Law Summer Reviewer

TAXATION LAW
BAR REVIEWER

FACULTY ADVISERS ATTY. MICHAEL DANA MONTERO
ATTY. FRANCISCO GONZALES
ACADEMICS HEAD PIERRE MARTIN REYES
SUBJECT HEADS SHERYL CHRISTINE LAGROSAS
ELLIE CHRIS NAVARRA

ATENEO CENTRAL BAR OPERATIONS 2012
ACADEMICS COMMITTEE

Academics Head: Pierre Martin Reyes;
Understudy: Clariesse Jami Mari Chan

REVIEW COMMITTEE
Head: Yla Gloria Marie Paras;
Understudy: Ken Koga;
Members: Catherine Dela Rosa, Eric Lavadia, Le Iris Lucido,
Pearl Charisse Baustista; Mina Reyes

TAXATION LAW COMMITTEE

Heads: Sheryl Christine Lagrosas; Ellie Chris Navarra
Understudies: Abigail Bernandino; Philip Marion Ortal; Hailin Quintos

TAXATION LAW REVIEWER Page 3 of 165
TAXATION LAW

Table of Contents

I. GENERAL PRINCIPLES OF TAXATION ......................... 5
A. Definition and concept of Taxation ...................5
B. Nature and Characteristics of Taxation ..............5
D. Purpose of Taxation ...........................................6
E. Principles of Sound Tax System (FAT) ................6
F. Theory and Basis of Taxation (JBL) .....................7
G. Doctrines in Taxation .........................................7
1. Prospectivity of tax laws ................................. 7
2. Imprescriptibility ............................................ 7
3. Double Taxation (DT) ...................................... 7
4. Escape from Taxation ..................................... 8
5. Exemption from taxation ............................... 8
6. Compensation and Set-off.............................. 9
7. Compromise ................................................... 9
8. Tax Amnesty ................................................... 9
9. Construction and Interpretation of: ............. 10
H. Scope and Limitation of Taxation ....................11
1. Inherent Limitations ..................................... 11
2. Constitutional Limitations ............................. 12
I. Stages of Taxation (LAPR) .................................14
K. Requisites of a valid tax ....................................14
a. Must be for a public purpose ........................14
b. It should be uniform and equitable ..............14
c. That either the person or property taxed is
within the jurisdiction of the taxing authority ...14
d. That it complies with the requirements of due
process ...............................................................14
e. That it does not infringe any constitutional
limitations ..........................................................14
L. Tax as distinguished from other forms of
exactions ...............................................................14
M. Kinds of Taxes .................................................15
II. NATIONAL INTERNAL REVENUE CODE ................... 17
A. Income Taxation ...............................................17
1. Income Tax Systems .................................... 17
2. Features of the Philippine Income Tax Law .. 17
3. Criteria in Imposing Philippine Tax Law .........18
4. Types of Philippine Income Tax .................... 18
5. Taxable Period ............................................. 18
6. Kinds of Taxpayers ........................................ 18
7. Income Taxation .......................................... 21
8. Income .......................................................... 21
9. Gross Income ................................................. 23
10. Taxation of Resident Citizens, Non-resident
Citizens and Resident Aliens ...............................51
11. Taxation of Non-resident Aliens Engaged in
Trade or Business ...............................................54
12. Exclude Non-resident Aliens Not Engaged in
Trade or Business ...............................................54
13. Individual Taxpayers Exempt from Income Tax54
14. Taxation of Domestic Corporations .............54
15. Taxation of Resident Foreign Corporations57
16. Taxation of Non-resident Foreign
Corporations .......................................................59
17. Improperly Accumulated Earnings Tax ....60
18. Exemption from Tax on Corporations ......61
19. Taxation of Partnerships ..........................61
20. Taxation of General Professional
Partnership (GPP) ...............................................61
21. Taxation of Estates and Trusts.................62
22. Withholding Tax ......................................63
B. Estate Tax..........................................................68
C. Donors Tax .......................................................74
D. Value-Added Tax ..............................................78
1. NATURE AND CHARACTERISTIC ..................... 78
2. IMPACT OF TAX ............................................. 78
3. INCIDENCE OF TAX ........................................ 78
4. DESTINATION PRINCIPLE ............................... 78
5. PERSONS LIABLE (Sec. 105) ........................... 79
6. VAT ON SALE OF GOOD OR PROPERTIES (Sec.
106) ................................................................... 79
7. ZERO-RATED SALES OF GOODS OR
PROPERTIES, AND EFFECTIVELY ZERO RATED
SALES OF GOODS OR PROPERTIES ..................... 80
8. TRANSACTIONS DEEMED SALE (IN EFFECT
SUBJECT TO 12% VAT) ....................................... 81
9. CHANGES IN OR CESSATION OF STATUS OF A
VAT .................................................................... 82
10. VAT ON IMPORTATION OF GOODS (Sec. 107)
........................................................................... 82
11. VAT ON SALE OF SERVICES AND USE OR LEASE
OF PROPERTIES .................................................. 83
12. ZERO-RATED SALES OF SERVICE .................. 83
13. VAT EXEMPT TRANSACTIONS (Sec. 109) ..... 84
14. INPUT VAT AND OUTPUT VAT DEFINED ...... 87
15. SOURCES OF INPUT TAX .............................. 87
16. PERSONS WHO CAN AVAIL OF THE INPUT TAX
........................................................................... 87
17. DETERMINATION OF THE INPUT/OUTPUT
TAX; VAT ............................................................ 88
Credits for Input Tax .......................................... 88
18. SUBSTANTIATION REQUIREMENTS OF INPUT
TAX CREDITS ...................................................... 89

19. CLAIMS FOR REFUND/TAX CREDIT
CERTIFICATE OF INPUT TAX ............................... 90
20. INVOICING REQUIREMENTS ........................ 90
21. FILING OF RETURN AND PAYMENT ............. 91
22. WITHHOLDING OF VAT ................................ 91
E. Percentage Tax ..................................................95
F. Compliance Requirements ................................98
G. Tax remedies under the NIRC .........................108
III. LOCAL GOVERNMENT CODE OF 1991, as amended
............................................................................... 121
1. Fundamental Principles ............................... 121
2. Nature and Source of Taxing Power (CITE LAW)
121
3. Local Taxing Authority ................................. 122
4. Residual Taxing Powers of the LGU (Sec. 186
LGC) ................................................................. 122
5. Specific Taxing Power of Local Government
Unit (LGU) ........................................................ 123
6. Common Limitations on the Taxing Powers of
LGUs and common revenue ............................ 128
7. Collection of Business Taxes ........................ 128
8. Taxpayers Remedies ................................... 129
a) Periods of assessment and collection of
local taxes, fees or charges ........................ 129
b) Protest of assessment (Sec. 195, LGC) ... 129
c) Claim for refund of tax credit for
erroneously or illegally collected tax, free or
charge ......................................................... 129
9. Civil Remedies by the LGU for the Collection of
Revenues ......................................................... 129
1. Fundamental Principles in Assessment of
Real Property Taxes (Sec. 198) [CUANE] .... 131
2. Nature of Real Property Tax ................... 131
3. Imposition of Real Property Tax ............. 132
4. Appraisal and Assessment of Real Property
Tax ...............................................................133
Actual Use of Property as Basis for
Assessment (LGC Sec. 217) .................... 133
Types of Real Property Tax .................... 133
5. Collection of Real Property Tax ...............133
Steps in the Assessment and Collection of RPT
.................................................................... 133
Remedies of LGUs for the Collection of Real
Property Tax ............................................... 134
6. Claim for Tax Refund or Credit (LGC Sec
253) .............................................................135
7. Taxpayers Remedies ...............................135
IV. TARIFF AND CUSTOMS CODE OF 1978, as amended
............................................................................... 137
A. Definitions ......................................................137
B. General Rule ...................................................137
C. Purpose for Imposition ...................................137
LIABILITY FOR CUSTOMS DUTIES ........................137
D. Flexible Tariff ..................................................138
E. Requirements for Importation ........................138
F. Importation in Violation of TCC.......................139
G. Goods Conditionally-free from Tariff and
Customs Duties ...................................................139
H. Classification of Duties ...................................143
1. Ordinary/ Regular Duties ............................. 143
2. Special Duties .............................................. 144
I. Drawback .........................................................145
J. Tax Remedies under the TCC ...........................145
1. Government ................................................ 145
2. Taxpayer ...................................................... 145
V. Judicial Remedies; Republic Act 1125 The Act that
Created the Court of Tax Appeals (CTA), as amended,
and the Revised Rules of the Court of Tax Appeals .. 150
A. Jurisdiction of the Court of Tax Appeals .........150
B. Judicial Procedures .........................................150
1. Judicial action for collection of taxes .........150
C. Taxpayers Suit Impugning the Validity of Tax
Measures ............................................................152
1. TAX PAYERS SUIT ................................... 152
2. DISTINGUISHED FROM CITIZENS SUIT ... 153
..........................................................................................


TAXATION LAW

I. GENERAL PRINCIPLES OF TAXATION
======================================
TOPICS UNDER THE SYLLABUS:
I. GENERAL PRINCIPLES
A. Definition and concept of Taxation
B. Nature and Characteristics of Taxation
C. Power of Taxation Compared with Other Powers
D. Purpose of Taxation
E. Principles of Sound Tax System (FAT)
F. Theory and Basis of Taxation (JBL)
G. Doctrines in Taxation
H. Scope and Limitation of Taxation
I. Stages of Taxation (LAPR)
J. Definition, Nature, and Characteristics of Taxes
K. Requisites of a valid tax
exactions
M. Kinds of Taxes
======================================

======================================
TOPIC UNDER THE SYLLABUS:
A. Definition and concept of Taxation
======================================

Power inherent in every sovereign State to impose a
charge or burden upon persons, properties, or rights to
raise revenues for the use and support of the
government to enable it to discharge its appropriate
functions.
Power by which an Independent State, through its
lawmaking body, raises and accumulates revenue from
its inhabitants to pay the necessary expenses of the
government. [51 AM JUR 341]
Process or act of imposing a charge by governmental
authority on property, individuals or transactions to
raise money for public purposes. *Blacks Law
Dictionary]
Taxation is merely a way of apportioning the cost of
government among those who in some measure are
privileged to enjoy its benefits and must bear its
burdens. [71 AM JUR 2
ND
342]
Taxation is described as a destructive power which
interferes with the personal and property rights of the
people and takes from them a portion of their property
for the support of the government. Paseo Realty &
Development Corporation v.CA, [2004]

======================================
B. Nature and Characteristics of Taxation
======================================

The power of taxation is inherent in sovereignty as an
incident or attribute thereof, being essential to the
existence of independent government.
The right to tax exists apart from Constitutions and
without being expressly conferred by the people.
It is legislative in character.
It is generally not delegated to executive or judicial
department. Exceptions:
i. To LGUs in respect to matters of local concern to
be exercised by the LG bodies thereof [Sec. 5, Art.
X, 1987 Constitution];
ii. When allowed by the Constitution [Sec. 28[2], Art.
VI, 1987 Constitution];
iii. When the delegation relates merely to admin
implementation that may call for some degree of
discretionary powers under a set of sufficient
standards expressed by law Cervantes v. Auditor
General, [91 Phil. 359], or implied from the policy
and purpose of the Act Maceda v. Macaraig, [197
SCRA 771].
It is subject to constitutional and inherent limitations.
It must be used for public purposes It has been held
that tax has been utilized for public purpose if the
welfare of the nation or the greater portion of its
population has benefited for use Gomez v. Palomar,
[25 SCRA 827]; Phil Guaranty Co., Inc. v.
Commissioner, [13 SCRA 775].
It is the strongest of all the inherent powers of the
government Sison v. Ancheta, [130 SCRA 654].
It is territorial in operation The power to tax can only
be exercised within the territorial jurisdiction of a
taxing authority [51 Am Jur 88], except when there
exists privity of relationship between the taxing State
and the object of tax.
It is an enforced charge and contribution.
Generally pecuniary in nature (payable in money).


======================================
C. Power of Taxation Compared with Other Powers
======================================

TAX
POLICE POWER
(in the form of a
FEE)
EMINENT
DOMAIN

Concept
Power to enforce
contribution to
raise government
funds
Power to make
and implement
laws for the
general welfare
Power to take
private property
for public use
with just
compensation
Scope
Plenary,
comprehensive
and supreme
Broader in
application
General power to
make and
implement laws
Merely a power
to take private
property for
public use
Exercising Authority
Government or
political
subdivisions
Government or
political
subdivisions
Maybe granted to
public service
companies or
public utilities
Purpose
Raise revenue Exercise to
promote public
welfare through
regulation
The taking of
property for
public use
Amount of Imposition
No limit Limited to the
cost of
regulation,
issuance of
license, or
surveillance
No limit imposed,
but the amount
should be based
on the market
value of the
property
Effect
Becomes part of
public funds
Restraint on the
injurious use of
property
Transfer of right
to the property
Persons Affected
Applies to all
persons, property
and excises that
may be subject
thereto
Applies to all
persons, property
and excises that
may be subject
thereto
Only particular
property is
comprehended
Superiority of Contracts
Contracts may be
impaired unless (a)
government is
party to contract
Contracts may be
impaired

TAX
POLICE POWER
(in the form of a
FEE)
EMINENT
DOMAIN

granting
exemption; or (b)
involves franchise
Benefits Received
Protection and
general benefits
from the
government
No direct or
immediate
benefit but only
such as may arise
from the
maintenance of a
healthy economic
standard of
society
Market Value of
the property
Relationship to Constitution
Subject to certain
constitutional
limitations
Relatively free
from
constitutional
limitations
Subject to certain
constitutional
limitations

======================================
D. Purpose of Taxation
========================================

1. Revenue-raising
Taxation is the power by which the sovereign raises
revenue to defray the necessary expenses of
government.
It is to provide funds or property with which to
promote the general welfare and protection of the
whole citizenry.
It is raised to serve as a means to provide public
improvements designed for the enjoyment of the
citizenry within the States territory.

2. Non-revenue/special or regulatory
Taxation is also used for regulatory purposes; it is used
to attain non-revenue objectives and pursue policy
decisions.

======================================
E. Principles of Sound Tax System (FAT)
======================================

1. Fiscal Adequacy - the sources of tax revenue should
coincide with and approximate the needs of the
government expenditures


2. Administrative Feasibility - the tax system should be
capable of being properly and efficiently administered
by the government and enforced with the least
inconvenience to the taxpayer
3. Theoretical Justice - the tax system should be fair to
the average taxpayer and based upon the ability to pay

======================================
F. Theory and Basis of Taxation (JBL)
======================================

1. Jurisdiction over subject & objects
2. Benefits-Protection Theory (Symbiotic relationship)
The basis of taxation is found in the reciprocal duties of
protection and support between the state and its
inhabitants. In return for this contribution, the taxpayer
receives the general advantages and protection which
the government affords the taxpayer and his property.
3. Lifeblood/Necessity Theory - The power of taxation
proceeds upon the theory that the existence of
government is a necessity; that it cannot continue
without means to pay its expenses; and that for those
means it has the right to compel all citizens and
property within its limits to contribute.

======================================
G. Doctrines in Taxation
======================================

1. Prospectivity of tax laws

This principle provides that a tax bill must only be
applicable and operative after becoming a law.
As a general rule, taxing authorities must be applied
prospectively, except by express provision of the law.
Ex post facto is not applicable for tax purposes.
However when it comes to civil penalties like fines and
forfeiture (except interest), tax laws may be applied
retroactively unless it produces harsh and oppressive
consequences w/c violate the taxpayers constitutional
rights regarding equity and due process Fernandez v.
Fernandez, [99 Phil. 934]; Commissioner v. Filipinas
Cia de Seguros, [107 Phil. 1055].

2. Imprescriptibility

Unless otherwise provided by the tax law itself, taxes in
general are not cancelable Commissioner v. Ayala
Securities Corporation, [101 SCRA 231].
Although the NIRC provides for the limitation in the
assessment and collection of taxes imposed, such
prescriptive period will only be applicable to those
taxes that were returnable. The prescriptive period
shall start from the time the taxpayer files the tax
return and declares his liability Collector v. Bisaya Land
Transportation Co., [1958]
As to IAET, the court held that there is no time limit on
the right of the BIR Commissioner to assess this type of
tax [Sec. 25, NIRC].
The law on prescription being a remedial measure
should be interpreted liberally in order to protect the
taxpayer. Republic vs. Ablaza, [108 Phil 1105]

3. Double Taxation (DT)

a. Direct Duplicate Taxation (Strict sense) To constitute
double taxation in the objectionable or prohibited
sense:

The same property must be taxed twice when it
should be taxed once;
Both taxes must be imposed:
i. On the same property or subject matter;
ii. For the same purpose;
iii. By the same State Government or taxing authority;
iv. Within the same jurisdiction or taxing district;
v. during the same period; and
vi. they must be the same kind or character of tax
Villanueva v. City of Iloilo, [26 SCRA 578]

b. Indirect Duplicate Taxation (Broad sense) It means
indirect duplicate taxation. It extends to all cases in w/c
there are two or more pecuniary impositions. The
Constitution does not prohibit the imposition of double
taxation in the broad sense

c. Constitutionality of DT The SC held that there is no
constitutional prohibition against double taxation in the
Phils. Villanueva v. City of Iloilo, [26 SCRA 578],
therefore it is not a valid defense against the validity of
a tax measure Pepsi Cola v. Tanauan, [69 SCRA 460].

i. There is no double taxation in the following cases:
i. By taxing corporate income and stockholders
dividends from the same corporation
ii. Tax imposed by the State and the local
government upon the same occupation, calling or
activity
iii. Real estate tax and income tax collected on the
same real estate property leased for earning
purposes. Villanueva vs. City of Iloilo, [26 SCRA
578]
iv. Taxes are imposed on taxpayers final product and
the storage of raw materials used in the


production of the final product. Procter and
Gamble Philippines vs. Municipality of Jana, [94
SCRA 894]

d. Modes of eliminating DT
(1) Provide for exemptions or allowance of deduction
or tax credit for foreign taxes
(2) Enter into treaties with other states [like the
former Phil-Am Military Bases Agreements as to
income tax]
(3) Application of the Principle of Reciprocity

4. Escape from Taxation

a. Shifting of tax burden The imposition of tax is
transferred from the statutory taxpayer to another
without violating the law.

(1) Ways of shifting the tax burden (FBO)
i. Forward shifting the transfer of burden from the
producer to distributor until it finally reaches the
ultimate purchasers or consumers
ii. Backward shifting the reverse of forward shifting,
e.g. the manufacturer has agreed to buy the
suppliers product only if the price is reduced by
the amount of tax.
iii. Onward shifting the tax burden is shifted twice or
more either forward or backward

(2) Taxes that can be shifted
i. VAT
ii. Percentage tax
iii. Excise tax on excisable articles
iv. Ad valorem taxes that oil companies pay to BIR
upon removal of petroleum products from its
refinery

(3) Meaning of impact and incidence of taxation
i. Impact of Taxation point on which the tax is
originally imposed or the one on whom the tax is
formally assessed.
ii. Incidence of Taxation point on which the tax
burden finally rests or settles down.

Example: VAT is originally assessed against the
seller who is required to pay the said tax, but the
burden is actually shifted or passed on to the
buyer.

b. Tax avoidance also called Tax Minimization; tax
saving device that is legally permissible

c. Tax evasion connotes fraud through the use of
pretenses and forbidden devices to lessen or defeat
taxes; must be willful and intentional

It connotes the integration of three factors:
End to be achieved, i.e., the payment of less than
that known by the taxpayer to be legally due, or
the non-payment of tax when it is shown that a tax
is due;
Accompanying state of mind which is described as
being "evil," in "bad faith," "willful," or "deliberate
and not accidental"; and
Course of action or failure of action which is
unlawful. Benigno vs. Toda, [G.R. Nos. 78583-4
March 26, 1990]

TAX EVASION TAX AVOIDANCE
Other
Name
Tax Dodging Tax Minimization
Means Use illegal means Use legal means
Penalty Punishable by law Not punishable by law
Object To entirely escape
payment of taxes
To merely minimize
payment of taxes

5. Exemption from taxation

a. Meaning The grant of immunity to particular persons
or corporations or to persons or corporations of a
particular class from a tax which persons and
corporations generally within the same state or taxing
district are obliged to pay.
i. It is an immunity or privilege; it is freedom from a
financial charge or burden to which others are
subjected. Greenfield v. Meer, [77 Phil 394]

b. Nature
Exemption from taxes is personal in nature and
covers only taxes for which the taxpayer-grantee is
directly liable. In any case, it cannot be transferred or
assigned by the person to whom it is given without
the consent of the State.
Tax exemptions are strictly construed against the
taxpayer because such provisions are highly
disfavored and may almost be said to be odious to
the law Manila Electric Company v. Vera, [67 SCRA
351].
Exemptions are not presumed, but when public
property is involved, exemption is the rule, and
taxation, the exception.
There can be no simultaneous exemptions under 2
laws, one partial and the other total.

c. Kinds (ICE)
(1) Express (or affirmative) when certain persons,
property or transactions are, by express provision,
exempted from all or certain taxes, either entirely
or in part.


Examples of Statutory Tax Exemptions:
i. Inter-corporate dividends by a domestic
corporation from another domestic
corporation [Sec. 27 D [4], NIRC]
ii. Section 105 of the Tariff and Customs Code
iii. Section 234 of the Local Government Code
iv. Other special laws such as Omnibus
Investment Code of 1987, Philippine Overseas
Shipping Act
(2) Implied (or by omission) when a tax is levied on
certain classes of person, properties or
transactions without mentioning the other classes.
Every tax statute makes exemptions since all those
not mentioned are deemed exempted. The
omission may either be accidental or intentional.
(3) Contractual those lawfully entered into by the
government in contracts under existing laws.
These exemptions must not be confused with the
tax exemptions granted under franchises, which
are not contracts within the context of non-
impairment clause of the Constitution. Cagayan
Electronic Co. v. Commissioner, [138 SCRA 629]

d. Rationale/grounds for exemption
A presumption that the public interest will be
subserved by the exemption allowed. Grant of
exemption rests upon that such will benefit the body
of the people and not upon any idea of lessening the
burden of the individual owners of property.
Purpose is some public benefit or interest, which the
law-making body considers sufficient to offset the
monetary loss entailed in the grant of exemptions.
Created in a treaty on grounds of reciprocity or to
lessen the rigors of the international double or
multiple taxation.
Equity is not a ground for tax exemption

e. Revocation
Tax exemption is generally revocable.
The congressional power to grant an exemption
necessarily carries with it the consequent power to
revoke the same.
In order to be irrevocable, the tax exemption must be
founded on a contract or granted by the
Constitution.
Revocations are constitutional even though the
corporate do not have to perform a reciprocal duty
for them to avail of tax exemptions.

6. Compensation and Set-off

This doctrine states that taxes are not subject to set-off
or legal compensation because the government and
the taxpayer are not mutual creditor and debtor of
each other Republic v. Mambulao Lumber Co., [6 SCRA
622]; Caltex Phils. V. COA, [208 SCRA 726].

Not subject to set-off or compensation for the following
reasons:
i. Taxes are of distinct kind, essence and nature, and
these impositions cannot be classed in merely the
same category as ordinary obligations;
ii. The applicable laws and principles governing each
are peculiar, not necessarily common, to each; and
iii. Public policy is better subserved if the integrity and
independence of taxes are maintained Republic v.
Mambulao Lumber Co., [6 SCRA 622].
A person cannot refuse to pay tax on the basis that the
government owes him an amount equal to or greater
than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the
government. Philex Mining Corp. v. Commissioner,
[1998]; Francia v. Intermediate Court, [162 SCRA 753]
An exception to the rule is where both the claims of the
government and the taxpayer against each other have
already become due, demandable and fully liquidated.
In this case, compensation takes place by operation of
law and both obligations are extinguished to their
concurrent amounts. Domingo v. Garlitos, [8 SCRA
443]

7. Compromise

Compromises are generally allowed and enforceable
when the subject matter thereof is not prohibited from
being compromised and the person entering such
compromise is duly authorized to do so.
The law allows the ff: persons to do compromise in
behalf of the government:
i. BIR Commissioner as expressly authorized by the
NIRC subject to certain conditions [Sec. 204, NIRC];
ii. Collector of Customs with respect to customs duties
limited to cases where the legitimate authority is
specifically granted such as in the remission of
duties [Sec. 709, TCC]; and
iii. Customs Commissioner subject to the approval of
the Secretary of Finance, in cases involving the
imposition of fines, surcharges, and forfeitures [Sec.
2316, TCC].

8. Tax Amnesty

a. Meaning It is the general or intentional overlooking
by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a
revenue or tax law.
It partakes of an absolute forgiveness or waiver of
the Government of its right to collect.


It is a way to give tax evaders, who wish to relent &
are willing to reform a chance to do so.

b. Distinguished from tax exemption:

AMNESTY EXEMPTION
Scope of
immunity
Immunity from all
criminal, civil and
administrative
liabilities from non-
payment of taxes
Immunity from civil
liability only
To whom
granted
General pardon given
to all taxpayers
A freedom from a
charge or burden to
which others are
subjected
Application Applies only to past
tax periods hence
retroactive
application
Generally,
prospective in
application
Presence of
Actual
Revenue
Loss
Yes, there is revenue
loss since there was
actually taxes due but
collection was waived
by the government
None, because
there was no actual
taxes due as the
person or
transaction is
protected by tax
exemption

9. Construction and Interpretation of:

a. Tax Laws
(1) General rule:
No person or property is subject to taxation unless
within the terms or plain import of a taxing
statute.
In case of doubt, tax statutes are construed strictly
against the government and liberally in favor of the
taxpayer.
Taxes being burdens, they are not to be presumed
beyond what the statute expressly and clearly
declares.
Tax statutes offering rewards are liberally
construed in favor of informers.

(2) Exception:
The rule of strict construction as against the
government is not applicable where the language
of the tax statute is plain and there is no doubt as
to the legislative intent. In such case, the words
employed are to be given their ordinary meaning.
Tax statutes are to receive a reasonable
construction with a view to carrying out their
purpose and intent. They should not be construed
as to permit the taxpayer to easily evade the
payment of tax. Thus, good faith of the taxpayer is
not a sufficient justification for exemption from
the payment of surcharges imposed by the law for
failing to pay tax within the period required.
A tax statute should be construed to avoid the
possibilities of tax evasion.

b. Tax Exemption and Exclusion

(1) General rule:
Exemptions are not favored and are construed
strictissimi juris [by the most strict right or law]
against the taxpayer.
An exemption from the common burden cannot be
permitted to exist upon vague implication or
inference
The fundamental theory is that all taxable property
should bear its share of the cost and expense of
government.
Applying the rule of strict construction to statutory
provisions granting tax exemptions [or deductions]
would minimize differential treatment and foster
fairness and equality of treatment among
taxpayers.
Taxation is the rule and exemption, the exception.
Therefore, whoever claims exemption must be
able to justify his claim or right thereto, by a grant
expressed in terms too plain to be mistaken and
too categorical to be misinterpreted.
If not expressly mentioned by law, it must at least
be within its purview by clear legislative intent.
Claims for refund partake of the nature of tax
exemptions and will not be allowed unless granted
in the most explicit and categorical language.

(2) Exception:
When the law itself expressly provides for a liberal
construction, that is, in case of doubt, it shall be
resolved in favor of exemption
When the exemption is in favor of the government
itself or its agencies because the gen. rule is that
they are exempt from tax.
When the exemption refers to religious, charitable
and educational institutions.
If there is an express mention or if the taxpayer
falls within the purview of the exemption by clear
legislative intent, the rule on strict construction
does not apply.

c. Tax Rules and Regulations
(1) General rule only The construction placed by the
office charged with implementing and enforcing
the provisions of a Code should be given
controlling weight unless such interpretation is
clearly erroneous.


d. Penal provisions of tax laws
Strict construction so as not to extend the plain
terms thereof that might create offenses by mere
implication not so intended by the legislative body
RP v. Martin, [G.R. No. L-38019, May 16, 1980].

e. Non-retroactive application to taxpayers
The (tax) law cannot be given retroactive effect. It
is established that tax laws are prospective in
application, unless it is expressly provided to apply
retroactively. Carmelino F. Pansacola v. CIR, [G.R.
No. 159991, November 16, 2006]
A tax law should not be given retroactive
application when it would be harsh and
oppressive, for in such case, the constitutional
limitation of due process would be violated.
Sec. 246 of the NIRC provides that any revocation,
modification or reversal of any of the rules and
regulations promulgated in accordance with Secs.
244 and 255 or any of the rulings or circulars
promulgated by the Commissioner shall not be
given retroactive application if the revocation,
modification or reversal will be prejudicial to the
taxpayers.

(1) Exceptions:
While it is not favored, a statute may nevertheless
operate retroactively provided it is expressly
declared or is clearly the legislative intent. For
instance: the universal practice of increasing taxes
on income already earned.
The rules and regulations promulgated by the CIR
shall be retroactive in the following cases:
i. Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by the Bureau of
Internal Revenue;
ii. Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially
different from the facts on which the ruling is
based; or
iii. Where the taxpayer acted in bad faith.

======================================
H. Scope and Limitation of Taxation
======================================
1. Inherent Limitations
a. Public Purpose
Test: whether the proceeds will be used for something
which is the duty of the State to provide.
The public purpose of the tax law must exist at the
time of its enactment. Pascual v. Secretary of
Public Works, [G.R. No. L-10405, December 29,
1960]
Legislature is not required to adopt a policy of all
or none for the Congress has the power to select
the object of taxation. Lutz v. Araneta, [G.R. No. L-
7859, December 22, 1955]
A special benefit to specific individual does not
diminish the nature of tax being for public purpose
as long as it is incidental.

b. Inherently Legislative
(1) General rule power of taxation cannot be
delegated.
Contemplates the power to determine kind,
object, extent, amount, coverage, and situs of tax;
Distinguish from power to assess and collect

(2) Exceptions:
(a) Delegation to local governments It is in line
with the principle that the power to create
municipal corporations for purposes of local self-
government carries with it the power to confer
the power to tax on such local governments.
(b) Delegation to the President Certain aspects of
the taxing process that are not legislative in
character may be vested to him.
(c) Delegation to administrative agencies They are
authorized to fix within specified limits, Tariff
rates, import or export quotas, tonnage and
wharfage dues and other duties or imposts.

c. Territorial
(1) Situs of Taxation
(a) Meaning place of taxation; power to tax is
limited to the territorial jurisdiction of the taxing
state.

EXCEPT where privity of relationship exists, the
State can exercise its taxing powers over its
citizen outside its territory.

(b) Situs of Income Tax
(1) From sources within the Philippines
Interests derived from sources within the
Philippines
Dividends from domestic and foreign
corporations
Compensation for services performed within
the Philippines
Rentals and royalties from properties located
in the Philippines or any interest in such
property including rentals or royalties for the
use of or for the privilege of using within the
Philippines, patents, copyrights and other like


properties.
Sale of Real property located in the Philippines
Sale of Personal property Gains, profit, and
income derived from the purchase within and
its sale without the Phil, or from the purchase
without and its sale within shall be treated as
derived entirely from sources within the
country in which the personal property is sold.
Except: the gain from the sale of shares of
stock in a domestic corporation shall be
treated as derived entirely from sources
within the Phils. regardless where the said
shares are sold.

(2) From sources without the Philippines
Interest other than those derived from
sources within the Philippines
Dividends other than those derived from
sources within the Philippines
Compensation for services performed without
the Philippines
Rentals and royalties from property located
without the Philippines or from any interest in
such property including rentals or royalties for
the use of or for the privilege of using without
the Philippines, patents, copyrights and other
like properties.

(3) Income partly within and partly without the
Philippines
Items other than those specified above in i.
and ii. shall be allocated or apportioned to
sources within or without the Philippines

(c) Situs of Property Taxes
(1) Taxes on Real Property Location of the
property
(2) Taxes on Personal Property
i. Tangible Location of the property
ii. Intangible Domicile of the owner

(d) Situs of Excise Tax
(1) Estate Tax Domicile of the decedent at the
time of his death
(2) Donors Tax Domicile of the donor at the
time of the transfer

(e) Situs of Business Tax Place where the taxpayer
is registered or required to register
(1) Sale of Real Property
(2) Sale of Personal Property
(3) VAT

SUMMARY:

OBJECT SITUS RULE
Person Residence,
Domicile,
Citizenship
Real Property Location of the property
Tangible
Personal
Property
Physical location although the owner
resides in another jurisdiction
Intangible
Personal
Property
Domicile of the owner (mobilia
sequntur personam)
Income Citizenship
Residence
Source of Income
Transfer of
property
Citizenship
Residence
Location of Property
Business or
Occupation
Where the act/business/occupation is
performed/exercised

d. International Comity
Property of a foreign State of government may not
be taxed by another.

e. Exemption of Government Entities, Agencies, and
Instrumentalities
Taking money from one pocket to the other.
Applies only to entities exercising sovereign
functions (acta jure imperii).
However, it can tax itself if there is a statutory
authority to do so and no express provision against
such act.

2. Constitutional Limitations

a. Provisions Directly Affecting Taxation
(1) Prohibition against imprisonment of non-payment
of poll tax [Sec. 20, Art. III]
Can still be made to pay fines and penalties for
non-payment.
Taxpayer may be imprisoned for non-payment of
other kinds of taxes where the law so expressly
provides.

(2) Uniformity and equality of taxation [Sec. 28 (1),
Art VI]
Uniform: all articles or properties of the same class
taxed at the same rate
Equity: apportionment must be more or less just in
the light of taxpayers ability to shoulder tax
burden
The equal protection clause refers more to like


treatment in like circumstances
The uniformity and equity clause refers to the
proper relative treatment for tax purposes of
persons in unlike circumstances

(3) Grant by Congress of authority to the President to
impose tariff rates/Flexible tariff clause [Sec. 28
(2), Art. VI]
Includes import and export quotas, tonnage and
wharfage dues aside from tariff rates
Delegated by Congress
Through a law; the Tariff and Customs Code has
provided for what has been termed as the flexible
tariff clause authorizing the President to modify
import duties [Sec. 401, TCC]
Subject to Congressional limits and restrictions
Within the framework of national development
program

(4) Prohibition against taxation of religious, charitable
and educational entities/Exemption from real
property taxes [Sec. 28 (3), Art. VI of the
Constitution]
Covers charitable institutions, churches, and
parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries and all lands,
buildings and improvements ACTUALLY, DIRECTLY
and EXCLUSIVELY USED for charitable, religious and
educational purposes
Pertains only to real estate tax
Test of exemption: actual use of the property, not
ownership

(5) Prohibition against taxation of non-stock, non-
profit [educational] institutions [Sec. 4(3&4), Art.
XIV]
Exempts from taxes all revenues and assets of non-
stock, non-profit educational institutions used
ACTUALLY, DIRECTLY AND EXCLUSIVELY for
educational purposes
Exemption covers income, real estate, donors tax,
and customs duties (distinguish from the previous
which pertains only to real estate tax)
Income exempt provided it is used for
maintenance or improvement of institution
(indispensable or essential).
The exemption is strictly personal. (non-
transferable)
Distinguish from tax treatment of
i. Proprietary educational institutions
(Preferential Tax of 10%);
ii. Government educational institutions (exempt,
ex. UP)

(6) Majority vote of Congress for grant of tax
exemption [Sec. 28 (4), Art. VI]
Includes amnesties, condonations and refunds
Involves majority of all members voting separately
Relative majority (majority of quorum) is sufficient
to withdraw exemption.

(7) Prohibition on use of tax levied for special purpose
[Sec. 29 (3), Art. VI]
Revenues derived for a special fund shall be
administered for the purpose intended only.
Once the purpose is achieved, the balance, if any,
is to be transferred to the general funds of the
government.

(8) Presidents veto power on appropriation, revenue,
and tariff bills [Sec. 27 (2), Art. VI]

(9) Non impairment of jurisdiction of the SC [Sec.
5(2)(b), Art. VIII]

(10) Grant of power to the local government units to
create its own sources of revenue [Sec. 5, Art. X]

(11) No appropriation or use of public money for
religious purposes [Sec. 29 (2), Art. VI]

b. Provisions Indirectly Affecting Taxation
(1) Due process [Sec. 1, Art. III]

SUBSTANTIVE PROCEDURAL
Should not be harsh,
oppressive, or confiscatory
(reasonableness)
No arbitrariness in
assessment and collection
By authority of valid law Right to notice and hearing
Must be for a public purpose
Imposed within territorial
jurisdiction

It can also be invoked by the government. Province
of Abra v. Hernando, [G.R. No. L-49336 August 31,
1981]

(2) Equal protection [Sec. 1, Art. III]
All persons subject to legislation shall be treated
alike, under like circumstances and conditions both
in privileges conferred and liabilities imposed.
Sison, Jr. v. Ancheta, [G.R. No. L-59431, 25 July
1984]


No violation of equal protection when there is
proper classification made; classification to be
valid must:
i. Rest on substantial distinctions
ii. Be germane to the purpose of the law
iii. Not be limited to existing conditions only; and
iv. Apply equally to all members of the same class

(3) Religious freedom [Sec. 5, Art III]
The constitutional guaranty of the free exercise
and enjoyment of religious profession and worship
carries with it the right to disseminate religious
information. American Bible Society v. City of
Manila, [G.R. No. L-9637, April 30, 1957].
Activities simply and purely for propagation of
faith are exempt.
Tax is unconstitutional if it operates as a prior
restraint on exercise of religion or favors a certain
religion (non-establishment of religion)
Income of religious organizations from any activity
conducted for profit or from any of their property,
real or personal, regardless of disposition of such
income, is taxable

(4) Non-impairment of obligations [Sec. 10, Art. III]
Applies only when government is party to the
contract granting exemption
EXCEPT if Franchise tax-exemption The
Constitution provides that franchise is subject to
amendment, alteration, or repeal by Congress.

======================================
I. Stages of Taxation (LAPR)
======================================
1. Levy Refers to the enactment of a law by Congress,
imposing a tax.
2. Assessment The act of administration and
implementation of the tax law by the executive
department through the administrative agencies
3. Payment Act of compliance by the taxpayer, including
such options, schemes or remedies as may be legally
available to him.
4. Refund Recovery of any tax alleged to have been
erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without
authority, or of any sum alleged to have been
excessively, or in any manner wrongfully, collected.

======================================
J. Definition, Nature, and Characteristics of Taxes
======================================
A burden, charge, exaction, imposition or contribution
assessed in accordance with some reasonable rule of
apportionment by authority of the sovereign state
upon the persons or property within its jurisdiction, to
provide public revenue for the support of the
government, the administration of the law, or the
payment of public expenses. [71 AM JUR 2
ND
343-346]
Any payment exacted by the State or its municipal
subdivisions as a contribution toward the cost of
maintaining governmental functions, where the special
benefits derived from the performance is merged in the
general benefit.
Taxes operate in INVITUM and are in no way dependent
upon the will or contractual assent, express or implied,
of the person taxed.
(1) Enforced (2) proportional and (3) pecuniary
contributions (4) from persons and property (5) levied
by law-making body of (6) the state having jurisdiction
over the subject of the burden (7) for the support of the
government and all public needs.

