >25% but not over 2% GSP/GVM
by a Filipino or by a corporation with at 33.33%
least 60% Filipino equity. Over 33.33% 1% GSP/GVM
Closely Held Corporationany corporation at
Tax Base: GROSS RECEIPTS least 50% in value of the outstanding capital
n it embraces ALL the receipts of the stock or at least 50% of the total combined
proprietor, lessee or operator of the voting power of all classes of stock entitled to
amusement place; including income from vote is owned directly or indirectly by or for
TV, radio and motion picture rights. not more than 20 individuals.
RMC 08-88 transferred the EXCLUSIVE Rules to be applied to determine whether the
JURISDICTION to levy tax on gross receipts from corporation is closely held:
ADMISSIONS to places of amusement to the 1. Stock owned directly or indirectly by
local government. corporations, partnerships, estates or trusts
shall be considered as actually owned by
TAX ON WINNINGS (Sec. 126, NIRC) its stockholders, partners or
beneficiaries in proportion to their shares as
Q: Who are liable? individuals.
1. every person who wins in horse races 2. An individual is considered the constructive
2. owners of winning race horses owner of the stock owned by members of his
family (includes only brothers and sisters
SOURCE RATES whole/half-blood, spouse, ancestors and
winnings or dividends (bases on the 10% lineal descendants)
actual amount paid to winner for 3. A person having an option to acquire stock
every winning ticket AFTER is considered the actual owner of such stock
deducting the cost of the ticket)
winnings from double, 4% C. Return on Capital Gains realized from sale of
forecast/quinella and trifecta bets Shares of Stocks
prizes, in case of owners of race 10% 1. return on capital gains realized from sale
horses of shares of stock listed and traded in the
local stock exchange
tax shall be WITHHELD by the operator, it is the duty of every stockbroker who
manager or person in charge of the horse effected the sale to collect the tax and
races before paying the dividends or remit it to the BIR within 5 banking days
prizes from date of collection and to submit to
return shall be filed and tax paid within the secretary of the stock exchange a
20 days from the date tax was deducted true and complete return
and withheld
2. return on public offerings of shares of
TAX ON SALE, BARTER OR EXCHANGE OF stocks
SHARES OF STOCK LISTED AND TRADED the corporate issuer shall file the return
THROUGH THE LOCAL STOCK EXCHANGE OR and pay the tax within 30days from the
THROUGH INITIAL PUBLIC OFFERING (IPO) date of listing of the shares in the local
(Sec. 127, NIRC) stock exchange.
A. Through the Local Stock Exchange [Note: Both IPOs and sales of stock through
of 1% of the GROSS SELLING PRICE the local exchange are EXEMPT from capital
or GROSS VALUE IN MONEY (GSP/GVM) gains tax and from regular individual or
of the shares of stocks sold, bartered, corporate income tax. Also, such tax is not
exchanged or otherwise disposed of deductible from income tax.]
through the local stock exchange OTHER
THAN THE SALE BY A DEALER IN PAYMENT OF PERCENTAGE TAXES
SECURITIES.
Tax shall be paid by seller or Q: When to file return and pay?
transferor. Persons subject to percentage taxes shall file
a QUARTERLY RETURN and PAY the tax due
B. Through IPO within 25 days after the end of each taxable
quarter. (Sec. 128 (A)(1), NIRC)
2. Time of Filing of Return and Payment of Gross Selling Price= Price - VAT
Tax
GENERALLY: return shall be filed and - PRICE: That at which the goods are sold
excise tax shall be paid by the at wholesale in the place of production or
manufacturer or producer before through their sales agents to the public
removal of the domestic products from - If the goods are sold in another
place of production unless otherwise establishment where the manufacturer is
specifically allowed the owner or in the profits of which he
has an interest, wholesale price there
EXCEPTIONS:
PRODUCT TIME OF PAYMENT NOTE: if price < cost of manufacture +
nonmetallic mineral or upon removal of such expenses incurred until the goods are finally
mineral products and products from locality sold a proportionate margin of the profit
quarry sources where mined and (which is not less than 10% of such
extracted manufacturing costs + expenses) shall be
locally produced or within 15 days after added to the GSP
extracted metallic end of the calendar
mineral or mineral quarter when such (C) Manufacturers or Producers Sworn
products products were Statement
removed subject to It shall show:
conditions prescribed - different goods and products
by rules and manufactured or produced,
regulations to be - their corresponding GSP or market value
promulgated by - Costs of manufacture or production +
Secretary of Finance, expenses incurred or to be incurred until
upon recommendation goods are sold
of the Commissioner
(D) Credit for Excise Tax on Goods Actually
taxpayer shall file Exported
bond amount of In case goods produced or manufactured are
excise tax due removed and actually exported without
IMPORTED mineral or before their removal returning to the Philippines:
mineral products, from customs duty - GENERAL RULE any excise tax paid
whether metallic or shall be credited or refunded upon
nonmetallic submission of proof of actual exportation
and upon receipt of the foreign exchange
payment
3. Place of Filing of Return and Payment of - EXCEPTION (i.e., NOT credible): mineral
Tax (GENERAL RULE) products
any authorized agent bank or Revenue o EXCEPTION TO EXCEPTION: coal &
Collector Officer, or coke
duly authorized City or Municipal
Treasurer Payment of Excise Tax on IMPORTED
Articles (Sec. 131)
4. Exceptions (TO GENERAL RULE SET OUT
ABOVE) (A) Persons Liable
IN GENERAL: Sec of Finance, upon - Paid by:
recommendation of Commissioner, may owner or importer to the Customs
by rules and regulations prescribe: Officers before release from the
customhouse, OR
a. time of filing the return at intervals person found in possession of articles
for a particular class or classes of which are exempt from excise taxes
taxpayer other than those legally entitled to
exemption
b. manner and time of payment under a - In case tax-free articles brought in by
tax prepayment, advance deposit and exempted persons or entities or
other similar schemes agencies are subsequently sold,
IN THE SPECIFIC CASES of: transferred or exchanged in the Philippines
minerals, mineral products or purchaser or recipients shall be
quarry resources where the place considered importers and shall be liable for
of extraction is different from the duty and internal revenue tax due
place of processing or production, - Importation of cigar, cigarettes, distilled
or spirits and wines even if destined to tax
metallic minerals processed and duty-free shops shall be subject to all
abroad, applicable taxes, EXCEPT: (not subject to
file and pay at the Revenue tax)
District Office having jurisdiction
When are shares considered issued? Upon person or party thereto, whether the
the acquisition of the stockholder of the attributes proceedings be civil or criminal; papers and
of ownership over the shares (the right to vote,
the right to receive dividends, the right to documents filed in courts by or for the
dispose, etc., notwithstanding that restrictions on national, provincial, city or municipal
the exercise of any of these rights may be governments; affidavits of poor persons for
imposed by the Corporations Articles and/or by- the purpose of proving poverty; statements
laws, the SEC, stockholder agreement, court and other compulsory information required of
order, etc.) which acquisition of such attributes of persons or corporations by the rules and
ownership shall be manifested by the acceptance regulations of the national, provincial, city or
by the Corporation of the stockholders municipal governments exclusively for
subscription to its shares of stock. The delivery of statistical purposes and which are wholly for
the certificates of stock to the stockholders is NOT the use of the bureau or office in which they
essential for the DST to accrue. [RR 13-2004] are filed, and not at the instance or for the
What is the basis of DST? The entire shares use or benefit of the person filing them;
of stock subscribed are considered issued for certified copies and other certificates placed
purposes of DST, even if not fully paid. [RR 13- upon documents, instruments and papers for
2004] the national, provincial, city or municipal
governments, made at the instance and for
When is a sale or exchange of shares the sole use of some other branch of the
taxable? There must be actual or constructive national, provincial, city or municipal
transfer of beneficial ownership of shares of stock governments; and certificates of the
from one person to another. This may be assessed value of lands, not exceeding Two
manifested by: hundred pesos (P200) in value assessed,
a) the clear exercise of attributes of ownership furnished by the provincial, city or municipal
over such stocks by the transferee, or Treasurer to applicants for registration of title
b) by an actual entry of a change in the name to land.
appearing in the certificate of stock or in the
stock and transfer book of the corporation or c. Borrowing and lending of securities executed
by any entry indicating transfer of beneficial under the Securities Borrowing and lending
ownership in any form of registry including Program of a registered exchange, or in
those of a duly authorized scripless registry, accordance with regulations prescribed by the
such as those maintained for or by the appropriate regulatory authority: Provided,
Philippine Stock Exchange. [RR 13-2004] however, That any borrowing or lending of
securities agreement as contemplated hereof
Documents and Papers Not Subject to shall be duly covered by a master securities
Stamp Tax BAD- STAF- LIMB-PC40 borrowing and lending agreement acceptable
to the appropriate regulatory authority, and
a. Policies of insurance or annuities made or which agreements is duly registered and
granted by a fraternal or beneficiary society, approved by the Bureau of Internal Revenue.
order, association or cooperative company (BIR).
conducted solely by the members thereof for
their benefit. d. Loan agreements the aggregate of which
b. Certificates of oaths administered to any does not exceed Two hundred fifty thousand
government official in his official capacity or pesos (P250,000), or any such amount as
of acknowledgment by any government may be determined by he Secretary of
official in the performance of his official Finance, executed by an individual for his
duties, written appearance in any court by purchase on installment for his personal use
any government official, in his official or that of his family and not for business or
capacity; certificates of the administration of resale, barter or hire of a house, lot, motor
oaths to any person as to the authenticity of vehicle, appliance or furniture: Provided,
any paper required to be filed in court by any however, That the amount to be set by the
Secretary of Finance shall be in accordance
with a relevant price index but not to exceed city where the taxpayer has his residence or
ten percent (10%) of the current amount and principal place of business
shall remain in force at least for three (3)
years.