======================================
K. Requisites of a valid tax
======================================

a. Must be for a public purpose
b. It should be uniform and equitable
c. That either the person or property taxed is within the
jurisdiction of the taxing authority
d. That it complies with the requirements of due process
e. That it does not infringe any constitutional limitations

======================================
exactions
======================================

1. Customs Duty/Tariff
TAX CUSTOMS DUTY
Coverage More comprehensive than
customs duty
Kind of tax
Object Persons, prop, etc Goods imported
or exported


2. Toll
TAX TOLL
Kind of
demand
Demand of
sovereignty
Demand of ownership
Purpose support of
government
Collection for the use
of property
Amount No limit depends
on need of the
government
Fair return of the cost
of the property or
improvement

3. License Fee
TAX LICENSE FEE
Source Exercise of
Taxing power
Emanate from the police
power of the State
Purpose Raise revenue Regulation
Object Persons,
property and
privilege
Right to exercise a privilege
Amount no limit only necessary to carry out
regulation

Distinction lies in the primary purpose:
License fee primary purpose is to regulate and the
excess of the amount collected from the cost to carry
out the regulation is minimal and incidental.
Taxs primary purpose, or at least one of the real and
substantial purposes is to raise revenue.
If amount is too high for regulation, it would be a tax;
unless imposed on non-useful occupations or
businesses.
Purpose of distinction: limitations and exemptions
apply only to one and not to the other (ex. Exemption
from taxation does not include exemption from fee)

4. Special Assessment
TAX SPECIAL ASSESSMENT
Imposed
on
Persons, properties,
etc.
Only on land
Why
imposed
Regardless of public
improvement
Public improvement
that benefits the land
Purpose Support of
government
Contribution to cost of
public improvement
When
imposed
Regular exaction Exceptional as to time
and locality
Basis Necessity Benefits obtained

5. Debt
TAX DEBT
Source Law; legal obligation Based on contract
Nature Personal Assignable
Right to
set-off
Generally not subject
to compensation/ set-
May be the subject of
compensation/ set-off
off
Effect Imprisonment is
sanction for non-
payment
No imprisonment for
non-payment

======================================
M. Kinds of Taxes
======================================

1. As to subject matter or object
a. Personal, poll, capitation tax
Fixed amount
Individuals residing within specified territory
Without regard to their property, occupation or
business
Ex. Community Tax (Cedula)

b. Property tax
Imposed on property, real or personal
In proportion to its value or other reasonable
method of apportionment
Ex. Real estate tax

c. Excise/Privilege tax - (different from the excise tax
of Title VI of the NIRC)
Imposed upon performance of an act, the
enjoyment of a privilege or the engaging in an
occupation, profession or business
Ex. Income tax, VAT, estate tax, donors tax

2. As to who bears the burden or incidence
a. Direct the tax is imposed on the person who also
bears the burden thereof
Ex. Income tax, community tax, estate tax

b. Indirect imposed on the taxpayer who shifts the
burden of the tax to another
Ex. VAT, specific tax, percentage tax, customs
duties

3. As to tax rates or determination of amount
a. Specific tax imposed and based on a physical unit
of measurement, as by head, number, weight,
length or volume
Ex. Tax on distilled spirits, fermented liquors,
cigars

b. Ad Valorem - tax of a fixed proportion of the value
of property with respect to which the tax is
assessed; requires intervention of assessor.


Ex. Real estate tax, excise tax on cars, non-
essential goods

c. Mixed

4. As to purposes
a. General, fiscal or revenue - imposed for the
general purpose of supporting the government
Ex. Income tax, percentage tax

b. Special or regulatory - imposed for a special
purpose, to achieve some social or economic
objectives
Ex. Protective tariffs or customs duties

5. As to scope or authority to impose
a. National - imposed by the national government
Ex. National internal revenue taxes, custom duties

b. Municipal or local - imposed by the municipal
corporations or local governments
Ex. Real estate tax, occupation tax

6. As to graduation of rate (Three systems of taxation)
a. Proportionate - based on a fixed percentage of the
amount of the property, income or other basis to
be taxed
Ex. Real estate tax, VAT, percentage tax

b. Progressive or graduated - tax rate increases as
the tax base or bracket increases
Ex. Income tax, estate tax, donors tax

c. Regressive - tax rate decreases as the tax base
increases


II.NATIONAL INTERNAL REVENUE CODE
======================================
TOPICS UNDER THE SYLLABUS:
A. Income Taxation
B. Estate Tax
C. Donors Tax
D. Value-Added Tax (VAT)
E. Compliance Requirements (Internal Revenue
Taxes)
F. Tax Remedies under the NIRC
G. Organization and Function of the Bureau of
Internal Revenue
========================================

======================================
A. Income Taxation
========================================
1. Income Tax Systems
a. Global (unitary) Tax System the total allowable
deductions, as well as personal and additional
exemptions, in the case of qualified individuals, or the
total allowable deductions only, in the case of
corporations, are deducted from the gross income (i.e.
sum of all items of taxable income, profit and gain) to
arrive at the net taxable income subject to the
graduated income tax rates, in the case of individuals,
or to the corporate income tax rate, in the case of
corporations.

All items of gross income, deductions, personal and
additional exemptions are reported in one income tax
return and a single tax is imposed on all income
received or earned by a person irrespective of the
activities which produced the income (i.e.
compensation income, net income from business, trade
or profession).

b. Schedular Tax System different types of incomes are
subjected to different sets of graduated or flat income
tax rates. The applicable tax rates will depend on the
classification of the taxable income and the basis could
be gross income or net income (i.e. capital gains tax)

c. Semi-Schedular or Semi-Global Tax System the
compensation income, business or professional income,
capital gain and passive income not subject to final tax,
and other income are added together to arrive at the
gross income and after deducting the sum of allowable
deductions, the taxable income is subjected to one set
of graduated tax rates for an individual or normal
corporate income tax rate for corporations.

With respect to the income, the computation of income
is global while the scheduler tax system applied to the
capital gains and passive income subject to final tax at
preferential tax rates.

NOTE: Philippine income taxation is a combination of both
system but is more schedular for individual while more
global for corporation.

GLOBAL SYSTEM SCHEDULAR SYSTEM
A system which imposes a
personal tax upon the total
income of the taxpayer
A system which imposes
various types of tax on
income producing activities
Emphasizes the burden
allocation aspects
Emphasizes on revenue and
administrative aspects
Most equitable in
distributing tax burden, as
burden of an individual is
closely related to his
resources and his ability to
pay
Because of its multiple rates,
the tax burden of a person
does not respond to his
income but rather fall
fortuitously on the type of
his income
It serves as a means for
redistributing income and
wealth
This function is alien to
schedular system where in
times of plenty or in times of
need, people pay the same
fixed tax on their income
It serves as a supplementary
devise to accomplish non-
fiscal goals of the
government
Schedular system cannot
perform these functions
Administration is not quite
as easy as schedular
because one has to consider
all income from whatever
sources
Administration is simple
being confined to each
transaction or activity

2. Features of the Philippine Income Tax Law
a. Direct tax tax burden us borne by the income tax
recipient upon whom the tax is imposed.

b. Progressive tax tax rate increases as the tax base
increases; direct taxes are to be preferred and as much
as possible, indirect taxes should be minimized.
Tolentino v. Secretary of Finance, [G.R. No. 115455,
October 30, 1995]

c. Comprehensive system adopts the citizenship
principle, residence principle and the source principle

d. Semi-schedular or semi-global tax system certain
passive incomes and capital gains are subject to final
taxes at preferential rates while all other income are


added together to arrive at the gross income and after
deducting the sum of allowable deductions, the taxable
income is subjected to one set of graduated tax rates
for an individual or normal corporate income tax rate
for corporations.

3. Criteria in Imposing Philippine Tax Law
a. Citizenship principle a citizen taxpayer is subject to
income tax: (a) on his worldwide income if he resides in
the Philippines; or (b) only on his income from sources
within the Philippines, if he qualifies as non-resident
citizen.

b. Residence principle a resident alien is liable to pay
income tax on his income from sources within the
Philippines but exempt from tax on his income from
sources outside the Philippines.

c. Source principle a non-resident alien is subject to
Philippine income tax because he derives income from
sources within the Philippines such as dividend,
interest, rent or royalty.

4. Types of Philippine Income Tax

a. Net Income Tax/Taxable Income (GI Deductions
Exemptions)
b. Gross Income Tax
c. Final Income Tax (On passive income and capital gains)
d. Fringe Benefits Tax (amount of benefits to Managerial
and Supervisory Employee paid by Employer; employee
is taxed but burden is on employer)
e. Capital Gains Tax (Real property and stocks not traded
in stock market)
f. Optional Corporate Income Tax
g. Minimum Corporate Income Tax (2% of gross income)
h. Improperly Accumulated Earnings Tax
i. Preferential Rates (for special corporations)
j. Branch Profit Remittance Tax

5. Taxable Period
GENERAL RULE: The accounting period of a taxpayer is a
period of twelve (12) months.

a. Calendar Year accounting period from January 1 to
December 31 which is allowed if the:
Taxpayer is an individual
Taxpayer is a partnership
Accounting period is other than a fiscal year
Taxpayer has no accounting period
Taxpayer does not keep books.

b. Fiscal Year accounting period of twelve (12) months
ending on the last day of any month other than
December which is allowed ONLY to corporations.

c. Short Period a taxpayer may have a taxable period of
less than twelve (12) months when:
Taxpayer dies
Corporation is newly organized
Corporation changes its accounting period
Corporation is dissolved.

6. Kinds of Taxpayers
TAXPAYER TAX BASE TAXABLE ON INCOME
Resident Citizen

Taxable
Income
Within and without the
Philippines
Nonresident
Citizen
Taxable
Income
Within the Philippines
Resident Alien
Taxable
Income
Nonresident Alien
engaged in trade
or business (more
than 180 days)
Taxable
Income
Nonresident Alien
not engaged in
trade or business
(180 days or less)
Gross
Income
General
Professional
Partnership
Taxable
Income
GPP itself not taxable,
however, individual
partners will be taxed
depending on
classification
Estate and Trust
Taxable
Income
Same basis as an
individual (depending
on classification of
decedent, if estate,
trustor, if trust)
Domestic
Corporation
Taxable
Income
Within and Without
the Philippines
Resident Foreign
Corporation
Taxable
Income
Non-resident
Foreign
corporation
Gross
Income

a. Individual Taxpayers
(1) Citizens
(a) Resident Citizen citizen of the Philippines
residing therein is taxable on all income derived
from sources within and without the Philippines.

(b) Nonresident Citizen citizen of the Philippines
who are taxable only on his income from sources
within the Philippines if he:
i. Establishes the fact of his physical presence
abroad with a definite intention to reside
therein.


ii. Leaves the Philippines during the taxable year
to reside abroad, as immigrant or for
employment on a permanent basis.
iii. Works & derives income from abroad &
whose employment requires him to be
physically present abroad most of the time
(i.e. not less than 183 days) during the taxable
year.
iv. Was previously considered as nonresident
citizen & arrives in the Philippines at any time
during the taxable year to reside permanently
in the Philippines.
v. Examples of non-resident citizens:
a. Immigrant one who leaves the
Philippines to reside abroad as an
immigrant for which a foreign visa has
been secured
b. Permanent employee one who leaves
the Philippines on a more or less
permanent basis
c. Contract Worker one who leaves the
Philippines on account of a contract of
employment which is renewed from time
to time under such circumstance as to
require him to be physically present
abroad most of the time (not less than
183 days)

NOTE: The taxpayer shall submit proof to the CIR to
show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the
Philippines as the case may be.

Non-resident citizens who are exempt from tax with
respect to income derived from sources outside the
Philippines shall no longer be required to file
information returns from sources outside the
Philippines beginning 2001 [RR No. 5-2001]

For Overseas Contract Worker, the time spent abroad is
not material for tax exemption purposes. All that is
required is for the workers employment contract to
pass through and be registered with the POEA [BIR
Ruling 33-2000]

(2) Aliens
(a) Resident Alien an individual whose residence
is within the Philippines and who is not a citizen
thereof is taxable only on income derived from
sources within the Philippines.
One who comes to the Philippines for a
definite purposes which in its nature would
require an extended stay, and makes his home
temporarily in the country becomes a resident
alien
Length of stay is indicative of intention
An alien actually present in the Philippines
who is not a mere transient or sojourner is a
resident of the Philippines for purposes of the
income tax. Whether he is a transient or not is
determined by his intentions with regard to
the length and nature of his stay.
A mere floating intention indefinite as to time,
to return to another country is not sufficient
to constitute him a transient.
If he lives in the Philippines and has no
definite intention as to his stay, he is a
resident. One who comes to the Philippines
for a definite purpose which in its nature may
be promptly accomplished is a transient.
But if his purpose is of such a nature that an
extended stay may be necessary for its
accomplishment, and to that end the alien
makes his home temporarily in the
Philippines, he becomes a resident, though it
may be his intention at all times to return to
his domicile abroad when the purpose for
which he came has been consummated or
abandoned. [RR No. 2]
Loss of Residence by alien
An alien who has acquired residence in the
Philippines retains his status until he
abandons the same and actually departs from
the Philippines
A mere intention to change his residence does
not change hid status. An alien who has
acquired a residence is taxable as a resident
for the remainder of his stay in the
Philippines. [Sec. 6, RR. No. 2]

(b) Nonresident Alien an individual whose
residence is not within the Philippines and who
is not a citizen thereof but dong business therein
is taxable only on income from sources within.
(1) Engaged in trade or business an alien who
comes and stays in the Philippines for an
aggregate period of more than 180 days
during any calendar year.
(2) Not engaged in trade or business an alien
whose stay in the Philippines is 180 days or
less.

(3) Special Class of Individual Employees
(a) Aliens employed by regional or area
headquarters and regional operating
headquarters of multinational companies in the
Philippines.
(b) Aliens employed by offshore banking units.
(c) Aliens employed by petroleum contractors and
subcontractors.


(d) Minimum Wage Earner
A worker in the private sector paid the
statutory minimum wage, or to an employee
in the public sector with compensation
income of not more than the statutory
minimum wage in the non-agricultural sector
where he/she is assigned;
His earnings (i.e. SMW, holiday, overtime,
night shift differential and hazard pay) are
exempt from income tax pursuant to the
provisions of this Code and other laws,
general or special.

b. Corporations
A corporation shall include partnerships, no matter
how created or organized. Joint stock companies,
joint accounts, associations, and insurance
companies

But does not include, for the purpose of imposing
ordinary 30% (starting 2009; 35% 2006 - 2008)
corporate income tax:
i. General professional partnerships
ii. Joint venture or consortium formed for the
purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal & other
energy operations pursuant to an operating or
consortium agreement under a service contract
with the government

(1) Domestic Corporation created or organized in
the Philippines or under its laws and is liable for
income derived from sources within and without.

(2) Foreign Corporation organized and existing
under the laws of a foreign country, which
includes:
(a) Resident foreign corporation foreign
corporation engaged in trade or business within
the Philippines and is liable from sources within.

In the case of CIR v. British Overseas Airways
Corp, [G.R. No. L-65773-74, April 30, 1987], the
Court held that there is no specific criterion as to
what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be
judged in the light of its peculiar environmental
circumstances. The term implies a continuity of
commercial dealings and arrangements, and
contemplates, to that extent, the performance
of acts or works or the exercise of some of the
functions normally incident to, and in
progressive prosecution of commercial gain or
for the purpose and object of the business
organization. In order that a foreign corporation
may be regarded as doing business within a
State, there must be continuity of conduct and
intention to establish a continuous business,
such as the appointment of a local agent, and
not one of a temporary character.

(b) Nonresident foreign corporation foreign
corporation not engaged in trade or business
within the Philippines

c. Partnerships. Taxed as a corporation.
d. General Professional Partnerships
Established solely for purpose of exercising
common profession and no part of income derived
from engaging in trade or business.
As an entity, it is not subject to income tax.
i. Partners are liable for income tax on their
distributive share (computed by dividing net
income of GPP).
ii. Each partner shall report his distributive share as
part of his gross income.
iii. Individual partners are subject to regular income
tax rate on their taxable income.

Taxable/Business/Ordinary/General Partnership
i. All other partnerships no matter how created or
organized.
ii. Includes unregistered joint ventures and
business partnerships.
iii. Taxable as an entity ordinary corporate
income tax.
iv. Joint ventures are not taxable as corporations
when its purpose is: a) undertaking construction
projects; b) engaged in petroleum, coal and
other energy operation under a service contract
with the government.
v. Partners are considered stockholders; therefore,
their distributive share is taxed as dividends,
thus subject to final income tax on their gross
distributive share.

e. Estate and Trusts
Estate: property, rights and obligations of a person
which are not extinguished by his death and those
that accrues thereto; taxed in the same way as an
individual provided it is irrevocable and earns
income; what is taxed is not the property that
constitutes the trust (this was already subject to
donors tax) but the income of such property.

Trust: arrangement created by agreement under
which title to property is passed to another for
conservation or investment with the income and
the corpus/principal distributed in accordance with
the directions of the creator; to be taxable as a


separate entity, grantor must have absolutely and
irrevocably given up control and benefit over the
trust.

f. Co-ownerships
Exists whenever the ownership of an undivided
thing or right belongs to different persons. For
income tax purposes, the individual co-owners are
liable for the taxes due on their respective shares
and the co-ownership itself is not considered as a
separate taxable entity.

There is co-ownership in the following instances:
i. Two or more heirs inherit an undivided property
from a decedent;
ii. A donor makes a gift of an undivided property in
favor of two or more donees.

It is not taxable when the activities are limited
merely to preservation of the co-owned property
but the co-owners are liable for income tax in their
separate and individual capacities.

It is taxable when the income of the co-ownership
is invested by the co-owners in business creating a
partnership.

7. Income Taxation
a. Definition A tax on all yearly profits arising from
property, professions, trades, or offices, or as a tax on a
persons income, emoluments, profits and the life.
Income tax is a direct tax

b. Nature (same as Features of Philippine Income Tax Law)
(1) Direct Tax tax burden us borne by the income tax
recipient upon whom the tax is imposed.
(2) Progressive Tax tax rate increases as the tax base
increases; direct taxes are to be preferred and as
much as possible, indirect taxes should be
minimized. Tolentino v. Secretary of Finance, [G.R.
No. 115455, October 30, 1995]
(3) Comprehensive System adopts the citizenship
principle, residence principle and the source
principle
(4) Semi-Schedular or Semi-Global Tax System
certain passive incomes and capital gains are
subject to final taxes at preferential rates while all
other income are added together to arrive at the
gross income and after deducting the sum of
allowable deductions, the taxable income is
subjected to one set of graduated tax rates for an
individual or normal corporate income tax rate for
corporations.

c. General Principles
TAXPAYER TAX BASE TAXABLE ON INCOME
Resident Citizen Taxable
Income
Within and without
the Philippines
Nonresident Citizen Taxable
Income
Resident Alien
Taxable
Income
Nonresident Alien
engaged in trade or
business (more than
180 days)
Taxable
Income
Nonresident Alien
not engaged in trade
or business (180 days
or less)
Gross
Income
General Professional
Partnership
Taxable
Income
GPP itself not taxable,
however, individual
partners will be taxed
depending on
classification
Estate and Trust
Taxable
Income
Same basis as an
individual (depending
on classification of
decedent, if estate,
trustor, if trust)
Domestic
Corporation
Taxable
Income
Within and Without
the Philippines
Resident Foreign
Corporation
Taxable
Income
Non-resident Foreign
corporation
Gross
Income

8. Income
a. Definition and Nature
Income, in the broad sense, means all wealth
which flows into the taxpayer other than as a mere
return of capital. It includes the forms of income
specifically described as gains and profits, including
gains derived from the sale or other disposition of
capital assets. Income cannot be determined
merely by reckoning cash receipts, for the statute
recognizes as income determining factor other
items, among which are inventories, accounts
receivable, property exhaustion, and accounts
payable for expenses incurred. [Sec. 36, RR No. 02-
40 dated 10 February 1940]

b. When income is taxable
(1) Existence of income
For a taxable income to exist, gain or profit is
necessary where there is an exchange of
value received in the form of cash or its
equivalent as a result of rendition of service or


earnings in excess of capital invested. BIR
Ruling [DA-(C-335) 815-09] dated December
22, 2009

(2) Realization of income
(a) Tests of Realization
Under the REALIZATION PRINCIPLE, revenue
is generally recognized when both of the
following conditions are met:
The earning is complete or virtually complete;
and
An exchange has taken place.

This principle requires that revenues must be
earned before they are received. Amounts
received in advance are not treated as
revenue of the period in which they are
received, but as revenue of the future period
or period or periods in which they are earned.
These amounts are carried as unearned
revenue, that is, liabilities to transfer goods or
render services in the future until the
earning process is complete. Manila
Mandarin Hotels v. Commissioner, [CTA Case
No. 5046, March. 24, 1997]

(b) Actual v. Constructive Receipt
ACTUAL RECEIPT occurs when there is a
physical transfer of the money consideration
or its equivalent to a person.

CONSTRUCTIVE RECEIPT occurs when the
money consideration or its equivalent is
placed at the control of the person who
rendered the service without restrictions by
the payor. For example:
i. Deposit in banks which are made available
to the seller of service without restrictions;
ii. Issuance by the debtor of a notice to offset
any debt or obligation and acceptance
thereof by the seller as payment for
services rendered; and
iii. Transfer of amounts retained by the payor
to the account of the contractor. [Section
4.108-411 of RR No. 16-2005]

(3) Recognition of income

(4) Methods of accounting
(a) Cash method v. Accrual method
CASH METHOD recognition of income and
expense dependent on inflow or outflow of
cash (meaning, you recognize the income
when you actually receive the cash payment
for the sale, and you recognize the expense
when you actually pay cash for the expense).

ACCRUAL METHOD method under which
income, gains and profits are included in gross
income when earned whether received or not,
and expenses are allowed as deductions when
incurred, although not yet paid. It is the right
to receive and not the actual receipt that
determines the inclusion of the amount in
gross income.

(b) Installment payment v. Deferred payment v.
Percentage of completion
INSTALLMENT METHOD the taxpayer may
report income over the several taxable years
in which collections are made based on the
terms of payment.

Generally, the income derived on installment
sale is the proportion of installment collection
actually received during the year in relation to
the gross profit and contract price.

DEFERRED PAYMENT METHOD where the
initial payments on installment sale exceed
25% of the selling price but they may only be
realized in the subsequent year, the taxpayer
is allowed to defer reporting income for
accounting purposes but such sale is to be
considered as the equivalent of "cash" which
will be considered as taxable in the month of
sale. [Sec. 177, RR No. 2 as cited in BIR Ruling
No. 263-92 dated September 16, 1992]

PERCENTAGE OF COMPLETION METHOD a
method of recognizing the earnings derived
from long-term construction contracts. This
method requires recognition of income based
on the progress of work.

c. Tests in determining whether income is earned for tax
purposes
(1) Under the REALIZATION PRINCIPLE, revenue is
generally recognized when both of the following
conditions are met:
(a) the earning is complete or virtually complete;
and
(b) an exchange has taken place.

This principle requires that revenues must be
earned before they are received. Amounts
received in advance are not treated as revenue of
the period in which they are received, but as
revenue of the future period or period or periods


in which they are earned. These amounts are
carried as unearned revenue, that is, liabilities to
transfer goods or render services in the future
until the earning process is complete. Manila
Mandarin Hotels v. Commissioner, [CTA Case No.
5046, March 24, 1997]

(2) The "CLAIM-OF-RIGHT" DOCTRINE provides that if a
taxpayer receives earnings under a claim of right and
without restriction as to its disposition, he has received
income even though one may claim he is not entitled to
the money. Should it later appear that the taxpayer was
not entitled to keep the money, the taxpayer would be
entitled to a deduction in the year of repayment. North
American Oil Consolidated v. Burnet as cited in [BIR
Ruling DA-(C-168) 519-08 dated December 12, 2008]

(3) The ECONOMIC BENEFIT THEORY provides that
anything which benefits a person materially or
economically in whatever way is taxable under the law.
[BIR Ruling No. 123-97 dated November 10, 1997]

General Rule: in this jurisdiction, mere increase in the
value of property without actual realization, either
through sale or other disposition, is not taxable, the
only exception being that even without sale or other
disposition, if by reason of appraisal, the cost basis of
property is increased and the resultant basis is used as
the new tax base for purposes of computing the
allowable depreciation expense, the net difference
between the original cost basis and new basis due to
appraisal is taxable under the economic-benefit
principle. [BIR Ruling No. 029-98]

(4) Under the SEVERANCE TEST THEORY, income is
recognized when there is a separation of something
which is of exchangeable value. Eisner v. Macomber,
[252 US 189]

The annual increase in value of an asset is not taxable
income because such increase has not yet been
realized. The increase in value i.e., the gain, could only
be taxed when a disposition of the property occurred
which was of such a nature as to constitute a realization
of such gain, that is, a severance of the gain from the
original capital invested in the property. The same
conclusion obtains as to losses. The annual decline in
the value of property is not normally allowable as a
deduction. Hence, to be allowable the loss must be
realized. Surre Warren, Federal Income Taxation, 1950,
pp. 422-4, as cited in [BIR Ruling No. 206-90 dated
October 30, 1990]

9. Gross Income
a. Definition
All income derived from whatever source, including
(but not limited to the following items) (GRIP CARD
GPP)
Gross income derived from the conduct of trade or
business or the exercise of a profession
Rent Income
Interest Income
Prizes & winnings
Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions & similar items
Annuities
Royalties
Dividend Income
Gains derived from dealings in property
Pensions
Partners distributive share from the net income of
the GPP (distributive share from ordinary
partnerships is taxable as dividends; in this case,
the ordinary partnership has already been subject
to ordinary corporate income tax) Sec. 32.
To compute the reportable income:

Reportable
Income
=
Installment
collection
received
x
Gross
profit
Contract
Price

When Installment Method Allowed
(a) Installment sale of personal property
Personal property is regularly sold on an installment
basis by a dealer; Sec. 49(A)
Casual sale if personal property on installment basis
where the selling price exceeds P1,000 and the initial
payments do not exceed 25% of the selling price; Sec.
49(B)

NOTE: if the initial payment exceeds 25% of selling price, the
transaction is considered cash sales; considered as initial
payments are the down payments and all other payments
received by the seller during the year of sale, including excess
mortgage assumed by the buyer over the basis or cost of the
property sold.

(b) Installment sale of real property
Sale of realty (inventory) where the initial payments do
not exceed 25% of the selling price. Sec. 49(B)
Sale by individuals of real property considered as capital
asset, if initial payments do not exceed 25% of the selling
price. Sec. 49(C)


Recovery of damages (compensation for injury;
from tortuous acts)
Not
taxable
Recovery of damages pertaining to recovery or
return of loss income or profit
Taxable
Recovery of items previously deducted from
gross income (tax benefit rule)
Taxable
Forgiveness of indebtedness (if effect of entire
transaction is a reduction of purchase price of
property acquired in prior year)
Not
Taxable
Forgiveness of indebtedness (of a stockholder is
equivalent to dividend distribution)
Taxable
Forgiveness of indebtedness in exchange of a
service performed
Taxable
Income derived from illegal business (gain) Taxable
Recovery of lost earnings Taxable

BIR Ruling No. 017-2003
The transfer of land made by a person to another in
payment of services rendered in the form of attorneys fees
shall be considered as part of the gross income of the latter
valued at either the fair market value or the zonal valuation,
whichever is higher, in the taxable year received

Doctrine of Involuntary Conversion of Property
This is a doctrine provided for in US Jurisprudence (i.e.,
Herver vs. Helvering) and was adopted by the BIR in several
of its rulings.

This doctrine states that if property (as a result of its
destruction, in whole or in part, theft or seizure, or an
exercise of the power of requisition or condemnation or the
threat or imminence thereof) is compulsorily or involuntarily
converted into property similar to the property so
converted, or into money, which is forthwith in good faith
expended in the acquisition of other property, or in the
establishment of a replacement fund, no gain or loss shall
be recognized. If any part of the money is not so expended,
the gain shall be recognized, but in an amount not in excess
of the money so expended.

For example, if a taxpayer uses the proceeds received from
a property expropriated by the government to purchase
another similar asset as replacement, then the excess of the
proceeds over the cost of the expropriated property will not
be considered taxable income. Any excess of the proceeds
over the replacement asset will be considered taxable gain.

b. Concept of income from whatever source derived
Income from whatever sources derived means inclusion
of all income not expressly exempted within the class of
taxable income under the laws irrespective of the
voluntary or involuntary action of the taxpayer in
producing the gains, and whether derived from legal or
illegal sources.

EXAMPLES OF INCOME
FROM LEGAL SOURCES
EXAMPLES OF INCOME
FROM ILLEGAL SOURCES
Employees salary, bonus;
and commissions/rebates
Gambling, kidnapping,
extortion, smuggling,
embezzlement

c. Gross income v. net income v. taxable income

GROSS INCOME is described as income from
whatever source, including compensation for
services; the conduct of trade or business or the
exercise of profession; dealings in property;
interests; rents; royalties; dividends; annuities;
prizes and winnings; pensions; and a partner's
distributive share in the net income of a general
professional partnership. [Sec. 32 of the Tax Code
as cited in Commissioner of Internal Revenue v.
PAL, Inc., G.R. No. 180066, July 7, 2009]

NET INCOME means gross income less statutory
deductions and exemptions. It is referred to as
Taxable Income under the NIRC.

TAXABLE INCOME means the pertinent items of
gross income specified in this Code, less the
deductions and/or personal and additional
exemptions, if any, authorized for such types of
income by this Code or other special laws. [Sec. 31
of the Tax Code as cited in Commissioner of
Internal Revenue v. PAL, Inc., G.R. No. 180066,
July 7, 2009]

d. Classification of Income as to Source
(1) Gross income and taxable income from sources

(a) GROSS Income from Sources within the
Philippines

INCOME TEST OF SOURCE OF INCOME
Interests Residence of Debtor
Dividends a) From domestic corporation
income within
b) From foreign corporation:
Income within if more than
50% of the gross income of
such foreign corp. for the 3-yr.
period ending with the close
of the taxable year prior to
the declaration of dividends
(or for such part of such
period as the corporation has
been in existence) was
derived from sources w/in the


Philippines

Extent:
Phil GI x Dividend = Income
within
Total GI

Income without, if less than
such foreign corp. for the 3-yr.
period ending with the close
of the taxable year prior to
the declaration of dividends
was derived from sources
w/in the Philippines.
Therefore, nothing of such
dividends forms part of
income within
Services
(Compensation for
labor/personal
services)
Place of performance of service
Rentals Location of the property/interest
in such property
Royalties Place of use or location of
intangibles (such as patents,
trademarks, etc.) giving rise to
royalties
Gain on sale of Real
property
Location of property
Gain on sale of
personal property
other than shares of
stock in a domestic
corporation
purchased in one
country and sold in
another
Place of Sale
Gain on sale of shares
of stock in a domestic
corporation
Philippines regardless of where
sold

NOTE:
ROYALTIES (from property or use of property located in
Philippines), includes:
(a) Use of/the right/privilege to use in the Philippines
any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand or other like property or right
(b) Use of/the right to use in the Philippines any
industrial, commercial or scientific equipment
(c) Supply of scientific, technical, industrial or
commercial knowledge or information
(d) Supply of any assistance that is ancillary &
subsidiary to, & is furnished as a means of enabling
the application or enjoyment of, any such
property/right in (a) above, such equipment in (b)
above or knowledge/info in (c) above
(e) Supply of services by a nonresident person/his
employees in connection with the use of
prop./rights belonging to, or the installation or
operation of any brand, machinery or other
apparatus purchased from such nonresident
person
(f) Technical advice, assistance or services rendered in
connection with technical mgt./admin. of any
scientific, industrial or commercial undertaking,
venture or project
(g) The use of or the right to use:
i. motion picture films
ii. films or video tapes for use in connection with
TV
iii. tapes for use in connection with radio
broadcasting

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

(b) TAXABLE Income from Sources within the
Philippines
General Rule:
Gross Income (within the Philippines)
( - ) Deductions (attributable to GI within)
Taxable Income

By attributable is meant that the expense can be
identified as the expense that generated the
income.
For instance, if ABC Corp. manufactures clothes
and sells it in the Phils., and sells shoes in the US.
The cost of manufacturing the clothes are


attributable to the income generated from selling
the clothes. Since the income from the sale of
clothes is income within, then the expense for
manufacturing them must be deducted from gross
income within. However, the cost of selling the
shoes may not be deducted from income within
since it is not attributable to income within.
Rather, it is specifically attributable to income
without.

Deductions:
Expenses, losses & other deductions properly
allocated thereto and a ratable part of expenses,
interests, losses and other deductions effectively
connected with the business conducted exclusively
within the Philippines which cannot definitely be
allocated to some items or class of gross income

Such deductions shall be allowed only if fully
substantiated by all info necessary for its
calculation

Exceptions:
No deduction for interest paid/incurred abroad
shall be allowed unless:
a. Indebtedness was actually incurred
b. Indebtedness must be that of the taxpayer
c. Interest must be legally due and stipulated in
writing
d. Interest must be paid or incurred during the
taxable year
e. Indebtedness must be in connection w/ the
conduct or operation of trade/business in the
Philippines

(2) Gross income and taxable income from sources
without the Philippines

(a) GROSS Income from sources without the
Philippines

i. Interests (other than those derived from sources
within the Philippines)
ii. Dividends (other than those derived from sources
within the Philippines)
iii. Compensation for labor or personal services
performed without the Philippines
iv. Rentals or royalties from property located without
the Philippines or from any interest in such
property including rentals/royalties for the use
of or for the privilege of using w/o the
Philippines, patents, copyrights, secret processes
& formulas, goodwill, trademarks, trade brands,
franchises & other like properties
v. Gains, profits & income from the sale of real
property located without the Philippines

Tip: The foregoing enumeration is merely the
reverse of the enumeration of gross income from
sources within the Philippines. Hence, so long as
you know which income are considered as
income within, all else are income without.

(b) TAXABLE Income from Sources Without the
Philippines

General Rule
Gross Income (without the Philippines)
( - ) Deductions (attributable to GI without
Taxable Income

Deductions:
Expenses, losses & other deductions properly
apportioned/ allocated thereto and a ratable part
of expenses, interests, losses and other deductions
which cannot definitely be allocated to some items
or class of gross income

(3) Income partly within or partly without the
Philippines

These are:
i. Income from services rendered partly within and
partly without;
ii. Income from sale of personal property produced
(in whole or in part) within and sold without the
Philippines;
iii. Income from sale of personal property produced
(in whole or in part) without and sold within the
Philippines.

PERSONAL PROPERTY INCOME
Manufacturing Business
Produced here and sold without Income partly within,
partly without
Produced here and sold here Income within
Produced abroad and sold here Income partly within,
partly without
Trading Business
Purchased without and sold
within
Income within
Purchased within and sold
without
Income without
Purchased within and sold
within
Income within
Taxpayer sells it abroad through
a sales office
Income partly within,
partly without


As for unallocated expenses, meaning those
which are not entirely attributable to either
income within or without, such expenses shall
be allocated using the following formula:

Income without
x
Unallocated
Expense
=
Deductions
from Income
Without
Worldwide
Income

Income within
Worldwide
Income
x
Unallocated
Expense
=
Deductions
from Income
Within

e. Sources of income subject to tax
(1) Compensation Income
In general, the term "compensation" means all
remuneration for services performed by an
employee for his employer under an employer-
employee relationship, unless specifically excluded
by the Code.
Included only when the taxpayer is subject to Net
Income Tax.
(2) Fringe Benefits
Any good, service or other benefit furnished or
granted in cash or in kind by an employer to an
individual employee (except rank and file
employees) such as, but not limited to the
following:
(1) Housing
(2) Expense account
(3) Vehicle of any kind
(4) Household personnel (such as maid, driver &
others)
(5) Interest on loan at less than market rate to
the extent of the difference between the
market rate & actual rate
(6) Membership fees, dues & other expenses
borne by the employer for the employee in
social & athletic clubs or other similar
organizations
(7) Expenses for foreign travel
(8) Holiday & vacation expenses
(9) Educational assistance to the employee or his
dependents
(10) Life or health insurance & other non-life
insurance premiums or similar amounts in
excess of what the law allows

Special Rules on Fringe Benefit Tax

12. Nature of FBT
Final tax of 32% imposed on the grossed-up monetary value
of fringe benefit furnished/granted to the Employee by the
Employer, whether an individual or corp.

Fringe benefit is an income of the employee subject to FBT
but is payable by the Employer. Employer can deduct FBT
from its taxable income.

Fringe benefits are only for corporate officers /
management. For rank and file, it is called an allowance.
Allowances (benefits to rank and file) are not subject to FBT
but rather compensation subject to income tax.

13. Fringe Benefits not subject to FBT
(a) Fringe benefit authorized & exempted from tax under
special laws
(b) Contributions of employer for the benefit of the
employee to retirement, insurance & hospitalizations
benefit plan
(c) Benefits given to the rank & file employees, whether
granted under a CBA or not
(d) De minimis benefits
(e) If the grant of fringe benefits to the employee is
required by the nature of, or necessary to the trade,
business or profession of the employer; or
(f) If the grant of the fringe benefit is for the convenience
or advantage of the employer.

14. De Minimis Benefits (Last amended by RR No. 5-2011)

(a) Monetized unused vacation leave credits of private
employees not exceeding 10 days during the year
(b) Monetized value of vacation and sick leave credits paid
to government officials and employees
(c) Medical cash allowance to dependents of employees
not exceeding P750 per semester or P125 per month
(d) Rice subsidy of P1,500 or 1 sack of 50 kg rice amounting
to not more than P1,500
(e) Uniform and clothing allowance not exceeding P4,000
per year
(f) Actual yearly medical benefits not exceeding P10,000
(g) Laundry allowance of P300 per month
(h) Employee achievement awards, for length of service or
safety achievement in the form of tangible personal
property other than cash or gift certificate, with an
annual monetary value not exceeding P10,000 received
by the employee under an established written plan
which does not discriminate in favor of highly paid
employees
(i) Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum


(j) Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis

15. Convenience of the Employee Rule
When a fringe benefit is given solely for the convenience of
the employer, the fringe benefit is exempt from FBT
because the employee does not recognize income from the
benefit.

Ex. Expenditure on housing of engineer within factory
premises is not subject to FBT

General Rule: If housing is located outside, it is subject to
FBT.

Exception: If the nature of the employers business is
hazardous to health of employee, housing can be located
outside the factory without being subject to FBT.

Ex. If employee is given housing allowance in cash, this will
constitute compensation of the employee (income from
whatever source). However, if it qualifies as a Fringe Benefit,
then it will be subject to FBT and the burden is shifted to
employer.

(3) Professional Income
Income earned from the practice of profession
provided there is no employer-employee
relationship between him and his clients.
Profession is primarily any endeavor or work
requiring specialized training in the field of
learning, art, or science engaged in as a means of
livelihood or profit of an individual or group of
individuals.

(4) Income from Business
In the case of manufacturing, merchandising, or
mining business, gross income means the total
sales, less cost of goods sold, plus any income from
investments and from incidental or outside
operations or sources. In determining gross
income, deductions should not be made for
depreciation, depletion, selling expenses or losses,
or for items not ordinarily used in computing the
cost of goods sold.
In the case of sellers of services, their gross income
is computed by deducting all direct costs and
expenses as prescribed in RMC Nos. 04-03 and 30-
08.

(5) Income from Dealings in Property
(a) Types of Properties
i. Ordinary assets assets that are used
primarily in the ordinary course of trade or
business, such as
Stock in trade of taxpayer
Property which would properly be included
in an inventory of the taxpayer, if on hand
Merchandise inventory
Depreciable assets used in the
trade/business
Real property used in trade/business

ii. Capital Assets properties of a taxpayer other
than ordinary assets, such as
Stock and securities held by taxpayers other
than dealers in securities
Interest in partnership and joint venture
Goodwill
Real property not used in trade or business
like residential house and lot
Investment property

(b) Types of Gains from Dealings in Property
i. Ordinary gain (loss) v. Capital gain (loss)
Ordinary gain is derived from the sale or
exchange of ordinary assets including gains
from performance of services and business;
included in the gross income.

Ordinary loss is the excess of business
expenses and losses over the business
income of the taxpayer derived from the
sale or exchange of ordinary assets;
deductible from gross income.

Capital gain is the excess of value received
over the determined cost from the sale or
exchange of capital asset. The following are
the rules on the taxability of capital gains:
o Sale of Stocks of a domestic corporation
subject to CGT
o Gain derived from sale of real property in
the Philippines subject to CGT
o Other Capital Assets excess of the gains
from sales or exchanges of other capital
assets over the losses from such sales or
exchanges; included in the gross income

Capital Loss is the excess of the losses from
sales or exchanges of other capital assets
over the gains from such sales or
exchanges; deductible only from capital
gains.


ii. Actual gain v. Presumed gain
Actual gain is the amount realized from the
sale of the asset in excess of the cost to the
taxpayer.

Presumed gain is the presumption of the
law of the existence of a gain from sale of
real property which subjects the said sale to
CGT of 6% based on the selling price or FMV
whichever is HIGHER.

iii. Long term capital gain v. Short term capital
gain
In case of individuals, the percentages of gain
or loss to be taken into account shall be:
100% if the capital asset has been held for
12 months or less; and
50% if the capital asset has been held for
more than 12 months

In case of a corporation, the holding period is
not applicable; the capital gain and loss are to
be reported in full amount regardless of the
number of years the capital asset is held.

iv. Net capital gain, net capital loss
Net capital gain is added to ordinary gain.

Net capital loss is not deductible from
ordinary gain.

v. Computation of the amount of gain or loss
GAIN = excess of the amount realized over
the basis/adjusted basis (selling price > cost)

LOSS = excess of the basis/adjusted basis
over amount realized (cost > selling price)

AMOUNT REALIZED = money received + fair
market value of the property (other than
money, if any) received

[1] Cost or basis of property sold:

MODE OF
ACQUISITION
BASIS FOR DETERMINING
GAIN/LOSS FROM
SALE/DISPOSITION OF PROPERTY
Purchase Cost of property acquired on/after
3/1/1913
Inheritance Fair market value as of the date of
acquisition (at the time of death)
Gift the cost to the donor or to the
previous owner who did not acquire
it by gift; BUT, if such basis > FMV at
the time of the gift, the basis shall be
such FMV for the purpose of
determining the loss
Acquired for less
than adequate
consideration
Amount paid by the transferee
Property acquired
where gain or loss
is not recognized
(tax-free
exchanges)
Basis of stock or securities received
by transferor:

Same as the basis of property, stock/
securities exchanged
(1) increased by:
dividends
amount of any gain
recognized by the exchange
(2) decreased by:
money received
fair market value of the other
property received
liability assumed by the
transferee

Basis of the property transferred in
the hands of the transferee:

Same as it would be in the hands of
the transferor increased by the
amount of the gain recognized to the
transferor on the transfer.

[2] Cost or basis of the property exchanged in
corporate readjustment
Non-recognition of gain or loss if exchange
of property is solely in kind:
[a] A corporation exchanges property
solely for stocks in a corp. (both parties
to merger/consolidation), or
[b] A shareholder exchanges stock in a
corp. for the stock of another corp.
(both corps. are parties to the
merger/consolidation), or
[c] A security holder of a corp. exchanges


his securities in such corp. solely for
stock or securities in another corp.
merger/consolidation)
[d] If property is transferred to a
corporation by a person in exchange
for stock/unit of participation in such
corporation of which as a result of such
exchange such person, alone/together
with others, not exceeding 4 persons,
gains control of said corporation

[3] Recognition of gain or loss in exchange of
property
[a] General Rule: the entire amount of the
gain or loss shall be recognized upon
the sale or exchange of property

[b] Exception: no gain or loss is recognized
(tax-free exchanges)
If in pursuance to a plan of merger or
consolidation,
a corporation exchanges property
solely for stocks in a corp. (both
parties to merger/consolidation), or
A shareholder exchanges stock in a
corp. for the stock of another corp.
merger/consolidation), or
A security holder of a corp.
exchanges his securities in such
corp. solely for stock or securities in
another corp. (both corps. are
parties to the
merger/consolidation)

If property is transferred to a
corporation by a person in exchange
for stock/unit of participation in such
corporation of which as a result of such
exchange such person, alone/together
with others, not exceeding 4 persons,
gains control of said corporation

Control is ownership of stocks in a
corporation possessing at least 51% of
the total voting power of all classes of
stocks entitled to vote.

vi. Income tax treatment of capital loss
[1] Limitation on Capital Loss
[a] General rule: Allowed only to the
extent of the gains from such sales or
exchanges, hence, the net capital loss
is not deductible from ordinary
income; applicable to both
corporations and individuals.

[b] Exception: Losses from such sale
incurred by a domestic bank/trust
company substantial part of business is
receipt of deposits, sell any bond,
debenture, note or certificate or other
evidence of indebtedness issued by any
corporation, with interest coupons or
in registered form (including one issued
by the government or political
subdivision)

[2] Net Capital Loss Carry-over
Corporations cannot carry over a net
capital loss
If net capital loss is sustained in any
taxable year, such loss is treated in the
succeeding taxable year as a loss from the
sale/exchange of a capital asset held for
not more than 12 mos. (100% deduction)
Such net capital loss that should be
carried over should not exceed the net
income for the year Incurred (prior years
net income)
Example:
Net income in 2011 = P6,000
Net capital loss in 2011 = 10,000

o Amount deductible in 2012 is P6,000
only since it should not exceed the net
income of the taxable year where the
loss was incurred. Note that the
allowable capital loss to be deducted in
2012 (i.e. P6,000) is only to the extent
of the capital gain for 2012.
o Net income should be understood as
TAXABLE income according E.O. 37

vii. Dealings in Real Property situated in the
Philippines
Involves the sale or other disposition of real
property classified as capital asset located
in the Philippines by a non-dealer in real
estate.

If the sale is made by a dealer in securities
or if the real property is an ordinary asset,
the resulting gain or loss will be considered
as ordinary income.


Tax Base: the higher between
o Gross selling price
o Prescribed zonal value of real properties
determined by the Commissioner
o Fair Market Value as determined by the
Provincial and City Assessors

NOTE: Gain or loss is immaterial since there is a
conclusive presumption of gain.

An individual taxpayer has the option to treat
the capital gain as subject to 6% CGT or 5-32%
graduated tax IF the buyer of the real property is
the Government or any of its political
subdivision, or GOCC

Tax Rate: 6%

viii. Dealings in shares of stock of Philippine
Corporations
[1] Listed and traded in the stock exchange
(Stock Transaction Tax)

Tax Rate one-half of one percent (1/2 of
1%)

Tax Base Gross selling price or gross
value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed
which shall be assumed and paid by the
seller or transferor through the remittance
of the stock transaction tax by the seller or
transferor's broker.

[2] Not listed and not traded in the stock
exchange (Capital Gains Tax)

Amount of Capital Gain: Tax Rate
Not over Php100,000 5%
On any amount in excess of
Php100,000
10%

Tax Base net capital gains realized during
the taxable year from the sale, barter,
exchange or disposition of shares of stock
not listed and not traded in the stock
exchange.

[3] Dealer in securities (Ordinary Income)

The gain on this type of transaction shall be
considered as ordinary income subject to
5%-32% for individuals and 30% for
corporations.
NOTE:
The capital losses realized from the sale
or disposition of stocks not listed and
traded during the taxable year are
deductible only to the extent of capital
gains from the same type of transaction
during the same period.
If the transferor of the shares is an
individual, the rule on holding period and
capital loss carry-over will not apply.
Non-deductibility of losses on wash sales
and short sales
Gains from sale of shares of stock in a
foreign corporation are not subject to
capital gains tax but to graduated rates
either as capital gain or ordinary income
depending on the nature of the trade or
business of the taxpayer.

ix. Sale of principal residence
The term "Principal Residence" shall refer to
the dwelling house, including the land on
which it is situated, where the husband and
wife or an unmarried individual, whether or
not qualified as head of family, and
members of his family reside. Actual
occupancy of such principal residence shall
not be considered interrupted or
abandoned by reason of the individual's
temporary absence therefrom due to travel
or studies or work abroad or such other
similar circumstances. Such principal
residence must be characterized by
permanency in that it must be the dwelling
house in which, whenever absent, the said
individual intends to return.

General Rule: The address shown in the ITR
is conclusively presumed as the principal
residence.

Exception: If the taxpayer is not required to
file a return, certification from Barangay
Chairman or Building Administrator shall
suffice.

Requisites:
i. Sale or disposition of the old actual
principal residence
ii. By a citizen or resident alien
iii. Proceeds of which is utilized in acquiring
or constructing a new principal residence
within 18 calendar months from date of
sale or disposition


iv. Notify the Commissioner within 30 days
from the date of sale or disposition
through a prescribed return of his
intention to avail tax exemption
v. Can be availed of only once every 10
years
vi. The historical cost or adjusted basis of his
old principal residence shall be carried
over to the cost basis of his new principal
residence
vii. If there is no full utilization, the portion of
the gains presumed to have been realized
shall be subject to capital gains tax, and
viii. The 6% capital gains tax due shall be
deposited with an authorized agent bank
subject to release upon certification by
the RDO that the proceeds of the sale
have been utilized

(6) Passive Investment Income
As a rule, passive income subjected to final tax is
no longer included in the computation of the
annual taxable income.

TAX RATE ON CERTAIN PASSIVE INCOME
ON CITIZENS AND RESIDENT ALIENS
FINAL TAX
1. Interest under the expanded foreign
currency deposit system

[Nonresident citizens: Exempt]
7.5%
[Exempt for
nonresident
aliens engaged
in trade or
business]
2. Royalty from books, literary works, &
musical compositions
10%
3. Royalty other than above 20%
4. Interest on any current bank deposit, yield
or other monetary benefits from deposit
substitute, trust fund & similar arrangement
20%
5. Prize exceeding P10,000 20%
6. Other winnings, except Phil Charity
Sweepstakes & Lotto
20%
7. Dividend from a domestic corporation, or
from a joint stock company, insurance or
mutual fund company, & regional operating
headquarters of multinational company or
share in the distributive net income after tax
of a partnership (except a general
professional partnership), joint stock or joint
venture or consortium taxable as a
corporation
Note: Dividends from foreign corporation
Citizens - computed under Sec. 24 (a) tax
table
Resident aliens not taxable (income
derived from abroad)

10%
[20% for non-
resident aliens
engaged in
trade or
business]
8. Interest on long-term deposit or
investment in banks (with maturity of 5
years or more)
Exempt

TAX RATE ON INTEREST INCOME FROM
FOREIGN CURRENCY DEPOSIT [RR No. 10-98]
1. Interest income actually received by a
resident citizen or resident alien from FCD
7.5% final
withholding
tax
2. If deposited by an OCW or seaman or
nonresident citizen
Exempt
3. If in a bank account in the joint names
of an OCW and spouse (resident)
50% exempt/
50% final
withholding
tax of 7.5%
4. Interest income actually received by a
domestic corporation or resident foreign
corporation from FCD
7.5% final
withholding
tax

(a) Interest Income

Interest income earned on currency bank
deposits & yield or any other monetary
benefit from deposit substitutes & from trust
funds & similar arrangement

Final Tax Rate
RC, NRC, RA, NRA-ETB 20%
NRA-NETB 25%

i. Interest Income received by an individual
(except a nonresident individual) from a
depositary bank under the expanded foreign
currency deposit system

Final Tax Rate 7.5% (RC, RA)

ii. Interest income from long term deposit or
investment in the form of savings, common or
individual trust fund, deposit substitutes,
investment management accounts & other
investments evidenced by certification in such
form prescribed by the BSP

Final Tax Rate:
For RC, NRC, RA, NRA-ETB
Held for 5 years or more Exempt
4 years to less than 5 years 5%
3 years to less than 4 years 12%
less than 3 years 20%

For NRA-NETB 25%


(b) Dividend Income
Any distribution made by a corporation to its
shareholders out of its earnings or profits and
payable to its shareholders, whether in money
or in other property.

Types of Dividends:
i. Cash Dividend valued and taxable to the
extent of amount of money received by the
stockholder.
ii. Stock Dividend generally, pure stock
dividends are tax-exempt except if a
corporation cancels or redeems stock issued
as a dividend at such time and in such
manner as to make the distribution and
cancellation or redemption, in whole or in
part, essentially equivalent to the
distribution of a taxable dividend, the
amount so distributed in redemption or
cancellation of the stock shall be considered
as taxable income to the extent that it
represents a distribution of earnings or
profits.
iii. Property Dividend property of an issuing
corporation distributed as a dividend;
valued and taxable to the extent of fair
market value of the property received at
the time of declaration.
iv. Liquidating Dividend return of
stockholders investment in the form of
asset distribution upon corporate
dissolution; generally, the gain realized or
loss sustained by the stockholder, whether
individual or corporate, is a taxable income
or a deductible loss, as the case may be.
v. Script Dividend in the form of promissory
notes; taxable to the extent of its fair
market value and in the year when the
warrant was issued.

Tax Rules:
i. Tax Exempt:
Received from a Domestic Corporation
by:
Another domestic corporation
Resident Foreign Corporation
Pure Stock Dividend
Pure Liquidating Dividend

ii. Subject to Final Tax (if received from a
Domestic Corporation)
RC, NRC, RA 10%
NRA-ETB 20%
NRA-NETB 25%
Non-resident Foreign 15% subject to the rule on
Corporation tax credit for tax actually
paid and tax deemed paid.
Otherwise, subject to
regular income tax rate of
30% (35% for 2006-2008)

NOTE: Tax Sparing Credit
Tax reduced by the Philippines should be fully
applied or credited to the tax on dividend income
received by the non-resident foreign corporation
imposed by the country of its domicile. This serves
as an incentive by reducing their tax liability in the
Philippines and in their residence countries.

Ex. Domestic corporation paid cash dividend to
non-resident foreign corporation (NRFC) organized
in Brazil. This shall form part of NRFCs income
therefore taxable also in Brazil. The dividend
received shall only be taxed at 15% in the Phils
(instead of 35%) IF Brazil will reduce/credit at least
20% of the tax imposed in the Phils. from its tax
imposed in Brazil. [See Sec. 28(B)(5)(b)]

(c) Royalty income
A payment or a portion of proceeds paid to the
owner of a right for the use of such right.
i. From books, literary works and musical
sources

NRA-NETB 25%

ii. Other royalties

NRA-NETB 25%

(d) Rental income
Amount or compensation paid for the use or
enjoyment of a thing or a right and implies a
fixed sum or property amounting to a fixed
sum to be paid at a stated time for the use of
property.
Tax Treatment:
[1] Income from Leasehold Improvements
when the lessee erected or built permanent
improvements on the leased property,
which will become the property of the
lessor upon the expiration of the lease, the
value of the improvements should be
reported as income of the lessor either
through:
o Outright method the income shall
be recognized when the


improvement is completed at its fair
market value.

o Spread-out method the estimated
book value of the leasehold
improvement at the end of the lease
is spread out over the term of the
lease and is reported as income for
each year of the lease, an aliquot
part thereof.

[2] VAT added to rental/paid by the lessee
All forms of property for lease, whether
real or personal, are liable to VAT.

If advance payments are received for the
faithful performance of certain
obligations of the lessee, it is not subject
to VAT.

A security deposit that is applied to rental
shall be subject to VAT at the time of its
application

[3] Advance Payment/Long term lease
If the advance payment is a prepaid
rental without restriction as to use, the
entire amount is taxable in the year it is
received.

If the advance payment is a security
deposit which restricts the lessor as to its
use, such amount shall be taxable only at
the time it is applied.

If the advance payment is a loan deposit,
or option money for the property or a
security deposit to insure the faithful
performance of certain obligations of the
lessee, such amount shall not be taxable
to the lessor unless the lessee violates
the terms of the contract.

(7) Annuities, Proceeds from Life Insurance or Other
Types of Insurance
Annuity installment payments for life, or for a
guaranteed fixed period of time, whichever is
longer.

Amounts Excluded from Gross Income:
i. Amount received by insured as return of
premium received either during the term or at
the maturity of the terms or upon surrender
of the contract
ii. Proceeds of life insurance policies paid to the
heirs/beneficiaries upon the death of the
insured;
iii. If such amounts are held by the insurer under
an agreement to pay interest, the interest
payments shall be included in the gross
income

NOTE: The insured must die to avail of total
exemption. If he survives, there/s only partial
exemption to the extent that the proceeds
constitute return of capital (total amount of
premiums previously paid).

(8) Prizes and Awards
Amount in cash or in kind received by chance or
through luck are generally taxable unless
otherwise provided.

If the prizes are derived from sources within:
Taxpayer
P10,000 or
less
More than
P10,000
PCSO and
Lotto
Winnings
RC, NRC, RA,
NRA-ETB
5-32% 20% Exempt
NRA-NETB 25% 25% Exempt
Corporation 30% 30% Exempt

If the prizes are derived from sources without the
said amount is included in the gross income for
taxpayers who are taxable within and without
the Philippines.

Prizes and awards made primarily in recognition of
religious, charitable, scientific, educational,
artistic, literary or civic achievement, but only if:
i. Recipient was selected without any action on
his part
ii. Recipient not required to render substantial
future services as a condition of receiving the
prize/award
iii. Example: Nobel prize award
iv. Construed strictly, take note of 7 categories. It
does not include athletic achievement.
v. Contemplates a rational selection process;
cannot just be randomly selected.

Prizes, awards in sports competition sanctioned by
national sports associations whether held in
Philippines or abroad
vi. Contemplates a particular competition, not a
cumulative achievement (Ex. Sportsman of the
year award does not qualify for exemption)


(9) Pensions, retirement benefit or separation pay
Pension lump sum payment or on a staggered
basis in consideration of services rendered given
after an individual reaches the age of
retirement.

Amounts Excluded from Gross Income (for further
discussion, please see Exclusions from Gross
Income)
i. Retirement benefits received under RA 7641
(Labor Code of the Philippines)
ii. Retirement benefits received under a
Reasonable Private Benefit Plan
iii. Amount received as a consequence of
separation for any cause beyond control
(death, sickness or other physical disability)
iv. Benefits received from a foreign government
by resident of nonresident citizens or aliens
who reside permanently in the Philippines
v. Veterans benefits
vi. Benefits under SSS
vii. Benefits received from GSIS

(10) Income from any source whatever
(a) Forgiveness of Indebtedness

A GIFT if effect of entire transaction is a
reduction of purchase price of property
acquired in prior year)
Not
Taxable
A CAPITAL TRANSACTION if the forgiveness of
a stockholder is equivalent to dividend
distribution
Taxable
A TAXABLE INCOME in exchange of a service
performed
Taxable

(b) Recovery of amounts previously written off
Recovery of bad debts previously allowed as
deduction in the preceding years shall be
included as part of gross income in the year of
recovery to the extent of the income tax
benefit of such deduction. (Tax Benefit Rule)

(c) Receipt of Tax Refund or Tax Credit
Taxes, when refunded or credited, shall be
included as part of gross income in the year of
receipt to the extent of income tax benefit of
said deduction. (Tax Benefit Rule)

The following are non-taxable tax refunds:
(non-deductible taxes)
i. Philippine income tax (but FBT can be
deducted from gross income as provided for
in RR 8-98))
ii. Income tax imposed by authority of any
foreign country (except when the taxpayer
signifies his desire to avail of the tax credit
for taxes of foreign countries)
iii. Estate & donors taxes
iv. Taxes assessed against local benefits of a
kind tending to increase the value of the
property assessed
v. Final taxes, being in the nature of income
tax
vi. Special assessments

(d) Income from any source whatever
Income from whatever sources derived
means inclusion of all income not expressly
exempted within the class of taxable income
under the laws irrespective of the voluntary or
involuntary action of the taxpayer in
producing the gains, and whether derived
from legal or illegal sources, such as:
(a) Gains from expropriation of property
(b) Income derived from illegal sources
(c) Compensation for damages if it
represents payment for loss of expected
profits

f. Source rules in determining income from within and
without

Interests Residence of Debtor
Dividends c) From domestic corporation
income within
d) From foreign corporation:
Income within if more than
such foreign corp. for the 3-
yr. period ending with the
close of the taxable year
prior to the declaration of
dividends (or for such part of
such period as the
corporation has been in
existence) was derived from
sources w/in the Philippines

Extent:
Phil GI x Dividend = Income
within
Total GI

Income without, if less than
such foreign corp. for the 3-
yr. period ending with the


close of the taxable year
prior to the declaration of
dividends was derived from
sources w/in the Philippines.
Therefore, nothing of such
dividends forms part of
income within
Services
(Compensation for
labor/personal
services)
Place of performance of service
Rentals Location of the property/interest
in such property
Royalties Place of use or location of
intangibles (such as patents,
trademarks, etc.) giving rise to
royalties
Gain on sale of Real
property
Location of property
Gain on sale of
personal property
other than shares
of stock in a
domestic
corporation
purchased in one
country and sold in
another
Place of Sale
Gain on sale of
shares of stock in a
domestic
corporation
Philippines regardless of where
sold

g. Situs of Income Taxation (See page 9 under Inherent
Limitations, Territorial)
(1) From sources within the Philippines
Interests derived from sources within the
Philippines
Dividends from domestic and foreign corporations
Compensation for services performed within the
Philippines
Rentals and royalties from properties located in
the Philippines or any interest in such property
including rentals or royalties for the use of or for
the privilege of using within the Philippines,
patents, copyrights and other like properties.
Sale of Real property located in the Philippines
Sale of Personal property Gains, profit, income
derived from the purchase within and its sale
without the Phil, or from the purchase without and
its sale within shall be treated as derived entirely
from sources within the country in which the
personal property is sold. Except: the gain from the
sale of shares of stock in a domestic corporation
shall be treated as derived entirely from sources
within the Phils regardless where the said shares
are sold.

(2) From sources without the Philippines
Interest other than those derived from sources
Dividends other than those derived from sources
Compensation for services performed without the
Philippines
Rentals and royalties from property located
without the Philippines or from any interest in
such property including rentals or royalties for the
use of or for the privilege of using without the
Philippines, patents, copyrights and other like
properties.

(3) Income partly within and partly without the
Philippines
Items other than those specified above in 1) and 2)
shall be allocated or apportioned to sources within
or without the Philippines

h. Exclusions from Gross Income
(1) Rationale: it refers to items that are not included in
the determination of gross income either because:
(a) They represent return of capital or are not
income, gain or profit.
(b) They are subject to another kind of internal
revenue tax.
(c) They are income, gain or profit that is expressly
exempt from income tax.
(2) Exclusions v. Deductions v. Tax Credit
(a) Deduction: included in the gross income but
later deducted
(b) Exclusion: not included in the computation of
gross income. Refers to income received or
earned but is not taxable as income because
of exemption by virtue of a law or treaty.
(c) Tax Credit: paid beforehand and is deducted
from the tax liability of the taxpayer.
(3) Under the Constitution
Sec. 4(3) Art. XIV of the 1987 Constitution
provides that all assets and revenues of a non-
stock, non-profit educational institution used
directly, actually and exclusively for private
educational purposes shall be exempt from
taxation.


(4) Under the Tax Code (GIRL CRM)
(a) Gifts, Bequests & devises
But, income from such property shall be
included in gross income
Must be characterized by disinterested
generosity and pure liberality
Difficult to establish gift situations if there is an
Employer-Employee relationship (A
bonus/assistance in recognition of service
rendered is not exempt)
If given under a) constraining force of any
moral or legal duty or b) from the incentive of
c) an anticipated benefit of an economic nature
or where it is a return for services rendered,
proceeds cannot qualify as a gift.
Most critical is the givers intention or motive.
Can be a gift if given on account of filial
relationship.

(b) Income Exempt under Treaty
To the extent required by any treaty obligation
binding upon the Phil govt.

(c) Amount Received by Insured as Return of
Premium
Under life insurance, endowment, or annuity
contracts, received either during the term or at
the maturity of the terms or upon surrender of
the contract

(d) Life Insurance
Proceeds of life insurance policies paid to the
heirs/beneficiaries upon the death of the
insured
If such amounts are held by the insurer under
an agreement to pay interest, the interest
payments shall be included in the gross income
Insured must die to avail of total exemption. If
he survives, there/s only partial exemption
to the extent that the proceeds constitute
return of capital (total amount of premiums
previously paid).

(e) Compensation for Injuries or Sickness
Received through Accident/Health Insurance or
Workmens Compensation Act, as
compensation for personal injuries/sickness +
amount of damages received on account of
such injuries/sickness
Damages will be exempt only if they arise
together with personal injury; however, if
damages only amount to return of capital, it is
exempt (Ex. Damages from car accident exempt
only if claim includes compensation for
personal injury. If no personal injury, damages
for car wreckage will only be exempt to the
extent of the amount of the actual damage
return of capital)
Must be physical injury, not injury to rights.

(f) Retirement Benefits, Pensions, Gratuities
Retirement benefits receive under R.A. 7641
(Labor Code of the Philippines) and those
received in accordance with a Reasonable
Private Benefit Plan
(1) R.A. 7641
Conditions: (i) at least 60 years old; (ii) 5
years of service at time of retirement
Availed if there is no reasonable private
benefit plan (benefits under this option is
less)
Limited exemption: month salary for
every year of service. In RPBP, all is
excludable.

(2) Reasonable Private Benefit Plan (RPBP)
Conditions: (i) at least 50 yrs old; (ii) in the
service of same employer for at least 10
years at time of retirement
Must be approved by BIR
A pension, gratuity, stock bonus or profit-
sharing plan maintained by an employer for
the benefit of some or all of his
officials/employees, wherein contributions
are made by such employer for the
officials/employees, or both, for the
purpose of distributing to such officials &
employees the earnings & principal of the
fund thus accumulated; & provided in the
plan that no part of the income shall be
used for/be diverted to any purpose other
than for the exclusive benefit of the said
officials & employees
Service must be continuous

You can avail of the benefits only once (once
youve availed of RPBP, you cannot avail of another
RPBP); but you can avail of exemption under
another ground such as SSS or GSIS benefits.

The phrase shall not have availed of the privilege under a
retirement benefit plan of the same or another ER found in
Sec. 32(B)(6)(a) of the Tax Code means that the retiring
official must not have previously received retirement
benefits from the same or another employer who has a
qualified retirement benefit plan.


(3) Amount received as a consequence of
separation for any cause beyond control
(death, sickness or other physical disability)
Sickness must be job threatening must
render taxpayer incapable of working (Ex.
Does not include STD)
Benefits from separation due to
retrenchment come under exemption (no
choice/option; but if the Employee avails of
an optional early retirement plan, he cannot
reason that he was separated for reasons
beyond his control, therefore, he cannot
claim exemption of the benefits on this
ground but he can claim under other
grounds such as RPBP or RA 7641.

The terminal leave pay of government employees whose
employment is coterminous is exempt since it falls within
the meaning of the phrase for any cause beyond the
control of the said official or EE found in Sec. 32(B) of the
CTRP.

(4) Benefits received from a foreign government
by resident of nonresident citizens or aliens
who reside permanently in the Philippines

(5) Veterans benefits

(6) Benefits under SSS

(7) Benefits received from GSIS

(g) Miscellaneous Items
(1) income derived by foreign government (from
investments in Philippines in loans, stocks,
bonds or other domestic securities)

Refers only to passive income. If the foreign
government engages in trade, income is
taxable.

(2) income derived by govt/its political
subdivisions (from public utility or exercise
essential governmental function)

Key: Income should accrue to government; if
the income is retained by the public utility, it
is not exempt look at charter of political
subdivision/GOCC to determine whether its
income accrues to the government or not.

(3) prizes, awards in sports competition
sanctioned by national sports associations
whether held in Philippines or abroad

Contemplates a particular competition, not a
cumulative achievement (Ex. Sportsman of the
year award does not qualify for exemption)

(4) Prizes & Awards
in recognition of religious, charitable,
scientific, educational, artistic, literary or
civic achievement, but only if:
recipient was selected without any action
on his part
recipient not required to render substantial
future services as a condition of receiving
the prize/award
Example: Nobel prize award
Construed strictly, take note of 7 categories.
It does not include athletic achievement.
Contemplates a rational selection process;
cannot just be randomly selected.

(5) 13th month pay & other benefits (i.e.
productivity incentives & Christmas bonus)
the total of which does not exceed P30,000

If the benefit exceeds P30,000, only the excess
will be taxable.

(6) GSIS, SSS, Medicare, Pag-ibig contributions &
union dues of individuals

(7) Gains from the sale of bonds, debentures or
other certificates of indebtedness with a
maturity of more than 5 years

(8) Gains from redemption of shares in mutual
fund

(6) Under a Tax Treaty
Income of any kind, to the extent required by
any treaty obligation binding upon the
Government of the Philippines, is exempt from
income tax.

Business profits of a foreign corporation
organized under the laws of a treaty country
from sources within the Philippines are not
subject to Philippine income tax, unless such
profits are attributable to a permanent
establishment of the foreign corporation created
or deemed created in the Philippines.


(7) Under Special Laws
(a) R.A. 6938 Cooperative Code of the Philippines
Agricultural multi-purpose cooperative registered
with the Cooperative Development Authority is
exempt from ordinary income tax on its
transactions with members and non-members for
a period of ten (10) years from the date of
registration. Thereafter, the income tax
exemption shall be limited to business
transactions with members only.

(b) R.A. 7279 Urban Development Housing Act of
1992
The National Housing Authority is exempt from all
fees and charges of any kind, whether local or
national, while the private sector participating in
socialized housing shall be exempt from taxes on
project-related income directly realized from the
development and capital gains tax on sale of raw
lands for use in socialized housing.

(c) R.A. 7653 New Central Bank Act (as amended by
R.A. 8791)
The BSP is exempt from all national, provincial,
municipal and city taxes for a period of five years.
It is exempt from DST under RA 9243.

(d) R.A. 7916 PEZA Law (as amended)
PEZA-registered enterprises are given income tax
holidays of 6 or 4 years from the date of
commercial operations if their activities are
considered pioneer and non-pioneer,
respectively.

(e) R.A. 9178 Barangay Micro Business Enterprises
(BMBE) Act of 2002
BMBE shall be exempt from income tax from
income arising from the operation of the
enterprise.

i. Deductions from Gross Income
(1) General Rules
To be deductible as a business expense:
(a) The expense must be ordinary and necessary,
(b) It must be paid or incurred within the taxable
year, and
(c) It must be paid or incurred in carrying on a
trade or business.
(d) The expense must be substantially proved by
evidence or records the deductions claimed
under the law, otherwise, the same will be
disallowed. Esso Standard Eastern, Inc. v.
Commissioner of Internal Revenue, [G.R. Nos.
L-28508-9, July 7, 1989]

NOTE: Any income payment which is otherwise
deductible under the Code shall be allowed as a
deduction from the payor's gross income only if it is
shown that the income tax required to be withheld
has been paid.

(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers and
dealers of properties the portion of the receipt
representing the cost of goods manufacture and
sold (manufacturers) and cost of sales (dealers)
are deducted from the gross sales.

(b) Sale of stock in trade by a real estate dealer and
dealer in securities generally, the return of
capital are not allowed to be deducted from the
gross sales. Rather, they are required to deduct
the total cost specifically identifiable to the real
property or shares of stock sold or exchanged.

(c) Sale of services not allowed to deduct any
return of capital; thus the entire gross receipts
are treated as part of income.

(3) Itemized Deductions (BELT DID CRP)

i. Bad Debts
ii. Expenses
iii. Losses
iv. Taxes
v. Depreciation
vi. Interest
vii. Depletion of oil & gas wells & mines
viii. Charitable & other contributions
ix. Research & Development
x. Pension trusts

(a) Expenses
i. Requisites for deductibility
[1] Must be ordinary AND necessary (both
must be complied with) trade, business or
professional expenses only
[2] Must be paid or incurred during the taxable
year
[3] Must be paid or incurred in carrying on or
which are directly attributable to, the
development, management, operation and
or conduct of the trade, business or
exercise of a profession.

There is yet to be a clear-cut criteria or a fixed
test for determining the reasonableness of an
advertising expense. There being no hard and


fast rule on the matter, the right to a
deduction depends on a number of factors
such as but not limited to: the type and size of
business in which the taxpayer is engaged; the
volume and amount of its net earnings; the
nature of the expenditure itself; the intention
of the taxpayer and the general economic
conditions. It is the interplay of these, among
other factors and properly weighed, that will
yield a proper evaluation. We find the subject
expense for the advertisement of a single
product to be inordinately large. Therefore,
even if it is necessary, it cannot be considered
an ordinary expense deductible under the Tax
Code. [CIR v. General Foods Phils.]

ii. Substantiation Requirements: sufficient
evidence (i.e. official receipts, financial
statements or other adequate records) to
substantiate:
o Amount of expense deducted
o Direct connection/relation of the expense
to the development, management
operation &/or conduct of the trade,
business or profession of the taxpayer

iii. Classification of Expenses:
[1] Ordinary expense normal or usual in
relation to the taxpayers business and the
surrounding circumstance.

[2] Necessary expense appropriate and
helpful in the development of taxpayers
business and are intended to minimize
losses or to increase profits. These are the
day to day expenses.

While illegal income will form part of the
income of the taxpayer, expenses which
constitute bribe, kickback, and other similar
payment, being against law and public
policy are not deductible from gross
income.

[3] Business expense expenditure related to
the business that is deductible in the year
incurred, in the same taxable year.

[4] Capital expense expenditure that
improves or adds to the value of your
property or equipment. Not immediately
deductible. It is deductible over time, such
as in the form of depreciation.

NOTE: Expenses allowable to private
educational institutions: In addition to the
expenses allowable as deductions, a private
educational institution has the option to elect
either:
(a) to deduct as expense those otherwise
considered as capital outlays of
depreciable assets for the expansion of
school facilities
(b) to capitalize asset & deduct allowance for
depreciation

EXPENSES TO BE DEDUCTIBLE:
1. Amount must be reasonable.
2. Amount must be substantiated.
3. It is not contrary to law, public policy or morals.
4. Tax required to be withheld must have been paid to the
BIR

iv. Salaries, wages & other forms of
compensation for personal services actually
rendered (including grossed-up monetary
value of FB); but the final tax should have
been paid
Among the ordinary and necessary
expenses paid or incurred in carrying on any
trade or business may be included a
reasonable allowance for salaries or other
compensation for personal services actually
rendered. The test of deductibility in the
case of compensation payments is whether
they are reasonable and are, in fact,
payments purely for service.

v. Travel expenses in pursuit of trade, business/
profession
Traveling expenses include transportation
expenses and meals and lodging incurred
solely on business.

vi. Cost of materials
In general, the cost of materials or supplies
is deductible as expense when consumed or
used in business operation during the
taxable period. Unused supplies and
supplies not used for business operation are
not allowable deductions.

If the materials or supplies are used directly
or indirectly in the production of the
product, the related cost shall for part of
the cost of the product and will be
deductible as such when the products are
sold.


vii. Rentals &/or other payments as lessee, user
or possessor
On the accrual basis, rent is deductible as
expense when liability is incurred during the
period of use. While on cash basis, rent is
deductible when incurred and paid.

An advance payment is not deductible
expense of the lessee until the period is
used, although the lessor may be required
to report the amount when received.

viii. Repairs and maintenance
Incidental (minor) repairs deductible from
gross income; does not materially add to
the value of the property nor appreciably
prolong its life, but keep it in an ordinarily
efficient operating condition.

Major repairs (replacement) not
deductible since it prolongs the life of the
asset; should be capitalized.

ix. Expenses under lease agreements

x. Expenses for professionals
The cost of supplies in the practice of his
profession, expenses paid in the operation
and repair of transportation equipment
used in making professional calls, dues to
professional societies and subscriptions to
professional journals, the rent paid for
office rooms, the expenses of the fuel, light,
water, telephone, etc.; used in such offices,
and the hire of office assistants.

Amounts currently expended for books,
furniture, and professional instruments and
equipment, the useful life of which is short,
may be deducted.

But amounts expended for books, furniture,
and professional instruments and
equipment of a permanent character are
not allowable as deductions.

xi. Entertainment, amusement & recreation
expenses directly connected to the devt., mgt.
& operation & conduct of trade, business/
profession
Directly connected to the development,
management and operation of the trade,
business of profession of the taxpayer.

Subject to a limit of
o 0.50% of net sales (gross sales less sales
returns/allowances & sales discounts) for
taxpayers engaged in sale of goods or
properties;
o 1% of net revenue (gross revenue less
discounts) for those engaged in sale of
services, including exercise of profession
and use or lease of properties. [RR No.
10-02]

xii. Political campaign expenses

xiii. Training expenses

(b) Interest
i. Requisites for deductibility, as implemented
by Rev. Reg. 13-2000:
[1] There must be an indebtedness
[2] There should be an interest expense paid or
incurred upon such indebtedness
[3] Indebtedness must be that of the taxpayer
[4] Indebtedness must be connected with the
taxpayers trade, business or exercise of
profession
[5] Interest expense must have been paid or
incurred during the taxable year
[6] Interest must have been stipulated in
writing
[7] Interest must be legally due
[8] Interest payment arrangement must not be
between related taxpayers
[9] Interest must not be incurred to finance
petroleum operations
[10] In case of interest incurred to acquire
property used in trade, business or exercise
of profession, the same was not treated as a
capital expenditure
[11] The interest is not expressly disallowed by
law to be deducted from gross income of
the taxpayer.

NOTE: General Rule On Deduction
The amount of interest expense paid or incurred
within a taxable year of indebtedness in
connection with the taxpayers trade, business, or
exercise of profession shall be allowed as a
deduction from the taxpayers gross income.