EXCEPTION:
e. Sale, barter or exchange of Shares of stock Tax may be paid thru purchase and actual
listed and traded through the local stock affixture or imprinting the stamp thru
exchange for a period of five (5) years from documentary stamp metering machine as
the effectivity of this Act. prescribed by the pertinent rules and regulations.
One-Transaction Rule:
Where only one instrument was prepared, made
signed and executed to cover a loan
agreement/promissory note, pledge/mortgage,
the documentary stamp tax shall be paid and
computed on the full amount of the loan or credit
granted. In this regard, the instrument shall be
treated as covering only one taxable transaction,
subject to the higher documentary stamp tax.
(RR 9-94, Sec. 8)
NOTE: This is known as the Third Party Policy cases under audit by the special teams
Information Rule. in national offices
should inform the taxpayer of the law A follow-up letter/demand letter for
and the facts on which the assessment is payment of taxes is considered a notice
made; of assessment. [REPUBLIC vs. CA
otherwise, the assessment shall be void. and NIELSON & CO. (April 30,
(Sec. 228, NIRC) 1987)]
Where the taxpayer is appealing on the
If the taxpayer disagrees with the findings ground that the assessment is
in the PAN, he has fifteen (15) days from erroneous, it is incumbent upon him to
his receipt of the PAN to file a written reply prove what is the correct and just
contesting the proposed assessment. liability by a full and fair disclosure of
all pertinent data. [Bonifacio Sy Po v.
PAN no longer required when : CTA]
(a) The finding for any deficiency tax is the Within what time may the
result of MATHEMATICAL ERROR in the Commissioner issue a notice of
computation of the tax as appearing on assessment?
the face of the return; or
(b) A DISCREPANCY has been determined If the taxpayer filed a return
between the TAX WITHHELD and the internal revenue taxes shall be
amount ACTUALLY REMITTED by the assessed within three years after the
withholding agent; or last day prescribed by law for the filing
(c) A taxpayer who opted to claim a refund or of the return. If a return is filed
tax credit of excess creditable withholding beyond the period prescribed by law,
tax for a taxable period was determined the three-year period shall be counted
to have carried over and automatically from the day the return was filed. A
applied the same amount claimed against return filed before the last day
the estimated tax liabilities for the taxable prescribed by law for filing shall be
quarter or quarters of the succeeding considered as filed on the last day.
taxable year; OR (Sec. 203, NIRC)
(d) The EXCISE TAX due on excisable articles NOTE: In short, the period for
has not been paid; or assessment is within three years from
(e) An article locally purchased or imported the time the return is filed or from the
by an exempt person, such as, but not time the return is due, WHICHEVER IS
limited to, vehicles, capital equipment, LATER.
machineries and spare parts, has been
sold, traded or transferred to a non- If the taxpayer DID NOT file a
exempt person. (Sec. 228, NIRC) return internal revenue taxes shall
be assessed within ten years after
the discovery of the failure to file the
III. FORMAL ASSESSMENT STAGE return (Sec. 222a, NIRC)
prescribed in Sec. 203, to extend the otherwise the assessment shall become
period of assessment (Sec. 222b, NIRC) final. (228)
The waiver of prescription must be
executed properly per RMO 20-90, What are the characteristics of a valid
otherwise, invalid and results to protest?
prescription of the right to A protest is considered validly made if it
assess/collect. [PHIL JOURNALISTS satisfies the following conditions:
INC. v. CIR (December 16, 2004)]
Requirements under RMO 20-90: 1) it is made in writing, and addressed
1. definite agreed date, to the Commissioner of Internal
2. date of acceptance indicated, Revenue
and 2) it contains the information the
3. taxpayer must be furnished with following information (from RR 12-85):
a copy of the waiver. name of the taxpayer and address
for the immediate past three
Q: What is the nature of prescription on taxable years
the right to assess? nature of request whether
The law on prescription, being a remedial reinvestigation or reconsideration
measure, should be LIBERALLY CONSTRUED specifying newly-discovered
in order to afford protection. As a corollary, evidence he intends to present if it
the exceptions to the law on prescription is a request for reinvestigation
should be clearly construed. Hence, the taxable periods covered
negligence or oversight on the part of the assessment number
BIR cannot prejudice taxpayers, considering date of receipt of assessment notice
that the prescriptive period was precisely or letter of demand
intended to give them peace of mind. [CIR itemized statement of the findings
v. Goodrich Philippines (1999)] to which the taxpayer agrees as a
basis for computing the tax due,
RMC No. 48-90 Counting of the which amount should be paid
Prescriptive Periods (April 23, immediately upon the filing of the
1990) protest. For this purpose, the
The 3-year prescriptive period expires protest shall not be deemed validly
on the 1,095th day, notwithstanding the filed unless payment of the agreed
fact that within the period, there is a portion of the tax is paid first
leap year which is of 366 days. This the itemized schedule of the
principle applies to ALL adjustments with which the
prescriptive periods under the taxpayer does not agree
Code. (applied in ASIABANK v. CIR, a statement of facts and/or law in
CTA Case No.6095, Oct. 9, 2001) support of the protest.
When is an assessment deemed made? 3) It states the FACTS, applicable LAW,
An assessment is deemed made when the RULES and REGULATIONS or
demand letter or notice is RELEASED, JURISPRUDENCE on which his protest is
MAILED OR SENT by the BIR to the based, otherwise the protest shall be
taxpayer. The law does not require that the considered void and without force and
taxpayer receive the notice within the effect.
three-year or ten-year period. [CIR vs. 4) It is filed within the period prescribed by
BAUTISTA (May 27, 1959)] law
If the taxpayer does not agree with the What should the taxpayer do if his
assessment, what is his REMEDY? protest is denied or is not acted upon
o To contest an assessment by filing a by the Commissioner?
letter of PROTEST stating in detail his
reasons for contesting the assessment. Situation 1: If the Commissioner
o When no protest is seasonably made by DENIES THE PROTEST filed by the
the taxpayer, the assessment shall taxpayer the taxpayer may appeal to
become final and unappealable, and thus the Court of Tax Appeals within thirty
the tax shall be collectible. days from receipt of the decision
denying the protest (Sec. 228, NIRC)
Q: What is the nature of an assessment
when it is final and executory? Where there is a request for
It is in the nature of an enforcement reconsideration, final demand letter
judgment such that no inquiry can be made from BIR is considered a decision on
thereon on the merits of the original case. a disputed or protested assessment
which is therefore appealable to the
Within what time may the taxpayer CTA. [CIR v. ISABELA CULTURAL
protest the assessment? CORP. (July 11, 2001)]
o Within thirty (30) days by filing a
request for reconsideration or Situation 2: If the Commissioner did
reinvestigation from receipt of the NOT ACT UPON THE PROTEST within
assessment. one hundred and eighty days from
o Within sixty (60) days from filing of the time the documents were
the protest, all relevant supporting submitted the taxpayer may either:
documents must be submitted,
o Appeal to the CTA within thirty days is final, otherwise period to appeal will not
from the lapse of the 180-day commence to run. [ADVERTISING
period OR ASSOCIATES vs. CA (December 26,
o Wait until the Commissioner decides 1984)]
before he elevates the case to the NOTE: A Division of the CTA shall hear
CTA the appeal. (Sec. 11, RA 1125 as
amended by RA 9282 [2004])
NOTE: If Situation 1 occurs and the
taxpayer does not file a protest within the If the taxpayer is not satisfied with the
prescribed period, the assessment becomes CTA Divisions ruling, what is his
FINAL, EXECUTORY and DEMANDABLE. But REMEDY?
if the Situation 2 occurs and the taxpayer FIRST, he may file a motion for
does not file a protest within the prescribed reconsideration before the same
period, the assessment DOES NOT become Division of the CTA within fifteen (15)
FINAL, EXECUTORY and DEMANDABLE. In days from notice thereof. (Sec. 11, RA
cases of inaction by the Commissioner, 1125 as amended by RA 9282 [2004])
Section 228 of the Tax Code merely gave THEN, a party adversely affected by a
the taxpayer an OPTION: first, he may resolution of a Division of the CTA on a
appeal to the Court of Tax Appeals within motion for reconsideration may file a
thirty days from the lapse of the 180-day petition for review with the CTA en
period, or second, he may wait until the banc. (Sec. 18, RA 1125 as amended
Commissioner decides on his protest before by RA 9282 [2004])
he elevates his case. [LASCONA LAND Co
vs. CIR (January 4, 2000)] If the taxpayer is not satisfied with the
decision of the CTA en banc, what is his
When does the 30-day period to appeal REMEDY?
in Situation 1 commence to run? A party adversely affected by a decision or
The 30-day period starts when the taxpayer ruling of the CTA en banc may file with the
receives the decision of the Commissioner Supreme Court a verified petition for review
denying the protest. The decision of the on certiorari pursuant to Rule 45 of the 1997
Commissioner must categorically state that Rules of Court. (Sec. 19, RA 1125 as
his action on the disputed assessment amended by RA 9282 [2004]) .
demand was not unreasonable or that no burden of proof is on the taxpayer claiming
harassment or injustice was meant by the refund that he is entitled to the same.
government. [CIR v. Tokyo Shipping (1995)]
CIR vs. TMX SALES (January 16, 1992) including all expenses, is
When a tax is paid in installments, the collected. (Sec. 217, NIRC)
prescriptive period should be counted HOWEVER, the remedies of
from the date of final payment or the distraint and levy shall not be
last installment. This rule proceeds from available where the amount of
the theory that there is no payment until the tax involved is not more than
the entire tax liability is completely paid. One hundred pesos.