LIMITATION ON DEDUCTION
Interest expense shall be reduced by an amount
equal to the following % of interest income
subjected to final tax:

1/1/00 38%
1/1/06 42%
1/1/09 33%

Example: Year 2012
Interest expense = P2,000
Interest income subject to final tax = P1,500
Deductible interest expense = P1,505
[P2,000 (P1,500 x 33%)]

The objective of the limitation is to discourage tax
arbitrage on back-to-back loans, the proceeds of
which are invested in income earning interest that
is subject to 20% final tax.

TAX ARBITRAGE - is a method of borrowing
without entering into a debtor/creditor
relationship, often to resolve financing and
exchange control problems. In tax cases, back-to-
back loan is used to take advantage of the lower
rate of tax on interest income and a higher rate of
tax on interest expense deduction.

ii. Deductible Interest Expense:
[1] Interest on taxes, such as those paid for
deficiency or delinquency, since taxes are
considered indebtedness (provided that the
tax is a deductible tax, except in the case of
income tax). However, fines, penalties, and
surcharges on account of taxes are not
deductible. The interest on unpaid business
tax shall not be subjected to the limitation
on deduction of 42%/33%.
[2] Interest paid by a corporation on scrip
dividends.
[3] Interest on deposits paid by authorized
banks of the BSP to depositors, if it is shown
that the tax on such interest was withheld.
[4] Interest paid by a corporate taxpayer who is
liable on a mortgage upon real property of
which the said corporation is the legal or
equitable owner, even though it is not
directly liable for the indebtedness.

iii. Non-deductible Interest Expense:

[1] Interest paid in advance through discount
or otherwise (in case of cash basis taxpayer)
Allowed as deduction in the year the debt
is paid
If indebtedness is payable in periodic
amortizations, int. is deducted in
proportion of the amt. of the principal
paid.

[2] Payments made:
Between members of a family (include
only brothers & sisters, spouse,
ancestors, & lineal descendants)
Between an individual & a corp. more
than 50% in value of outstanding stock is
owned by such individual (except in case
of distributions in liquidation)
Between 2 corps. More than 50% in value
of outstanding stock owned by same
individual, if either one is a personal
holding co. or a foreign holding co. during
the taxable yr. preceding the date of
sale/exchange
Between grantor & fiduciary of any trust
Between fiduciary of a trust & the
fiduciary of another if same person is a
grantor to each trust
Between fiduciary & a beneficiary of a
trust
Indebtedness is incurred by a service
contractor to finance petroleum corp.
Interest on preferred stock which in
reality is dividend
Interest on unpaid salaries and bonuses
Interest calculated for cost keeping on
account of capital or surplus invested in
business which does not represent
charges arising under interest-bearing
obligation
Interest paid when there is no stipulation
for the payment thereof

iv. Interest subject to special rules
[1] Interest paid in advance
[2] Interest periodically amortized
[3] Interest incurred to acquire property used
in trade or business

At the option of taxpayer, the interest may be
allowed as:
as expense (outright deduction)
as capital expenditure (subject to
depreciation)

(c) Taxes
The term taxes refers to national and local
taxes, and means TAXES PROPER, hence, no
deductions are allowed for:


[1] Interests*
[2] Surcharges
[3] Penalties or fines incident to delinquency
(Sec. 80, Rev. Reg. 2)

* Interest incurred or paid by a taxpayer
on all unpaid business-related taxes shall be
fully deductible from gross income and shall
not be subject to the limitation on deduction
of 42%/33% of interest income. (sec. 4(c) Rev.
Reg. 13-00)

i. Deductible Taxes
All taxes, national, or local, paid or incurred
during the taxable year in connection with the
taxpayers profession, trade or business, are
deductible from gross income.

ii. Requisites for Deductibility
[1] It must be paid or incurred within the
taxable year
[2] It must be paid or incurred in connection
with the taxpayers trade, profession or
business
[3] It must be imposed directly on the taxpayer
[4] It must not be specifically excluded by law
from being deducted from the taxpayers
gross income

iii. Non-Deductible Taxes:
[a] Philippine income tax (but FBT can be
deducted from gross income as provided for
in RR 8-98)
[b] Income tax imposed by authority of any
foreign country (except when the taxpayer
signifies his desire to avail of the tax credit
for taxes of foreign countries)
[c] Estate & donors taxes
[d] Taxes assessed against local benefits of a
kind tending to increase the value of the
property assessed
[e] Final taxes, being in the nature of income
tax
[f] Special assessments

Taxes, when refunded or credited, shall be
included as part of gross income in the year
of receipt to the extent of income tax
benefit of said deduction. (Tax Benefit Rule)

For NRAETB and RFC, taxes paid or incurred
are allowed as deductions only if and to the
extent that they are connected from
income within the Philippines.

Exceptions to the rule that only such
persons on whom the tax is imposed by law
can claim deduction thereof:
(a) Taxes of shareholder upon his interest
as such and paid by the corporation
without reimbursement from him, can
be claimed by the corporation as
deduction.
(b) A corporation paying the tax for the
holder its bonds or other obligation
containing a tax-free covenant clause
cannot claim deduction for such taxes
paid by it pursuant to such covenant.

iv. Limitations on Deductions
In case of a nonresident alien individual
engaged in trade/business in the Philippines,
taxes to be deducted shall be allowed only if &
to the extent that they are connected with
income from sources w/in the Philippines

v. Tax Credit a right of an income taxpayer to
deduct from income tax payable the foreign
income tax he has paid to his foreign country
subject to limitation.

[1] Who can Claim?
[a] Citizen
[b] Domestic Corporation
[c] Member of GPP
[d] Beneficiary of an estate or trust

[2] Who cannot claim?
[a] Alien individual (except resident aliens
deriving income from within & without the
Phils., if there is reciprocity)
[b] Foreign Corporation

[3] Substantiation Requirements The tax credit
shall be allowed only if the taxpayer
establishes to the satisfaction of the
Commissioner the following:
[a] The total amount of the income derived
from sources without the Philippines;
[b] The amount of income derived from each
country, the tax paid or incurred to which is
claimed as a credit under said paragraph,
such amount to be determined under rules
and regulations prescribed by the Secretary
of Finance; and
[c] All other information necessary for the
verification and computation of such
credits.


[4] What amount may be taken as tax credit:
The amount of tax credit allowed is equivalent
to the tax paid or incurred to a foreign country
during the taxable year but NOT TO EXCEED
THE FOLLOWING LIMITS:
[a] Per Country Limitation Amount of credit
to tax paid/incurred to any country shall not
exceed same proportion of the tax against
which such credit is taken

Country
Limit
=
TI per country (outside)
x
Philippine
Income Tax TI from all sources

[b] Global Limitation Total amount of credit
shall not exceed same proportion of tax
which such credit is taken

Global
Limit
=
Total TI from outside
x
Philippine
Income Tax TI from all sources

NOTE: Allowable Tax Credit shall be the LOWER
of the actual tax paid to the foreign country, per
country limitation and global limitation.

[5] When Credit for Taxes may be Taken:
The credit for taxes provided by Section
34(C)(3) to (7) may ordinarily be taken either
in the return for the year in which the taxes
accrued or on which the taxes were paid,
dependent upon whether the accounts of the
taxpayer are kept and his returns filed upon
the accrual basis or upon cash receipts and
disbursements.

vi. Tax Credit v. Deduction
Deduction: included in the gross income
but later deducted.

Tax Credit: paid beforehand and is
deducted from the tax liability of the
taxpayer.

EXAMPLE:

Particulars Net
Income
Actual Foreign
Tax Paid in
Philippine Peso
Phil Income
Tax due at
30%
Country A P50,000 P18,000
Country B 40,000 P11,000
Phil-source
income
110,000
Tot NI all P200,000 P29,000 P60,000

A. PER COUNTRY LIMITATION
Country A : [(50,000/200,000 x 60,000)] = 15,000
Country B : [(40,000/200,000 x 60,000)] = 12,000
** maximum tax credit limit

B. GLOBAL LIMITATION
[(90,000/200,000 x 60,000)] = P27,700

Computation of Allowable tax credit
Tax Due on P200,000 P60,000
Less: Allowable Foreign Tax Credit
Country A P15,000
Country B 11,000 26,000
Tax Still Due P34,000
** Cannot exceed maximum tax credit limit
NOTE: For limitation A, Country A, 15K is lower than the
actual; Country B, 11K (actual) is the lower amount; get the
total of all per country amounts. For limitation B, 27.7K is
lower than the total of the actual amount. Comparing the
total of limitation A vs. B, the former is the lower amount so
that is the allowable tax credit.

(d) Losses
i. Requisites for deductibility of ordinary loss
[1] Loss must be of the taxpayer
[2] Actually sustained during the taxable year
[3] Not compensated for by insurance or other
forms of indemnity
[4] Incurred in trade, business or profession OR
property connected w/ trade, business or
profession lost through fires, storm,
shipwreck, or other casualties OR from
robbery, theft or embezzlement
[5] Evidenced by a completed transaction
[6] Not claimed as a deduction for estate tax
purposes
[7] Notice of loss must be filed with the BIR
within 30 days but not more than 45 days
from the date of discovery of the casualty or
robbery, theft or embezzlement


The taxpayers failure to record in his books the
alleged loss proves that the loss had not been
suffered, hence, not deductible. [City Lumber vs.
Domingo]

ii. Category and Types of Losses
[1] Ordinary Losses

incurred in trade or business, or practice of
profession
of property connected with the trade,
business, or profession, if the loss arises
from fires, storms, shipwreck or other
casualties, or from robbery, theft or
embezzlement

NOTE: Rev. Reg. No. 12-77 requires that a
declaration of loss should be filed with the BIR
within 45 days after the occurrence of the
casualty, robbery, etc. Failure to submit the
declaration within 45 days will result in the
disallowance of the loss.

[2] Net Operating Loss Carry-over
Refers to the excess of allowable
deductions over gross income of the
business for any taxable year, which has not
been previously offset as deduction from
gross income.

The net operating loss of a business shall be
carried over as deduction from gross
income for the next 3 consecutive taxable
years immediately following the year of
such loss.

The 3 year period shall continue to run
notwithstanding that the corporation paid
its taxes under MCIT, or that the individual
availed of the Optional Standard Deduction.

For mines other than oil & gas wells, if
loss incurred in any of the 1st 10 yrs. of
operation, carry-over for the next 5 yrs.

Requirements:
[a] the taxpayer was not exempt from
income tax in the year of such net
operating loss;
[b] the loss was not incurred in a taxable
year during which the taxpayer was
exempt from income tax, and
[c] there has been no substantial change in
the ownership of the business or
enterprise.

There is no substantial change in the
ownership of the business when:
- not < 75% in nominal value of
outstanding issued shares is held by same
persons
- not < 75% of paid up capital of
corp. is held by same persons

NOTE: No actual change in ownership is
involved in when: (1) in case the transfer
involves change from direct ownership to
indirect ownership (2) merger of the
subsidiary into the parent company.

[3] Special Types of Losses
[a] Capital Losses deductions allowed only to
the extent of the gains from such sales or
exchanges of capital assets (does not apply
to banks and trust companies)
losses from sale or exchange of capital
assets
losses resulting from securities becoming
worthless and which are capital assets
losses from short sales of property
losses due to failure to exercise privilege
or option to buy or sell property

[b] Losses from wash sales of stock or securities
30 days before and after the date of the
sale, the taxpayer has acquired or has
entered into a contract or option so as to
acquire, substantially identical
stock/securities
General rule: NOT deductible unless claim
is made by a dealer in stock/securities &
made in ordinary course of business

[c] Wagering Losses - allowed only to the
extent of the gains from such losses

[d] Abandonment Losses
In case of abandoned petroleum
operations, accumulated expenditures
incurred prior to 1/1/79 allowed as
deduction only from income derived from
same contract area; notice of
abandonment shall be filed with
Commissioner
In case of abandoned producing well,
unamortized cost & undepreciated costs
of equipment directly used, allowed as
deduction in the yr. of abandonment


[e] Losses from Illegal Transactions - NOT
deductible

[f] Losses due to voluntary removal of building
incident to renewal or replacements
deductible expense from gross income

[g] Loss of useful value of capital assets due to
charges in business conditions deductible
expense only to the extent of actual loss
sustained (after adjustment for
improvement, depreciation, and salvage
value)

[h] Losses from sales or exchanges of property
between related taxpayers NOT
deductible as provided under Section 36 of
the NIRC but the gains are taxable

(e) Bad Debts
Debts due to the taxpayer actually
ascertained to be worthless and charged off
during the year may be claimed as deduction.

Actually ascertained to be worthless
Worthlessness is not determined by an
inflexible formula or slide rule calculation but
upon the exercise of sound business
judgment. The determination of
worthlessness must depend upon the
particular facts and circumstances of the case.
It must be uncollectible even in the future.
Collector v. Goodrich International Rubber
Co., [21 SCRA 1336]

i. Requisites for Deductibility:
[1] Existing indebtedness due to the taxpayer
which must be valid and legally
demandable,
[2] Connected with the taxpayers trade,
business or practice of profession,
[3] Must not be sustained in a transaction
entered into between related parties,
[4] Actually ascertained to be worthless and
uncollectible as of the end of the taxable
year, and
[5] Actually charged off in the books of
accounts of the taxpayer as of the end of
the taxable year.

NOTE: Tax Benefit Rule - Recovery of bad debts
previously allowed as deduction in the preceding
yrs. shall be included as part of gross income in the
yr. of recovery to the extent of the income tax
benefit of such deduction

ii. Ascertainment of Worthlessness (proof of two
facts):
Taxpayer did in fact ascertain the debt to be
worthless in the year for which the
deduction was sought; [Collector v.
Goodrich]
That in so doing, he acted in good faith
[Collector v. Goodrich]
Depends upon the facts and the
circumstances of the case
Good faith does not require that the
taxpayer be an incorrigible optimist but on
the other hand, he may not be unduly
pessimistic

(f) Depreciation
Gradual diminution in the service or useful value
of tangible property due from exhaustion, wear
and tear and normal obsolescence. Also applies to
amortization of intangible assets, the use of
which in trade or business is of limited duration.
[1] The allowance for depreciation must be
reasonable.
[2] It must be for property used for
employment in trade or business or out of
its not being used temporarily during the
year.
[3] The allowance must be charged off.
[4] Schedule on the allowance must be
attached to the return.

ii. Methods of Depreciation
[1] Straight-line method:

cost - salvage value
=
Depreciation
Expense estimated life

Example: cost=15,000; SV=5,000; est. life=5
years

15,000 - 5,000
= 2,000
5 years

[2] Declining balance method:

cost - accum. dep.
x Rate =
Depreciation
Expense estimated life

Example: cost = 15,000; SV = 5,000; est. life = 5
years; depreciation rate 200%


Year 1:
15,000 - 0
x 200% = 6,000
5

Year 2:
15,000 - 6,000
x 200% = 3,600
5

[3] Sum of years digits method:

nth period
x cost - sv* =
Depreciation
Expense sum of year
*sv = salvage value

Example: cost = 15,000; SV = 5,000; est. life = 5
years
Sum of years = 5 + 4 + 3 + 2 + 1 = 15

Year 1:
5
x 15,000 - 5,000 = 3,333.33
15

Year 2:
4
x
15,000 -
5,000
= 2,666.67
15

iii. Special Types of Depreciation
[1] Petroleum operations
Depreciation of all properties directly
related to production of petroleum shall
be allowed under straight-line or
declining-balance (DB) method
May shift from DB method to SL method
Useful life: 10 yrs. or shorter life as may
be permitted by Commissioner
Useful life of prop. not used directly: 5
yrs. under straight-line method

[2] Mining operations
depreciation on all properties in mining
operations other than petroleum
operations at the normal rate if expected
life is 10 yrs or less.
if expected life is > 10 yrs., depreciate
over any no. of yrs. bet. 5 yrs. & the
expected life

NOTE: Depreciation is deductible by non-resident
aliens engaged in trade/business or non-resident
corporation only when such property is located in the
Philippines

The BIR and the taxpayer may agree in writing on the
useful life of the property to be depreciated. The
agreed rate may be modified if justified by facts or
circumstances. The change shall not be effective
before the taxable year on which notice in writing by
certified mail or registered mail is served by the party
initiating.

(g) Depletion of oil and gas wells and mines
The reduction of cost or value of natural
resources such as oil & gas wells, & mines as the
resources are converted into inventories.

No further allowance is granted if the allowance
for depletion = the capital invested

i. Intangible exploration & development drilling
cost:
deduct in the yr. incurred if incurred for
non-producing wells & mines
deduct in full OR capitalize & amortize if
incurred for producing wells & mines in
same contract area

ii. Election to deduct exploration & development
expenditures for mining operations:
[1] deduct as cost
[2] deduct as adjusted basis provided, total
amt. deductible shall not exceed 25% of net
income
actual exploration & development expenditures
net of 25% of NI shall be carried forward to
succeeding yrs. until fully deducted

exploration expenditures = incurred for the
purpose of ascertaining the existence, location,
extent, or quality of any deposit of ore/other
mineral & pd/incurred before the beginning of
the development stage of the mine/deposit

development expenditures = incurred during
development stage of the mine or other natural
deposits

NOTE: Depletion of Oil and Gas wells and mines
deductible by a non-resident alien or foreign
corporation only in respect of oil and gas wells or
mines located in the Phils.


(h) Charitable & other contributions
[1] The contribution or gift must be actually
paid
[2] It must be given to the organizations
specified in the code
[3] The net income of the institution must not
inure to the benefit of any private
stockholder or individual

ii. Valuation
The amount of any charitable contribution of
property other than money shall be based on
the acquisition cost of said property.

iii. Contributions subject to limitations:
[1] Contributions or gifts actually paid or made
w/in the taxable year
[2] To or for the use of the government or its
agencies or any political subdivision,
exclusively for public purpose, or
[3] To accredited domestic corps./associations
organized and operated exclusively for:
[a] Religious
[b] Charitable
[c] Scientific
[d] Youth & sports development
[e] Cultural or educational purposes
[f] For the rehabilitation of veterans
[g] To social welfare institutions
[4] To NGOs
No part of NI inures to the benefit of any
private stockholder or individual

iv. Limitation
[1] For individual: not more than 10% of
taxable income before deducting the
charitable contributions

[2] For corporation: not more than 5 % of
taxable income before deducting the
charitable contributions

v. Contributions deductible in full
[1] Donations to the govt. to finance, to
provide for, or to be used in undertaking
priority activities in education, health, youth
& sports development, human settlements,
science & culture & in economic
development according to National Priority
Plan determined by NEDA
If not in accordance w/ annual priority
plan, donation is subject to limitations in
(a) above

[2] Donations to certain foreign institutions or
international organizations - in compliance
with agreements, treaties, or commitments
entered into by Phil. government and
foreign institutions/international
organizations

[3] Donations to accredited NGOs
Organized & operated exclusively for
scientific, educational, character-building
& youth & sports development, health,
social welfare, cultural or charitable
purposes or combination thereof (no part
of net income inures to the benefit of any
private individual)

Must be utilized within 15th of the 3rd
month after the close of the taxable year,
directly for the active conduct of activities
constituting the purpose of the
organization, unless period is extended

Administrative expense should not be
greater than 30% of total expenses

Upon dissolution, assets would be
distributed to another nonprofit domestic
corp. organized for similar purpose or to
the state for public purpose or to another
org. to be used in same purpose as the
dissolved corp.

(i) Research and Development
Paid or incurred by a taxpayer during the taxable
yr. in connection with his trade, business or
profession as ordinary & necessary expenses
which are not chargeable to capital account;
allowed as deduction during the taxable year
when paid/incurred.
i. Requisites for Deductibility (as an Expense)
[1] Paid or incurred during the taxable year
[2] Ordinary and necessary expenses in
connection with trade business or
profession
[3] Not chargeable to capital account

ii. Requisites for amortization of certain R&D
expenditures
(treated as deferred expenses):
[1] paid/incurred by the taxpayer in connection
w/ his trade/business
[2] not treated as expense
[3] chargeable to capital acct. but not
chargeable to property of a character w/c is
subject to depreciation/depletion


[4] amortized over a period of not < 60 months
as may be elected by the taxpayer

iii. This subsection on research and development
cost is not applicable to:
[1] Any expenditure for the acquisition or
improvement of land, or for the important
of prop. to be used in connection with R&D
of a character subject to depreciation and
depletion
[2] Any expenditure paid/incurred for the
purpose of ascertaining the existence,
location, extent, or quality of any deposit of
ore or other mineral, including oil or gas
(exploration exp.)

(j) Pension trusts (Past Service Cost)
Pension Trust Contributions a deduction
applicable only to the employer on account of
its contribution to a private pension plan for
the benefit of its employee. This deduction is
purely business in character.

Established or maintained by employer to
provide for the payment of reasonable
pensions to his employees.

Normal Cost the contributions during the
taxable year to cover the pension liability
accruing during the taxable year. Allowed as a
deduction under Sec. 34(A)(1) as expenses in
general.

Past Service Cost amount in excess of the
above contribution (covering pension liability
pertaining to old employees which accrued
during the years previous to the
establishment of the pension trust); allowed
as deduction only if:
o such amount not been allowed as a
deduction
o apportioned in equal parts over 10
consecutive years beginning with the year
in which the payment is made.

i. Requisites for Deductibility of Past Service
Cost
[1] The employer must have established a
pension or retirement plan to provide for
the payment of reasonable pensions to his
employees;
[2] The pension plan is reasonable and
actuarially sound;
[3] It must be funded by the employer;
[4] The amount contributed must be no longer
subject to the control and disposition of the
employer;
[5] The payment has not yet been allowed as a
deduction; and
[6] The deduction is apportioned in equal parts
over a period of 10 consecutive years
beginning with the year in which the
transfer of payment is made.

ii. Summary rules on Retirement Benefits
Plan/Pension Trust:
EXEMPT FROM INCOME TAX employees
trust under Sec. 60(B)
EXCLUSION FROM GROSS INCOME amount
received by the employee from the fund
upon compliance of certain conditions under
Sec. 32(B)(6)
DEDUCTION FROM GROSS INCOME

NOTE: Amounts contributed by the employer during
the taxable year into the pension plan to cover the
pension liability accruing during the year
considered as ordinary and necessary expenses
under Sec. 34(A)(1).

1/10 of the reasonable amount paid by the
employer to cover pension liability applicable to the
years prior to the taxable year, or so paid to place
the trust in a sound financial basis deductible
under Sec. 34 (J).

(k) Premium payments on health and/or
hospitalization insurance
An amount of premium on health and or
hospitalization paid by an individual taxpayer
(head of family or married), for himself and
members of his family during the taxable year.
[1] Insurance must have actually been taken;
[2] The amount of premium deductible from
gross income does not exceed P2,400 per
family or P200 per month during the
taxable year;
[3] That said family had a gross income of not
more than P250,000 for the taxable year;
[4] In case of married individuals, only the
spouse claiming additional exemption shall
be entitled to this deduction.

ii. Who may avail of this deduction?
[1] Individual taxpayers earning purely
compensation income during the year.
[2] Individual taxpayers earning business
income or in practice of his profession
whether availing of itemized or optional


standard deductions during the year.
(4) Optional standard deduction (OSD) [As amended
by R.A. 9504 which took effect July 6, 2008]
(a) An individual, other than a nonresident alien,
may elect a standard deduction of 40% of his
gross sales or gross receipts. (prior to RA 9504,
rate is 10% of gross income)
(b) In the case of a corporation, it may elect s
standard deduction of 40% of its gross income as
defined in Section 32 of the Tax Code. (prior to
RA 9504, no OSD benefit for corporation)

Such election should be signified in his return &
shall be irrevocable for the taxable year for
which the return was made
(5) Personal and Additional Exemption
(a) Basic Personal Exemption
Pursuant to amendments under RA No. 9504,
there shall be allowed personal exemptions
amounting to P50,000 for each individual
taxpayer regardless of whether he is single, head
of the family or married.

Note: Prior to R.A. 9504, personal exemptions are
P20,000 for Single, P25,000 for Head of the Family
and P32,000 for each Married individual.

(b) Additional Exemptions for Taxpayers with
Dependents
There shall also be allowed an additional
exemption of P25,000 for each dependent
not exceeding four.

Note: Prior to R.A. 9504, additional exemption
amounted to only P8,000 each dependent.

A dependent means:
o A legitimate, illegitimate or legally adopted
child
o Chiefly dependent upon and living with the
taxpayer
o Not married, not gainfully employed, not
more than 21 years of age
o Except: If such dependent, regardless of
age, is incapable of self-support because of
mental or physical defect.

In case of married individuals, the additional
exemption shall be claimed by only one of the
spouses.

The proper claimant of the exemption would
generally be the husband, except if the
husband is (1) unemployed (2) working abroad
like an OFW or seaman (3) husband waived his
right to the exemption.

For legally separated spouses, the additional
exemption may be claimed only by the spouse
who has custody of the child.
However, the total amount of additional
exemption that may be claimed by both shall not
exceed 4.

NOTE: Parents, brothers, and sisters may not
entitle the taxpayer to the additional exemption
of P25,000.

Non-resident aliens engaged in trade or
business (NRAETB) may be entitled to personal
exemptions (but not additional exemption)
subject to reciprocity such that:
i. The country from which he is a citizen has
an income tax law; and
ii. The income tax law of his country allows
personal exemption to citizens of the
Philippines not residing therein but deriving
income therefrom and not to exceed the
amount allowed in NIRC.

o The personal exemption shall be equal to
that allowed by the income tax law of the
country to a citizen of the Philippines not
residing therein, or the amount provided in
the NIRC, whichever is LOWER.

NOTE: Non-resident aliens not engaged in trade
or business cannot claim any personal or
additional exemption.

(c) Individuals not entitled to personal and
additional exemptions:
i. Non-resident alien NOT engaged in trade or
business
ii. Alien individual employed by Regional or Area
Headquarters of Multinational Companies
iii. Alien Individual employed by Offshore
Banking Units
iv. Alien Individual employed by Petroleum
Service Contractor and Subcontractor

(d) Status-at-the-end-of-the-year-rule
i. The death of the taxpayer during the taxable
year shall not affect the amount of personal
and additional exemptions his estate can
claim, as if he died at the end of such year
ii. If the taxpayer got married or should have


additional dependent (child born within the
year) during the taxable year, he may claim
the corresponding personal exemptions in full
for such year
iii. If the spouse should die or any of the
dependents become twenty one years of age,
or become gainfully employed during the
taxable year, the taxpayer may still claim the
same exemptions as if he/she died, or became
twenty one years old or became gainfully
employed at the close of such year.
(6) Items not deductible
(a) General Rules:
An expense will only be allowed as deduction only
if the tax required to be deducted and withheld
therefrom has been remitted to the BIR.

(b) Specific Items enumerated under Section 36:
i. Personal, living or family expenses
ii. Amounts paid out for new buildings or for
permanent improvements or betterments
made to increase the value of any property or
estate (not applicable to intangible drilling and
development costs incurred in petroleum
operation)
iii. Amounts expended in restoring property or in
making good the exhaustion thereof for w/c
an allowance is or has been made
iv. Premiums on life insurance policy when the
taxpayer is directly/indirectly a beneficiary
under such policy
v. No deduction shall be allowed in Losses from
Sales or Exchanges of Property
directly/indirectly:
[1] Between members of a family (include only
brothers and sisters, spouse, ancestors, &
lineal descendants)
[2] Between an individual and a corporation
more than 50% in value of outstanding
stock is owned by such individual (except in
case of distributions in liquidation)
[3] Between 2 corporations more than 50% in
value of outstanding stock owned by same
individual, if either one is a personal holding
company or a foreign holding company
during the taxable year preceding the date
of sale/exchange
[4] Between grantor & fiduciary of any trust
[5] Between fiduciary of a trust & the fiduciary
of another if same person is a grantor to
each trust

j. Exempt Corporations
Income received by the following corporations shall
be exempted from tax:
(1) Government educational institutions
(2) Non-stock non-profit educational institutions
(3) Non-profit labor, agricultural or horticultural
organizations
(4) Association of farmers, fruit growers, and the like
whose primary function is to market the product of
their members
(5) Organizations with a purely local operation whose
income is derived only from assessments, dues and
fees collected from their members to meet
operational expenses
(6) Non-stock corporation or association organized
and operated exclusively for religious, charitable,
scientific, athletic or cultural purposes, or for the
rehabilitation of veterans; provided that no
individual person owns its assets or no individual
person receives benefit on its earnings
(7) Non-stock/non-profit mutual savings bank or non-
stock/non-profit cooperative bank
(8) Non-profit civic league or organization operating
exclusively for the benefit of its members
(9) Cemetery company owned and operated
exclusively for the benefit of its members
(10) Non-profit business league, chamber of commerce,
or board of trade
(11) Associations, orders, beneficiary societies
operating for the exclusive benefits of their
members

10. Taxation of Resident Citizens, Non-resident Citizens and
Resident Aliens

a. General Rule
(1) Resident Citizen citizen of the Philippines residing
therein is taxable on all income derived from
sources within and without the Philippines.

(2) Nonresident Citizen citizen of the Philippines
who are taxable only on his income from sources
within the Philippines if he qualifies as a non-
resident citizen.

(3) Resident Alien an individual whose residence is
within the Philippines and who is not a citizen
thereof is taxable only on income derived from

b. Taxation on Compensation Income
(1) Inclusions
(a) Monetary benefits


i. Salaries, wages, emoluments and honoraria,
allowances, commissions (e.g. transportation,
representation, entertainment and the like);
ii. Fees including director's fees, if the director is,
at the same time, an employee of the
employer/corporation;
iii. Taxable pensions and retirement pay;
iv. Other income of a similar nature

(b) Non-monetary
i. Taxable bonuses and fringe benefits except
those which are subject to the fringe benefits
tax under Sec. 33 of the Code;

(2) Exclusions
(a) Fringe Benefit Subject to FBT
Any good, service, or other benefit furnished
or granted by an employer in cash or in kind,
in addition to basic salaries, to a managerial or
a supervisory employee
Subject to a final tax of 32% based on the
grossed-up monetary value of the benefit
given withheld by the employer

(b) De minimis benefits
Benefits which are exempt from the fringe benefit
tax shall, in general, be limited to facilities or
privileges furnished or offered by an employer to
his employees that are of relatively small value
and are offered or furnished by the employer
merely as a means of promoting the health,
goodwill, contentment, or efficiency of his
employees. All other benefits given by the
employers, which are not included in the
enumeration under RR No. 05-11, shall not be
considered de minimis benefits.

(c) 13th month pay and other benefits
13
th
month pay & other benefits (i.e. productivity
incentives & Christmas bonus) the total of which
does not exceed P30,000
If the benefit exceeds P30,000, only the excess
will be taxable.

(3) Deductions
(a) Personal exemptions
i. Basic Exemption P50,000
ii. Additional Exemption P25,000 for every
qualified dependent children not to exceed 4

NOTE:
ii. A dependent means a
[1] Legitimate, illegitimate or legally adopted
child,
[2] Chiefly dependent upon,
[3] Living with the taxpayer, and
[4] Not married, not gainfully employed, not
more than 21 years old
Except: If such dependent, regardless of age,
is incapable of self-support because of
mental or physical defect.

iii. In the case of married individuals, the
additional exemption can be claimed only by
one of the spouses.

iv. As a rule, the husband claims the exemption,
except if the husband
[1] Expressly waives in favor of the wife
[2] Has no income
[3] Works abroad

v. If legally separated, the spouse who has
custody of the dependent can claim the
additional exemption.

vi. Resident aliens are qualified to deduct
additional exemptions ONLY if the qualified
dependent children are living with him in the
Philippines.

(b) Health and Hospitalization Insurance
The actual premium payments for health and
hospital insurance taken by an individual for
himself or for his family are allowed as deduction.

i. Requisites:
[1] Amount deductible should not exceed
P2,400 per family or P200 per month
whichever is LOWER during the year.
[2] The gross family income does not exceed
P250,000 for the calendar year.

NOTE: The spouse claiming the additional
exemptions for dependents shall be the one to
claim the deduction for premium payments.

(c) Taxation of Compensation Income of a Minimum
Wage Earner (MWE)
Compensation income of MWEs shall be exempt
from income tax and consequently from the
withholding tax on compensation if they work:
In the private sector and being paid the SMW
In the public sector being paid compensation
of not more than the SMW in the non-
agricultural sector


STATUTORY MINIMUM WAGE (SMW)
Refers to the rate fixed by the Regional Tripartite Wage and
Productivity Board (RTWPB), as defined by the Bureau of
Labor and Employment Statistics (BLES) of the Department
of Labor and Employment (DOLE). The RTWPB of each
region shall determine the wage rates in the different
regions based on established criteria and shall be the basis
of exemption from income tax for this purpose.

Note:
Holiday pay, overtime pay, night shift differential pay
and hazard pay earned by MWE shall likewise be
covered by the above exemption.
MWEs receiving other income, such as income from the
conduct of trade, business, or practice of profession,
EXCEPT income subject to final tax, in addition to
compensation income are NOT exempted from income
tax on their entire income earned during the taxable
year BUR the SMW, Holiday pay, overtime pay, night
shift differential pay and hazard pay shall still be
EXEMPT FROM WITHHOLDING TAX.
MWEs who receives/earns additional compensation
such as commissions, honoraria, fringe benefits,
benefits in excess of the allowable statutory amount of
P30,000.00, taxable allowances and other taxable
income other than the SMW, holiday pay, overtime
pay, hazard pay and night shift differential pay SHALL
NOT ENJOY THE PRIVILEGE OF BEING A MWE AND,
THEREFORE, HIS/HER ENTIRE EARNINGS ARE NOT
EXEMPT FORM INCOME TAX, AND CONSEQUENTLY,
FROM WITHHOLDING TAX.

c. Taxation of Business Income/Income from Practice of
Profession
Please refer to the discussion under Gross Income.

d. Taxation of Passive Income
TAX BASE TAX RATE
Royalties, except on books, other
literary works and musical composition
20%
Prizes and other Winnings more than
P10,000
20%
Interest Income from Long-Term
Deposit or investment (held for 5 years
or more)

In case of pre-termination: if held for
4 years to less than 5 years
3 years to less than 4 years
Less than 3 years

Exempt

5%
12%
20%
Interest from Deposits and Yield or any
other Monetary Benefit from Deposit
Substitutes, Trust Funds and Similar
Arrangements and Royalties

TAX BASE TAX RATE
Interest income earned from
deposit NOT FCDU
deposit FCDU
20%
7.5%
Cash and/or Property Dividends 10%

e. Taxation of Capital Gains
TAX BASE TAX RATE
Capital Gains from Sale of Shares of
Stock Not Traded in the Stock Exchange
Net Capital Gains:
Not over P100,000
P100,000

Final tax of
5%
10%
Sale of shares of stocks traded in the
Local Stock Exchange (Stock
Transaction Tax)
Selling price

of 1%
Capital gains on sale of Real Property
situated in the Philippines
Selling Price or FMV whichever is
HIGHER

Final tax of 6%
Income from the sale, exchange or
other disposition of capital assets
Graduated
Income Tax Rate

NOTE:
Capital gains from sale/disposition of principal
residence by natural persons may be EXEMPT provided
that:
i. Proceeds were fully utilized in
acquiring/constructing a new principal residence
within 18 mos. from date of sale.
ii. Historical cost/adjusted basis of sold prop be
carried to the new principal residence
built/acquired
iii. Commissioner duly notified within 30 days from
sale
iv. Tax exemption can only be availed once every 10
years
v. If no full utilization of proceeds of sale, such
portion shall be subject to CGT

Capital gains from other capital assets are subject to
the holding period. The reportable capital gain would
be:
i. 100% if the asset was held for one year or less.
ii. 50% if the asset was held for more than one year.

There is a net capital loss carryover on the net capital
loss provided that the amount of loss does not exceed
the income before exemptions at the year the loss was
sustained to be recognized immediately succeeding the
year it was sustained.


11. Taxation of Non-resident Aliens Engaged in Trade or
Business
a. General rules
(1) A nonresident alien individual who shall come to
the Philippines and stay therein for an aggregate
period of more than 180 days during any calendar
year.

(2) Shall be taxed on income earned within the
Philippines, in the same manner as an individual
citizen or a resident alien.

(3) Except Cinematographic Film owner Taxable at
25% of Gross Income.

INCOME EARNED TAX RATE
Cash and/or Property Dividends 20%
Capital Gains from Sale of Shares of Stock Not
Traded in the Stock Exchange
Net Capital Gains:
Not over P100,000
On any amount in excess of P100,000

5%
10%

12. Exclude Non-resident Aliens Not Engaged in Trade or
Business
a. General rule: Taxable at a rate of 25% on his
GROSS INCOME WITHIN

b. Except:
TAXPAYER TAX RATE
Alien Individual Employed by
Offshore Banking Units
15% of gross income earned
as such employee
Petroleum Service
Contractor and
Subcontractor
as such employee
Regional or Area
Headquarters and Regional
Operating Headquarters of
Multinational Companies
as such employee

NOTE:
The same tax treatment shall also apply to Filipinos
employed and occupying the same positions as those
of the alien employees mentioned above.
Only the income earned as an employee of the said
entities is subject to the preferential 15% rate;
income earned from other sources (i.e. rent) shall be
taxable in the same manner as a Resident Alien or
NRA-ETB.
Filipinos employed by ROHQs or RHQs in a
managerial or technical position shall have the option
to be taxed at either 15% of their gross income OR
the regular income tax rate on its taxable
compensation income.
To qualify for the preferential 15% rate, the Filipinos
must satisfy 3 tests: (RR 11-2010)
i. Position and Function Test must occupy a
managerial position or technical position AND
must actually exercise such function.
ii. Compensation Threshold Test must have
received or is due to receive a gross annual
taxable compensation of at least P975,000.
iii. Exclusivity Test must be exclusively working for
the RHQ or ROHQ as a regular employee and not
just a consultant or contractual personnel.

13. Individual Taxpayers Exempt from Income Tax
a. Senior citizens (SCs)
(1) A Senior Citizen is
(a) Any resident of the Philippines
(b) At least 60 years old

Generally, qualified Senior Citizens deriving income
during the taxable year are required to file and pay
their income tax returns, except
If the income earned is from compensation income
qualified as a MWE, the income is exempt
If the aggregate amount of gross income during the
taxable year does not exceed the amount of basic and
additional exemptions

The said exemption does not extend to income subject
to Final Tax (i.e. Interest income from deposit,
dividends, share from partnership) and Capital Gains
Tax.

(2) Compliance Requirements:
(a) SCs must be qualified as such by the CIR of the
RDO by submitting a certified true copy of his
OSCA ID.
(b) Must file a Sworn Statement on or before
January 31 of every year that his annual taxable
income does not exceed the poverty level.

b. Exemptions granted under international agreements

14. Taxation of Domestic Corporations
a. Tax payable
(1) Regular Corporate Income Tax (RCIT)
The use of regular domestic tax rates:

YEAR APPLICABLE TAX RATE
2009 onwards 30%
2006-2008 35%
Before 2006 32%


(2) Minimum Corporate Income Tax (MCIT)
MCIT Rate = 2% of gross income (GI)

When to begin/apply MCIT? Beginning on the 4
th

taxable

year immediately following the year in
which such corporation commenced its business
operation

NOTE: Commencement of Business Operation:
Upon Issuance of BIR Certificate of Registration

When will a corporation be liable for MCIT? If
2% of the corporations gross income is greater
than 35% of its taxable income.