Installments should be treated as
advances or portions of the annual tax o Q: When may the government
due. avail of the remedies of
collection? When the assessment
What should the taxpayer do if his claim shall have become final, executory
for refund is denied or is not acted upon and demandable.
by the Commissioner?
NOTE: A court MAY NOT GRANT AN
o SITUATION 1: The Commissioner INJUNCTION to restrain the collection of any
denies the claim for refund the national internal revenue tax, fee or charge
taxpayer may appeal to the CTA within imposed under the NIRC. (Sec. 218, NIRC)
thirty (30) days from the receipt of the
Commissioners decision AND within two EXCEPTION: Under Section 11 of RA
years from the date of payment. (Note 1125, as amended by RA 9282, suspension
that 229 states that no such suit or is allowed when the following conditions
proceeding shall be filed after the concur:
expiration of the 2-year period regardless
of any supervening cause that may arise 1. it is an appeal to the CTA from a
after payment) decision of the Commissioner of
Internal Revenue or Commissioner of
o SITUATION 2: The Commissioner does Customs or the Regional Trial Court,
not act on the claim, and the two-year provincial, city or municipal treasurer
period is about to lapse the taxpayer or the Secretary of Finance, the
must file a claim before the CTA before Secretary of Trade and Industry and
the 2-year period lapses, otherwise he Secretary of Agriculture, as the case
may no longer file a claim before the CTA in may be, and
case the Commissioner renders an adverse
decision beyond the 2-year period. 2. in the opinion of the Court of Tax
Appeals, the collection may jeopardize
NOTE HOWEVER! Is the two-year the interest of the Government and/or
period jurisdictional with respect to the taxpayer.
the CTA?
NO. Even if the two-year period had Q: In case of suspension, what may the
already lapsed, the same is not a taxpayer be required to do?
jurisdictional defect which, upon grounds Either to deposit the amount claimed or to
of justice and equity, may be set aside by file a surety bond for not more than double
the court. [(COMMISSIONER vs. the amount with the Court.
PHILAMLIFE (May 29, 1995)]
Q: What are tax liens? (Sec. 219, NIRC)
If the Commissioner grants the refund, When a taxpayer neglects or refuses to pay
within what time must it be claimed? his internal revenue tax liability after
Within five years from the date such demand, the amount so demanded shall be a
warrant or check was mailed or delivered, lien in favor of the government from the time
otherwise it shall be forfeited in favor of the the assessment was made by the CIR until
government and the amount thereof shall paid with interest, penalties, and costs that
revert to the general fund. may accrue in addition thereto upon ALL
PROPERTY AND RIGHTS TO PROPERTY
What can be done with a Tax Credit BELONGING to the taxpayer.
Certificate?
Tax credit certificates (TCCs) can be applied HOWEVER, the lien shall not be valid
against all internal revenue taxes, excluding against any mortgagee, purchaser or
withholding tax. TCCs which remain judgment creditor until NOTICE of such lien
unutilized after five years from the date of shall be filed by the Commissioner in the
issue shall be considered as invalid, unless Office of the Register of Deeds of the
revalidated. If not revalidated, the amount province or city where the property of the
covered by the TCC shall revert to the taxpayer is situated or located.
general fund
o Q: What is the difference between
C. Remedies of the State for Collection seizure under forfeiture and a seizure to
of Taxes enforce a tax lien? In the former all the
GENERALLY, the remedies of distraint, proceeds derived from the sale of the thing
levy or civil or criminal action may be forfeited are turned over to the Collector of
pursued SIMULTANEOUSLY. (Sec. 205, Internal Revenue; in the latter, the residue of
NIRC) such proceeds over and above what is
Remedies of distraint and levy required to pay the tax sought to be realized,
may be repeated if necessary including expenses, is returned to the owner
until the full amount due, of the property. [BPI v. Trinidad]
How is ACTUAL distraint of personal If the taxpayer does not ask for the lifting of
property effected? the warrant, what shall be done with the
seized properties?
Upon failure to pay the delinquent tax at the The properties will be SOLD in a PUBLIC SALE,
time required, the proper officer shall SEIZE and the procedure shall be as follows:
and DISTRAINT any GOODS, CHATTELS, or
EFFECTS, and the PERSONAL PROPERTY, (1) The Revenue District Officer or his duly
including STOCKS and other SECURITIES, authorized representative (not the officer who
DEBTS, CREDITS, BANK ACCOUNTS and served the warrant), shall cause a notification
INTERESTS in and RIGHTS to personal of the public sale to be posted in not less than
property of the taxpayer in sufficient quantity two (2) public places in the municipality or
to satisfy the tax, expenses of distraint and city (one of which is the Office of the Mayor)
the cost of the subsequent sale. where the distraint was made. The notice
shall specify the time and place of the sale.
Who is the proper officer authorized to The time of sale shall not be less than twenty
issue the warrant of distraint? (20) days after notice to the owner and the
a. Commissioner or his duly authorized publication or posting of such notice.
representative if the amount involved is
in EXCESS of One million pesos (2) At the time of the public sale, the revenue
(P1,000,000) officer shall sell the goods, chattels, or
b. Revenue District Officer if the amount effects, or other personal property, including
involved is One million pesos (P1,000,000) stocks and other securities so distrained at a
or LESS. (Sec. 207A, NIRC) PUBLIC AUCTION, to the HIGHEST BIDDER
for CASH or with the approval of the
The officer serving the warrant of distraint Commissioner, through a DULY LICENSED
shall: COMMODITY or STOCK EXCHANGES.
make an account of the goods, chattels,
effects or other personal property (3) Any residue over and above what is required
distrained. to pay the entire claim, including expenses of
shall leave a copy with the person from sale and distraint, shall be RETURNED to the
whom the goods were taken, or at the owner of the property sold. Expenses shall
dwelling or place of business of such be limited to actual expenses of SEIZURE and
person with someone of suitable age and PRESERVATION of the property pending the
discretion. sale, no charge shall be imposed for the
indicate statement of the sum demanded services of the local internal revenue officer
and the time and place of sale of the or his deputy. (209)
distrained property. (Sec. 208, NIRC)
(4) If the amount offered by the highest bidder is
How are different kinds of personal property not equal to the amount of the tax or is very
distrained? much less than the actual market value of the
articles offered for sale, the Commissioner or
Stocks and other securities by serving a his deputy may purchase the same in behalf
copy of the warrants of distraint on the taxpayer, of the National Government for the amount of
AND upon the president, manager, treasurer or taxes, penalties and costs due thereon. The
other responsible officer of the corporation, property so purchased may thereafter be
company or association which issued the stocks resold by the Commissioner or his deputy.
or securities. (212)
Debts and credits by leaving with the (5) If the proceeds from the sale of the distrained
person owing the debts or having in his properties is not sufficient to satisfy the tax
possession or under his control such credits, or delinquency, the Commissioner or his duly
with his agent, a copy of the warrant of distraint. authorized representative shall within thirty
(30) days after execution of the distraint, 2) The certificate shall contain a description
proceed with the levy on the taxpayers real of the property upon which levy is made.
property. (207B) At the same time, written notice of the
levy shall be mailed to or served upon
May the taxpayer recover his property prior the Register of Deeds of the province or
to consummation of the sale? city where the property is located and
YES. If at any time prior to the consummation of upon the taxpayer (if he is absent from
the sale all proper charges are paid to the officer the Philippines, to his agent or manager
conducting the sale, the goods or effects of business in respect to which the
distrained shall be restored to the owner. (Sec. liability arose or to the occupant of the
210, NIRC) property in question)
How is CONSTRUCTIVE distraint effected? 3) Within twenty (20) days after the levy,
a. By requiring a taxpayer or any person in the officer conducting the proceedings
possession or control of such property to shall proceed to advertise for SALE the
SIGN a RECEIPT covering the property property or a portion thereof as may be
distrained and obligate himself to PRESERVE necessary to satisfy the claim and costs
THE SAME INTACT and UNALTERED and NOT of sale. Such advertisement shall cover a
TO DISPOSE of the same in any manner period of at least thirty (30) days. The
whatever, without the Commissioners notice shall be posted at the main
authority. entrance of the city or municipal all AND
b. If the taxpayer or person in possession or in a public and conspicuous place in the
control refuses to sign the receipt, the barrio or district where the real property
revenue officer shall prepare a list of the lies. The notice must also be published in
property and leave a copy of such list in the a newspaper of general circulation in the
premises where the properties are located, in place where the property is located, once
the presence of two (2) witnesses. a week for three (3) weeks.
CONTENTS of notice: statement of
Q: When may property of the taxpayer be amount of taxes, and penalties due,
placed in constructive distraint? time and place of sale, name of
The property of a taxpayer may be placed in taxpayer, short description of
constructive distraint, if in the Commissioners property.
opinion:
the taxpayer is retiring from any business 4) The sale shall be held either at the main
subject to tax entrance of the municipal or city hall or
the taxpayer is intending to leave the on the premises to be sold. Property will
Philippines be awarded to the highest bidder. In
the taxpayer is intending to remove his case the proceeds of the sale exceeds the
property from the Philippines or to hide or claim and costs of sale, the excess shall
conceal his property be turned over to the owner of the
the taxpayer is planning to perform any act property. (213)
tending to obstruct the proceedings for
collecting the tax due or which may be due 5) If there is no bidder for the real property
from him (206) OR if the highest bid is not sufficient to
NOTE: In constructive distraint, the pay the taxes, penalties and costs, the IR
property is not actually confiscated or Officer conducting the sale shall declare
seized by the revenue officer the property FORFEITED to the
GOVERNMENT in satisfaction of the claim.
(Sec. 215, NIRC) The Commissioner may
2. Levy is the same act of seizure as in resell the property at a public auction
distraint, but in this case, of real property, an after the giving of not less than twenty
interest in or rights to such property in order (20) days notice. (Sec. 216, NIRC)
to enforce the payment of taxes. The real
property under levy shall be sold in a public May the taxpayer recover his property
sale, if the taxes involved are not voluntarily prior to consummation of the sale?
paid following such levy. YES. At any time before the day fixed for the
sale, the taxpayer may discontinue all
How is levy of real property effected? proceeding by paying the taxes, penalties and
interest. (Sec. 213, NIRC)
1) After the expiration of time required to
pay the delinquent tax, real property may May the taxpayer recover his property
be levied upon, BEFORE, after the consummation of the sale?
SIMULTANEOUSLY or AFTER the distraint YES. Within one (1) year from the date of
of personal property belonging to the sale, the taxpayer or anyone for him, may pay
delinquent. The IR officer designated by to the Revenue District Officer the total amount
the Commissioner or his duly authorized of the following:
representative shall prepare a DULY public taxes
AUTHENTICATED CERTIFICATE showing penalties
the name of the taxpayer and the interest from the date of delinquency to the
amounts of tax and penalty due from date of sale
him. This certificate shall operate with interest on said purchase price at the rate
the force of LEGAL EXECUTION of fifteen percent (15%) per annum from
throughout the Philippines. the date of sale to the date of redemption.
(NOTE: if the property was forfeited in
favor of the government, the redemption percent (40%) of the basic assessed
price shall include only the taxes, penalties tax
and interest plus costs of sale no interest NOTE: When the basic tax involved
on purchase price since the Govt did not exceeds One Million Pesos (P1,000,000),
purchase the property anyway, it was or where the settlement offered is less
forfeited) than the prescribed minimum rates, the
NOTE: The taxpayer-owner shall not be compromise must be approved by the
deprived of possession of the said property Evaluation Board (composed of the
and shall be entitled to rents and other Commissioner and 4 deputy
income until the expiration of the period for commissioners)
redemption (Sec. 214, NIRC)
May the Commissioner compromise
cases of criminal violations?
JUDICIAL PROCEEDINGS Generally, ALL CRIMINAL VIOLATIONS may
Civil and criminal action and proceedings be compromised, EXCEPT:
instituted in behalf of the Government under a) those cases already filed in court
the authority of this Code or other law b) those involving fraud
enforced by the BIR
shall be BROUGHT IN THE NAME OF THE 2. Abatement (to cancel the entire amount of
GOVERNMENT of the Philippines tax payable)
shall be CONDUCTED BY LEGAL
OFFICERS OF THE BIR When may the Commissioner abate or
No civil or criminal action for the recovery of cancel a tax liability?
taxes or the enforcement of any fine, penalty The Commissioner may abate or cancel a tax
or forfeiture under the NIRC shall be filed in liability when:
court without the APPROVAL OF THE
COMMISSIONER approval of the 1) the tax or any portion thereof appears to
Commissioner. (Sec. 220, NIRC) be UNJUSTLY or EXCESSIVELY
ASSESSED; or
Q: How is a criminal action a collection
remedy? 2) the ADMINISTRATION and COLLECTION
The judgment in the criminal case shall: COSTS do not justify the collection of the
impose the penalty; and amount due. (costs of collection >
order payment of the taxes subject of amount of tax due)
the criminal case as finally decided
by the Commissioner. (Sec. 205,
NIRC) VI. STATUTORY OFFENSES AND PENALTIES
The penalty shall be fifty percent (50%) of o be subject to the penalties imposed
the tax or of the deficiency tax, in the under the Code.
following cases: NOTE: Payment of the tax due after a
WILLFUL NEGLECT to FILE THE RETURN case has been filed shall not constitute a
within the period prescribed valid defense in any prosecution for
A FALSE OR FRAUDULENT RETURN is violation of the provisions under the
willfully made (248B) Code.
Prima-facie evidence of false or
fraudulent return: Any person who willfully aids or abets in
substantial underdeclaration of the commission of a crime penalized
taxable sales, receipts or income under the Code or who causes the
(failure to report sales, receipts or commission of any such offense by
income in an amount exceeding 30% another shall be liable in the same
of that declared per return) manner as the principal.
substantial overstatement of
deductions (a claim of deduction in If the offender is:
an amount exceeding 30% of actual
deductions) OFFENDER PENALTY
Not a citizen of he shall be deported
2.Interest the Philippines immediately after serving
20% per annum on any unpaid amount of the sentence
tax or higher rate prescribed by rules and
regulations from the date prescribed for A public the maximum penalty
payment until the amount is fully paid. officer or prescribed for the offense
Deficiency interest the term deficiency employee shall be imposed on him
means the amount by which the taxed shall be dismissed from
imposed under the Code exceeds the public office, and perpetually
amount shown on the return filed (249B) disqualified from holding any
Delinquency Interest. - In case of failure public office, to vote, and to
to pay: participate in any election
tax due on any return required to be
filed, or CPA his license shall be
tax due for which no return is required, automatically revoked or
or cancelled once he is
a deficiency tax, or any surcharge or convicted
interest thereon on the due date Corporations, imposed on the partner,
appearing in the notice and demand of associations, president, general manager,
the Commissioner, there shall be partnerships branch manager, treasurer,
assessed and collected on the unpaid etc officer-in-charge and
amount, interest at the rate prescribed employees responsible for
until the amount is fully paid, which the violation
interest shall form part of the tax.
(249C) The fines imposed for any violation of the
Code shall not be lower than the fines
B. Crimes, Other Offenses and Forfeitures imposed herein or twice the amount of
taxes, interests and surcharges due from
1. General Provisions the taxpayer, whichever is higher.
Any person convicted of a crime under (253)
the Code shall: All violations of any provision of the Code
o be liable for the payment of the tax, shall prescribe after five (5) years.
2. Criminal Offenses
years
under Constructive
Distraint
277 Failure to Surrender Any person having in his possession Fine: P 5,000 or more or
Property Placed or under his control any property or Imprisonment: 6 months
under Distraint and rights to property, upon which a 1 day - 2 years, or both
Levy warrant of constructive distraint or
actual distraint and levy has been
issued
278 Procuring Unlawful Any person procures an officer or Fine: not more than P
Divulgence of Trade employee of the BIR to divulge any 2,000 or Imprisonment:
Secrets confidential information regarding 6 months - 5 years, or
the business, income or inheritance both
of any taxpayer, knowledge of which
was acquired by him in the discharge
of his official duties, and which it is
unlawful for him to reveal, and any
person who publishes or prints in
any manner whatever, not provided
by law, any income, profit, loss or
expenditure appearing in any income
tax return
START
Regional
Send Formal Letter Assessment
Is response w/n Taxpayer
of demand and Final NO to Division issues a
15 days? Is it responds w/in
Assessment Notice either Preliminary
meritorious? 15 days
(FAN) is issued Assessment Notice
(PAN)
Yes to ASSESSMENT
both ENDS
Assessment becomes
NO to
Final, Warrant of Distraint
either
& Levy Issued
Decision Commissioner
YES favorable to YES decides w/n
taxpayer? 180 days?