Rationale: This is designed to prevent
corporations from escaping being taxed by
including frivolous expenses in their statement
of income (Ex. Over statement of depreciation
expense)

(a) Carry Forward of Excess Minimum Tax
Excess of MCIT over the normal income tax shall be
carried forward & credited against normal income
tax for the 3 succeeding years

NOTE: You can deduct MCIT Carry Forward only if
Regular Income Tax is greater than MCIT.

(b) Relief from MCIT
MCIT may be suspended by the Sec of Finance
when corporations losses are due to:
i. prolonged labor dispute
ii. force majeure
iii. legitimate business reverses

(c) Gross Income (for purposes of applying MCIT)
Gross income shall mean gross sales () sales
returns, discounts and allowances () cost of
goods sold.
Cost of goods sold shall mean all business
expenses directly incurred to product the
merchandise to bring them to their present
location and use.
For taxpayers engaged in the sale of services,
gross income shall mean gross receipts () sales
returns, discounts and allowances () cost of
services
Cost of services shall mean all direct costs and
expenses necessarily incurred to provide the
services required by the customers and clients.

NOTE: Pursuant to RR No. 12-07, MCIT shall apply
at the time of the filing of the quarterly corporate
income tax.

Example:

The following dates are available for X Corp:

SEC Registration December 17, 2004
BIR Registration January 4, 2005
Start of operations January 1, 2006

The MCIT will be imposed on X Corp starting taxable
year 2009.

[1] Computation of RCIT
2008 2009 2010
Gross Sales P 3,000,000 P 4,000,000 P 5,000,000
Cost of Goods
Sold
1,500,000 2,000,000 2,500,000
Gross Income P 1,500,000 P 2,000,000 P 2,500,000
Operating
Expenses
1,450,000 1,900,000 2,100,000
Net Taxable
Income
P 50,000 P 100,000 P 400,000
RCIT Rate 35% 30% 30%
RCIT P 17,500 P 30,000 P 120,000

[2] Computation of MCIT
2009 2010
Gross Income P 2,000,000 P 2,500,000
MCIT Rate 2% 2%
MCIT P 40,000 P 50,000
NOTE: The MCIT is not applicable in 2008 since it has
not yet reached the fourth taxable year
requirement.

[3] Determination of Tax Due and Payable
2008 2009 2010
RCIT or MCIT
(whichever is
HIGHER)
P 17,500 P 40,000 P 120,000
Less: Excess of
MCIT over RCIT
- - 10,000
Tax Due and
Payable
P 17,500 P 30,000 P 110,000

[4] Determination of Excess of MCIT over RCIT
2009 MCIT P 40,000
Less: 2009 RCIT 30,000
Excess of MCIT over RCIT P 10,000
b. Allowable deductions
(1) Itemized Deductions
Items under Sec. 34 of the NIRC as discussed under
Deductions from Gross Income.


(2) Optional Standard Deduction
An amount not exceeding forty percent (40%) of
gross income.
Gross Income shall mean the gross sales less sales
returns, discounts and allowances and cost of
goods sold.
A taxpayer who elected to avail of the OSD shall
signify in his/its return such intention, otherwise
he/it shall be considered as having availed himself
of the itemized deductions.
Once the election to avail the OSD is signified in
the return, it shall be irrevocable for the taxable
year for which the return is made.

c. Taxation of capital gains
TAX BASE TAX RATE
Net Capital Gains:
Not over P100,000
P100,000

Final Tax
5%
10%
Sale of shares of stocks traded in the
local stock exchange (Stock Transaction
Tax)
Selling price

of 1%
Capital gains on sale or exchange of
lands and or buildings located in the
Philippines
Selling Price or FMV whichever is
HIGHER

Final Tax
6%
Net Capital gains on sales or exchange
or disposition of other capital assets
Regular Corp.
Tax (30%)

d. Taxation of Other Passive Income
TAX BASE TAX RATE
Arrangements and Royalties
deposit NOT FCDU
deposit FCDU

20%
7.5%
Income Derived under the Expanded
Foreign Currency Deposit System
Income derived by a depository
bank under the FCDU system
from foreign currency
transactions with local
commercial banks (i.e. branches
of foreign banks authorized by
the BSP to transact business
with FCDU).
10%
Interest income from foreign
currency loans granted by
depository banks under the
FCDU system to residents.
Intercorporate Dividends Exempt

e. Tax on proprietary-educational institutions and
hospitals which are non-profit
TAX RATE BASIS
10% On related trade, business or
activity;
30% (2009 onwards)
35% (2006-2008)
IF total gross income from
unrelated trade, business, or
activity exceed 50% of total
income

Proprietary educational institution any private
school maintained & administered by private
individuals or groups with an issued permit to
operate from DECS, or CHED or TESDA

Taxable at 10% on TAXABLE INCOME, except on
certain passive income (which are subject to final tax)

Predominance Test: if gross income from unrelated
trade/business/other activity > 50% of the total gross
income from all sources, ENTIRE taxable income shall
be subject to the REGULAR corporate tax rate of 30%
(35% - 2006-2008)

Distinguish from non-profit non-stock educational
institutions which are exempt from tax on revenues
and assets Actually, Directly and Exclusively used for
educational purposes (Sec 30 (H), NIRC; RMC 76-
2003).

f. Tax on GOCCs, agencies and instrumentalities
TAX RATE BASIS
30% (2009
onwards)
35% (2006-2008)
Same tax rate upon their
taxable income in a similar
business, industry, or
activity

(1) General Rule: all corporations, agencies, or
instrumentalities owned or controlled by the govt.
are taxable.

(2) Exceptions:
(a) GSIS
(b) SSS
(c) PHIC
(d) PCSO


15. Taxation of Resident Foreign Corporations
a. General rules
The rest is the same rules as Domestic Corporation

On taxable income from all
30% (2009 onwards)
35% (2006-2008)

b. Minimum corporate income tax
Same rules as Domestic Corporation

c. Tax on certain income
TAX BASE TAX RATE
Arrangements and Royalties (from
sources within)
deposit NOT FCDU
deposit FCDU

20%
7.5%
Income Derived under the Expanded
Foreign Currency Deposit System
Income derived by a depository
bank under the FCDU system
from foreign currency
transactions with local
commercial banks (i.e. branches
of foreign banks authorized by
the BSP to transact business with
FCDU).
Interest income from foreign
currency loans granted by
depository banks under the
FCDU system to residents.
10%
Net Capital Gains:
Not over P100,000
P100,000

5%
10%
Intercorporate Dividends Exempt

NOTE: Any income of nonresidents, whether individuals
or corporations, from transactions with depository banks
under the expanded system shall be exempt from
income tax.

d. Exclude:
(1) International Carrier
Doing business in the Philippines shall pay a tax of 2
1/2% on its Gross Philippine Billings defined as:
(a) International Air Carrier
Refers to gross revenue derived from carriage
of persons, excess baggage, cargo, and mail
originating from the Philippines in a
continuous and uninterrupted flight,
irrespective of the place of sale or issue and
the place of payment of the ticket or passage
document

Provided, tickets revalidated, exchanged
and/or indorsed to another international
airline form part of the GPB if the passenger
boards a plane in a port or point in the
Philippines
o If the ticket is indorsed to another airline,
the GPB will be charged to the indorsee.

Provided, for a flight which originates in the
Philippines but transshipment (transfer) of
passenger takes place at any port outside the
Philippine on another airline, only the aliquot
portion of the cost of the ticket corresponding
to the leg flown from the Philippines to the
point of transshipment shall form part of the
GPB.
o NOTE: Transfer of airline company, not
transfer of aircraft

GPB rule in the NIRC is a departure from the
old rule which emphasized where tickets were
bought.

Now we adopt the originating rule meaning
to form part of GPB, passenger/cargo must
originate from the Philippines

Does not apply to domestic corporations (Ex.
PAL)

Carrier must be an alien resident corporation;
if its not, then it will be subject to 30% (35%
2006-2008) tax on gross income as non-
resident alien corporation.

Does not apply to offline carriers
o Online carriers: those with landing rights
in the Philippines
o Offline carriers: those without landing
rights but may nevertheless be selling
tickets in the Phil sale of tickets
subject to tax treatment of ordinary
resident foreign corporation

Whats controlling is the amount stated in the
ticket and not the actual purchase value.

In order that a foreign corporation may be
regarded as doing business, there must be


continuity of conduct and intention to establish
a continuous business, such as the
appointment of a local agent, and not one of a
temporary character. In other words, a foreign
airline company selling tickets in the Philippines
through their local agents, whether liaison
offices, agencies or branches, as in the case at
bar, shall be considered as resident foreign
corporation engaged in trade or business in
that country for such activities show continuity
of commercial dealings or arrangements and
performance of acts or works or the exercise of
some functions normally incident to and in
progressive prosecution of commercial gain or
for the purpose and object of the business
organization. Air Canada v. CIR [CTA Case No.
6572, December 22, 2004]

(b) International Shipping
Gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final
destination, regardless of the place of sale or
payments of the passage or freight documents.

(2) Offshore Banking Units

TAX RATE BASIS
10%
Any interest income derived from
foreign currency loans granted to
residents other than offshore banking
units or local commercial banks,
including local branches of foreign
banks that may be authorized by the
BSP to transact business with offshore
banking units
Exempt
Income derived by offshore banking
units authorized by the BSP, from
foreign currency transactions with
nonresidents, other offshore banking
units, local commercial banks,
including branches of foreign banks
that may be authorized by the BSP to
transact business with offshore
banking units.

(3) Branch Profit Remittance (BPRT)
BPRT shall be imposed on any profit remitted by a
branch to its head office.

Distinguish between a branch and a subsidiary
o If branch, subject to BPRT
o If subsidiary amounts received by non-
resident foreign corporation would be
treated as dividends it becomes part of
its gross income from within taxable at 30%
(35% 2006-2008)

Branch will first be subjected to ordinary corporate
tax as a resident foreign corporation (35%).
Afterwards, the profits for remittance shall then
be subject to 15% BPRT. (Because branch
assumes personality of an RFC and is therefore
taxable as such)
o Any remittance, so long as you can trace it
from a branch to the foreign parent
corporation subject to BPRT
Ex. X foreign corp. has both regional
headquarters and branch in Philippines.
Instead of remitting straight to X, branch
pays amount to regional headquarters
supposedly for administrative support
services The amount paid for the services
will still be subject to BPRT because the tax
is imposed on any form of remittance,
direct or indirect.

o Exception: Interest, dividends, rents,
royalties, including remuneration for
technical services, salaries, wages,
premiums, annuities, emoluments or other
fixed or determinable annual, periodic or
casual gains, profits, income and capital
gains received by a foreign corporation
from all sources within the Philippines shall
not be treated as branch profits unless the
same are effectively connected with the
conduct of its trade or business in the
Philippines.

Difference between Home Office (HO) Branch
relationship and Parent Subsidiary relationship

HO-BRANCH PARENT-SUBSIDIARY
Branch is classified as a
Resident Foreign
Corporation
Subsidiary is classified as a
Domestic Corporation
HO is classified as a resident
Foreign Corporation
Parent Company is classified
as a Non-Resident Foreign
Corporation
HO and Branch are taxed on
taxable income within the
Philippines
Subsidiary is taxed on
taxable income within and
without the Philippines
while Parent Company is
taxed on gross income
Income repatriation by
Branch to HO is referred to
as Branch profit remittances
Income repatriation by a
Subsidiary to Parent
Company is referred to as
dividends


Branch profit remittances
are subject to 15% tax on
remittance of branch profits
effectively connected to the
conduct of Branchs trade or
business in the Philippines
Dividends paid by Domestic
Corporation to a Non-
Resident Foreign
Corporation is subject to the
preferential rate of 15%
subject to the tax sparing
condition
HO and Branch are
considered as one and the
same corporate entity
Parent Company and
Subsidiary are two separate
legal entities
Tax and other liability of the
Branch in the Philippines can
be collected from the HO in
foreign country as they are
one and the same
Tax and other liability of the
Subsidiary cannot be
collected from the Parent
Company in a foreign
country as they are
considered separate legal
entities

Marubeni v. CIR [G.R. No. 76573]
The general rule is that a foreign corporation is the same
juridical entity as its branch office in the Philippines cannot
apply here. This rule is based on the premise that the
business of the foreign corporation is conducted through its
branch office, following the principal-agent relationship
theory. It is understood that the branch becomes its agent
here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the
principal-agent relationship is set aside. The transaction
becomes one of the foreign corporation, not of the branch.
Consequently, the taxpayer is the foreign corporation, not
the branch or the resident foreign corporation.

(4) Regional or Area Headquarters and Regional
Operating Headquarters of multinational
companies (RHQ and ROHQ)
Regional or area headquarters A branch
established in the Philippines by multinational
companies and which headquarters do not earn
or derive income from the Philippines

Act as supervisory, communications and
coordinating center for their affiliates,
subsidiaries, or branches in the Asia-Pacific
Region and other foreign markets.

Regional operating headquarters A branch
established in the Philippines by multinational
companies engaged in any of the following
services:
i. General administration and planning;
ii. Business planning and coordination;
iii. Sourcing and procurement of raw materials
and components;
iv. Corporate finance advisory services;
v. Marketing control and sales promotion;
vi. Training and personnel management;
vii. Logistic services;
viii. Research and development services and
product development;
ix. Technical support and maintenance;
x. Data processing and communication;
xi. Business development.

16. Taxation of Non-resident Foreign Corporations
a. General rule
A foreign corporation not engaged in trade or business in
the Philippines shall pay a tax equal to 30% (2009
onwards; 35% - 2006-2008; 32% - 2000 to 2005) of the
gross income received from all sources within the
Philippines.

b. Tax on certain income
(1) Interest on Foreign Loans
A final tax at the rate of 20% is imposed on the
amount of interest on foreign loans contracted on
or after August 1, 1986.

(2) Intercorporate Dividends
A final tax at the rate of 15% is imposed on the
amount of cash and/or property dividends received
from a domestic corporation subject to reciprocity.

Reciprocity rule:
The country in which the nonresident foreign
corporation is domiciled, shall allow a credit
against the tax due from the nonresident foreign
corporation taxes deemed to have been paid in
the Philippines equivalent to the regular income
tax on corporations and the 15% tax on dividends.

(3) Capital gains from shares of stock not traded
through the Local Stock Exchange
A final tax on the NET CAPITAL GAINS realized
during the taxable year from the sale of shares of
stock in a domestic corporation NOT through the
stock exchange:

Rates of tax on the net capital gains:
Not over P100,000 5%
P100,000
10%

TAXPAYER TAX RATE BASIS
Regional/Area
Headquarters
Exempt
Regional Operating
Headquarters of
Multinational
companies
10% On taxable income


c. Exclude special nonresident foreign corporations
CLASSIFICATION
APPLICABLE TAX INCOME
WITHIN
Cinematographic Film
Owner, Lessor, Distributor
25% Gross Income
Lessor of Machinery,
Equipment, Aircraft and
Others
7 % Gross Income
Lessor of Vessels chartered
by Philippine Nationals
4 % Gross Income

17. Improperly Accumulated Earnings Tax (Implemented
by RR 2-2001 which prescribes rules governing the
imposition of IAET)
a. Rule
There is imposed for each taxable year, in addition to
other taxes, a tax equal to 10% of the improperly
accumulated taxable income of domestic and closely-
held corporations formed or availed of for the purpose
of avoiding the income tax with respect to its
shareholders or the shareholders of any other
corporation, by permitting the earnings and profits of
the corporation to accumulate instead of dividing them
among or distributing them to the shareholders (Ex.
Holding company).

b. Rationale
If the earnings and profits were distributed, the
shareholders would then be liable for income tax; if the
distribution were not made to them, they would incur no
tax in respect to the undistributed earnings and profits
of the corporation. It is a tax in the nature of a penalty
to the corporation for the improper accumulation of its
earnings, and a deterrent to the avoidance of tax upon
shareholders who are supposed to pay dividends tax on
the earnings distributed to them.

c. Exception
The use of undistributed earnings and profits for the
reasonable needs of the business would not generally
make the accumulated or undistributed earnings subject
to the tax. What is meant by reasonable needs of the
business is determined by the Immediacy Test.

Immediacy Test It states that the reasonable needs of
the business are the
Immediate needs of the business; and
Reasonably anticipated needs (Ex. Expansion)

How to prove the reasonable needs of the business:
The corporation should prove that there is
An immediate need for the accumulation of the
earnings and profits; or
A direct correlation of anticipated needs to such
accumulation of profits.

d. Composition
The following constitute accumulation of earnings for
the reasonable needs of the business: (ILL ABE)
Allowance for the increase in the accumulation of
earnings up to 100% of the paid-up capital of the
corporation as of Balance Sheet date, inclusive of
accumulations taken from other years;
Earnings reserved for definite corporate expansion
projects or programs requiring considerable capital
expenditure as approved by the Board of Directors
or equivalent body;
Earnings reserved for building, plants or
equipment acquisition as approved by the Board of
Directors or equivalent body;
Earnings reserved for compliance with any loan
covenant or pre-existing obligation established
under a legitimate business agreement;
Earnings required by law or applicable regulations
to be retained by the corporation or in respect of
which there is legal prohibition against its
distribution;
In the case of subsidiaries of foreign corporations
in the Philippines, all undistributed earnings
intended or reserved for investments within the
Philippines as can be proven by corporate records
and/or relevant documentary evidence.

e. Covered corporations
Only domestic AND closely-held corporations are
liable for IAET.

Closely-held corporations are those:
o At least 50% in value of the outstanding capital
stock; or
o At least 50% of the total combined voting power of
all classes of stock entitled to vote is owned
directly or indirectly by or for not more than 20
individuals. Domestic corporations not falling
under the aforesaid definition are, therefore,
publicly-held corporations.

f. Exempt corporations
The IAET shall not apply to the following corporations:
(BIG-PEN-T)
(1) Banks and other non-bank financial
intermediaries;
(2) Insurance companies;
(3) Publicly-held corporations;
(4) Taxable partnerships;
(5) General professional partnerships;
(6) Non- taxable joint ventures; and
(7) Enterprises that are registered:
o With the Philippine Economic Zone Authority
(PEZA) under R.A. 7916;


o Pursuant to the Bases Conversion and
Development Act of 1992 under R.A. 7227;
and
o Under special economic zones declared by law
which enjoy payment of special tax rate on
their registered operations or activities in lieu
of other taxes, national or local.

g. Period for payment of dividend/iaet
The dividends must be declared and paid or issued not
later than one year following the close of the taxable
year, otherwise, the IAET, if any, should be paid within
fifteen (15) days thereafter.

h. Determination of purpose to avoid income tax
The fact that a corporation is a mere holding company or
investment company shall be prima facie evidence of a
purpose to avoid the tax upon its shareholders or
members

A holding or investment company is a corporation
having practically no activities except holding
property, and collecting the income therefrom or
investing the same; and

Where the earnings or profits of a corporation are
permitted to accumulate beyond the reasonable needs
of the business.

i. Prima facie instances of accumulation of profits
beyond the reasonable needs of a business and
indicative of purpose to avoid income tax upon
shareholders
(1) Investment of substantial earnings and profits of
the corporation in unrelated business or in stock or
securities of unrelated business;

(2) Investment in bonds and other long-term
securities; and

(3) Accumulation of earnings in excess of 100% of
paid-up capital, not otherwise intended for the
reasonable needs of the business. The controlling
intention of the taxpayer is that which is
manifested at the time of accumulation. A
speculative and indefinite purpose will not suffice.
The mere recognition of a future problem or the
discussion of possible and alternative solutions is
not sufficient. Definiteness of plan/s coupled with
action/s taken towards its consummation is
essential.

Ideally, the working capital should equal the current
liabilities and there must be 2 units of current assets for
every unit of current liability, hence the so-called 2 to
1 rule. A Debt-to-Equity ratio (Current Assets over
Current Liabilites) of 2:1 is indicative of the liquidity of a
corporation, and further accumulation would expose it
to the IAET. Cyanamid Phils. v. CA, [G.R. No. 108067,
January 20, 2000]

18. Exemption from Tax on Corporations
Please see page 48 on the discussion of Exempt
Corporations.

19. Taxation of Partnerships
A general co-partnership is a partnership wherein
part or all of its income is derived from the conduct
of trade or business.

Guidelines of the tax liability of a general
partnership:
(1) For taxation purposes, the general partnership is
considered as a corporation liable to pay the
corporate income tax.
(2) A general partnership is also subject to MCIT like a
corporation.
(3) The profit distribution to the partners is treated as
distribution subject to a final tax of 10% since the
partners are considered as stockholders.

20. Taxation of General Professional Partnership (GPP)
A GPP is one formed by two or several persons for
the sole purpose of exercising their common
profession of which no part of income is derived from
engaging in any trade or business.

The GPP is not a taxable entity for income tax
purposes since it is only acting as a "pass-through"
entity where its income is ultimately taxed to the
partners comprising it. RR 02-10

Guidelines of the tax liability of GPP
a. Who is Liable?
o A GPP, as an entity, shall not be subject to the
income tax.
o The partners in a GPP shall be liable for
income tax only in their separate and
individual capacities.

Each partner shall report his distributive share,
actually or constructively received in the net
income of the partnership as gross income.

The share of the partner shall be subject to
creditable withholding tax at 10%/15%.


b. How computed?
o For purposes of computing the distributive
share of the partners, the net income of the
partnership shall be computed in the same
manner as a corporation.
o All expenses, which are ordinary and
necessary, incurred or paid for the practice of
profession, are allowed as deductions.
o Since the taxable income is in the hands of the
partner, apart from the expenses claimed by
the GPP in determining its net income, the
individual partner can still claim deductions
incurred or paid by him that contributed to
the earning of the income taxable to him.
o If the GPP availed of the itemized deduction =
the partners may still claim itemized
deductions from said share, however, they
cannot claim the same expenses already
claimed by the GPP.
o If the GPP availed of itemized deductions, the
partners are not allowed to claim the OSD
from their share in the net income.
o If the GPP avails of OSD in computing its net
income, the partners comprising it can NO
longer claim further deduction from their
share in the said net income.
i. The partners' distributive share in the GPP is
treated as his gross income not his gross
sales/receipts and the 40% OSD allowed to
individuals is specifically mandated to be
deducted not from his gross income but
from his gross sales/receipts;
ii. The OSD being in lieu of the itemized
deductions allowed in computing taxable
income, it will answer for both the items of
deduction allowed to the GPP and its
partners.

Compliance requirements
Every GPP shall file in duplicate, a return of its income
(except items excluded from gross income and shall
set forth the following:
o The items of gross income and of deductions
allowed
o The names, TIN, addresses and shares of each of
the partners.

21. Taxation of Estates and Trusts
a. Application
Applies to income of estates or of any kind of property
held in trust (separate taxable entities), including:
(1) Income accumulated in trust:
(a) For the benefit of unborn/ unascertained
person(s) w/ contingent interests
(b) Held for future distribution under the terms of
the will or trust

(2) Income:
(a) To be distributed currently by the fiduciary to
the beneficiaries
(b) Collected by a guardian of an infant to be held or
distributed as the court may direct

(3) Income received by estates of deceased persons
during the period of administration or settlement
of the estate

(4) Income which, in the discretion of the fiduciary,
may be either distributed to beneficiaries or
accumulated

b. Exception
Employees trust which forms part of a pension, stock
bonus or profit-sharing plan of an employer for the
benefit of all or some of his employees:
(1) If contributions are made to the trust by the
employer/employees, or both for the purpose of
distributing to such employees the earnings plus
principal of the fund accumulated by the trust in
accordance with such plan

(2) If under the trust instrument, it is impossible, at
any time prior to the satisfaction of all liabilities with
respect to employees under the trust, for any part of
income to be used for/diverted to, purposes other than
for the exclusive benefit of his employees (any amount
distributed to employees shall be taxable in the yr. so
distributed)

c. Determination of tax
(1) Consolidation of income of two or more trusts
(a) Requisites: Two or more trusts where:
The creator of each of the trust is the same
person.
The beneficiary of each of the trust is the
same.

(b) Effects:
The taxable income of all the trusts shall be
consolidated.
The tax provided shall be computed on such
consolidated income.
The proportion of said tax shall be assessed
and collected from each trustee based on the
taxable income of the trust administered by
him.


(2) Taxable income
Computed in same manner & on the same basis as
in the case of an individual, EXCEPT:
(a) Deduction allowed:
i. Amount of income of the estate/trust for the
taxable year which is to be distributed
currently by the fiduciary to the beneficiaries
& the amt. of the income collected by a
guardian of an infant which is to be
held/distributed as the court may direct
ii. Amount allowed as deduction is included in
computing the taxable income of the
beneficiaries, whether distributed or not
iii. Amount allowed as deduction under this
subsection will not be allowed as deduction
under (2) hereof

(b) Additional deduction:
i. Amount of the income of the estate/trust for
its taxable year, properly paid/credited during
such year to any legatee, heir or beneficiary
may be claimed as deduction. This applies in
cases of:
Income received by estates of deceased
person during the period of administration
or settlement of the estate
Income w/c, in the discretion of the
fiduciary, may be either distributed to the
beneficiary or accumulated
ii. Amount paid/credited will be included in the
taxable income of the legatee, heir or
beneficiary

NOTE: For trust administered in a foreign country,
the deductions in (1) and (2) above is not allowed
provided that the amount of income included in
the return of said trust shall not be included in
computing the income of the beneficiaries

(c) Exemption Allowed to Estates and Trusts:
P20,000

(3) Revocable Trusts
Requisites: the power to re-vest in the grantor title
to any part of the corpus of the trust is vested-
(a) In the grantor either alone or in conjunction with
any person not having a substantial adverse
interest in the disposition of such part of the
corpus/income
(b) In any person not having a substantial adverse
interest in the disposition of such part of the
corpus/income

Effect: the income of such trust shall be included in
computing the taxable income of the grantor

In short, it is a trust where the title can revert back
to the grantor anytime. It is not taxable as a
separate entity because the income forms part of
the income of the grantor.

NOTE:
An estate is taxable as a separate entity when it
is already subject to a judicial proceeding

A trust is taxable as a separate entity if the trust
is irrevocable. This is because the grantor has
absolutely given up the corpus and any incidents
thereto. In this case, the grantor has no control
over the corpus of the trust. The grantor has
transferred the income earning property to a
beneficiary. If there is a condition that provides
that a portion shall be reserved for the grantors
medical expenses (for example), this condition
does not convert the irrevocable trust to a
revocable trust. But that portion is taxable
income of the grantor.

If the transfer is revocable, the entire income
shall be taxable in the hands of the grantor.

(4) Income for the benefit of the grantor
Requisites: where any part of the income of a trust
is, or in the discretion of the grantor/any person not
having a substantial adverse interest in the
disposition of such part of the income
(a) May be held/accumulated for future distribution
to the grantor
(b) May be distributed to the grantor
(c) May be applied to the payment of premiums
upon policies of insurance on the life of the
grantor

Effect: such part of the income be included in
computing the taxable income of the grantor

(5) Meaning of in the discretion of the grantor

In the discretion of the grantor, with regard to the
Income for the benefit of the grantor:
Exercised either alone or in conjunction with any
person not having a substantial adverse interest
in the disposition of the part of the income in
question.

22. Withholding Tax
a. Concepts
Withholding tax is a method of collecting income tax
in advance from the taxable income of the recipient
of income.


In the operation of the withholding tax system, the
payee is the taxpayer, the person on whom the tax is
imposed, while the payor, a separate entity, acts no
more than an agent of the government for the
collection of the tax in order to ensure its payment.
Bank of America v. Commissioner, [234 SCRA 320]

Timing of Withholding
Withholding tax shall be deducted and withheld by the
withholding agent when the income payment is paid or
payable or accrued or the income payment is accrued
or recorded as an expense or asset, whichever is
EARLIER.

Withholding Agent (WA)
A separate entity acting no more than an agent of the
government for the collection of tax in order to ensure
its payments.

He is merely a tax collector, NOT a taxpayer. If a
withholding agent was assessed for deficiency
withholding tax under the Code, as such, it is being held
liable in its capacity as a withholding agent and not its
personality as a taxpayer. CIR v. CA, [G.R. No. 104151
March 10, 1995]

The following persons are constituted as withholding
agents:
i. Juridical persons, whether or not engage in trade
or business
ii. Individual, with respect to payments made n
connection with his trade or business
iii. Individual buyers with regard to taxable sale,
exchange, or transfer of real property, although
not engaged in trade or business

Returns and Payments of Taxes Withheld at Source
[Sec. 58(A) of the NIRC]

Taxes deducted and withheld by withholding agents
shall be covered by a return and paid to, except in cases
where the Commissioner otherwise permits, an
authorized agent bank, Revenue District Officer,
Collection Agent, or duly authorized Treasurer of the
city or municipality where the withholding agent has his
legal residence or principal place of business, or where
the withholding agent is a corporation, where the
principal office is located.

The taxes deducted and withheld by the withholding
agent shall be held as a special fund in trust for the
government until paid to the collecting officers.

Note that the payment of taxes is simultaneous with
the filing of the returns (pay-as-you-file) except in cases
of Large and Non-Large Taxpayers who files through the
Electronic Filing and Payment System (EFPS).

Consequences for Failure to Withhold
i. Liable for surcharge or penalties
ii. Liable upon conviction to a penalty equal to the
total amount of the tax not withheld or not
accounted for and remitted [Sec. 251 of the NIRC]
iii. Any income payment which is otherwise
deductible from the payors gross income will not
be allowed it is shown that the income tax
required to be withheld is not paid to the BIR. [Sec.
2.58.5 of RR 2-98]

b. Kinds
FINAL WITHHOLDING
TAX
CREDITABLE
WITHHOLDING TAX
Amount of Tax Collected
Full and final payment
of the income due
from the payee on the
said income
Intended to equal or at
least approximate the
tax due from the said
payee on the said
income
Who is Primarily Liable
Liability rests primarily
on the withholding
agent
Liability rests primarily
on the taxpayer
Need to File a Return
Payee is not required
to file an income tax
return for the
particular income
Income recipient is still
required to file an
income tax return
and/or pay the
difference between
the tax withheld and
the tax due on the
income.
Coverage
All income subject
to final taxes (i.e.
passive income,
gross income of
NRA-NETB)
Fringe benefit
Informers reward
to persons
instrumental to
the discovery of
violations of the
NIRC and the
discovery and
seizure of
smuggled goods
Those income
payments covered by
EWT [RR 2-98]
Examples:
Professional fees,
talent fees
Income payments
to partners of GPP


(1) Final withholding tax
The amount of income tax withheld by the
withholding agent is constituted as a full and
final payment of the income tax due from the
payee on the said income.

The liability for payment of the tax rests primarily
on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case
of under withholding, the deficiency tax shall be
collected from the payor/withholding agent.

The payee is not required to file an income tax
return for the particular income.

The finality of the withholding tax is limited only to
the payees income tax liability on the particular
income. It does not extend to the payee's other
tax liability on said income, such as when the
said income is further subject to a percentage
tax.

Formula:
Gross Income P xxx
Multiply by: Final Tax Rate xx
Final Tax P xxx
NOTE: Deductions and/or personal exemptions are NOT
allowed.

(2) Fringe benefit tax
A final withholding tax is imposed on the grossed-
up monetary value of fringe benefit furnished,
granted or paid by the employer to the non-rank
and file employees except when: (1) the fringe
benefit is required by the nature of or necessary
to the trade, business or profession of the
employer; or (2) when the fringe benefit is for
the convenience or advantage of the employer.

The tax imposed under Sec. 33 of the NIRC shall be
treated as a final income tax on the employee,
which shall be withheld and paid by the
employer on a calendar quarterly basis

(3) Creditable Withholding Tax
Taxes withheld on certain income payments are
intended to equal or at least approximate the
tax due of the payee on said income.

The income recipient is still required to file an
income tax return to report the income and/or
pay the difference between the tax withheld and
the tax due on the income.

The following are creditable withholding taxes:
o Expanded Withholding Tax (EWT) on certain
income payments
o Withholding Tax on Wages (WTW)
o Withholding Tax on money payments to the
Government

c. Withholding on wages
A method of collecting the income tax at source upon
receipt of the income. It applies to all employed
individuals whether citizens or aliens, deriving income
from compensation for services rendered in the
Philippines. The employer is constituted as the
withholding agent.
(1) Requirement for Withholding
Every employer must withhold from compensation
paid to its employees.

No withholding of tax shall be required on
payments to employees who are classified as
Minimum Wage Earners [earning only the
Statutory Minimum Wage (SMW)].

An employee who receives additional
compensation and benefits in excess of the
allowable statutory amount of P30,000.00 other
than the SMW the entire amount, including the
SMW shall be subject to withholding tax

(2) Tax paid by recipient
Every person who is required to withhold the tax
from the compensation of an employee is liable
for the payment of such tax to the BIR. Such
liability stays even if the employee subsequently
pays the tax.

The payment of the tax by the employee does not
relieve the employer from the liability for
penalties and/or additions to the tax for failure
to deduct and withhold within the time
prescribed by law or regulations.

The employer will not be relieved of his liability for
payment of the tax required to be withheld
unless he can show that the tax has been paid by
the employee.

(3) Refunds or credits
When the total amount withheld exceeds the
annual tax due for the employee, the excess
shall be credited or refunded to the employee
not later than January 25 of the following year.


In case of termination of employment before
December, the refund shall be given to the
employee at the payment of the last
compensation during the year.

The employer is entitled to deduct the amount
refunded from the remittable amount of taxes
withheld from compensation income in the
current month in which the refund was made,
and in the succeeding months thereafter until
the amount refunded by the employer is fully
repaid.

(4) Year-end Adjustment [Sec. 2.79.6 of RR 2-98]
On or before the end of the calendar year, and
prior to the payment of the compensation for
the last payroll period, the employer shall
determine the sum of the taxable regular and
supplementary compensation paid to each
employee for the entire year, including the last
compensation to be paid and compute for the
amount of income tax on the annualized gross
compensation income.

The taxable fringe benefits received by non-rank
and file employees shall be subject to a final
fringe benefits tax.

(5) Liability for Tax
Employer
The employer shall be responsible for the
withholding and remittance of the correct amount
of tax required to be deducted and withheld from
the compensation income of his employees.

If the employer fails to withhold and remit the
correct amount of tax, such tax shall be collected
from the employer together plus penalties.

Failure to refund excess withholding tax not later
than January 25 of the succeeding year, shall make
the employer liable to a penalty equal to the total
amount of refund which was not refunded to the
employee plus penalties.

Employee

Where an employee fails or refuses to file the
Application of Registration or Certificate of Update
of Exemption and of Employer's and Employee's
Information (BIR Form No. 2305) together with the
attachments or willfully supplies false or inaccurate
information thereunder after due written notice by
the employer, the tax otherwise to be withheld by
the employer shall be collected from him including
penalties or additions to the tax from the due date
of remittance until the date of payment.

For failure or refusal to file the said BIR Form 2305,
the excess taxes withheld by the employer, if any,
shall not be refunded to the employee but shall be
forfeited in favor of the government.

d. Withholding value-added tax
(1) ON PAYMENTS TO NONRESIDENTS (creditable
withholding VAT)
Payments to non-residents, with respect to lease
or use of property or property rights in the
Philippines owned by such non-residents, are
subject to withholding VAT. The VAT shall be
based on the contract price.
Other services rendered in the Philippines by
non-residents

General guidelines for Creditable WVAT:
The party required to withhold is the payor,
regardless of whether or not he is VAT-
registered.
The VAT is passed on to the resident withholding
agent.
The payor shall claim this as input tax upon filing of
his own VAT return, subject to the rule of
allocation of input tax.
The duly filed BIR Form 1600 is the proof or
documentary substantiation for the claimed
input tax.

(2) ON PAYMENTS BY GOVERNMENT (Final
Withholding VAT)
The Government or any of its political
subdivisions, instrumentalities or agencies,
including government owned or controlled
corporations (GOCCs) shall, before making
payment on account of its purchase of goods
and/or services taxed at 12% shall deduct and
withhold a final VAT of 5% of the gross payment.
The five percent (5%) final VAT withholding rate
shall represent the net VAT payable of the seller.
The remaining seven percent (7%) effectively
accounts for the standard input VAT for sales of
goods or services to government or any of its
political subdivisions, instrumentalities or
agencies including GOCCs, in lieu of the actual
input VAT directly attributable or ratably
apportioned to such sales.


e. Deadline of filing of return and payment of taxes
withheld
TYPE OF WITHHOLDING TAX
FILING AND PAYMENT
DEADLINE
Final Withholding Tax (FWT) On or before the tenth
(10
th
) day of the month
following the month in
which withholding was
made.
Fringe Benefit Tax (FBT) On or before the 10
th
day of
the month following the
calendar quarter in which
the fringe benefits were
granted.
Withholding Tax on Wages
(WTW)
On or before the tenth
(10
th
) day of the month
made.

Except for taxes withheld
for December which shall be
filed/paid on or before
January 15 of the
succeeding year.
Expanded Withholding Tax On or before the tenth
(10
th
) day of the month
made.

Except for taxes withheld
for December which shall be
filed/paid on or before
January 15 of the
succeeding year.
Withholding Value-Added
Tax (WVAT)
On or before the tenth
(10
th
) day of the month
made.


======================================
II. NATIONAL INTERNAL REVENUE CODE
B. Estate Tax
======================================

1. Basic principles

ACCRUAL OF ESTATE TAX
The estate tax accrues as of the death of the decedent and
the accrual of the tax is distinct from the obligation to pay
the same. Upon the death of the decedent, succession takes
place and the right of the State to tax the privilege to
transmit the estate vests instantly upon death.

GOVERNING LAW
Estate taxation is governed by the statute in force at the
time of death of the decedent.

RESIDENCE
For estate tax purposes, residence refers to the permanent
home, the place to which whenever absent, for business or
pleasure, one intends to return, and depends on facts and
circumstances, in the sense that they disclose intent. Corre
v. Tan Corre, [100 Phil 321]

2. Nature
A tax imposed upon the privilege to transmit property at the
time of death; the tax should not be construed as a direct
tax on the property of the decedent although the tax is
based thereon.

3. Definition

An EXCISE TAX on the rights of transmitting property at the
time of death and on the privilege that a person is given in
controlling to a certain extent the disposition of his property
to take effect upon death.

4. Purpose or Object

5. Time and transfer of properties
The properties and rights are transferred to the successors
at the time of death. [Art. 777 of the Civil Code]
However, the Register of Deeds shall not transfer the title to
the properties without the Certificate of Authority to
Register (CAR) issued by the RDO evidencing the filing and
payment of the estate tax. [RR 24-02 dated November 15,
2002]

6. Classification of decedent/Composition of gross estate

RESIDENTS AND CITIZENS
The gross estate of a decedent shall be comprised of the all
properties, real or personal, tangible or intangible, wherever
situated and interest therein at the time of his death,
including revocable transfers and transfers for insufficient
consideration.

NON-RESIDENT ALIENS
The gross estate of a decedent shall be comprised only of
properties situated in the Philippines provided, that, with
respect to intangible personal property, its inclusion in the
gross estate is subject to the rule of reciprocity.

7. Gross estate vis--vis net estate

ESTATE TAX FORMULA

Gross Estate (Sec. 85)
Less: (1) Deduction (Sec. 86)
(2) Net share of the surviving spouse
----------------------------------------------------------
Net Taxable Estate
X Tax rate (Sec. 84)
----------------------------------------------------------
Estate Tax due
Less: Tax Credit (if any) Sec. 86 [E] or 110 [B]
----------------------------------------------------------
Estate Tax Due, if any

GROSS ESTATE OF THE DECEDENT (Sec. 85)
Includes the value at the time of his death of all
property, real or personal, tangible or intangible,
wherever situated.
In the case of nonresident citizen, only that part of the
gross estate which is situated in the Philippines shall be
included in his taxable estate.

8. Determination of gross estate and net estate

VALUATION

Real Property
FMV as determined by the Commissioner OR the FMV
shown in schedule of values fixed by the assessors,
whichever is HIGHER
a. No zonal value: use the FMV in the latest tax
declaration.

Shares of Stock
Listed shares: average of the highest and lowest
quotation at date of death (or the date nearest to
the date of death, if no quotation is available at
the time of death)


Unlisted Shares
Common stocks: use BOOK VALUE
Preferred stocks: use PAR VALUE

Personal Property
Valued at FMV

SPECIAL RULES ON INTANGIBLE PROPERTIES
Intangible personal properties with situs in the Philippines
(Section 104)

Franchise, which must be exercised in the
Philippines.
Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with
its laws,
Shares, obligations or bonds issued by any foreign
corporation 85% of the business of which is
located in the Philippines,
corporation, if such shares, obligations or bonds
have acquired a business situs in the Philippines,
Shares, rights in any partnership business or
industry established in the Phil.

RECIPROCITY CLAUSE
Intangible personal property of a decedent who is non-
resident alien, with a situs in the Philippines (Section 104)

The intangibles shall not form part of the gross estate if:
1. The decedent at that time of his death was a citizen and
resident of a foreign country which at the time of his
death
a. Did not impose a transfer tax or death tax of any
character
b. In respect of the intangible personal property of
citizens of the Philippines not residing in that
foreign country; or

2. The law of the foreign country of which the decedent
was a citizen and resident at the time of his death:
a. Allow a similar exemptions from transfer taxes or death
taxes of every character
b. In respect of the intangible personal property owned by
citizens of the Philippines not residing in that foreign
country.

9. Composition of the gross estate

10. Items to be included in the gross estate

ITEMS OF GROSS ESTATE:
a. Decedent's Interest
b. Transfer in Contemplation of Death
c. Revocable Transfer
d. Property Passing Under General Power of
Appointment
e. Proceeds of Life Insurance
f. Prior Interests
g. Transfers for Insufficient Consideration

NOTE: The capital of the surviving spouse of the decedent
shall not be deemed part of his gross estate.

a. Decedents Interest

i. To the extent of the interest therein of the decedent at
the time of his death.

b. Transfer in Contemplation of Death

Transfers impelled by the thought of an impending
death (i.e., the motivating factor or controlling motive
is the thought of death), without regard of the state of
health of the transferor.
Transfers made before the decedents death wherein
decedent retained:
a. the possession or enjoyment of, or the right to the
income of the property;
b. the right either alone or in conjunction with any
person, to designate the person who shall possess
or enjoy the property or its income EXCEPT bona
fide sales for an adequate and full consideration in
money or moneys worth

c. Revocable Transfer

Transfers made by the decedent by trust or otherwise,
where the enjoyment was subject at the date of his
death to any change through the exercise of a power by
the decedent alone or in conjunction with any other
person, to alter, amend, revoke, or terminate, or where
any such power is relinquished in contemplation of the
decedents death.

The power to alter, amend or revoke shall be
considered to exist at the date of the decedents death
even if:
The exercise is subject to the
requirement of giving prior notice
The alteration, amendment or revocation
takes effect only on the expiration of a
stated period after the exercise of the
power.

Does not include bona fide sales for an adequate and
full consideration in money or moneys worth.


d. Property Passing Under General Power of
Appointment (GPA)

GPA is the power to designate, without
restrictions, the persons who shall receive, succeed
to, possess or enjoy the property or its income
received from the estate of a prior decedent.

The GPA is exercised by:
a. Will
b. Deed executed in contemplation of death
c. Deed under which he has retained for his life
or for any period which does not in fact end
before his death
The possession or enjoyment of, or the right to the
income from, the property or
The right, either alone or in conjunction with any
person to designate the persons who shall possess or
enjoy the property or the income therefrom EXCEPT
bona fide sales for an adequate and full consideration
in money or moneys worth

e. Proceeds of Life Insurance

Proceeds from life insurance form part of the gross
estate only when:
- The beneficiary is the estate, executor or
administrator, whether the designation is
revocable or irrevocable.
- The beneficiary is other than the estate, executor
or administrator and the designation is revocable.

f. Prior Interests

Except as otherwise provided, the provisions on (1)
transfer in contemplation of death, (2) revocable
transfers and (3) proceeds of life insurance shall apply
to the transfers, trusts, etc., whether made before or
after the effectivity of the Tax Code.

g. Transfers for Insufficient Consideration

The amount includible in the gross estate is the excess
of the FMV at the time of death over the value of the
consideration received.

11. Deductions from estate

DEDUCTIONS FOR ESTATE OF A CITIZEN OR A RESIDENT
[Revenue Regulations 2-2003 and Sec. 86]:

Expenses, Losses, Indebtedness, and Taxes (ELIT):
(a) Actual funeral expenses or five percent (5%) of the
gross estate whichever is lower (not exceeding
P200,000)
(b) Judicial expenses of the testamentary or intestate
proceedings
(c) Claims against the estate
(d) Claims against insolvent persons included in the
gross estate
(e) Unpaid mortgages or indebtedness upon property
(f) Unpaid taxes
(g) Losses incurred during the settlement of the estate

Transfers for Public Use-to the government of the
Republic of the Philippines or any political subdivision
thereof, exclusively for public purposes
Vanishing deductions
Family Home - Fair value but not to exceed P1,000,000
Standard Deduction -- P1,000,000
Medical Expenses Not to exceed P500,000
Amount Received by Heirs under RA 4917
Net Share of the surviving spouse in the Conjugal
Property

a. Ordinary Deductions

i. Funeral expenses

Actual funeral expenses or in amount equal to 5% of the
gross estate, whichever is lower, but in no case to exceed
P200,000.

FUNERAL EXPENSES are costs which are actually
incurred in connection with the interment or burial of
the deceased.

Examples of DEDUCTIBLE funeral expenses:
The mourning apparel of the surviving spouse and
unmarried minor children of the deceased bought and
used on the occasion of the burial;
Expenses for the deceaseds wake, including food and
drinks;
Publication charges for death notices;
Telecommunication expenses incurred in informing
relatives of the deceased;
Cost of burial plot, tombstones, monument or
mausoleum but not their upkeep. In case the deceased
owns a family estate or several burial lots, only the
value corresponding to the plot where he is buried is
deductible;
Interment and/or cremation fees and charges; and
All other expenses incurred for the performance of the
rites and ceremonies incident to interment.

Examples of NON-DEDUCTIBLE funeral expenses:
Expenses incurred after the interment, such as for
prayers, masses, entertainment, or the like are not
deductible.


Any portion of the funeral and burial expenses borne or
defrayed by relatives and friends of the deceased are
not deductible.

Substantiation REQUIREMENTS:
The expenses must be duly supported by receipts or invoices
or other evidence to show that they were actually incurred
[RR 2-2003]

ii. Judicial Expenses

Judicial Expenses are expenses incurred during the
settlement of the estate but not beyond the last
day prescribed by law, or the extension thereof,
for the filing of the estate tax return.

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

Examples of judicial expenses
(1) Fees of executor or administrator
(2) Attorneys fees
(3) Court fees;
(4) Accountants fee;
(5) Appraisers fee;
(6) Clerk hire;
(7) Cost of preserving and distributing the estate;
(8) Brokerage fees for selling property of the estate.

Expenses incurred in the extrajudicial settlement of the
estate must be necessary costs toward the settlement of the
case.

Attorneys fees to be deductible should essential to the
collection of assets, payment of debts or the distribution of
the estate. CIR v. CA [328 SCRA 666]

iii. Claims against the Estate

Claims against the Estate are debts or demands of a
pecuniary nature which could have been enforced against
the deceased in his lifetime and could have been reduced to
simple money judgments.

Requisites for DEDUCTIBILITY:
A personal obligation of the deceased existing a the
time of his death except unpaid obligations incurred
incident to his death such as unpaid funeral expenses
and unpaid medical expenses which are classified under
a different category of deductions,
Contracted in good faith and for adequate and full
consideration in money or money's worth,
Must be a debt or claim which is valid in law and
enforceable in court,

Must not have been condoned by the creditors or the
action must not have prescribed.
Duly substantiated

Substantiation REQUIREMENTS:
notarized at the time incurred, except loans from
financial institutions where notarization not part of
business practice or policy
A statement under oath executed by the administrator
or executor of the estate reflecting the disposition of
the proceeds of the loan if said loan was contracted
within three (3) years prior to the death of the
decedent

iv. Claims against Insolvent Persons

Condition for DEDUCTIBILITY:
The claim against the insolvent person should be included as
part of the gross estate of the decedent.

v. Unpaid Mortgage

Conditions for DEDUCTIBILITY:
The value of the decedents interest over the property
encumbered is included as part of the gross estate
undiminished by the amount of mortgage
The deduction shall be limited to the extent that the
mortgage was contracted bona fide and for an
adequate consideration

Other Rules
Determine who is the recipient or beneficiary of the
loan which must be verified;
If merely an accommodation made by decedent in
favor of another person, then balance of loan
considered as receivable from that person and part of
gross estate
If there is a legal impediment to recognize the same as
receivable of the estate, the unpaid obligation shall not
be allowed as a deduction from the gross estate.

vi. Taxes

What taxes are deductible?
Income taxes, real estate or property taxes due at
the time of death which were unpaid as of the
time of death

Taxes NOT DEDUCTIBLE:
Estate taxes
Income tax on income received after death
Property taxes not accrued before death


vii. Losses

Losses should arise from fire, storm, shipwreck, or
other casualty, robbery, theft or embezzlement;
Losses should not be compensated by insurance or
otherwise;
Losses should not be claimed as deduction in the
income tax return of the taxable estate;
The losses should occur during the settlement of the
estate; AND that
The losses should occur before the last day for the
payment of the estate tax (last day to pay 6 months
after the decedents death)

b. Transfer for Public Use

the disposition is in the last will and testament
to take effect after death
in favor of the government of the Philippines or any
political subdivision thereof
exclusive for public purpose
the value of property given is included in the gross
estate

The transfer also contemplates bequests, devices, or
transfers to social welfare, cultural and charitable
institutions

c. Vanishing Deductions (Property Previously Taxed)

Nature and Purpose
VANISHING DEDUCTIONS are deductions allowed for
properties which were already subjected to transfer taxes
(e.g., estate and donors tax). The purpose is to minimize
the effect of double taxation within a short period of time
since the same property will be again subjected to tax in
the form of estate tax.

Present decedent acquired the property by inheritance
or donation within 5 yrs prior to his death
The property must have formed part of the gross estate
of previous decedent or the taxable gift of the donor
Estate tax on the prior estate or the donors tax must
have been paid
It must be the same property received from previous
decedent or donor
Estate of previous decedent or donor have not
previously availed of vanishing deduction

d. Family Home

FMV of the family home but not to exceed P1,000,000.

Family Home is the dwelling house, including the land on
which it is situated, where the husband and wife, or a head
of the family, and members of their family reside as certified
by Barangay Captain of the locality.

The family home is deemed constituted on the house and
lot from the time it is actually occupied as a family residence
and is considered as such for as long as any of its
beneficiaries actually resides therein.

Actual occupancy of the house or house and lot as the
family residence shall not be considered interrupted or
abandoned in such cases as the temporary absence from
the constituted family home due to travel or studies or work
abroad, etc.

The family home is generally characterized by permanency,
that is, the place to which, whenever absent for business or
pleasure, one still intends to return.

Conditions for the allowance of FAMILY HOME as
DEDUCTION from the gross estate-
The family home must be the actual residential home of
the decedent and his family at the time of his death, as
certified by the Barangay Captain of the locality where
the family home is situated;
The total value of the family home must be included as
part of the gross estate of the decedent; and
Allowable deduction must be in an amount equivalent
to the current fair market value of the family home as
declared or included in the gross estate, or the extent
of the decedents interest (whether
conjugal/community or exclusive property), whichever
is lower, but not exceeding P1,000,000.

NOTE:
The family home must be part of the properties of the
absolute community or of the conjugal partnership, or
of the exclusive properties of either spouse, depending
upon the classification of the property (family home),
and the property relations prevailing on the properties
of the husband and wife. It may also be constituted by
an unmarried head of a family on his or her own
property.
For purposes of availing of a family home deduction to
the extent allowable, a person may constitute only one
family home.


e. Standard Deduction

A deduction in the amount of P1,000,000 shall be allowed as
additional deductions without need of substantiation

Full amount shall be allowed as deduction for the benefit of
the decedent

f. Medical Expenses

Requisites for DEDUCTIBILITY
Medical cost incurred within the one year
Up to a maximum amount of P500,000, whichever is
lower
Any excess over P500,000 cannot be reclassified and
deducted as claims against the estate
It must be duly substantiated with official receipts for
services rendered

g. Amount Received by Heirs under R.A. 4917

Amount received by the heirs from the decedents employer
as a consequence of death of the decedent employee in
accordance with R.A. 4917

h. Net Share of the surviving spouse in the Conjugal
Property

DEDUCTIONS FOR NONRESIDENT ALIENS
(for property situated in the Philippines)

Expenses, Losses, Indebtedness and Taxes (ELIT)
Only the proportion of the total expenses, losses
indebtedness and taxes which the value of such part
bears to the value of his entire GE wherever situated.

Property Previously Taxed
Transfers for Public Use
Net Share of the surviving spouse in the Conjugal
Property

NOTE:
To be allowed deductions for a non-resident alien,
executor/administrator/any heir must include in the return
to be filed, the value of the gross estate not situated in the
Philippines

12. Exclusions from GROSS estate

Acquisitions and transfers expressly declared as exempt:
Merger of the usufruct in the owner of the naked title
Transmission or delivery of the inheritance or legacy by
the fiduciary heirs or legatee to the fiduciary
Transmission from the first heirs, legatees or donees in
favor of another beneficiary in accordance with the
desire of the testator
All bequests, devises, legacies, or transfers to social
welfare, cultural or charitable institutions
Provided, not more than 30% of the value given is used
for administrative purposes
Proceeds from life insurance where the beneficiary is
other than estate, executor or administrator AND the
designation is irrevocable
SSS death benefits
Properties held in trust by the decedent
Benefits received by beneficiaries residing in the
Philippines under laws administered by the US Veterans
Administration
Separate or exclusive properties of the surviving spouse

13. Tax credit for estate taxes paid in a foreign country

ESTATE TAX CREDIT is a remedy against international
double taxation to minimize the onerous effect of taxing the
same property twice

WHO MAY AVAIL OF TAX CREDITS?
Only the estate of a citizen or resident alien at the time of
the death can claim tax credit for any estate taxes paid to a
foreign country

WHAT AMOUNT OF TAX CREDIT MAY BE CLAIMED?
The estate tax imposed by the Philippines shall be credited
with the amounts of any estate tax imposed by the
authority of a foreign country, subject to the following
limitations:

PER COUNTRY LIMITATION net estate within a foreign
country

Net estate, foreign x Phil. Estate Tax = max amt. of credit
Net estate, world

GLOBAL LIMITATION

Total net estate outside X Phil. Estate tax = max amt. of
credit
Net estate, world

The final allowable amount shall be the lower of the country
and global limitation amounts.

14. Exemption of certain acquisitions and transmissions
[Sec. 84 and 87 of the NIRC]

a. First P200,000.00 value of the net estate

b. Merger of usufruct in the owner of the naked title


Example:
A died leaving a fishpond; naked title to B, his son, and
usufruct to C, another son, for life. C died a year later.
The fishpond will be included in the gross estate of A,
being the owner. Upon the death of C, the usufruct will
be merged into the owner of the naked title B who shall
become the absolute owner thereof. The transfer from C
to B is exempt from estate tax.

c. Transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the fideicommissary

The substitution must not go beyond one degree
from the heir originally instituted
The fiduciary or first heir must be both living at the
time of the testators death

Example
A dies and leaves in his will a lot to his brother B who is
entrusted with the obligation to transfer the lot to C, a
son of A when A reaches legal age. B is the fiduciary heir
and C is the fideicommissary. The transfer from A to B is
subject to estate tax. But the transmission or delivery to
C upon reaching legal age shall be exempt from estate
tax.

d. Transmission from the first heir, legatee or donee in
favor of another beneficiary, in accordance with the
desire of the predecessor

e. Bequests, devises, legacies or transfers to
social welfare, cultural and charitable institutions,
no part of the net income of which inures to the
benefit of any individual:
Provided not more than 30% of the transfers shall
be used by such institutions for administration
purposes

15. Filing of notice of death (see F. Compliance
requirements)

16. Estate tax return (see F. Compliance requirements)

======================================
C. Donors Tax
======================================
1. Basic principles

KINDS OF DONATIONS:
Donation inter vivos: a donation made between living
persons; perfection is at the moment when the donor
knows of the acceptance of the donee (exception:
donations of immovable
1
properties); subject to
donors tax
Donation mortis causa: a donation which takes effect
upon the death of the donor; subject to estate tax

APPLICABILITY OF LAWS GOVERNING THE IMPOSITION OF
DONORS TAX
The donors tax applies to a completed gift. The transfer is
perfected from the moment the donors knows of the
acceptance by the donee; it is completed by the delivery,
either actual or constructively, of the donated property to
the donee. The law in force at the time of the
perfection/completion of the donation shall govern the
imposition of donors tax based on the FMV of the property.

A gift that is incomplete because of reserved powers,
becomes complete when either:
The donor renounces the power; or
His right to exercise ceased because of the happening
of some event or contingency or the fulfillment of some
condition, other than the death of the donor.

SPECIAL RULES ON HUSBAND AND WIFE
Husband and wife are considered as separate and distinct
taxpayers for purposes of the donors tax.

However, if what was donated is a conjugal or community
property and only the husband signed the deed of donation,
there is only one donor for donors tax purposes, without
prejudice to the right of the wife to question the validity of
the donation without her consent pursuant to the pertinent
provisions of the Civil Code of the Philippines and the Family
Code of the Philippines.

NET GIFT
The net economic benefit from the transfer that accrues to
the donee.

Accordingly, if a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to pay the
mortgage liability, then the net gift is measured by
deducting from the fair market value of the property the
amount of mortgage assumed.
2. Definition
Donors Tax is a tax on the privilege of transmitting ones
property or property rights to another or others without
adequate and full valuable consideration.


3.Nature

The subject of donors tax is the gift or donation. Article 725
of the Civil Code defines a gift or donation as an act of
liberality whereby a person disposes gratuitously of a thing
or right in favor of another who accepts it.
4. Purpose or object

The purpose of donors tax is to complement estate tax by
preventing tax-free depletion of the transferors estate
during his lifetime

It is also to prevent avoidance of income tax through the
device of splitting income among numerous donees, who
are usually members of a family or into many trusts, with
the donor thereby escaping the effect of the progressive
rates of income tax.
5. Requisites of valid gift or donation (CIDA)
Capacity of the donor
Intent to donate
Delivery of the subject gift, whether actual or
constructive
Acceptance by the donee
6. Transfers which may be constituted as donation

a. Debt condoned or remitted [Sec. 50 of RR 02-40]

If a creditor merely desires to benefit a debtor and
without any consideration therefore cancels the
debt, the amount of the debt is a gift from the
creditor to the debtor and need not be included in
the latter's gross income.

b. Transfers made in trust for another person

c. Renunciation by the surviving spouse of his/her share in
the conjugal partnership or absolute community after
the dissolution of the marriage in favor of the heirs of
the deceased spouse or any other person;

However, a general renunciation by an heir,
including the surviving spouse, of his/her share in
the hereditary estate left by the decedent is not
subject to donors tax, unless specifically and
categorically done in favor of identified heir/s to
the exclusion or disadvantage of the other co-heirs
in the hereditary estate. [Sec. 11, Rev. Reg. 2-
2003]

See Estate of Fidel Reyes, CTA Case No. 6747,
January 16, 2006 where the repudiation by the heirs
of an inheritance was held not to be a donation.
7. Transfers for less than adequate and full consideration

Where property, other than a real property that has been
subjected to the final capital gains tax, is transferred for less
than an adequate and full consideration in money or
moneys worth, then the amount by which the fair market
value of the property at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not
preceded by a Contract to Sell exceeded the value of the
agreed or actual consideration or selling price shall be
deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.

NOTE: In the case of real properties considered as capital
assets, the difference between the FMV and the actual value
received in transfers for less than the adequate or full
consideration shall not be subject to donors tax. The
rationale is that under Section 24 (d), the FMV itself, if
higher than the gross selling price, is the base for the
computation of capital gains tax. In essence, what the seller
avoids in the payment of donors tax, it pays for the capital
gains tax.
8. Classification of donor
Resident citizen
Non-resident citizen
Resident alien
Non-resident alien
9. Determination of gross Gift

Gross gift refers to all property, real or personal, tangible or
intangible, that is given by the donor to the donee by way of
gift, without the benefit of any deductions.
10. Composition of Gross Gift

RESIDENT CITIZEN/NON-RESIDENT CITIZEN/RESIDENT ALIEN
Real property within and without the Philippines
Tangible personal property within and without the
Philippines
Intangible personal property within and without the
Philippines

NON-RESIDENT ALIEN
Real property within the Philippines
Tangible personal property within the Philippines
Intangible personal property within the Philippines


SPECIAL RULES ON INTANGIBLE PROPERTIES
Intangible personal properties with situs in the Philippines
(Section 104)

Franchise, which must be exercised in the
Philippines.
Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with
its laws,
corporation 85% of the business of which is
located in the Philippines,
corporation, if such shares, obligations or bonds
have acquired a business situs in the Philippines,
Shares, rights in any partnership business or
industry established in the Phil.

RECIPROCITY CLAUSE
Intangible personal property of a decedent who is non-
resident alien, with a situs in the Philippines (Section 104)

The intangibles shall not form part of the gross gift if:
1. The donor at that time of his death was a citizen and
resident of a foreign country which at the time of his
death
a. Did not impose a transfer tax or death tax of any
character
b. In respect of the intangible personal property of
citizens of the Philippines not residing in that
foreign country; or

2. The law of the foreign country of which the donor was
a citizen and resident at the time of his death:
a. Allow a similar exemptions from transfer taxes or
death taxes of every character
c. In respect of the intangible personal property
owned by citizens of the Philippines not residing in
that foreign country.
11. Valuation of gifts made in property

Personal property: FMV at the time of donation
Real Property: FMV as determined by the
Commissioner or the FMV in the latest schedule of
values of the provincial or city assessor, whichever is
HIGHER
12. Tax credit for donors taxes paid in foreign country

WHO ARE ENTITLED TO CLAIM CREDITS:
Only resident or citizen donors

FORMULA
- Limitation A (per country):

Net gifts, foreign country X Phil. donors tax
Net gifts, world

- Limitation B (by total):

Net gifts, foreign country X Phil. donors tax
Net gifts, world

13. Exemption of gifts from donors tax (Sec. 101)

The exemptions are not to be treated as exclusions
from the gross gifts of the donor. They partake the
nature of deductions and are therefore, deductible
from the gross gift in order to arrive at the net
taxable gift.

MADE BY A RESIDENT

(a) Dowries or gifts made on account of marriage before its
celebration or within one year thereafter by parents to
each of their legitimate, recognized natural, or adopted
children to the extent of the first P10,000

NOTE: Both parents may make dowries and gifts made on
account of marriage. Each parent shall be entitled to the
exemption above. This has the effect of splitting the value
of the gift into half for both spouses so each spouse can
claim the exemption. However, both spouses must file
separate returns because the husband and wife are
considered as distinct entities for purposes of donors tax.

(b) Gifts made to the National Government or any entity
created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said
Government

(c) Gifts in favor of a non-profit educational and/or
charitable, religious, cultural or social welfare
corporation, institution accredited non-government
organization, trust or philanthropic organization or
research institution or organization; provided, not more
than 30% shall be used by such donee for
administration purposes.

NON-PROFIT EDUCATIONAL AND/OR CHARITABLE
CORPORATION is one which is incorporated as a non-stock
entity paying no dividends, governed by trustees who
received no compensation, and devoting all its income to
the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation


(d) Encumbrances on the property donated if assumed by
the donee in the deed of donation

(e) Donations made to entities as exempted under special
laws.

(f) Donations not exceeding P100,000 per year (Sec. 99[A])

NOTE: To be exempt from donors tax and to claim full
deduction of the donation given to qualified donee
institutions duly accredited by the Philippine Council for
NGO Certification, Inc.(PCNC), the donor engaged in
business shall give a notice of donation on every donation
worth at least Fifty Thousand Pesos (P50,000) to the
Revenue District Office(RDO) which has jurisdiction over his
place of business within thirty (30) days after receipt of the
qualified donee institutions duly issued Certificate of
Donation, which shall be attached to the said Notice of
Donation, stating that not more than thirty percent (30%) of
the said donation/gifts for the taxable year shall be used by
such qualified-donee institution for administration purposes
pursuant to the provisions of Section 101(A)(3)and (B)(2) of
the Code [RR 2-2003].

Donative intent is a creature of the mind. It cannot be
perceived except by the material and tangible acts
which manifest its presence. This being the case,
donative intent is presumed present when one gives a
part of ones patrimony to another without
consideration. Second, donative intent is not negated
when the person donating has other intentions,
motives or purposes which do not contradict donative
intent. The Court was not convinced that since the
purpose of the contribution was to help elect a
candidate, there was no donative intent. Petitioners
contribution of money without any material
consideration evinces animus donandi. The fact that
their purpose for donating was to aid in the election of
the donee does not negate the presence of donative
intent. Abello v. CIR, [GR No. 120721, Feb. 23, 2005]

MADE BY A NONRESIDENT ALIEN

(a) Gifts made to the National Government or any entity
created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said
Government

(b) Gifts in favor of an non-profit educational and/or
charitable, religious, cultural or social welfare
corporation, institution accredited non-government
organization, trust or philanthropic organization or
research institution or organization; provided, not more
than 30% shall be used by such donee for
administration purposes
14. Person liable
Any person, resident or nonresident, transferring the
property by gift.
15. Tax Basis

COMPUTATION OF TAX AND PERSON LIABLE
(Applicable only on donations made to a person who is not a
stranger.)

On the 1
st
donation of the year

Gross Gift xx
Less: deductions xx
Net gift xx
Multiply by: tax rate xx
Donors tax xx
==========
On subsequent donation during the year

Gross Gift xx
Less: deductions xx
Net gift xx
Add: prior net gift xx
Aggregate net gifts xx
Multiply by: tax rate xx
Donors tax on aggregate gift xx
Less: prior donors tax paid xx
Donors tax on this date xx
==========

TAX RATES
1. Donee is a Stranger to the Donor

Rate: 30%

A Stranger is a person who is not a:
1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant
2) Relative by consanguinity in the collateral line
within the 4th degree of relationship

A legally adopted child is entitled to all the rights
and obligations provided by law to legitimate
children, and therefore, donation to him shall not
be considered as donation made to stranger.
Donation made between business organizations
and those made between an individual and a
business organization shall be considered as
donation made to a stranger.
Mother/Father-in-laws are considered strangers.


2. Donee is NOT a Stranger to the Donor

Rate: Graduated Rates

======================================
D. Value-Added Tax
======================================

1. NATURE AND CHARACTERISTIC
VAT is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in
the Philippines and on importation of goods into the
Philippines
Seller is the one statutorily liable for the payment of
the tax but the amount of the tax may be shifted or
passed on to the buyer, transferee or lessee of the
goods, properties or services. In the case of
importation, the importer is the one liable for the VAT

[CIR v. COMASERCO, G.R. No. 125355, March 30, 2000]
VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods
or property, and in the performance of services, even in the
absence of profit attributable thereto. The term in the
course of trade or business requires the regular conduct or
pursuit of a commercial or an economic activity, regardless
of whether or not the entity is profit-oriented.

Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payment for services
rendered to its affiliates on a reimbursement-on-cost basis
only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.

Sony Philippines v. CIR, [CTA EB Case No. 90 CTA Case No.
6185, May 17, 2007]
The fact that the advertising expense is subsidized or
reimbursed by Sony International does not render the same
automatically subject to output VAT. There was no sale,
barter or exchange of goods or properties from the
questioned transaction. Neither was there an exchange of
service.

The CIRs reliance on the case of CIR v. COMASERCO is
misplaced. In the above ruling, COMASERCO rendered
services to its affiliates. What was being taxed were these
services rendered to its affiliates. Thus, the SC held that
COMASERCO is liable for output VAT.

Considering that there are no sale, barter or exchange of
goods or properties in the instant case, the imposition of
output VAT on subsidized advertising expense has no leg to
stand on. (NOTE: Basically, in order that VAT may be
imposed, there must be the existence of a transaction that
is subject to VAT.)

2. IMPACT OF TAX
Originally, the tax is imposed against the seller of goods
properties or services.

3. INCIDENCE OF TAX
The tax is shifted to the buyer of the goods, properties
or services.
VAT is an indirect tax levied on goods and services; not
on persons, and ultimately paid by consumers in the
form of higher prices

4. DESTINATION PRINCIPLE
DESTINATION PRINCIPLE: VAT is imposed in the country in
which the products or services are actually consumed or
used. Exports exempt, imports taxable.

Actual shipment of the goods from the Philippines to a
foreign country is a precondition of an export sale following
the destination principle being adhered to by our VAT
system.

ORIGIN PRINCIPLE: only national taxpayers would be
exposed to the tax, without distinguishing between
transactions consumed locally or abroad. Exports taxable,
imports exempt. Situs: country of production

CROSS-BORDER DOCTRINE: No VAT shall be imposed to
form part of the cost of goods sold destined for
consumption outside of the territorial border of the taxing
authority.

[CIR v. American Express, G.R. No. 152609, June 29, 2005]
As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where they
are consumed.

However, our VAT law itself provides for a clear exception,
under which the supply of service shall be zero-rated when
the following requirements are met: (1) the service is
performed in the Philippines; (2) the service falls under any
of the categories provided in Section 102(b) of the Tax Code;
and (3) it is paid for in acceptable foreign currency that is
accounted for in accordance with BSP rules.


5. PERSONS LIABLE [Sec. 105]

Any person who, in the course of trade or business
Sells, barters, or exchanges goods or properties (seller
or transferor)
Leases goods or properties (lessor)
Renders services (service provider)
Imports goods (importer), whether or not made in the
course of trade or business

Definition of in the course of trade or business (Rule of
Regularity)
The regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, nonprofit
private organization or government entity
Non-resident persons who perform services in the
Philippines are deemed to be making sales in the
course of trade or business, even if the performance of
services is not regular

CIR v. Magsaysay Lines, [G.R. No. 146984, July 28, 2006]
The term course of business or doing business connotes
regularity of activity. Any sale, barter, exchange of goods or
services not in the course of trade or business in not subject
to VAT.

CS Garments v. CIR, [CTA case no. 6520, 4 January 2007]
A transaction will be characterized as having been entered
into by a person in the course of trade or business if it is (1)
regularly conducted; and (2) undertaken in pursuit of a
commercial or economic activity are considered as entered
into in the course of trade or business. Incidental means
something else as primary; something necessary,
appertaining to, or depending upon another, which is
termed the principal. Hence, an isolated transaction is not
necessarily disqualified from being made incidentally in the
course of trade or business. Therefore, the sale of motor
vehicle used by its officers is an incidental transaction
because the said vehicle was purchased in the furtherance
of petitioners business.

Exceptions to the rule of regularity
Any business where the gross sales or receipt do not
exceed P100,000 during any 12-month period shall be
considered principally for subsistence or livelihood and
not in the course of trade or business
Services rendered in the Philippines by non-resident
foreign persons shall be considered as being rendered
in the course of trade or business.

6. VAT ON SALE OF GOOD OR PROPERTIES [Sec. 106]

Every sale, barter or exchange of goods or properties shall
be subject to 12% VAT based on the gross selling price or
gross value in money of the goods or properties sold.

Goods: all tangible and intangible objects which are capable
of pecuniary estimation.
Includes:
Real properties held primarily for sale to customers or
held for lease in the ordinary course of business
the right or the privilege to use patent, copyright,
design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property
or right
the right or the privilege to use in the Philippines of any
the right or the privilege to use motion picture films,
film tapes and disc
radio, television, satellite transmission and cable
television time

Gross Selling Price: the total amount of money or its
equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of sale, barter or exchange of
the goods or properties, excluding the VAT. The excise tax,
if any, of such goods or properties shall form part of the
gross selling price.
The consideration stated in the sales document, or
The fair market value (FMV) as determined by the
Commissioner (zonal value) or FMV as shown in the
schedule of values of the Provincial and City Assessors,
whichever is higher

NOTE:
If the VAT is not billed separately, the selling price
stated in the sales document shall be deemed to be
inclusive of VAT
If the gross selling price is based on the zonal value or
market value of the property, the zonal or market value
shall be deemed exclusive of VAT. Thus, the
zonal/market value, net of the output VAT, should still
be higher than the consideration in the document of
sale, exclusive of the VAT.

Sale of Real Properties
sale of real properties held primarily for sale to
customers or held for lease in the ordinary course of
trade or business of the seller shall be subject to VAT

sale of real properties may either be on an installment
basis or deferred-payment basis.


a. sale of real property on installment plan: sale of
real property by a real-estate dealer, the initial
payments of which in the year of sale do not
exceed 25% of the gross selling price. In this case,
the VAT shall be collected on the installment
payments.

Initial payments: Covers any down payment made
and includes all payments actually or
constructively received during the year of sale. It
excludes amount of mortgage on the real property
sold except when such mortgage exceeds the cost
or other basis of the property to the seller, in
which case the excess shall be considered part if
the initial payments. It also excludes notes or other
evidence of indebtedness issued by the purchaser
to the seller at the time of the sale.

b. sale on the deferred-payment basis: the
transaction shall be treated as cash sale which
makes the entire selling price taxable in the month
of sale (sale of real property where the initial
payment exceeds 25% of the gross selling price.

The real estate dealer shall be subject to VAT on the
installment payments, including interest and penalties,
actually and/or constructively received by the seller.
Correspondingly, the buyer can claim the input tax in
the same period that the seller recognized the output
tax.
- Real estate dealer includes any person engaged
in the business of buying, developing, selling,
exchanging real properties as principal and holding
himself out as a full or part-time dealer in real
estate.
Sale of residential lot with gross selling price exceeding
P1.5 million, residential house and lot or other
dwellings with gross selling price exceeding P2.5
million, where the instrument (whether the instrument
is nominated as a deed of absolute sale, deed of
conditional sale, or otherwise) is executed on or after
November 1, 2005 shall be subject to 12% VAT (10%
VAT prior to February 1, 2006).
- Where the instrument of sale was executed prior
to November 1, 2005, the price needs only to
exceed P1 million of the installment sale of
residential house and lot or other residential
dwellings to be subject to 10% VAT
Transmission of property to a trustee shall not be
subject to VAT if the property is to be merely held in
trust for the trustor and/or beneficiary. However, is the
property transferred is one for sale, lease or use in the
ordinary course of trade or business and the transfer
constitutes a complete gift, the transfer is subject to
VAT as a deemed sale transaction.
7. ZERO-RATED SALES OF GOODS OR PROPERTIES, AND
EFFECTIVELY ZERO RATED SALES OF GOODS OR
PROPERTIES

(a) The following sales by VAT-REGISTERED persons shall be
subject to 0% rate:

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

Under Omnibus Investment Code:
i. the Philippine port F.O.B. value determined from
invoices, bills of lading, inward letters of credit,
landing certificates, and other commercial
documents, of export products exported directly
by a registered export producer, or
ii. the net selling price of export products sold by a
registered export producer to another export
producer, or to an export trader that subsequently
exports the same;
iii. Provided, that sales of export products to another
producer or to an export trader shall only be
deemed export sales when actually exported by
the latter, as evidenced by landing certificates or
similar commercial documents;

Constructive Exports:
i. sales to bonded manufacturing warehouses of
export-oriented manufacturers;
ii. sales to export processing zones
iii. sale to enterprises duly registered and accredited
with the Subic Bay Metropolitan Authority
pursuant to RA 7227;


iv. sales to registered export traders operating
bonded trading warehouses supplying raw
materials in the manufacture of export products
under guidelines to be set by the Board in
consultation with the Bureau of Internal Revenue
(BIR) and the Bureau of Customs (BOC);
v. sales to diplomatic missions and other agencies
and/or instrumentalities granted tax immunities,
of locally manufactured, assembled or repacked
products whether paid for in foreign currency or
not.

NOTE:
For purposes of zero-rating export sales of registered
export traders shall include commission income.
Exportation of goods on consignment shall not be
deemed export sales until the export products
consigned are in fact sold by the consignee.
Provided, finally, that sales of goods, properties or
services made by a VAT-registered supplier to a BOI-
registered manufacturer/ producer whose products are
100% exported are considered export sales.
A certification to this effect must be issued by the
Board of Investment (BOI) which shall be good for one
year unless subsequently re-issued by the BOI.
The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations

NOTE: Limited to goods, supplies, equipment and fuel
pertaining to or attributable to the transport of goods
and passengers from a port in the Philippines directly to
a foreign port without docking or stopping at any other
ports in the Philippines

Foreign Currency Denominated Sale (internal exports)
Sale to a non-resident of goods, except those
mentioned in Section 149 (automobiles) and 150 (non-
essential goods)
Assembled or manufactured in the Philippines
For delivery to a resident in the Philippines
Paid for in acceptable foreign currency and accounted
for in accordance with BSP regulations.

Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is
a signatory effectively subjects such sales to zero-rate.
Refer to exemptions granted under special laws or
treaties which are extended not only to the grantee but
also to its supplier

(b) Automatic vs. Effectively Zero-Rated Sale

Although both are taxed similarly, automatic zero-rated
transactions differ from effectively zero-rated transactions
as to their source.