ASSESSMENT
ENDS NO NO
If MR is denied, appeal to
the CTA within remainder
of the 30 days
Assessment
CTA decides on Appeal made becomes Final,
YES NO
the appeal on time? Warrant of Distraint
& Levy Issued
W/in 5 days after sale, W/in 2 days after Excess of proceeds over the Officer sells the goods to the
distraining officer shall enter the sale, officer entire claim, shall be returned highest bidder for cash or
return of proceedings in the shall report to the to the owner. No charge shall with the Commissioners
records of RCO, RDO and Commissioner. be imposed for the services of approval, through commodity/
RRD (Sec. 213) (Sec. 211) the officer (Sec. 209) stock exchanges. (Sec. 209)
No, bid ok
W/n 1 year from sale, the W/n 5 days after the sale, Excess of proceeds
The Commissioner may, owner may redeem, by paying levying officer shall enter of the sale over claim
after 20 days notice, sell to the RDO the amount of the return of the proceedings and cost of sale shall
property at public auction taxes, penalties, and interest upon the records of the RCO, be turned over to the
or at private sale with thereon from the date of RDO and RRD (Sec. 213) owner (Sec. 213)
approval of the SoF. delinquency to the date of sale,
Proceeds shall be and 15% per annum interest on
deposited with the National purchase price from the date
Treasury (Sec. 216) Owner shall not be
of purchase to the date of Levy and distraint
deprived of the
redemption. (Sec. 214) may be repeated until
possession and shall
the full amount due,
be entitled to the
and all expenses are
fruits until 1 year
collected. (Sec. 217)
expires (Sec. 214)
constructed and maintained by the LGU 10. Taxes on the Gross receipts of
concerned; transportation contractors and persons
5. Taxes, fees, and charges and other engaged in the transportation of passengers
impositions upon Goods carried into or out or freight by hire and common carriers by
of, or passing through, the territorial air, land or water, except as provided in this
jurisdictions of local government units in the Code;
guise of charges for wharfage, tolls for 11. Taxes on Premiums paid by way or
bridges or otherwise, or other taxes, fees, or reinsurance or retrocession;
charges in any form whatsoever upon such 12. Taxes, fees or charges for the Registration
goods or merchandise; of motor vehicles and for the issuance of all
6. Taxes, fees or charges on Agricultural and kinds of licenses or permits for the driving
aquatic products when sold by marginal thereof, except tricycles;
farmers or fishermen; 13. Taxes, fees, or other charges on Philippine
7. Taxes on business enterprises certified to by products actually Exported, except as
the Board of Investments as Pioneer or non- otherwise provided herein;
pioneer for a period of six (6) and four (4) 14. Taxes, fees, or charges, on Countryside and
years, respectively from the date of Barangay Business Enterprises and
registration; Cooperatives duly registered under the
8. Excise taxes on articles enumerated under "Cooperative Code of the Philippines"; and
the NIRC, as amended, and taxes, fees or 15. Taxes, fees or charges of any kind on the
charges on petroleum products; National Government, its agencies and
9. Percentage or VAT on sales, barters or instrumentalities, and local government
exchanges or similar transactions on goods units
or services except as otherwise provided
herein;
kind or nature, NOTE: the rates in Sec 143 (a) shall apply ONLY
to amount of DOMESTIC sales. (IRR)
NOTE: The sanggunian concerned may prescribe sworn statement of its gross sales or receipts
a schedule of graduated tax rates but in no case for the current year. If the tax paid during the
to exceed the rates prescribed in the LGC. year be LESS THAN the tax due on said gross
sales or receipts of the current year, the
Rates of Tax within the Metropolitan Manila difference shall be paid before the business is
Area considered officially retired. (Sec 145)
The municipalities within the Metropolitan Manila
Area may levy taxes at rates which shall not Payment of Business Taxes
exceed by fifty percent (50%) the maximum The taxes imposed in sec 143 shall be
rates prescribed in Sec 143. (SEC. 144, LGC) payable for EVERY SEPARATE OR DISTINCT
ESTABLISHMENT or PLACE where business
Retirement of Business subject to tax is conducted.
A business subject to tax pursuant to Sec 143
shall, upon termination thereof, submit a
A. Service fees and charges -- LGUs NOTE: In the case of husband and
may impose such reasonable fees and wife, EACH shall pay the basic tax of
charges for services rendered. (Sec. P5.00; but the additional tax herein
153, LGC) imposed shall be based upon the total
property owned by them and the total
B. Public Utility charges LGUs may fix gross receipts or earnings derived by
the rates for the operation of public them.
utilities owned, operated and
maintained by them within their 2. Juridical Persons -- every
jurisdiction. (Sec. 154, LGC) corporation no matter how created or
organized, whether domestic or
C. Toll fees or charges LGUs, thru resident foreign, engaged in or doing
their sanggunian concerned, may fix business in the Philippines
the rates for the imposition of toll fees shall pay
or charges for the use of any public o an annual community tax of Five
road, pier, or wharf, waterway, bridge, hundred pesos (P500.00) AND
ferry or telecommunication system o an annual additional tax, which,
funded and constructed by the LGU. in no case, shall exceed Ten
thousand pesos (P10,000.00) in
PROVIDED, that no such toll fees or charges accordance with the following
shall be collected from: (1) officers and schedule:
enlisted men of AFP and members of PNP on
mission, (2) post office personnel delivering (1) For every P5,000 worth of real
mail, (3) physically-handicapped, and property in the Philippines owned
disabled citizens who are 65 years or older. by it during the preceding year
based on the valuation used for the
When public safety and welfare so requires, payment of real property tax under
the sanggunian concerned may discontinue existing laws, found in the
the collection of the tolls, and thereafter the assessment rolls of the city or
said facility shall be free and open for public municipality where the real
use. (Sec. 155, LGC) property is situated P2; AND
START
LT decides on
Is protest made Assessment
LT decides w/in protest w/in 60
Yes w/in prescribed No becomes
60 days? days from filing of
period? final
protest
No
Yes
If Division decides against
Taxpayer appeals to taxpayer file MR w/in 15 with
court of competent the same division.
LT grants jurisdiction (regular
No
protest? courts) w/in 30 days
from receipt of notice or
from lapse of 60 days
If MR is denied, file Petition
Yes for review with CTA en banc
LT Issues notice
canceling Appeal to CTA Division but
partially/wholly Appeal to
If the decision is from an
the assessment Supreme Court
RTC exercising appellate
jurisdiction, appeal should
be made directly no CTA en
banc under Rule 43 of ROC End
End
Flowchart IV: Procedure for Distraint and Levy for Purposes of Satisfying
Local Taxes-Local Govt Code
START
Procedure for levying real properties to satisfy local taxes is the same as levy
procedure for satisfying real property taxes (Sec. 258-266) (See Flowchart VII)
Except for the following:
1. Publication is once a week for 3 weeks for local taxes (Sec. 178) and once a
week for 2 weeks for real property taxes (Sec. 260)
2. For local taxes, LGU may purchase levied property if there is no bidder or if
the highest bid is insufficient to cover the taxes and other charges (Sec. 181)
while for real property taxes the LGU may purchase levied property if there is no
bidder (Sec. 263)
VII. REAL PROPERTY TAXATION the physical facilities for production, the
installations and appurtenant service facilities,
those which are mobile, self-powered or self-
I. Kinds of Real Property Tax and Special Levies
propelled, and those not permanently attached
Basic real property tax
to the real property which are actually, directly,
Additional levy on real property for the
and exclusively used to meet the needs of the
Special Education Fund
particular industry, business or activity and
Additional ad valorem tax on idle lands
which by their very nature and purpose are
Special levy by local government units
designed for, or necessary to its
manufacturing, mining, logging, commercial,
II. Basic Concepts
industrial or agricultural purposes. [Section
Definition:
199(o), Local Government Code]
Real property tax has been defined as a direct tax
NOTE: this definition of machinery is too all-
on the ownership of lands and buildings or other
encompassing and broad in that everything
improvements thereon not specially exempted, and
that is used even indirectly for the needs of
is payable regardless of whether the property is
the industry can be classifies as machinery
used or not, although the value may vary in
which is REAL property, which in turn means
accordance with such factor.
that it is subject to RPT; example would be a
NOTE: Real property tax is a fixed proportion of
SCREWDRIVER being used in an office
the assessed value of the property being taxed and
since this is used by the office and indirectly
requires, therefore, the intervention of assessors.
contributes the to smooth functioning of the
general business then this can be treated as
Characteristics of real property tax
real property
It is a direct tax on the ownership or use of real
This was solved by the LGC IRR sec 290 (o)
property.
that now limits and qualifies this: this is
It is an ad valorem tax. Value is the tax base.
known as the GENERAL PURPOSE RULE
It is proportionate because the tax is calculated
This rule states that if it used in line or for
on the basis of a certain percentage of the
the general purpose of the business but only
value assessed.
indirectly, then it is NOT to be treated as real
It creates a single, indivisible obligation.
property. This means that a typewriter being
It attaches on the property (i.e., a lien) and is
used in the main office of a firm that
enforceable against it.
manufactures cars is NOT real property as
the typewriter is NOT used to actually make
Nature and scope of power to impose realty
the car which is the main purpose of the
tax
company.
The taxing power of local governments in real
property taxation is a delegated power.
Generally the SC has held that Art 415 CC
(which enumerates the kinds of real property)
Fundamental principles governing real
is an exclusive list as to what constitutes real
property taxation (CAPUE)
property. BUT FOR TAX PURPOSES ONLY, it is
1. Real property shall be appraised at its Current
common that certain properties be classified
and fair market value.
as real property even if according to the
2. Real property shall be classified for assessment
general principles of the CC, they would only
purposes on the basis of its Actual use.
be classified as personal property. LESSON:
3. Real property shall be assessed on the basis of
the NIRC and the LGC code prevail in
a Uniform classification within each local
classifying property for tax purposes.
government unit.
4. The appraisal, assessment, levy and collection
of real property tax shall not be let to any Properties EXEMPT from real property taxes
Private person.
5. The appraisal and assessment of real property 1. Real property owned by the Republic of the
shall be Equitable. [Section 197, Local Philippines or any of its political subdivisions
Government Code] except when the beneficial use thereof has
been granted for consideration or otherwise to
Real properties subject to tax a taxable person.
Generally, Real Property Tax is imposed on lands,
buildings, machineries and other improvements. Q: Are GOCCs covered by the exemption?