An automatically zero-rated sale refers to a sale of
goods, properties and services by a VAT-registered
seller/supplier that is regarded as either an export sale
or a foreign currency denominated sale under Section
106 of the Tax Code of 1997. [RMC 50-2007]

An effectively zero-rated sale, on the other hand, refers
to the local sale of goods, properties and services by a
VAT-registered person to an entity that was granted
indirect tax exemption under special laws or
international agreements. Since the buyer is exempt
from indirect tax, the seller cannot pass on the VAT and
therefore, the exemption enjoyed by the buyer shall
extend to the seller, making the sale effectively zero-
rated. [RMC 50-2007]

Automatic zero-rated transactions generally refer to
the export sale of goods and supply of services. The tax
rate is set at zero. When applied to the tax base, such
rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax, but can claim a refund of tax credit
certificate for the VAT previously charged by supplier.
Effectively zero-rated transactions, however, refer to
sale of goods or supply of services to persons or entities
whose exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such transactions to zero-rate.
Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The
seller who charges output tax on such transactions can
also claim a refund or tax credit certificate for VAT
previously charged by suppliers. CIR v. Seagate, [G.R.
No. 153866, February 11, 2005]

8. TRANSACTIONS DEEMED SALE (IN EFFECT SUBJECT TO
12% VAT)

For transactions deemed sales, the output tax shall be based
on the market value of goods deemed sold as of the time of
the occurrence of the transaction. In the case of a sale
where the gross selling price is unreasonably lower than the
fair market value, the actual market value shall be the tax
base.

NOTE: The gross selling price is unreasonably lower than
the fair market value if it is lower by more than 30% of the


actual market value. [Revenue Regulations 16-2005;
Revenue Regulations 4-2007]

a. Transfer, use or consumption not in the course of
business of goods or properties originally intended for
sale or for use in the course of business.
Transfer of goods or properties not in the course of
business can take place when VAT-registered
person withdraws goods from his business for
personal use

b. Distribution or transfer to:
Shareholders or investors share in the profits of
VAT-registered person
Property dividends which constitute stocks in trade
or property primarily held for sale or lease
declared out of Retained Earnings on or after Jan.1,
1996 and distributed by the company to its
shareholders shall be subject to VAT based on the
zonal value or fair market value at the time of
distribution, whichever is applicable.
Creditors in payment of debt or obligation

c. Consignment of goods if actual sale is not made within
60 days following the date such goods were consigned
Consigned goods returned by the consignee within
the 60-day period are not deemed sold

d. Retirement from or cessation of business, with respect
to inventories of taxable goods existing as of such
retirement or cessation.
Change of ownership of the business (when a
single proprietorship incorporates or the
proprietor of a single proprietorship sells his entire
business
Dissolution of a partnership and creation of a new
partnership which takes over the business

NOTE: For retirement or cessation of business, the tax
base shall be the acquisition cost or the current market
price of the goods or properties, whichever is LOWER.
9. CHANGES IN OR CESSATION OF STATUS OF A VAT
REGISTERED PERSON

a. subject to 12% output VAT
(1) change of business activity from VAT taxable status
to VAT-exempt status
(2) approval of a request for cancellation of
registration due to reversion to exempt status
registration due to a desire to revert to exempt
status after the lapse of 3 consecutive years from
the time of registration by a person who
voluntarily registered despite being exempt under
Sec 109 (2) of the Tax Code
registration of one who commenced business with
the expectation of gross sales or receipt exceeding
P1,500,000 but who failed to exceed this amount
during the first 12 months of operations

b. not subject to 12% output VAT
(1) change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group of
stockholders
i. The goods or properties used in business or
those comprising the stock-in-trade of the
corporation, having a change in corporate
control, will not be considered sold, bartered
or exchanged despite the change in the
ownership interest of the corporation.
[Revenue Regulations 10-2011]
ii. Exchange of property by corporation
acquiring control for the shares of stocks of
the target corporation is subject to VAT.
(2) change in the trade or corporate name of the
business
(3) merger or consolidation of corporations
i. The unused input tax of the dissolved
corporation, as of the date of merger or
consolidation, shall be absorbed by the
surviving or new corporation.

10. VAT ON IMPORTATION OF GOODS [Sec. 107]

VAT is imposed on goods brought into the Philippines,
whether for use in business or not. The VAT shall be
paid by the importer prior to the release of such goods
from customs custody.

Importer: refers to any person who brings goods into
the Philippines, whether or not made in the course of
his trade or business. Includes non-exempt persons or
entities who acquire tax-free imported goods from
exempt persons, entities or agencies

Tax base = total value used by BOC in determining tariff
and customs duties, plus custom duties, excise tax, and
if any, other charges (postage, commission, and similar
charges, prior to the release of the goods from customs
custody

If the valuation used is based on volume or quantity of
the imported goods, the landed cost shall be the basis
for computing VAT. Landed cost = invoice amount,
customs duties, freight, insurance and other charges
(excise tax shall form part of the tax base)


a. Sale, transfer, or exchange of imported goods by tax-
exempt persons: In the case of goods imported by VAT-
exempt persons, entities or agencies which are
subsequently sold, transferred or exchange in the
Philippines to non-exempt persons or entities, the
latter shall be considered the importers thereof and
shall be liable for VAT due on such importation. The tax
due on such importation shall constitute a lien on the
goods, superior to all charges/liens, irrespective of the
possessor of said goods.

11. VAT ON SALE OF SERVICES AND USE OR LEASE OF
PROPERTIES

Sale or exchange of service, as well as the use or lease of
properties shall be subject to 12% VAT
a. Sale or Exchange of Service: the performance of all kind
of services in the Philippines for others for a fee,
remuneration or consideration, whether in cash or in
kind.

Sale or exchange of service shall also include:
i. Lease or the use of or the right or privilege to use
any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand, or other like property or right
ii. The lease or the use of, or the right to use any
iii. The supply of scientific, technical, industrial or
commercial knowledge or information
iv. The supply of any assistance that is ancillary and
subsidiary to and furnished as a means of enabling
the application or enjoyment of any such property,
or right as is mentioned in subparagraph (b) hereof
or any such knowledge or information as is
mentioned in subparagraph (c) hereof
v. The supply of services by a non-resident person or
his employee in connection with the use of
property or rights belonging to, or the installation
or operation of any brand, machinery, or other
apparatus purchased from such nonresident
person
vi. The supply of technical advise, assistance or
services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture,
project or scheme
vii. The lease of motion picture films, film tapes, and
discs
viii. The lease or use of, or the right to use, radio,
television, satellite transmission and cable
television time

b. Lessors of property all forms of property for lease,
whether real or personal, are liable to VAT

Gross Receipts: total amount of money or its equivalent
representing the contract price, compensation, service fee,
rental or royalty, including the amount charged for materials
supplied with the services and deposits applied as payments
for services rendered and advance payments actually or
constructively received during the taxable period for the
services performed or to be performed for another person,
excluding VAT.

Gross Receipts exclude amounts earmarked for payment to
unrelated third (3rd) party, and amounts received as
reimbursement for advance payment on behalf of another
which do not redound to the benefit of the payor.

Constructive receipt: occurs when the money consideration
or its equivalent is placed at the control of the person who
rendered the service without restrictions by the payor.
Deposit in banks which are made available to the seller
of service without restrictions
Issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as
payment for services rendered
Transfer of amounts retained by the payor to the
account of the contractor

Advance payments made by lessee for lease of property:
Advance payments may be in the form of:
i. A loan to the lessor from the lessee, or
ii. An option money for the property, or
iii. A security deposit to insure the faithful performance of
certain obligations of the lessee to the lessor, or
iv. Pre-paid rental

If the advance payment is for the faithful performance
of certain obligations of the lessee, it is not subject to
VAT
A security deposit that is applied to rental shall be
subject to VAT at the time of its application
If the advance payment constitutes a pre-paid rental, then
such payment is taxable to the lessor in the month when
received, irrespective of the accounting method employed
by the lessor

12. ZERO-RATED SALES OF SERVICE

The following services performed in the Philippines by a
VAT-REGISTERED person shall be subject to 0% VAT rate:

a. processing, manufacturing, or repacking goods for
other persons doing business outside the Philippines,
i. which goods are subsequently exported
ii. where the services are paid for in acceptable
foreign currency


iii. accounted for in accordance with the rules and
regulations of the BSP
b. services other than processing, manufacturing, or
repacking
i. rendered to a person engaged in business
conducted outside the Philippines or to a non-
resident person not engaged in business who is
outside the Philippines when the services are
performed CIR v. Busmeirter, et al, [G.R. No.
153205, January 22, 2007 require performance of
services to nonresident to qualify as zero-rated.]
ii. The consideration of which is paid for in acceptable
foreign currency
iii. accounted for in accordance with the rules and
regulations of the BSP

c. services rendered to persons or entities whose
exemptions under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent rate
d. services rendered to persons engaged in international
shipping or air transport operations, including leases of
property for use thereof

NOTE: shall not pertain to those made to common
carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines (subject
to 12% VAT)

e. services performed by subcontractors and/or
contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed 70%
of the total annual production
f. transport of passengers and cargo by domestic air or
sea carriers from the Philippines to a foreign country.

NOTE: Gross receipts of international air carriers doing
business in the Philippines and international sea
carriers doing business in the Philippines are still liable
to percentage tax.

g. sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal and steam, ocean
energy, and other emerging sources using technologies
such as fuel cells and hydrogen fuels.

NOTE: Zero rating shall apply strictly to the sale of
power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services
related to the maintenance or operation of plants
generating said power

13. VAT EXEMPT TRANSACTIONS [Sec. 109]

(Refer to the sale of goods or properties and/or services and
the use or lease of properties that is not subject to VAT and
the seller is not allowed any tax credit of VAT on purchases)

The following are VAT-exempt transactions:

a. sale or importation of agricultural and marine food
products in their original state, livestock and poultry of
a kind generally used as, or yielding or producing foods
for human consumption; and breeding stock and
genetic materials thereof
Livestock: cows, bulls and calves, pigs, sheep, goats
and rabbits
Poultry: fowls, ducks, geese and turkey
Does not include fighting cocks, race horses, zoo
animals and other animals generally considered as
pets
Marine food products: fish and crustaceans, such
as but not limited to, eels, trout, lobster, shrimps,
prawns, oysters, mussels and clams
Meat, fruit, vegetables and other agricultural and
marine food products are considered in their
original state even if hey undergone the simple
process of preparation or preservation for the
market : freezing, drying, salting, broiling, roasting,
smoking or stripping, shrink wrappings in plastic,
vacuum packing, tetra-pack, and other similar
packaging methods
Polished and/or husked rice, corn grits and raw
cane sugar and molasses, ordinary salt and copra
shall be considered as agricultural product in their
original state
Sugar whose content of sucrose by weight, in the
dry state: parameter reading of 99.5 and above are
presumed to be refined sugar
Bagasse is not included in the exemption provided
for under this section
b. sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fishes, zoo animals and other animals
generally considered as pets)
c. importation of personal and household effects
belonging to residents of the Philippines returning
from abroad and non-resident citizens coming to
resettle in the Philippines
such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines
d. Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,


aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in
commercial quantity)
Belonging to persons coming to settle in the
Philippines
For their own use and not for sale, barter or
exchange,
Accompanying such persons or arriving within 90
days before or after their arrival
Upon the production of evidence satisfactory to
the CIR that such persons are actually coming to
settle in the Philippines
The change of residence is bonafide
e. services subject to percentage tax
f. services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar into
raw sugar
BIR has clarified that toll processing or toll
dressing, which are covered by the VAT exemption
of services by agricultural contract growers under
Section 109(F) of the Tax Code of 1997, pertain to
toll processing services for clients from which
growing of animals were contracted. Thus, the
activity of preparing and packaging hogs/chicken
ready for delivery after producing or growing is
considered within the purview of agricultural
contract growing, which is exempt from VAT under
Section 109(F) of the Tax Code of 1997, as
amended. However, if the toll processing/toll
dressing/toll manufacturing service is performed
independently from growing poultry, livestock, or
other agricultural and marine food products, the
activity is not covered by the agricultural contract
growing and therefore subject to VAT under
Section 108 of the Tax Code of 1997, as amended.
[Revenue Memorandum Circular No. 97-2010,
December 21, 2010]

g. medical, dental, hospital and veterinary services, except
those rendered by professionals
Laboratory services are exempted
If the hospital or clinic operates a pharmacy or
drug store, the sale of drugs and merchandise is
subject to VAT. However, sales of drugs to in-
patients of hospitals are considered part of
hospital services, which are exempt from VAT.
h. Educational services rendered by private educational
institutions duly accredited by the DepED, CHED and
TESDA and those rendered by government educational
institutions
Does not include seminars, in-service training,
review classes and other similar services rendered
by persons who are not accredited by the DepED,
the CHED and/or TESDA
i. Services rendered by individuals pursuant to an
employer-employee relationship
j. Services rendered by regional or area HQ established in
the RP by multinational corporations which act as
supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia
Pacific Region and do not earn or derive income from
the Philippines
k. Transactions which are exempt under international
agreements to which the Philippines is a signatory,
except those under PD 529 [Petroleum Exploration
Concessionaires under the Petroleum Act of 1949]
l. sales by agricultural cooperatives duly registered and in
good standing with the CDA to their members, as well
as sale for their produce, whether in its original state or
processed form, to non-members their importation of
direct farm inputs, machineries and equipment,
including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their
produce
Sale by agricultural cooperatives to non-members
can only be exempted from VAT if the producer of
the agricultural products sold is the cooperative
itself. If the cooperative is not the producer (e.g.,
trader), then only those sales to its members shall
be exempted from VAT;
However, the sale or importation of agricultural
food products in their original state is exempt from
VAT irrespective of the seller and buyer
m. Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered and in good
standing with the CDA
n. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with and in good standing
with the CDA
Share capital contribution of each member does
not exceed 15,000 and regardless of the aggregate
capital and net surplus ratably distributed among
the members
Importation of machineries and equipment,
including spare parts thereof, to be used by them
are subject to VAT
o. Export sales by persons who are not VAT-registered
p. The following sales of real properties are exempt from
VAT:
Not primarily held for sale to customers or held for
lease in the ordinary course of trade or business
Sale of real properties utilized for low-cost housing
A subdivision or a condominium registered
and licensed by the HLURB
Undertaken by the govt or private developers
Utilized for socialized housing
Residential lot valued at 1.5M and below, or house
and lot and other residential dwellings valued at
2.5M and below


Instrument must be executed on or after July
1, 2005.
Provided, That not later than January 31, 2009
and every three (3) years thereafter, the
amounts stated herein shall be adjusted to its
present value using the Consumer Price Index,
as published by the National Statistics Office
(NSO); Provided, further, that such adjustment
shall be published through revenue
regulations to be issued not later than March
31 of each year.
If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if
the aggregate value of the lots do not exceed
1.5M
q. Lease of residential units
Monthly RENTAL: not exceeding P10,000
Gross receipts from rentals exceeding P10,000 per
month per unit shall be subject to VAT if the
aggregate annual gross receipts from said units
only (not including the gross receipts from units
leased for not more than P10,000) exceeds 1.5M.
Otherwise, subject to 3% percentage tax
r. Sale, importation, printing or publication of books and
any newspaper, magazine, review, or bulletin
which appears at regular intervals
with fixed prices for subscription and sale
which is not devoted principally to the publication
of paid advertisements
s. Sale, importation, or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare
parts thereof for domestic or international transport
operations
Limited to 150 tons and above, including engine
and spare parts of said vessels
Comply with the age limit requirement, at the time
of acquisition counted from the date of he vessels
original commissioning
Passenger/cargo vessel: 15 years old
Tankers: 10 years old
High-speed passenger crafts: 5 years old
Exemption shall be subject to the provisions of
The Domestic Shipping Development Act
t. Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety
equipment, steel plates and other metal plates
including marine-grade aluminum plates, used for
shipping transport operations; Provided, that the
exemption shall be subject to the provisions of Section
4 of Republic Act No. 9295, otherwise known as 'The
Domestic Shipping Development Act of 2004';
u. Importation of capital equipment, machinery, spare
parts, life-saving and navigational equipment, steel
plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair,
renovation or alteration of any merchant marine vessel
operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the
provisions of Section 19 of Republic Act No. 9295,
otherwise known as The Domestic Shipping
Development Act of 2004';
v. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations
Shall be used exclusively or shall pertain to the
transport of goods and/or passengers from a port
in the Philippines directly to a foreign port without
stopping at any other port in the Philippines
w. Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-
bank financial intermediaries subject to percentage tax
such as money changers and pawnshops
x. Sale or lease of goods or properties or the performance
of services other than the transaction mentioned in the
preceding paragraphs, the gross annual sales and/or
receipts do not exceed 1.5M.
For purposes of the threshold of 1.5M, the
husband and wife shall be considered separate
taxpayer.
The aggregation rule for each taxpayer shall apply
For instance, if a professional, aside from the
practice of his profession, also derives revenue
from other lines of business which are otherwise
subject to VAT, the same shall be combined for
purposes of determining whether the threshold
has been exceeded. Thus, the VAT-exempt sales
shall not be included in determining the threshold.

A VAT-registered person may, elect that that the exemption
shall not apply to his sales of goods or services or properties
which is irrevocable for a period of 3 years.

Zero-Rated vs. VAT-Exempt Transaction
CIR v. Cebu Toyo Corporation, [G.R. No. 149073, February
16, 2005]

A zero-rated transaction differs from VAT-exempt
transaction on the following points:

a. a zero-rated sale is a taxable transaction but does not
result in an output tax while an exempted transaction is
not subject to output tax.
b. The input tax on purchases of a VAT-registered person
with zero-rated sales may be allowed as tax credits or
refunded while the seller in an exempt transaction is
not entitled to any input tax on his purchases despite
the issuance of a VAT invoice or receipt.


c. Persons engaged in transactions which are zero-rated,
being subject to VAT, are required to register while
registration is optional for VAT-exempt persons.

Exempt Transaction vs. Exempt Party

The object of exemption from the VAT may either be the
transaction itself or the parties to the transaction.

An exempt transaction, on the one hand, involves goods or
services which, by their nature, are specifically listed and
expressly exempted from the VAT under the Tax Code,
without regard to the tax status (VAT exempt or not) of the
party to the transaction. Such transaction is not subject to
VAT, but the seller is not allowed any tax refund of or credit
for any input taxes paid.

An exempt party, on the other hand, is a person or entity
granted VAT exemption under the Tax Code, a special law or
an international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions
become exempt from VAT. Such party is also not subject to
VAT, but may be entitled to a tax refund or credit for input
taxes paid, depending on its registration as a VAT or non-
VAT taxpayer. CIR v. Seagate Technology, [G.R. No. 153866,
February 11, 2005]

14. INPUT VAT AND OUTPUT VAT DEFINED
Input tax means the VAT paid by a VAT-registered person in
the course of his trade or business on importation of goods
or local purchase of goods or services, including lease or use
of property, from a VAT-registered person. It shall also
include the transitional input tax determined in accordance
with Section 111 of the Tax Code. [Sec. 104 now 105, as
amended by R.A. 7716; Fort Bonifacio Devt. Corp. v. CIR,
G.R. Nos. 158885 and 170680, April 2, 2009; BIR Website]
Output tax means the VAT due on the sale, lease or
exchange of taxable goods or properties or services by any
person registered or required to register under section 236
of the Tax Code. [BIR Website]

15. SOURCES OF INPUT TAX

a. Purchase or impartation of goods
i) For sale; or
ii) For conversion into or intended to form part of a
finished product for sale, including packaging
materials; or
iii) For use as supplies I the course of business; or
iv) For use as raw materials supplied in the sale of
services; or
v) For use in trade or business for which deduction
for depreciation or amortization is allowed under
the Tax Code
b. Purchase of real properties for which a VAT has actually
been paid

c. Purchases of services in which a VAT has actually been
paid

d. Transactions deemed sale

e. Transitional input tax
A person who becomes liable to VAT or any person
who elects to be a VAT-registered person shall be
allowed to claim input tax on his beginning
inventory of goods, materials and supplies
equivalent to 2% of the value of such inventory or
the actual VAT paid on such goods, materials and
supplies, whichever is higher.

f. Presumptive input tax

Covered: Persons or firms engaged in the processing of
sardines, mackerel, and milk and in the manufacturing
refined sugar, cooking oil and packed noodle-based
instant meals

The term processing shall mean pasteurization,
canning and activities which through physical or
chemical process alter the exterior texture or form or
inner substance of a product in such manner as to
prepare it for special use to which it could not have
been put in its original form or condition.

Rate: 4% of the gross value in money of their purchases
of primary agricultural products which are used as
inputs to their production

g. Transitional input tax credits allowed under the
transitory and other provisions of these Regulations

h. Creditable Withholding VAT on payments to non-
residents

16. PERSONS WHO CAN AVAIL OF THE INPUT TAX

TAXPAYER TIME TO CLAIM INPUT TAX
To the importer Upon payment of VAT prior
to the release of goods from
customs custody
To the purchaser of the
domestic goods or
properties
Upon consummation of the
sale
To the purchaser of services
or the lessee or licensee
Upon payment of the
compensation, rental,


royalty or fee.

To the purchaser of real
property under:
Cash/Deferred Payment
Basis

Installment Basis

Upon consummation of sale

Upon every installment
payment

NOTE: Even if the said events have already transpired but
the required documents are not on hand, the input taxes
may not be claimed.

17. DETERMINATION OF THE INPUT/OUTPUT TAX; VAT
PAYABLE; EXCESS INPUT TAX CREDIT

a. Computation of output tax
i. Goods or properties: Gross selling price x VAT rate

Allowable deductions from gross selling price
(1) discounts determined and granted at the time
of sale (expressly indicated in the invoice,
amount thereof should form part of gross
sales duly recorded in the books, and the
granting of the discount does not depend on
the happening of the future event)
(2) sales returns and allowances for which a
proper credit or refund was made during the
month or quarter to the buyer for sales
previously recorded as taxable sales

ii. Sellers of service: Gross receipts x VAT rate

b. Determination of input tax credit

Determination of Input Tax Credit during a taxable
month or quarter

All creditable input taxes during the month or quarter
+ any amount of input taxes carried-over from
preceding month/quarter
- (claim for VAT refund or tax credit certificate)
- (other adjustments purchase returns)
- (input tax attributable to exempt sales)
- (input tax on capital goods purchased during the
month/quarter subject to amortization)
+/- (difference between standard input and actual
input on government sales)
+ (creditable VAT withheld on payments to non-
residents)
= Input Tax Credit

NOTE: Adjustments to Input Tax
Addition to Creditable Input Tax
Input tax arising from qualified transactions in the
current month or quarter
Input tax carried-over from the preceding month or
quarter
Reduction in Creditable Input Tax
Amount of claim for VAT refund or Tax Credit
Certificate (whether filed with the BIR, the Department
of Finance, the Board of Investments or the BOC)
Other adjustments, such as purchase returns or
allowances, input tax attributable to exempt sales and
input tax attributable to sales subject to final VAT
withholding.

Credits for Input Tax
The VAT due on or paid by a VAT-registered person on
importation of goods or local purchases of goods,
properties, or services, including lease or use of
properties, in the course of trade or business
Include the transitional and the presumptive input tax
Includes input taxes which can be directly attributed to
transactions subject to the VAT plus a ratable portion of
any input taxes which cannot be directly attributed to
either the taxable or exempt activity
Evidenced by a VAT invoice or official receipt issued by
a VAT-registered person

Claim for Input Tax on Depreciable Goods

i. Requisites:
A VAT-registered person purchases or imports capital
goods (which are depreciable goods for income tax
purposes)
If aggregate acquisition cost of all capital goods
(exclusive of VAT) in a calendar month exceeds P1
million, the input tax cannot be claimed outright but
should be subject to amortization over a period of 5
years or useful life of the capital goods, whichever is
lower.
If the aggregate acquisition cost of all capital goods in a
calendar month does not exceed P1 million, the input
tax may be claimed outright as credit against output
tax.

Aggregate acquisition cost refers to the total price
agreed upon for one or more assets acquired and not
the payments actually made during the calendar
month.

ii. Manner of claiming input tax of more than P1 million
(1) estimated useful life of a capital good is 5 years or
more:
input tax spread evenly over a period of 60
months


commenced in the calendar month when the
capital good is acquired

(2) estimated useful life is less than 5 years:
input tax spread evenly on monthly basis by
the actual number of months comprising the
estimated useful life of the capital good
commenced in the calendar month when the
capital good is acquired

If the depreciable capital good is sold/transferred within the
period of 5 years or prior to the exhaustion of the
amortizable input tax thereon: entire unamortized input tax
on the capital goods sold, can be claimed as input tax credit
during the month or quarter when the sale or transfer was
made but subject to limitation

c. Allocation of input tax on mixed transactions

A VAT-registered person who is also engaged in transactions
not subject to VAT shall be allowed to recognize input tax
credit on transactions subject to VAT as follows:

i. all the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for
input tax credit
input taxes which are directly attributable to
VAT taxable sales of goods and services from
the Government or any of its political
subdivisions, instrumentalities or agencies,
including GOCCs shall not be credited against
output taxes arising from sales to non-
government entities
ii. if any input tax cannot be directly attributed to
either a VAT taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT taxable
and VAT-exempt transactions
only the ratable portion pertaining to
transactions subject to VAT may be
recognized for input tax credit

NOTE:
input tax attributable to VAT-exempt sales shall not be
allowed as credit against the output tax but should be
treated as part of cost of goods sold
for persons engaged in both zero-rated sales and non-
zero rated sales, the aggregate input taxes shall be
allocated ratably between the zero-rated sale and non-
zero-rated sale

d. Determination of the output tax and VAT payable and
computation of VAT payable or excess tax credits

VAT payable computation:
Output Tax
- Input Tax
VAT payable

VAT Payable (Excess Output) or Excess Input Tax
If at the end of any taxable quarter the output tax
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.
Any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or
credited against other internal revenue taxes subject to
provisions of Section 112.

18. SUBSTANTIATION REQUIREMENTS OF INPUT TAX
CREDITS

Required Supporting Documents for claiming Input VAT
TRANSACTIONS REQUIRED SUPPORT
On domestic purchases of
goods or properties made in
the course of trade or
business
VAT Invoice
On purchases of real
property
Cash/Deferred Payment
Basis

Installment Basis

Public Instrument (i.e., deed
of absolute sale, deed of
conditional sale,
contract/agreement to sell,
etc.) together with the VAT
Invoice for the entire selling
price and Non-VAT ORs for
the initial and succeeding
payments

Public Instrument and VAT
OR for every payment
On domestic purchase of
services
VAT OR
On importation of goods Import entry or other
equivalent document
showing actual payment of
VAT on the imported goods
and BOC OR.
On transitional input tax Inventory of goods as shown
in a detailed list to be
submitted to the BIR.
On deemed sale
transactions
Required invoices
On payments made to non-
residents
Monthly Remittance Return
of Value Added Tax Withheld
(BIR Form 1600) filed by the
resident payor in behalf of


the non-resident evidencing
remittance of VAT due which
was withheld by the payor.
Advance VAT on Sugar Payment order showing
payment of the advance VAT

A cash register machine tape issued to a registered buyer
shall constitute valid proof of substantiation of tax credit
only if it shows the information required under Sec. 113 and
237 of the Tax Code (invoicing requirements)

19. CLAIMS FOR REFUND/TAX CREDIT CERTIFICATE OF
INPUT TAX

a. Zero-rated and effectively zero-rated sales of goods,
properties or services
Any VAT-registered person whose sales are zero-
rated or effectively zero-rated may within 2 years
after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax
credit certificate or refund of the creditable input
tax due or paid attributable to such sale.
The creditable input tax allowed to be refunded
does not include transitional input tax.
In case the taxpayer is engaged in zero-rated and
also in taxable or exempt sale, and the amount of
creditable input tax due or paid cannot be directly
and entirely attributed to any one of the
transactions, it shall be allocated proportionately
on the basis of the volume of sales.

b. Cancellation of VAT registration
A person whose VAT registration has been
cancelled due to retirement from or cessation of
business, or due to changes in or cessation of
status, may within 2 years from the date of
cancellation, apply for the issuance of tax credit
certificate for any unused input tax.

c. Period within which refund or TCC of input taxes shall
be made
The Commissioner shall grant a TCC/refund for
creditable input taxes within 120 days from the
date of submission of complete documents in
support of the application
Taxpayer may appeal to the CTA within 30 days
from receipt of said denial
If no action on the claim for refund has been taken
by the CIR after the 120 day period from the date
of submission of the application with complete
documents, the taxpayer ,may appeal to the CTA
within 30 days from the laps of the 120-day period
The CIR has 120 days, from the date of the
submission of the complete documents within
which to grant or deny the claim for refund/credit
of input VAT. In case of full or partial denial by the
CIR, the taxpayers recourse is to file an appeal
before the CTA within 30 days from receipt of the
decision of the CIR. Otherwise, if after the 120-day
period, the CIR fails to act on the application for
tax refund/credit, the remedy of the taxpayer is to
appeal the inaction of the CIR to CTA within 30
days. Hence, if filed with CTA before the 120-day
period expires, CTA will dismiss for prematurity. If
filed with CTA after the 150-day (120 + 30 days),
CTA will dismiss for being late. This only applies to
credit input tax refunds. CIR v. Aichi Forging
Company, [G.R. No. 184823, October 6, 2011]

d. Manner of giving refund
Refund shall be made upon warrants drawn by the
CIR or by his duly authorized representative
without the necessity of being countersigned by
the Chairman of COA
Refunds under this paragraph shall be subject to
post audit by the COA

20. INVOICING REQUIREMENTS

a. Invoicing requirements in general
i. A VAT-registered person shall issue:
A VAT Invoice for sale of goods or properties
A VAT Official Receipt for sale of services or
lease of goods or properties
ii. The following information shall appear in the VAT
Invoice or VAT Official Receipt:
A statement that the seller is a VAT-registered
person followed by the TIN
The amount of tax shown as a separate item
The word VAT-Exempt Sale written or
printed prominently if sale is VAT-exempt
The word Zero-Rated Sale written or printed
prominently if sale is VAT-exempt.
Date of transaction, quantity, unit cost and
description of the goods or properties or the
nature of service
For sale of VAT-registered persons amounting
to P1,000 or more, indicate the name,
business style, address and TIN of the
purchaser.

b. Consequences of issuing erroneous VAT invoice or VAT
official receipt

If a person who is not a VAT-registered person issues an
invoice or receipt showing his Tax Identification
Number (TIN), followed by the word VAT, the issuer
shall, in addition to any liability for other percentage
taxes, be liable to:


i. VAT without the benefit of any input tax credit,
and
ii. A 50% surcharge on the VAT payable
iii. If the invoice/receipts contain the required
information, purchaser shall be allowed to
recognize an input tax credit.

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

VAT invoices and official receipts cannot be used
interchangeably for purposes of substantiating input
VAT. In supporting claims for input VAT on purchase of
goods or properties, the law requires that a VAT invoice
be presented while a VAT official receipt is necessary to
substantiate claims for input VAT involving the
purchase of services. Citing the case of CIR v. Manila
Mining Corporation, where an invoice is distinguished
from a receipt, the SC clarified that the VAT invoice is
the sellers best proof of sale of goods or services to the
buyer while the VAT receipt is the buyers best
evidence of the payment of goods or services received
from the seller. As explained by the SC, even though
VAT invoices and receipts are normally issued by the
supplier/seller alone, the VAT invoices and receipts,
taken collectively, are necessary to substantiate the
actual amount or quantity of goods sold and their
selling price (proof of transaction), and the best means
to prove the payments of input VAT (proof of
payments). Hence, the SC held that a VAT invoice and
VAT receipt should not be confused as referring to one
and the same thing; the two should not be used
interchangeably. Kepco Philippines Corporation v.
Commissioner of Internal Revenue, [G.R. 181858,
November 24, 2010]

21. FILING OF RETURN AND PAYMENT

a. Monthly VAT Declarations (BIR Form No. 2550M)
Refers to first 2 months of taxpayers quarters
Filing and Payment Deadline: 20 days from the end of
the month, except for Electronic Filing and Payment
System (EFPS) taxpayers
Filing Deadline for EFPS: Deadline depends on the
industry classification of the taxpayer but applicable
only for filing the monthly VAT return
Payment Deadline for EFPS: 25 days from the end of
the month

NOTE: For the electronic payment of tax for returns
required to be filed earlier under the staggered filing
system, the taxpayer, upon e-filing, shall, still using the
facilities of EFPS, likewise give instructions to the Authorized
Agent Bank (AAB) to debit its account for the amount of tax
on or before the due date for payment thereof as prescribed
under the prevailing/applicable laws/regulations.

b. Withholding VAT Return (BIR Form 1600)
Filing and Payment Deadline: 10

days from the end of
the month

c. Quarterly VAT Return (BIR Form 2550Q)
Filing and Payment Deadline: 25 days following the
close of each taxable quarter
The quarterly returns shall reflect the cumulative totals
of the sales, purchases, output tax and input tax for the
3 months of the applicable quarter
The VAT payable (Output Tax less Input Tax) for each
quarter shall be reduced by the total amount of the tax
previously paud for the preceding months.
EFPS: same deadline

22. WITHHOLDING OF VAT

a. On Payments to Nonresidents (creditable withholding
VAT)
(Rule applies to payments by government or any of its
political subdivisions, instrumentalities or agencies, including
GOCCs, as well as private corporations, individuals, estates
and trusts, whether large or non-large taxpayers)

i. Payments to non-residents, with respect to lease
or use of property or property rights in the
Philippines owned by such non-residents, are
subject to withholding VAT. The VAT shall be based
on the contract price.

ii. Other services rendered in the Philippines by non-
residents

Services rendered in the Philippines, such as
providing assistance in establishing tender price of
a project and designing materials, by a non-
resident, shall be subject to the 12% withholding
VAT.

NOTE:
The party required to withhold is the payor, regardless
of whether or not he is VAT-registered.
The VAT is passed on to the resident withholding agent.
The payor shall claim this as input tax upon filing of his
own VAT return, subject to the rule of allocation of
input tax.


VAT withheld and paid for the non-resident recipient,
which VAT is passed on to the resident withholding
agent by the non-resident recipient of the income, may
be claimed as input tax by said VAT-registered
withholding agent upon filing his own VAT return,
subject to the rule on allocation of input tax among
taxable sales, zero-rated sales and exempt sales.
If the resident withholding agent is a non-VAT taxpayer,
said passed-on VAT by the non-resident recipient of the
income, shall form part of the cost of purchased
services, which may be treated either as an asset or
expense, whichever is applicable, of the resident
withholding agent.
VAT withheld shall be remitted within 10 days following
the end of the month the withholding was made.

b. On Payments by Government (final withholding VAT)

The Government or any of its political subdivisions,
instrumentalities or agencies, including government
owned or controlled corporations (GOCCs) shall, before
making payment on account of its purchase of goods
and/or services taxed at 12% shall deduct and withhold
a final VAT of 5% of the gross payment.
The five percent (5%) final VAT withholding rate shall
represent the net VAT payable of the seller.
The remaining seven percent (7%) effectively accounts
for the standard input VAT for sales of goods or services
to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu of
the actual input VAT directly attributable or ratably
apportioned to such sales.
Should actual input VAT attributable to sale to
government exceed seven percent (7%) of gross
payments, the excess may form part of the sellers
expense or cost.
If actual input VAT attributable to sale to government is less
than 7% of gross payment, the difference must be closed to
expense or cost

Registration Requirements

1. ADMINISTRATIVE REQUIREMENTS

a. Registration Requirements (see RR 11-08)

Annual Registration Fee (RF)
Fee of (P500.00) for every separate or distinct
establishment or place of business shall be paid upon
registration and every year thereafter on or before
January 31 by every person subject to any internal
revenue tax.
The following are exempt from the Annual RF:
(1) Cooperatives duly registered with the CDA;
(2) Individuals earning purely compensation income
whether locally or abroad;
(3) Overseas Workers;
(4) GAIs, in the discharge of their governmental
functions;
(5) Marginal Income Earners;
(6) LGUs, in the discharge of their governmental
functions;
(7) Tax exempt persons such as those enumerated
under Section 30 of the Code, as amended, in
pursuance of tax-exempt activities;
(8) Non-stock/non-profit organizations not engaged in
business;
(9) Persons subject to tax under one-time
transactions; and
(10) Facility/ies where no sales transactions occur.

Registration of Each Type of Internal Revenue Tax
Every person who is required to register with the BIR
shall register each type of internal revenue tax for
which he/it is obligated to OR is expected to
periodically file a return, pay taxes due thereon, and
update such record of any changes in the registration
information.
Note that the registration of one tax type does not
automatically register the other type of taxes (e.g.
registered for income tax is not registered for VAT)
Generally, registration of tax types/fees by a business
entity would consist of the following internal revenue
taxes/fees:
(a) Income tax;
(b) VAT and/or percentage tax;
(c) Withholding tax on compensation;
(d) Creditable withholding tax at source on certain
income payments;
(e) Final withholding tax on certain income payments;
(f) Documentary stamp tax;
(g) Excise tax; and
(h) Annual registration fee.

Transfer of Registration
It shall be duty of the taxpayer to inform the RDO
where he is registered by filing the prescribed BIR Form
specifying the RDO where he is intending to transfer.
In case of transfer of registration of individuals earning
purely compensation income due to change of
employer, it shall be the responsibility of the RDO
having jurisdiction of the new employer to effect the
transfer of employee's registration.
It shall be the duty of the old RDO to transfer the
accountabilities of the taxpayer to the new RDO where
he is transferring.
The old RDO can still institute collection on concluded
audit cases at the time of transfer of registration. The
old RDO shall terminate audit cases that are prescribing


within six (6) months from the date of transfer.
The filing of tax returns and payment of taxes to the
new RDO shall commence at the time the transfer is
effected by the old RDO.
Both the new and the old RDO shall be responsible in
notifying the taxpayer concerned that the transfer of
registration has already been effected.
Transfer of head office of taxpayers engaged in
business during the interim period shall only be
officially effected in the records of the BIR by the end of
the year.
The taxpayer may be allowed to physically transfer its
business to the intended RDO, however, the filing of its
returns and payment of taxes in the new RDO shall still
bear the RDO Code of the old RDO until the end of the
year and without imposition of any surcharge for
"wrong-venue filing of return"
Request for transfer of registration of branch/facility,
which has no registered tax types in the RDO where it is
registered, shall immediately be effected by the
concerned old RDO.
Registration of employees of the transferring
employers shall simultaneously be transferred to the
new RDO once the transfer of registration of the
employer is effected.

Other Updates
Any person registered shall, whenever applicable,
update his registration information with the RDO where
he is registered under any of the following instances:
a) A person's business has become exempt
b) A change in the nature of the business itself, i.e.
from sale of taxable goods and services to exempt
c) A person whose transactions are exempt from VAT
but voluntarily registered under VAT system
applies for cancellation of his VAT registration after
the lapse of 3 years after his registration
NOTE: optional registration as a VAT taxpayer of a
franchise grantee of radio and/or television
broadcasting whose gross receipts for the
preceding year did not exceed P10,000,000.00
shall be irrevocable;
d) A VAT-registered person whose gross sales or
receipts for three consecutive years did not exceed
P1,500,000.00. Upon updating his registration, the
taxpayer shall become liable to the percentage tax.
e) Any other changes/updates in registration
information previously supplied, including
cancellation or change in any tax types.