The Local Government Code contains no definition No. The tax exemption of property owned
of real property; however, the following terms by the Republic of the Philippines refers to
are defined: properties owned by the government and by its
agencies which do not have separate and
Improvement It is a valuable addition distinct personalities, as distinguished from
made to a property or an amelioration in its GOCCs which have separate and distinct
condition amounting to more than a repair or personalities. [National Development Company
replacement of parts involving capital v. Cebu City]
expenditures and labor which is intended to
enhance its value, beauty, or utility or to adopt Q: What is the scope of the exemption?
it for new or further purposes. [Section The exemption from tax of property owned by
199(m), Local Government Code] the government obtains even as to properties
Machinery Machinery embraces machines, owned in a private, proprietary or patrimonial
equipment, mechanical contrivances, character. The law makes no distinction
instruments, appliances or apparatus, which between property held in governmental
may or may not be attached, permanently or capacity and those possessed in a proprietary
temporarily, to the real property. It includes
owner or person having legal the period from January first (1st) to June
interest. thirtieth (30th) commencing with the
Regardless of land area, this Section calendar year 1992.
shall applies to residential lots in
subdivisions duly, ownership of which Sec 203. Duty of Person Acquiring Real
has been transferred to individual Property or Making Improvement Thereon.
owners, who shall be liable for the duty of any person, or his authorized
additional tax: Provided, however, That representative
individual lots of such subdivisions, acquiring at any time real property in any
ownership of which has not been municipality or city
transferred to the buyer shall be or making any improvement on real property,
considered as part of the subdivision, to prepare and file with the a sworn
and shall be subject to the additional statement declaring the true value of subject
tax payable by subdivision owner or property
operator. within sixty (60) days after the acquisition of
such property or upon completion or
EXEMPTION from idle lands tax: occupancy of the improvement, whichever
Exemptions are given due to: comes earlier.
a. force majeure;
b. civil disturbance; Sec 204. Declaration of Real Property by the
c. natural calamity; or Assessor. any person, by whom real property
d. any cause or circumstance which is required to be declared under Section 202
physically or legally prevents the owner refuses or fails for any reason to make such
or person having legal interest from declaration within the time prescribed
improving, utilizing or cultivating the assessor shall himself declare the property in
same. the name of the defaulting owner, if known,
or against an unknown owner, as the case
[SPECIAL LEVY BY LOCAL GOVERNMENT may be, and shall assess the property for
UNITS] A province, city or municipality may taxation
impose a special levy on the lands comprised
a. within its territorial jurisdiction Sec 205. Listing of Real Property in the
b. specially benefited by public works projects or Assessment Rolls.
improvements by the LGU concerned. In every province and city, municipalities
The special levy shall not exceed 60% of the actual within the Metropolitan Manila Area, there
cost of such projects and improvements, including shall be prepared and maintained by the
the costs of acquiring land and such other real assessor
property in connection therewith. an assessment roll wherein shall be listed all
It shall not apply to lands exempt from basic real property, whether taxable or exempt,
real property tax and the remainder of the located within the local government unit;
land, portions of which have been donated to property shall be listed, valued and assessed
the LGU concerned for the construction of such in the name of the owner or administrator, or
projects or improvements. anyone having legal interest in the property.
Need for public hearing and publication before undivided real property of a deceased person
enactment of ordinance imposing special levy. may be listed, valued and assessed in the
Special levy accrues on the first day of the name of the estate or of the heirs and
quarter next following the effectivity of the devisees without designating them
ordinance imposing the levy. [Section 240, individually
Local Government Code] BUT undivided real property other than
that owned by a deceased may be listed,
IV. Other Important Provisions valued and assessed in the name of one
or more co-owners: Provided, however,
APPRAISAL AND ASSESSMENT OF REAL That such heir, devisee, or co-owner shall
PROPERTY be liable severally and proportionately for
all obligations imposed by this Title and
Sec 201. Appraisal of Real Property. All real the payment of the real property tax with
property, whether taxable or exempt, appraised respect to the undivided property.
at the current and fair market value prevailing in real property of a corporation, partnership,
the locality where the property is situated or association shall be listed, valued and
assessed in the same manner as that of an
Sec 202. Declaration of real Property by the individual.
Owner or Administrator. shall be the duty of Real property owned by the Republic of the
all persons (natural or juridical) or their duly Philippines, its instrumentalities and political
authorized representative subdivisions, the beneficial use of which has
owning or administering real property, been granted, for consideration or otherwise,
including the improvements therein to a taxable person, shall be listed, valued
to prepare and file with assessor, a sworn and assessed in the name of the possessor,
statement declaring the true value of their grantee or of the public entity if such
property, whether previously declared or property has been acquired or held for resale
undeclared, taxable or exempt, which shall or lease.
be the current and fair market value of the
property, as determined by the declarant Sec 206. Proof of Exemption of Real Property
The sworn declaration of real property herein from Taxation.
referred to shall be filed with the assessor Every person who shall claim tax exemption
concerned once every three (3) years during for such property
Sec 209. Duty of Registrar of Deeds to Sec 217. Actual Use of Real Property as Basis
Appraise Assessor of Real Property Listed in for Assessment. Real property shall be
Registry. classified, valued and assessed on the basis of its
Duty of the Registrar of Deeds to require actual use
every person who shall present for (Regardless of ULO)
registration a document of transfer, regardless of where Located
alienation, or encumbrance of real property regardless whoever Owns it
to accompany the same with a certificate to regardless whoever Uses it
the effect that the real property subject has
been fully paid of all real property taxes due. Sec 220. Valuation of Real Property. In cases
Failure to provide such certificate shall be a where:
valid cause for the refusal of the registration
of the document. (a) real property is declared and listed for
taxation purposes for the first time
Sec 212. Preparation of Schedule of Fair (b) there is an ongoing general revision of
Market Values. Before any general revision of property classification and assessment
property assessment is made (c) a request is made by the person in whose
there shall be prepared a schedule of fair name the property is declared
market values by the assessor of the
provinces, cities and municipalities within assessor shall make a classification, appraisal
the Metropolitan Manila Area for the and assessment or taxpayer's valuation
different classes of real property situated in Provided, however, That the assessment of
their respective local government units real property shall NOT be increased oftener
for enactment by ordinance of the than once every three (3) years
sanggunian EXCEPT in case of new improvements
schedule of fair market values shall be substantially increasing the value of said
published in a newspaper of general property or of any change in its actual use.
circulation in the province, city or
municipality; in the absence thereof, shall be Sec 221. Date of Effectivity of Assessment or
posted in the provincial capitol, city or Reassessment.
municipal hall and in two other conspicuous All assessments/ reassessments made after
public places the first (1st) day of January of any year
shall take effect on the first (1st) day of
Sec 214. Amendment of Schedule of Fair January of the succeeding year
Market Values. Provided, the reassessment of real property
assessor may recommend to the sanggunian shall be made within ninety (90) days from
amendments to correct errors in valuation in the date if any such cause or causes
the schedule of fair market values occurred, and shall take effect at the
sanggunian shall, by ordinance, act upon the beginning of the quarter next following the
recommendation within ninety (90) days reassessment due to its (ACIDI):
from receipt partial or total Destruction
major Change in its actual use
Sec 215. Classes of Real Property for great and sudden Inflation or deflation of
Assessment Purposes. For purposes of real property values
assessment, real property shall be classified: gross Illegality of the assessment
(CRAMS-IT) any other Abnormal cause
1. Residential
2. Agricultural Sec 222. Assessment of Property Subject to
3. Commercial Back Taxes. Real property declared for the
4. Industrial FIRST TIME shall be assessed for taxes (back
taxes) for the period during which it would have witnesses, administer oaths, conduct ocular
been liable but in no case of more than ten (10) inspection, take depositions, and issue
years prior to the date of initial assessment subpoena and subpoena duces tecum. The
Provided, however, That such taxes shall be proceedings of the Board shall be conducted
computed on the basis of the applicable SOLELY for the purpose of ascertaining
schedule of values in force during the the facts without necessarily adhering to
corresponding period. technical rules applicable in judicial
If such taxes are paid on or before the end of proceedings.
the quarter following the date the notice of (c) secretary of the Board shall furnish the
assessment was received by the owner NO owner of the property or the person having
interest for delinquency shall be imposed legal interest therein and the assessor with a
thereon; otherwise, taxes shall be subject copy of the decision of the Board. In case the
interest at the rate of two percent (2%) per provincial or city assessor concurs in the
month or a fraction thereof from the date of revision or the assessment, it shall be his
the receipt of the assessment until such taxes duty to notify the owner or the person having
are fully paid. legal interest of such fact using the form
prescribed.
Sec 224. Appraisal and Assessment of (d) The owner, the person having legal interest
Machinery. or the assessor who is NOT satisfied with the
decision of the Board,
(a) The fair market value of brand-new May within thirty (30) days after receipt
machinery shall be acquisition cost of the decision of said Board appeal to
In all other cases, the fair market value the Central Board of Assessment
shall be determined by dividing the Appeals - decision of the Central Board
remaining economic life of the shall be final and executory
machinery by its estimated economic
life and multiplied by the replacement Sec 231. Effect of Appeal on the Payment of
or reproduction cost. Real Property Tax. Appeal on assessments of
real property shall, in NO case, suspend the
(b) If machinery imported, the acquisition collection of the corresponding realty taxes on the
cost includes (FIB-BADC) Freight, property involved as assessed but without
Insurance, Bank and other charges, prejudice to subsequent adjustment depending
Brokerage, Arrastre and handling, Duties upon the final outcome of the appeal.
and taxes, plus Charges at the present site
assessment of the special levy, avail of the are settled may tax payments be credited for the
remedies provided for in Chapter 3, Title Two, Book current period.
II of this Code.
Sec 251. Tax Discount for Advanced Prompt
Sec245. Accrual of Special Levy. The special Payment. If the basic real property tax and
levy shall accrue on the first day of the the additional tax accruing to the Special
quarter next following the effectivity of Education Fund (SEF) are paid in advance as
the ordinance imposing such levy. provided under Section 250
sanggunian may grant a discount NOT
COLLECTION OF REAL PROPERTY TAX exceeding twenty percent (20%) of the
annual tax due.
Sec 246. Date of Accrual of Tax. real property
tax for any year shall accrue on the first day of Sec 252. Payment Under Protest.
January
from that date it shall constitute a lien on (a) No protest shall be entertained unless the
the property taxpayer first pays the tax.
superior to any other lien, mortgage, or There shall be annotated on the tax receipts
encumbrance of any kind whatsoever the words "paid under protest"
extinguished only upon the payment of the The protest in writing must be filed within
delinquent tax. thirty (30) days from payment of the tax to
treasurer who shall decide the protest within
Sec 247. Collection of Tax. The collection of sixty (60) days from receipt.
the real property tax with interest thereon and
related expenses, and the enforcement of the (b) The tax or a portion paid under protest, shall
remedies are the responsibility of the city or be held in trust by the treasurer concerned.
municipal treasurer.
treasurer may deputize the barangay (c) In the event that the protest is finally decided
treasurer to collect all taxes on real property in favor of the taxpayer, the amount or portion
located in the barangay: of the tax protested shall be refunded to the
Provided, the barangay treasurer is protestant, or applied as tax credit against his
properly bonded for the purpose existing or future tax liability.
Provided, further, That the premium on (d) In the event that the protest is denied or upon
the bond shall be paid by the city or the lapse of the sixty day period prescribed
municipal government concerned. in subparagraph (a), the taxpayer may avail
of the remedies as provided for in Chapter 3,
Sec 249. Notice of Time for Collection of Tax. Title II, Book II of this Code.
treasurer shall post the notice of the dates
when the tax may be paid without interest Sec 253. Repayment of Excessive Collections.
publicly accessible place at the city or municipal When an assessment of real property tax or
hall + notice shall likewise be published in a any other tax under this Title found to be illegal
newspaper of general circulation in the locality or erroneous and the tax is accordingly reduced
once a week for two (2) consecutive weeks. or adjusted
on or before the thirty-first (31st) day of the taxpayer may file a written claim for
January each year in the case of the basic refund or credit for taxes and interests with
real property tax and the additional tax for the treasurer within two (2) years from the
the Special Education Fund (SEF) date the taxpayer is entitled to such
or any other date to be prescribed by the reduction or adjustment.
sanggunian concerned in the case of any The provincial or city treasurer shall decide
other tax levied under this title the claim for tax refund or credit within sixty
(60) days from receipt thereof
Sec 250. Payment of Real Property Taxes in In case the claim for tax refund or credit is
Installments. The owner or the person denied, the taxpayer may avail of the
having legal interest may pay the basic real remedies as provided in Chapter 3, Title II,
property tax and the additional tax for Special Book II of this Code.
Education Fund (SEF) due without interest:
in four (4) equal installments; Sec 254. Notice of Delinquency in the
the first installment to be due and Payment of the Real Property Tax.
payable on or before March Thirty-first
(31st) (a) When real property tax or other tax imposed
the second installment, on or before June under this Title becomes delinquent,
Thirty (30) treasurer shall immediately cause a notice of
the third installment, on or before the delinquency to be posted at the main hall
September Thirty (30) and in a publicly accessible and conspicuous
and the last installment on or before place in each barangay of the local
December Thirty-first (31st) government unit concerned + notice of
*except the special levy the payment of which shall delinquency shall also be published once a
be governed by ordinance of the sanggunian week for two (2) consecutive weeks, in a
concerned. newspaper of general circulation in the
*The date for the payment of any other tax province, city, or municipality.
imposed under this Title without interest shall be
prescribed by the sanggunian concerned. (b) notice shall specify:
*Payments of real property taxes shall first be the date upon which the tax became
applied to prior years delinquencies, interests, and delinquent
penalties, if any, and only after said delinquencies
Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Govt Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Assessor prepares
Owner declares real Assessor declares
assessment rolls
property once every 3 real property if owner/
START wherein real property
years (sec. 202) w/n administrator fails to
shall be listed, valued
Jan 1 to June 30 do so (sec. 204)
and assessed (sec. 205)
Submit documents
Owner may claim
supporting exemption w/ Is real property
for tax exemption Yes
in 30 days from tax exempt?
Required (sec. 206)
declaration (sec. 206)
Documents
submitted w/in
30 days? Property shall be
Property dropped from
Yes proven as tax Yes
assessment roll
No exempt? (sec. 206)
Property shall be
listed as taxable in
No
the assessment
roll (sec. 206) END
Amount of tax
LT must decide w/
protested shall be
LT grants LT decides w/in in 60 days from
refunded or Yes Yes
protest? 60 days? receipt of protest
applied as tax
(sec. 252)
credit (Sec. 252)
No
VIII. TARIFF AND CUSTOMS CODE mechanical devices used in gambling, or in the
distribution of money, cigars, cigarettes or
other articles when such distribution is
Provisions cited are that of
dependent upon chance, including jackpot and
I. ARTICLES SUBJECT TO DUTY
pinball machines or similar contrivances.
A. Export (suspended except on logs) and
f. Lottery and sweepstakes tickets,
import duties
advertisements thereof and lists of drawings
therein.
B. Meaning of importation
except those authorized by the Philippine
Government
Sec. 1201
All articles imported into the Philippines, whether
g. Any article manufactured in whole or in part of
subject to duty or not, shall be entered through
gold silver or other Precious metal, or alloys
the customhouse at a port of entry
thereof, the stamps brands or marks of which
do not indicate the actual fineness or quality of
Sec. 1202
said metals or alloys.
Importation BEGINS:
vessel or aircraft enters the jurisdiction of
h. Any Adulterated or misbranded article of food
Philippines with intention to unlade
or any adulterated or misbranded drug in
violation of the provisions of the "Food and
TERMINATED:
Drugs Act."
1) payment of duties, taxes and other charges
2) secured to be paid and legal permit for
i. Marijuana, opium poppies, coca leaves, or any
withdrawal has been granted
other Narcotics or synthetic drugs which are or
3) articles have legally left the jurisdiction of
may hereafter be declared habit forming by the
customs
President of the Philippines, any compound,
manufactured salt, derivative, or preparation
C. Classes of importation
thereof,
except when imported by the Government of
1. Dutiable importation
the Philippines or any person duly authorized by
the Collector of Internal Revenue for medicinal
All articles, when imported from any foreign
purposes only.
country into the Philippines, shall be subject to
duty upon each importation, even though
j. Opium pipes and parts thereof, of whatever
previously exported from the Philippines,
material.
except as otherwise specifically provided for in
this Code or in other laws. (100)
k. All other articles the importation of which is
Prohibited by law.
2. Prohibited importations (POPP-LAW-
DING)
Sec. 1207
It is the duty of the Collector to exercise
Sec. 101
jurisdiction to
- prevent importation (prohibited importation) or
a. Dynamite, gunpowder, ammunitions and other
- secure compliance with legal requirements
explosives, firearm and weapons of war, and
(articles that may be imported subject to
detached parts thereof, except when authorized
conditions)
by law.
ARTICLE CONDITIONS
Aquatic products - Caught, gathered and imported by fishing
vessels of Phil registry
- Not have landed in foreign territory, or if
landed, solely for transshipment
Equipment used for the salvage of vessels or aircraft - bond = 1 x of ascertained duties, taxes
not available locally and charges
- must be exported within 6 months
Costs of repair made in foreign country of Phil - Phil must not have adequate facilities to
vessels aircrafts make repair
- Vessel was compelled by weather or
casualty to go to foreign port for repair
- Excludes value of article used for repair
Articles brought into Phil for repair, processing or - to be re-exported
reconditioning - bond = 1 x of ascertained duties, taxes
and charges
- must be exported within 6 months
Trophies, prizes (medals, badges, cups)
Those received as honorary distinction
Personal and household effects of returning Phil - formally declared and listed before
residents departure
- including those purchased abroad necessary
and appropriate and used for comfort and
convenience
- must have been using item abroad for more
than 6 mos
- must accompany them or arrive within
reasonable time
- not in commercial quantities
- total DV not exceed P2,000
in excess of P2,000 50% ad
valorem
- returning resident has not previously
availed of this benefit within 1 year
- if resident was abroad for less than 6 mos
50% ad valorem (DV <P2T)
Effects of travelers, tourist (wearing apparel, - arrive with or at a reasonable time
personal adornment, toiletries, portable tools and - necessary and appropriate for wear
instruments, costumes) and use according to nature of
journey, comfort and convenience
- articles NOT for hire, sale, barter
- Collector may require: written
commitment or bond
Personal and household effects, vehicles of foreign - accompany them or arrive at a reasonable
consultants and experts hired or rendering service to time
govt - in quantities and kind necessary and
- including staff and families suitable to the profession, rank or position
- for their own use, NOT for sale, barter, hire
- Collector may require: written commitment
or bond
Professional instruments - in quantities and kind necessary and
Tools of trade suitable to the profession, rank or position
Wearing apparel - for their own use, NOT for sale, barter, hire
Domestic animals - change of residence is bona fide
Personal & household effects - privilege of free entry was never granted to
belong to persons coming to settle in Phil & them before or qualifies under LOI 105,
overseas Filipinos 163, 210
Articles used exclusively for public entertainment; - must file bond (1 X)
display in public expos; - exported within 6 mos
exhibition or competition for prizes; devices for - not exhibited for profit
projecting picture - otherwise, confiscation+ penalty
Brought by foreign film producers for making or - must file bond (1 X)
recording motion pictures on location in Phil - exported within 6 mos (unless extended by
Collector for another 6 mos)
- principal actors are Filipinos
Photographic and cinematographic films, - affidavit by importer that the exposed films
undeveloped, exposed outside Phil by resident are same films previously exported
Filipinos or Phil producing companies
Importations used by foreign embassies, legations, - Reciprocity: such foreign country must
agencies of foreign govt grant same privilege to Phil agencies
Articles for personal or family use of members and - such privileges must be accorded in a
attaches of foreign embassies, legations, consular special agreement between Phil and the
officers and other reps of foreign govt foreign country
- privilege may be granted only upon specific
instructions of Sec of Finance which will be
given only upon request of DFA
Articles donated to or for account of relief - org not for profit
organization - for free distribution to the needy
Containers, holders and similar receptacles - except those that are reusable for shipment
or transportation of goods
Supplies of vessel or aircraft - for use or consumption of passengers on
board
- any surplus or excess shall be dutiable
Articles and salvage after 2 years from filing protest - vessels must have been wrecked or
abandoned in Phil waters
Coffins or urns containing human remains, bones - not exceed P10,000
ashes
Personal and household effects of deceased EXCEPT
vehicles
Samples - marked sample sale punishable by law
- unsaleable - for purpose of introducing new product
- no appreciable commercial value - imported by person duly registered and
- Models not for practical use identified to be engaged in that trade
- importations authorized by Sec of Finance
- authorized by DOH
- not available in Phil
Sample medicines
- not exceed P10,000
in excess of P10,000, it may be entered
Commercial samples in bond or for consumption
- bond (2x) conditioned on exportation w/n
6 mo
if DV still cannot be determined using through identical Goods same in all respects
the successive application of the methods above, including physical characteristics, quality
the order of succession of the ff may be reversed and reputation.
upon request of the importer:
Similar Goods although not alike in all
3. unit price at which the imported or similar or respects, have like characteristics and
identical good is sold domestically component materials which enable them to
same condition as when imported to persons perform the same functions and be
not related to seller at or about the same time commercially interchangeable
of the importation of the goods being valued
Sec. 202 Bases of Dutiable Weight
COMPUTED VALUE = cost of raw materials + profit a) gross weight: weight of article + weight of all
and general expenses + freight + insurance containers, packages, holders and packing
fees + transpo expenses where articles were contained during
importation
4. using other means consistent with accepted b) legal weight: weight of article + weight of
principles of GATT immediate containers, holders where such
articles are usually contained at the time of
values shall be ascertained by Commissioner their sale to the public in retail quantities
from reports of revenue and commercial c) net weight: only the actual weight of article
attaches d) articles affixed to cardboard, cards, paper,
values shall be published in at least 1 wood shall be dutiable together with weight of
newspaper of general circulation such holders
party dissatisfied with the values can file e) when a single package contains articles
protest 15 days from date of publication dutiable according to different weights, the
if it becomes necessary to delay the final common exterior of the receptacle shall be
determination of DV, release of imported goods prorated.
may be had by filing cash bond (imposable
duties and taxes + 25% thereof) Sec. 203 Rate of Exchange
Value quoted in foreign currency shall be converted
Reasonable Doubt refers to any condition that into Phil currency at the exchange rate published
creates a probable cause to make the by Central Bank
Commissioner of Customs believe in the
inaccuracy of the invoice value of imported Sec. 204 Effective Date of Rates of Import Duty
goods as declared by importer. Imported articles shall be subject to rates of import
duty existing at the time of entry or withdrawal
It may include the following situations: from warehouse
1. if sale price is subject to some consideration For articles abandoned, forfeited or seized by
which value cannot be determined such as: government and sold at public auction, the rate of
a. seller fixes price on condition that buyer duty shall be the rates in force at the time of
will also buy other goods in specified auction
quantities
b. price of imported goods is dependent Duty based on weight, volume and quantity shall
upon price at which buyer sells other be levied and collected on the weight, volume and
goods to seller quantity at time of entry into warehouse or date of
c. price is established on the basis of a abandonment/forfeiture/seizure.
form of payment extraneous to the
Imported goods Sec. 205
Imported article deemed entered in Phil for
2. part of proceeds of subsequent resale , consumption when:
disposal or use of goods will accrue to the - entry form is properly filed and accepted
seller together with related documents
- duties, taxes, fees and other charges are paid
3. buyer and seller are related to one another or secured to be paid imported article
and relationship affected the price. They
are related if: deemed to be withdrawn from warehouse
-officers or directors of one anothers in the Phil for consumption when:
business - entry form is properly filed and accepted
-legally recognized partners in business together with related documents
-Er-Ee (removed in RA 8181, but included - duties, taxes, fees and other charges are paid
in CA 2-99) or secured to be paid
-Any person owns, controls or holds 5% or
more of the outstanding voting stocks of Sec. 1308
both of them Contents of Commercial Invoice
-One of them directly or indirectly controls a. place, date, person by whom and the person to
the other whom articles are sold
-Both directly or indirectly controlled by If imported other than in a purchase, place
third person from which shipped, date when the person to
- members of same family including whom and by whom they are shipped
brothers and sisters (whether full or b. port of entry
half), spouse, ancestors and lineal c. detailed description of the articles (sufficient for
descendants (note change in CA 2-99) tariff classification and statistical purposes)
d. quantities
within 20 days, must determine prima facie case Deemed Owner of Imported Articles:
for dumping 1. consignee
2. holder of bill of lading
Sec. 302 Countervailing Duty 3. if consigned to order, the consignor
When an article is granted any bounty, subsidy or 4. underwriters of abandoned articles and salvors
subvention upon its production, manufacture or of articles saved at a wreck
exportation in the country of origin and importation
of which is likely to injure an established industry v the liability of importer for the duties, taxes,
or retard the establishment of industry in Phil fees and other charges constitute a personal
countervailing duty = ascertained or estimated debt due to the government which may be
amount of bounty, subsidy or subvention discharged only upon full payment. It also
constitutes a lien upon the articles imported
v Injury criterion shall be applied only on imports while articles are in custody or subject to
from countries which adhere to GATT control of government
v If article was allowed a drawback, only the
excess of the amount of drawback over the v all importations by the government, its
total duties and taxes shall constitute bounty, branches, instrumentalities, GOCCs, agencies or
subsidy, subvention instrumentalities owned or controlled by
v When the conditions which necessitated the government are subject to similar duties, taxes
imposition of countervailing duties have ceased and fees except for those provided in Sec. 105
must discontinue imposition (conditionally free imports)
In the absence of protest, final and conclusive v If within 15 days from notification, no
between the parties unless liquidation was owner or agent is found or appears before
tentative Collector
property forfeited to Government and
IV. REMEDIES OF THE GOVERNMENT sold at auction
A. Extrajudicial v SETTLEMENT
While case is pending, Collector may accept
1. Enforcement of Tax Lien settlement of any seizure case
- upon approval of Commissioner
Sec. 1508 - payment of fine ( 25% - 80% of the
When an importer has an outstanding and landed cost of the article)
demandable account with the Bureau of In case of forfeiture, should pay the
Customs, domestic market value of the seized
- Collector shall hold the delivery of the article
article
- Upon notice, he may sell such Settlement NOT allowed:
importation or a portion of it to satisfy o Fraud in importation
the obligation o importation prohibited by law
importer may settle his obligation anytime o release would be contrary to law
before the sale
v PROTEST
2. Seizure and Forfeiture - written protest
- payment before protest is necessary
Sec 2205 (amount due + docket fee)
WHO: customs official
Fisheries Commissions When: at the time payment of the amount
Philippine Coast Guard claimed to be due is made within 15 days
thereafter
to make seizure of any vessel, aircraft,
cargo, animal or any movable property when Form: filed according to RR; point out the
the same is subject to forfeiture or liable for particular decision or ruling grounds used as
any fine under the tariff and customs law basis for the protest
Scope: limited to the subject matter of a single 2. Collector shall verify with the records
adjustment (refers to the entire content of one in his office
liquidation including duties, fees, surcharges 3. certify claim to Commissioner with his
and fines) or other independent transaction recommendation and necessary papers
4. Commissioner shall then cause the
failure to protest will render the action of the claim to be paid if found correct
Collector final and conclusive except for
manifest error v If the result of the refund would result
to a corresponding refund of the
upon demand of Collector, the importer shall internal revenue taxes on the same
furnish samples of the articles which are the importation, Collector shall certify to
subject of the protest Commissioner who shall cause the said
excess to be paid, refunded or credited
HEARING: 15 days after filing of protest in favor of the importer
DECISION: within 30 days
B. Protest (2308-09. 2312)
REVIEW BY COMMISIONER: 15 days after
notification in writing of Collectors decision - written protest
if decision of Collector is adverse to - payment before protest is necessary
government automatic review (amount due + docket fee)
DECISION OF COMMISIONER: within 30 days When: at the time payment of the amount
notice to party who brought case ( if seizure claimed to be due is made within 15 days
case, personal service if practicable) thereafter
Sec 3515.
Customs Officers authorized by the Bureau of
Customs may enter during office hours
premises where records are kept by
importers/customs brokers to conduct audit
of books, records or documents for the
purpose of collecting the proper duties and
taxes.
Sec 2317.
In order to prevent undervaluation of goods
subject to ad valorem duty, the
Commissioner of Customs may acquire
imported goods for a price equal to their
declared customs value plus any duties
already paid on the goods, payment for which
shall be made within ten (10) working days
from issuance of a warrant signed by the
Commissioner of Customs for the acquisition
of such goods.