Cancellation of Registration
Either cancellation of business registration and/or TIN.
The cancellation of business registration shall not
automatically cancel the TIN of the person.
TIN is cancelled upon:
a) Death of an individual;
b) Dissolution, merger or consolidation of juridical
person;
c) Discovery of a taxpayer having multiple TINs;
d) Payment of estate tax by the heirs, administrator or
executor or upon full settlement of the tax
liabilities of the estate.
The cancellation of business registration may be
granted on the following instances:
a) Closure/Cessation of business operation;
b) Dissolution of corporation/partnership;
c) Merger/Consolidation;
d) Death of an individual.

Power of Commissioner to suspend the business operations
of any person who fails to register
Suspension of business operations: In addition to other
administrative and penal sanctions provided for in the
Tax Code and implementing regulations, the CIR or his
duly authorized representative may order suspension
or closure of a business establishment for a period of
not less than 5 days for any of the following violations:
a) Failure to issue receipts and invoices
b) Failure to file VAT return as required under the
provisions of Sec. 114 of the Tax Code
c) Understatement of taxable sales or receipts by
30% or more of his correct taxable sales or receipt
for the taxable quarter
d) Failure of any person to register as required under
the provisions of Sec. 236 of the Tax Code

b. Persons Required to Register for VAT

Mandatory VAT registration
Any person who, in the course of trade or business,
sells, barters or exchanges goods or properties or
engages in the sale or exchange of services shall be
liable to register if:
i. His gross sales or receipts for the past 12 months,
other than those that are exempt under Sec. 109
(1)(A) to (U) of the Tax Code, have exceeded P1.5
million; or
ii. There are reasonable grounds to believe that his
gross sales or receipts for the next twelve (12)
months, other than those that are exempt under
Sec. 109(1)(A) to (U) of the Tax Code, will exceed
P1.5 million.

Franchise grantees of radio and television broadcasting,
whose gross annual receipt for the preceding taxable
year exceeded P10 million, shall register within thirty
(30) days from the end of the taxable year.


NOTE: If he fails to register, he is liable to output VAT but
cannot claim input VAT, for the period in which not properly
registered.

Optional VAT Registration
Taxpayers may apply for VAT registration not later than
10 days before the beginning of the taxable quarter and
shall pay the P500 registration fee, unless they have
already paid at the beginning of the calendar year.
The Commissioner of Internal Revenue may, for
administrative reason deny any application for
registration.
Once registered as a VAT person, the taxpayer shall be
liable to output tax and be entitled to input tax credit
beginning on the first day of the month following
registration.

Cancellation of VAT Registration
If he makes a written application and can demonstrate
to the commissioners satisfaction that his gross sales
or receipts for the following twelve (12) months, other
than those that are exempt under Section 109 (A) to
(U), will not exceed one million five hundred thousand
pesos (P1,500,000); or
If he has ceased to carry on his trade or business, and
does not expect to recommence any trade or business
within the next twelve (12) months.

NOTE: The cancellation for registration will be effective from
the first day of the following month the cancellation was
approved.

c. Supplying TIN
Any person required to make, render or file a return,
statement or other document shall be supplied with or
assigned a Taxpayer Identification Number (TIN) which
he shall indicated in such return statement or
document filed with the BIR for his proper identification
for tax purposes.
In case a registered taxpayer dies, the administrator or
executor shall register the estate of the decedent a new
TIN.
In case of a nonresident decedent, the executor or
administrator of the estate shall register the estate
with the RDO where he is registered BUT if the
executor or administrator is not registered, registration
shall be made with the RDO having jurisdiction over his
legal residence.
Only one TIN shall be assigned to a taxpayer.

d. Issuance of Receipts or sales or commercial invoices

Printing of receipts or sales or commercial invoices
All persons who are engaged in business shall secure
from the BIR an authority to print receipts or sales or
commercial invoices before a printer can print the
same.
No authority to print receipts or sales or commercial
invoices shall be granted unless the receipts or invoices
to be printed are serially numbered and shall show:
a) the name
b) business style
c) Taxpayer Identification Number (TIN)
d) business address of the person or entity to use the
same,
e) other information that may be required

Invoicing requirements for VAT
A VAT-registered person shall issue:
a) A VAT invoice for every sale, barter or exchange of
goods or properties; and
b) A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange
of services.
Only VAT-registered persons are required to print their
TIN followed by the word "VAT" in their invoice or
official receipts.
All purchases covered by invoices/receipts other than
VAT Invoice/VAT Official Receipt shall not give rise to
any input tax.

Information contained in the VAT invoice
A statement that the seller is a VAT-registered person,
followed by his TIN;
The total amount to be paid with the indication that
such amount includes the VAT; Provided, That:
(a) The amount of tax shall be a separate item
(b) If the sale is exempt from VAT, the term "VAT-
exempt sale" shall be written or printed
prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) VAT, the
term "zero-rated sale" shall be written or printed
(d) If the sale involves goods, properties or services
some of which are subject to and some of which
are VAT zero-rated or VAT-exempt, the invoice or
receipt shall clearly indicate the break-down of the
sale price between its taxable, exempt and zero-
rated components, and the calculation of the VAT
on each portion of the sale shall be shown on the
invoice or receipt.
NOTE: The seller has the option to issue separate
invoices or receipts for the taxable, exempt, and
zero-rated components of the sale.
In the case of sales of P1,000.00 or more where the sale
or transfer is made to a VAT-registered person, the
name, business style, if any, address and TIN of the
purchaser, customer or client, shall be indicated in
addition to the information required.


Consequences of issuing erroneous VAT invoice or ORs
(Please refer to 22. Invoicing Requirements under the VAT
Section for further discussion)

e. Exhibition of certificate of payment at place of business
The original copy of Certificate of Registration and the
duly validated Annual Registration Fee Return are
required to be displayed in any conspicuous place in
the head office, branch office, storage place or place of
production. [RMC No. 39-95 dated December 1, 1995]

f. Continuation of business of deceased person
If during the year, the owner of a business dies, the
business is continued, and the annual registration fee
has been duly paid, NO ADDITIONAL PAYMENT shall be
required for the remainder of the year.
However, the persons interested in the estate of the
deceased owner shall submit to the BIR, within 30 days
from the death, a list of the inventories of goods or
stocks of the business at the time of death.
This shall also apply in the case of transfer of ownership
or change of name of the business establishment.

g. Removal of Business to another location
Any business for which the annual registration fee has
been paid may be removed and continued in any other
place without the payment of additional tax during the
term for which the payment was made subject to the
rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.

======================================
E. Percentage Tax
======================================
I. TAX LIABILITY

A. TAX ON PERSONS EXEMPT FROM VAT
3% of gross quarterly sales or receipts
Any person who is exempt from VAT and who is
not a VAT-registered person.
Those who gross annual sales and
receipts does not exceed P1.5 million are
exempted from VAT.
Cooperatives shall be exempt from the 3% gross
receipts tax (GRT)
Those earning less than P100,000 which is neither
covered by percentage tax nor VAT

B. TAX ON DOMESTIC CARRIERS AND KEEPERS OF
GARAGES
3% of quarterly gross receipts
Gross receipts of common carriers derived from
incoming and outgoing freight is not subject to
local taxes under the Local Government Code
(LGC).
Covers cars for rent or hire driven by the lessee,
transportation contractors, including persons who
transport passengers for hire, and other domestic
carriers by land, air or water, for the transport of
passengers, and keepers of garages
Does not cover owners of bancas and owners of
animal-drawn two-wheeled vehicles

MINIMUM QUARTERLY GROSS RECEIPTS:
Jeepneys
Manila and other
cities
P 2,400
Provincial 1,200
Public Utility Bus
Not exceeding 30
Passengers
P 3,600
More than 30 but not
more than 50
passengers
6,000
More than 50
Passengers
7,200
Taxis
Manila and other
cities
P 3,600
Provincial 2,400
Cars for hire
With chauffer P 3,000
Without chauffer 1,800

A. TAX ON INTERNATIONAL CARRIERS
3% of their quarterly gross receipts
Covers International air carriers and shipping
carriers doing business in the Philippines

COMMON
CARRIER
TRANSPORTING KIND OF
CARRIER
TAX
LIABILITY
By Land Persons Domestic 3%
Percentage
Tax
Goods/cargo Domestic 12% VAT
By Sea Whether
transporting
person or
goods/cargo
Domestic Domestic
Trip 12%
VAT
International
Trip Zero-
rated
International 3%
Percentage
Tax
By Air Domestic Domestic


flight 12%
VAT
International
flight Zero-
rated
International 3%
Percentage
Tax

B. TAX ON FRANCHISES
1. Franchises on radio and broadcasting companies
whose annual gross receipts of the preceding year does
not exceed P10 million
3% tax on the gross receipts derived from the
business covered by law granting the franchise
Radio and television broadcasting has an
irrevocable option to be registered as a VAT
taxpayer and pay the corresponding VAT
2 Gas and water utilities
2% tax on the gross receipts derived from the
business covered by the law granting the
franchise

NOTE: Electric companies are now subject to VAT and not
percentage tax

C. OVERSEAS COMMUNICATIONS TAX
Covers every overseas dispatch, message or
conversation transmitted from the Philippines by
telephone, telegraph, telewriter exchange, wireless
and either communication equipment services
10% on the amount paid for services rendered
Paid by the person paying for the services rendered
to the person rendering the services
Exemptions:
a. Government and any of its political subdivisions
and instrumentalities

b. Diplomatic services

c. International organizations (based in the
Philippines and enjoying privileges, exemptions
and immunities pursuant to an international
agreement)

d. News services (which messages deal exclusively
with the collection of news for dissemination)

D. TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PERFORMING QUASI-BANKING
FUNCTIONS

Tax on gross receipts derived from sources within
the Philippines by all banks and non-banks financial
intermediaries

RECEIPTS RATE
Interest, commission, discounts from
lending activities and financial leasing
bases on remaining maturities of
instruments
Maturity period is 5 years or less
Maturity period is more than 5
years

5%
1%
Dividends and equity shares in net
income of subsidiaries
0%
Royalties, rentals of property
(real/personal), profits from exchange
and all other items treated as gross
income under Section 32
7%
Net trading gains on foreign currency,
debt securities, derivatives, and other
similar financial instruments
7%

NOTE:
1. The term banks refer to entities engaged in the
lending of funds obtained in the form of deposits. [RA
337, as amended General Banking Law of 2000]

2. Quasi-bank refers to a non-bank financial
institution authorized by BSP to engage in quasi-banking
functions and to borrow funds from more than 19
lenders through the issuance, endorsement or
assignment with recourse or acceptance of deposit
substitutes.

3. The 20% final withholding tax on a banks passive
income forms part of the taxable gross receipts for the
purpose of computing the gross receipts tax (GRT).

E. TAX ON OTHER NON-BANK FINANCE INTERMEDIARIES

Tax on gross receipts derived by other non-bank
finance intermediaries, doing business in the
Philippines, from interest, commissions, discounts
from lending activities, income from financial
leasing, and all other items treated as gross
income
Based on the remaining maturities of the
instruments from which the receipts are derived

MATURITY RATE
5 years or less 5%
More than 5 years 1%


F. TAX ON LIFE INSURANCE PREMIUMS

5% of total premiums collected (whether paid in
money, notes, credits or any substitute for money)
by every person, company or corporation doing life
insurance business of any sort in the Philippines,
except purely cooperative companies or
associations
Premiums not included in the taxable receipts:
1. Premiums refunded within 6 months after
payment on account of rejection of risks
2. Premiums paid upon reinsurance by a
company that has already paid the tax
3. Premiums collected or received by any
branch of a domestic corporation, firm or
association doing business outside the
Philippines on account of any life insurance of
the insured who is a non-resident, if any tax
on such premiums is imposed by the foreign
country where the branch is established
4. Premiums collected or received on account of
any reinsurance, if the insured of a personal
insurance, resides outside the Philippines, if
any tax on such premiums is imposed by the
foreign country where the original insurance
has been issued or perfected
5. Portions of premiums collected or received
by insurance companies on variable contracts
in excess of the amount necessary to insure
the lives of variable contract owners

NOTE:
Cooperative companies or associations are such as
are conducted by the members thereof with the money
collected from among themselves and solely for their
own protection and not for profit

G. TAX ON AGENTS OF FOREIGN INSURANCE COMPANIES

10% of total premiums collected by every fire,
marine or miscellaneous insurance agent
authorized to procure policies of insurance as he
may have previously been legally authorized to
transact on risks located in the Philippines for
companies not authorized to transact business in
the Philippines
Does not cover premiums paid on reinsurance
In cases where owners or property obtain
insurance directly with foreign companies, the
owners shall pay a tax of 5% on the premiums paid

H. AMUSEMENT TAXES

For purposes of amusement tax, gross receipts
include all receipts of the proprietor, lessee or
operator of the amusement place, income from
television, radio and motion picture rights

SOURCE RATE
Cockpits 18%
Cabarets, night or day clubs 18%
Boxing exhibitions 10%
Professional basketball games (in
lieu of all other percentage taxes)
15%
Jai-alai and racetracks (whether or
not they charge for admissions)
30%

Boxing exhibitions, wherein World or Oriental
Championships in any division is at stake having at
least one (1) Filipino contender and that

I. TAX ON WINNINGS

SOURCE RATE PERSON
LIABLE
Winnings or dividends
based on the actual
amount paid to winner
for every winning ticket
after deducting the cost
of the ticket
10% Every person
who wins in
horse races
Winnings from double,
forecast/quinella and
trifecta bets
4%
Prizes of owners of
winning horses
10% Owner of
winning race
horses

NOTE: The tax shall be withheld by the operator,
manager or person in charge of the horse races before
paying the dividends or prizes

J. TAX ON SALE, BERTER, OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL
EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING
(IPO)

A. Through Local Stock Exchange
of 1% of the Gross Selling Price or Gross
Value in Money of the shares of stocks sold,
bartered, exchanged or otherwise disposed of
through the local stock exchange other than
the sale by a dealer in securities
The tax shall be paid by the seller or transferor


B. Through Initial Public Offering (IPO)
Imposed on the sale, barter, exchange of
shares of stock of closely held corporations in
proportion to the total outstanding shares
after the listing in the local stock exchange
Tax based on the Gross Selling Price or Gross
Value in Money shall be paid by the issuing
corporation in the primary offering of it by
the seller in the secondary offering

NUMBER OF SHARES RATES
Up to 25% of all shares 4%
Over 25% but not over 33 % 2%
Over 33 % 1%

C. Return on Capital Gains Realized from Shares of
Stocks
Includes both return on capital gains realized
from sale of shares of stock listed and traded
in the local stock exchange and return on
public offerings of shares of stocks

II. PAYMENT OF PERCENTAGE TAX

Persons subject to percentage tax shall file a
quarterly return of the amount of his gross sales,
receipts or earnings and pay the tax due within 25
days after the end of each taxable quarter
In case of a person whose VAT registration is
cancelled and who becomes liable to percentage tax,
the tax shall accrue from the date of cancellation
Persons retiring from business subject to percentage
tax shall file his return and pay the tax due within 20
days after closing the business
Every person liable may, at his option, file a separate
return for each branch or place of business or a
consolidated return for all branches or places of
business with the authorized agent bank, revenue
district officer, collection agent or duly authorized
treasurer of the city or municipality where the said
business or principal place of business is located
The Commissioner may, by rules and regulations,
prescribe the time for filing the return and manner
of payment, and a minimum amount of gross
receipts, sales and taxable base when it is found that
a person has failed to issue receipts or invoices, or
when no return is filed, or when there is a reason to
believe that the books of accounts or other records
do not correctly reflect the declarations made or to
be made in a return

======================================
F. Compliance Requirements
======================================
1. Administrative Requirements

h. Registration Requirements (see RR 11-08)

Annual Registration Fee (RF)
Fee of (P500.00) for every separate or distinct
establishment or place of business shall be paid upon
registration and every year thereafter on or before
January 31 by every person subject to any internal
revenue tax.
The following are exempt from the Annual RF:
(11) Cooperatives duly registered with the CDA;
(12) Individuals earning purely compensation income
whether locally or abroad;
(13) Overseas Workers;
(14) GAIs, in the discharge of their governmental
functions;
(15) Marginal Income Earners;
(16) LGUs, in the discharge of their governmental
functions;
(17) Tax exempt persons such as those enumerated
under Section 30 of the Code, as amended, in
pursuance of tax-exempt activities;
(18) Non-stock/non-profit organizations not engaged in
business;
(19) Persons subject to tax under one-time
transactions; and
(20) Facility/ies where no sales transactions occur.

Registration of Each Type of Internal Revenue Tax
Every person who is required to register with the BIR
shall register each type of internal revenue tax for
which he/it is obligated to OR is expected to
periodically file a return, pay taxes due thereon, and
update such record of any changes in the registration
information.
Note that the registration of one tax type does not
automatically register the other type of taxes (e.g.
registered for income tax is not registered for VAT)
Generally, registration of tax types/fees by a business
entity would consist of the following internal revenue
taxes/fees:
(i) Income tax;
(j) VAT and/or percentage tax;
(k) Withholding tax on compensation;
(l) Creditable withholding tax at source on certain
income payments;
(m) Final withholding tax on certain income payments;
(n) Documentary stamp tax;


(o) Excise tax; and
(p) Annual registration fee.

Transfer of Registration
It shall be duty of the taxpayer to inform the RDO
where he is registered by filing the prescribed BIR Form
specifying the RDO where he is intending to transfer.
In case of transfer of registration of individuals earning
purely compensation income due to change of
employer, it shall be the responsibility of the RDO
having jurisdiction of the new employer to effect the
transfer of employee's registration.
It shall be the duty of the old RDO to transfer the
accountabilities of the taxpayer to the new RDO where
he is transferring.
The old RDO can still institute collection on concluded
audit cases at the time of transfer of registration. The
old RDO shall terminate audit cases that are prescribing
within six (6) months from the date of transfer.
The filing of tax returns and payment of taxes to the
new RDO shall commence at the time the transfer is
effected by the old RDO.
Both the new and the old RDO shall be responsible in
notifying the taxpayer concerned that the transfer of
registration has already been effected.
Transfer of head office of taxpayers engaged in
business during the interim period shall only be
officially effected in the records of the BIR by the end of
the year.
The taxpayer may be allowed to physically transfer its
business to the intended RDO, however, the filing of its
returns and payment of taxes in the new RDO shall still
bear the RDO Code of the old RDO until the end of the
year and without imposition of any surcharge for
"wrong-venue filing of return"
Request for transfer of registration of branch/facility,
which has no registered tax types in the RDO where it is
registered, shall immediately be effected by the
concerned old RDO.
Registration of employees of the transferring
employers shall simultaneously be transferred to the
new RDO once the transfer of registration of the
employer is effected.

Other Updates
Any person registered shall, whenever applicable,
update his registration information with the RDO where
he is registered under any of the following instances:
f) A person's business has become exempt
g) A change in the nature of the business itself, i.e.
from sale of taxable goods and services to exempt
h) A person whose transactions are exempt from VAT
but voluntarily registered under VAT system
applies for cancellation of his VAT registration after
the lapse of 3 years after his registration
NOTE: optional registration as a VAT taxpayer of a
franchise grantee of radio and/or television
broadcasting whose gross receipts for the
preceding year did not exceed P10,000,000.00
shall be irrevocable;
i) A VAT-registered person whose gross sales or
receipts for three consecutive years did not exceed
P1,500,000.00. Upon updating his registration, the
taxpayer shall become liable to the percentage tax.
j) Any other changes/updates in registration
information previously supplied, including
cancellation or change in any tax types.

Cancellation of Registration
Either cancellation of business registration and/or TIN.
The cancellation of business registration shall not
automatically cancel the TIN of the person.
TIN is cancelled upon:
e) Death of an individual;
f) Dissolution, merger or consolidation of juridical
person;
g) Discovery of a taxpayer having multiple TINs;
h) Payment of estate tax by the heirs, administrator or
executor or upon full settlement of the tax
liabilities of the estate.
The cancellation of business registration may be
granted on the following instances:
e) Closure/Cessation of business operation;
f) Dissolution of corporation/partnership;
g) Merger/Consolidation;
h) Death of an individual.

Power of Commissioner to suspend the business operations
of any person who fails to register
administrative and penal sanctions provided for in the
Tax Code and implementing regulations, the CIR or his
duly authorized representative may order suspension
or closure of a business establishment for a period of
not less than 5 days for any of the following violations:
e) Failure to issue receipts and invoices
f) Failure to file VAT return as required under the
g) Understatement of taxable sales or receipts by
30% or more of his correct taxable sales or receipt
for the taxable quarter
h) Failure of any person to register as required under
the provisions of Sec. 236 of the Tax Code

i. Persons Required to Register for VAT

Mandatory VAT registration
Any person who, in the course of trade or business,
sells, barters or exchanges goods or properties or


engages in the sale or exchange of services shall be
liable to register if:
iii. His gross sales or receipts for the past 12 months,
other than those that are exempt under Sec. 109
(1)(A) to (U) of the Tax Code, have exceeded P1.5
million; or
iv. There are reasonable grounds to believe that his
gross sales or receipts for the next twelve (12)
months, other than those that are exempt under
Sec. 109(1)(A) to (U) of the Tax Code, will exceed
P1.5 million.

Franchise grantees of radio and television broadcasting,
whose gross annual receipt for the preceding taxable
year exceeded P10 million, shall register within thirty
(30) days from the end of the taxable year.

NOTE: If he fails to register, he is liable to output VAT but
cannot claim input VAT, for the period in which not properly
registered.

Optional VAT Registration
Taxpayers may apply for VAT registration not later than
10 days before the beginning of the taxable quarter and
shall pay the P500 registration fee, unless they have
already paid at the beginning of the calendar year.
The Commissioner of Internal Revenue may, for
administrative reason deny any application for
registration.
Once registered as a VAT person, the taxpayer shall be
liable to output tax and be entitled to input tax credit
beginning on the first day of the month following
registration.

Cancellation of VAT Registration
If he makes a written application and can demonstrate
to the commissioners satisfaction that his gross sales
or receipts for the following twelve (12) months, other
than those that are exempt under Section 109 (A) to
(U), will not exceed one million five hundred thousand
pesos (P1,500,000); or
If he has ceased to carry on his trade or business, and
does not expect to recommence any trade or business
within the next twelve (12) months.

NOTE: The cancellation for registration will be effective from
the first day of the following month the cancellation was
approved.

j. Supplying TIN
Any person required to make, render or file a return,
statement or other document shall be supplied with or
assigned a Taxpayer Identification Number (TIN) which
he shall indicated in such return statement or
document filed with the BIR for his proper identification
for tax purposes.
In case a registered taxpayer dies, the administrator or
executor shall register the estate of the decedent a new
TIN.
In case of a nonresident decedent, the executor or
administrator of the estate shall register the estate
with the RDO where he is registered BUT if the
executor or administrator is not registered, registration
shall be made with the RDO having jurisdiction over his
legal residence.
Only one TIN shall be assigned to a taxpayer.

k. Issuance of Receipts or sales or commercial invoices

Printing of receipts or sales or commercial invoices
All persons who are engaged in business shall secure
from the BIR an authority to print receipts or sales or
commercial invoices before a printer can print the
same.
No authority to print receipts or sales or commercial
invoices shall be granted unless the receipts or invoices
to be printed are serially numbered and shall show:
f) the name
g) business style
h) Taxpayer Identification Number (TIN)
i) business address of the person or entity to use the
same,
j) other information that may be required

Invoicing requirements for VAT
A VAT-registered person shall issue:
c) A VAT invoice for every sale, barter or exchange of
goods or properties; and
d) A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange
of services.
Only VAT-registered persons are required to print their
TIN followed by the word "VAT" in their invoice or
official receipts.
All purchases covered by invoices/receipts other than
VAT Invoice/VAT Official Receipt shall not give rise to
any input tax.

Information contained in the VAT invoice
A statement that the seller is a VAT-registered person,
followed by his TIN;
The total amount to be paid with the indication that
such amount includes the VAT; Provided, That:
(e) The amount of tax shall be a separate item
(f) If the sale is exempt from VAT, the term "VAT-
exempt sale" shall be written or printed


(g) If the sale is subject to zero percent (0%) VAT, the
term "zero-rated sale" shall be written or printed
(h) If the sale involves goods, properties or services
some of which are subject to and some of which
are VAT zero-rated or VAT-exempt, the invoice or
receipt shall clearly indicate the break-down of the
sale price between its taxable, exempt and zero-
rated components, and the calculation of the VAT
on each portion of the sale shall be shown on the
invoice or receipt.
NOTE: The seller has the option to issue separate
invoices or receipts for the taxable, exempt, and
zero-rated components of the sale.
In the case of sales of P1,000.00 or more where the sale
or transfer is made to a VAT-registered person, the
name, business style, if any, address and TIN of the
purchaser, customer or client, shall be indicated in
addition to the information required.

Consequences of issuing erroneous VAT invoice or ORs
(Please refer to 22. Invoicing Requirements under the VAT
Section for further discussion)

l. Exhibition of certificate of payment at place of business
The original copy of Certificate of Registration and the
duly validated Annual Registration Fee Return are
required to be displayed in any conspicuous place in
the head office, branch office, storage place or place of
production. [RMC No. 39-95 dated December 1, 1995]

m. Continuation of business of deceased person
If during the year, the owner of a business dies, the
business is continued, and the annual registration fee
has been duly paid, NO ADDITIONAL PAYMENT shall be
required for the remainder of the year.
However, the persons interested in the estate of the
deceased owner shall submit to the BIR, within 30 days
from the death, a list of the inventories of goods or
stocks of the business at the time of death.
This shall also apply in the case of transfer of ownership
or change of name of the business establishment.

n. Removal of Business to another location
Any business for which the annual registration fee has
been paid may be removed and continued in any other
place without the payment of additional tax during the
term for which the payment was made subject to the
rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.

2. Tax Returns

a. Income tax returns

(1) Individual Tax Returns
(a) Filing of individual tax returns
i. Who are required to file
Husband and Wife
Married individuals shall file a return for the
taxable year to include the income of both
spouses, computing separately their individual
income tax based on their respective total taxable
income.
Where it is impracticable for the spouses to file
one return, each spouse may file a separate return
of income.
If any income cannot be definitely attributed to or
identified as income exclusively earned or realized
by either of the spouses, the same shall be divided
equally between the spouses for the purpose of
determining their respective taxable income.

Return of Parent to include income of Children
The income of unmarried minors derived from
property received from a living parent shall be
included in the return of the parent
EXCEPT:
(i) when the donors tax has been paid on such
property,
(ii) when the transfer of such property is
exempt from donors tax.

Return of persons with disability
If the taxpayer is unable to make his own return,
the return may be made:
(i) by his duly authorized agent or
representative or
(ii) by the guardian or other person charged
with the care
(iii) of his person or property,
Where the principal and his representative or
guardian assuming the responsibility of making the
return and incurring penalties provided for
erroneous, false or fraudulent returns.

ii. Who are not required to file
An individual whose gross income does not exceed
his total personal and additional exemptions for
dependents
However, a citizen of the Philippines and any alien
individual engaged in business or practice of
profession within the Philippines shall file an
income tax return, regardless of the amount of
gross income;


An individual with respect to pure compensation
income derived from sources within the
Philippines and the income tax has been correctly
withheld
However, if an individual derives compensation
concurrently from two or more employers at any
time during the taxable year shall file an income
tax return
An individual whose sole income has been
subjected to final withholding tax pursuant to
Section 57(A) of this Code;
An individual who is exempt from income tax
pursuant to the provisions of this Code and other
laws, general or special.
A minimum wage earner

NOTE: Any individual not required to file an income tax
return may be required to file an information return

(b) Where to file
With any Authorized Agent Bank (AAB) located within
the territorial jurisdiction of the Revenue District Office
where the taxpayer is required to register/where the
taxpayer has his legal residence or place of business in
the Philippines.
In places where there are no AABs, the returns shall be
filed with the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer of the
Revenue District Office where the taxpayer is required
to register/where the taxpayer has his legal residence
or place of business in the Philippines.
In case taxpayer has no legal residence or place of
business in the Philippines, the return shall be filed with
the Office of the Commissioner or Revenue District
Office No. 39, South Quezon City.

(c) When to file
For the quarterly income tax return:
First Quarter On or before April 15 of the current
taxable year
Second Quarter On or before August 15 of the current
taxable year
Third Quarter On or before November 15 of the
current taxable year

For the annual income tax return:
On or before April 15 of the next succeeding year.

(2) Corporate Returns
(a) Requirement for filing returns
i. Declaration of quarterly corporate income tax
Place of filing
Any Authorized Agent Bank (AAB) located within
the territorial jurisdiction of the Revenue District
Office where the taxpayer is required to
register/which has jurisdiction over the location of
the principal office of the CORPORATION filing
the return.
In places where there are no AABs with the
Revenue Collection Officer or duly Authorized City
or Municipal Treasurer within the Revenue District
the return.

Time of filing
Within sixty (60) days following the close of each of the
first three (3) quarters of the taxable year whether
calendar or fiscal year.

ii. Final adjustment return
Place of filing
Any Authorized Agent Bank (AAB) located within
the territorial jurisdiction of the Revenue District
the return.
In places where there are no AABs with the
Revenue Collection Officer or Duly Authorized City
or Municipal Treasurer of the municipality or city
under the jurisdiction of the Revenue District
the return.

Time of filing
On or before the 15
th
day of the fourth month following
the close of the taxpayer's taxable year.

iii. Taxable year of corporations
A corporation may employ either calendar year or
fiscal year as a basis for filing its annual income tax
return.
The corporation shall not change the accounting
period employed without prior approval from the
Commissioner in accordance with the provisions of
Section 47 of this Code.

iv. Extension of time to file return
The Commissioner may, in meritorious cases, grant
a reasonable extension of time for filing returns of
income, subject to the provisions of Section 56 of
this Code.


(b) Return of corporation contemplating dissolution or
reorganization
Every corporation shall, within thirty (30) days
after the adoption by the corporation of a
resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital
stock, including a corporation which has been
notified of possible involuntary dissolution by the
Securities and Exchange Commission, or for its
reorganization, render a correct return to the
Commissioner, verified under oath, setting forth
the terms of such resolution or plan and such
other information as the Secretary of Finance,
upon recommendation of the Commissioner, shall,
by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall,
prior to the issuance by the Securities and
Exchange Commission of the Certificate of
Dissolution or Reorganization, as may be defined
by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner, secure a certificate of tax clearance
from the Bureau of Internal Revenue which
certificate shall be submitted to the Securities and
Exchange Commission.

(c) Return on capital gains realized from sale of shares of
stock not traded in the local stock exchange
Every corporation deriving capital gains from the
sale or exchange of shares of stock not traded thru
a local stock exchange shall:
i. file a return within thirty (30) days after each
transaction
ii. file a final consolidated return of all
transactions during the taxable year on or
before the fifteenth (15th) day of the fourth
(4th) month following the close of the taxable
year.

(3) Returns of Receivers, Trustees in Bankruptcy or
Assignees
In cases wherein receivers, trustees in bankruptcy
or assignees are operating the property or
business of a corporation, subject to the tax
imposed by this Title, such receivers, trustees or
assignees shall make returns of net income as and
for such corporation, in the same manner and
form as required from the organization
Any tax due on the income as returned by
receivers, trustees or assignees shall be assessed
and collected in the same manner as if assessed
directly against the organizations of whose
businesses or properties they have custody or
control.

(4) Returns of general partnerships
Every general professional partnership shall file a
return of its income, except exempt income setting
forth the items of gross income and of deductions
allowed by this Title, and the names, Taxpayer
Identification Numbers (TIN), addresses and shares
of each of the partners.

(5) Fiduciary returns

b. Estate tax returns

Persons liable to pay estate tax
The person primarily liable is the estate itself, through the
executor and administrator. When there are 2 or more
executors or administrators, all of them are severally liable
for the payment of tax.

The heir or beneficiary has a subsidiary liability for the
payment of that portion of the estate which his distributive
share bears to the value of the net estate. The extent of his
liability shall not, however, exceed the value of his share in
the inheritance.

(1) Notice of death to be filed

WHO files: the executor, administrator or any of the legal
heirs,

WHEN to file: within 2 months after the decedent's death,
or within a like period after qualifying as such executor or
administrator

TO WHOM filed: Commissioner.

(2) Estate tax returns

WHEN to file: within six (6) months from the decedent's
death; except, the Commissioner, in meritorious cases,
grants a reasonable extension not exceeding 30 days for
filing the return

MANDATORY filing of estate tax returns in all cases of:
i. transfers subject to the tax imposed herein
ii. transfers though exempt from tax, where the gross
value of the estate exceeds P200,000
iii. regardless of the gross value, the estate consists of
registered or registrable property for which a clearance
from the Bureau of Internal Revenue is required for the
transfer of ownership in the name of the transferee

WHERE to file:
i. Authorized agent bank
ii. Revenue district officer


iii. Duly authorized city or municipal treasurer of the place
of decedents domicile
iv. If there is no legal residence in the country, with the
Commissioner

(3) Discharge of liabilities
If the executor or administrator makes a written
application to the Commissioner for determination of
the amount of the estate tax and discharge from
personal liability, the Commissioner as soon as possible,
and in any event within one (1) year after the making of
such application, or if the application is made before
the return is filed, then within one (1) year after the
return is filed, but not after the expiration of the period
prescribed for the assessment of the tax shall notify the
executor or administrator of the amount of the tax.
The executor or administrator, upon payment of the
amount of which he is notified, shall be discharged
from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to a
receipt or writing showing such discharge.

Distribution of Estate
Upon payment, the administrator shall deliver the
distributive share in the inheritance to any heir or
beneficiary. The estate tax clearance issued by the
Commissioner or the Revenue District Officer having
jurisdiction over the estate will serve as the authority to
distribute the remaining/distributable properties/share in
the inheritance to the heir or beneficiary.

In case of installment payments, the clearance shall be
released only with respect to the property the
corresponding tax has been paid.

(a) Definition of deficiency
The amount by which the tax imposed by this Chapter
exceeds the amount shown as the tax by the executor,
administrator or any of the heirs upon his return; but
the amount so shown on the return shall first be
increased by the amounts previously assessed (or
collected without assessment) as a deficiency and
decreased by the amounts previously abated, refunded
or otherwise repaid in respect of such tax; or
If no amount is shown as the tax by the executor,
administrator or any of the heirs upon his return, or if
no return is made by the executor, administrator, or
any heir, then the amount by which the tax exceeds the
amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts
previously assessed or collected without assessment
shall first be decreased by the amounts previously
abated, refunded or otherwise repaid in respect of such
tax.

c. Donors Tax Return

Who are liable to file donors tax return?
Every person, whether natural or juridical, resident or non-
resident, who transfers or causes to transfer property by gift

(1) Requirements
Any individual who makes any transfer by gift (except
those which are exempt shall, for the purpose of the
said tax, make a return under oath in duplicate. The
return shall set forth:
i. Each gift made during the calendar year
which is to be included in computing net gifts;
ii. The deductions claimed and allowable;
iii. Any previous net gifts made during the same
calendar year;
iv. The name of the donee; and
v. Such further information as may be required by
rules and regulations made pursuant to law.

(2) Time and place filing
The donors tax return shall be filed within 30 days after
the date the gift is made
Filed with any Authorized Agent Bank (AAB) of the RDO
having jurisdiction over the place of the domicile of the
donor at the time of the transfer. In places where there
are no AAB, the return will be filed directly with the
Revenue Collection Officer or duly Authorized City or
Municipal Treasurer where the donor was domiciled at
the time of the transfer, or if there is no legal residence
in the Philippines, with Revenue District No. 39 South
Quezon City.

In the case of gifts made by a non-resident alien, the
return may be filed with Revenue District No. 39 - South
Quezon City, or with the Philippine Embassy or
Consulate in the country where donor is domiciled at
the time of the transfer.

d. VAT Return

(1) In General
a. Monthly VAT Declaration (BIR Form No. 2550M) and
Payment of VAT
Refers to first 2 months of taxpayers quarters
Filing and Payment Deadline: 20 days from the end of
the month, except for Electronic Filing and Payment
System (EFPS) taxpayers
Filing deadline for EFPS: Deadline depends on the
industry classification of the taxpayer but applicable
only for filing of the monthly VAT return.
NOTE: For the electronic payment of tax for the returns
required to be filed earlier under the staggered filing
system, the taxpayer upon e-filing shall, still using the
facilities of EFPS, likewise give instruction to the


Authorized Agent Bank (AAB) to debit its account for
the amount of tax on or before the due date for
payment thereof as prescribed under the
prevailing/applicable laws/regulations.
Payment deadline for EFPS: 25 days from the end of the
month

b. Withholding VAT Return (BIR Form 1600)
Deadline of filing and payment: 10th day of the
following month

c. Quarterly VAT Return (BIR Form No. 2550Q)
Deadline for filing and payment: Should be filed within
25 days following the close of each taxable quarter.
The quarterly return shall reflect the cumulative totals
of the sales, purchases, output tax and input tax for the
three (3) months of the applicable quarter.
The VAT payable (output tax less input tax) for each
quarter shall be reduced by the total amount of the tax
previously paid for the preceding 2 months
EFPS: same deadline. (Sec. 114 [A])

(2) Where to file the return
The returns/declarations must be filed with any
Authorized Agent Bank (AAB) within the jurisdiction of
the Revenue District Office where the taxpayer is
required to register. In places where there are no
Authorized Agent Bank (AAB), the returns/declarations
shall be filed with the Revenue Collection Officer or
duly Authorized City or Municipal Treasurer located
within the revenue district where the taxpayer is
required to register.
Taxpayers with branches shall file only one
consolidated return/declaration for his principal place
of business or head office and all branches.

e. Withholding Tax Returns
(1) Quarterly returns and payment of taxes withheld
Taxes deducted and withheld by withholding agents
shall be covered by a return and paid to, except in cases
where the Commissioner otherwise permits, an
authorized agent bank, Revenue District Officer,
Collection Agent, or duly authorized Treasurer of the
city or municipality where the withholding agent has his
legal residence or principal place of business, or where
the withholding agent is a corporation, where the
principal office is located.
The return for final withholding tax shall be filed and
the payment made:
i. Within ten (10) days after the end of each
month except for taxes withheld for December
which shall be filed on or before January 25 of the
following year.
ii. For large taxpayers, the filing of the return
and the payment of tax shall be made within
twenty five (25) days after the end of each month.
iii. The return for final withholding taxes on
interest from any currency bank deposit and yield
or any other monetary benefit from deposit
substitutes and from trust funds and similar
arrangements shall be filed and the payment made
within twenty five (25) days from the close of each
calendar quarter.

(2) Annual Information Return
The payor is required to file with the Commissioner,
Revenue Regional Director, Revenue District Officer,
Collection Agent in the city or municipality where the
payor has his legal residence or principal place of
business, where the government office is located in the
case of a government agency, an Annual Information
Return of Income Tax Withheld at Source (Form No.
1604), showing among others the following
information:
i. Name, address and taxpayer's, identification number
(TIN); and
ii. Nature of income payments, gross amount and
amount of tax withheld from each payee and such
other information as may be required by the
Commissioner.
On or before January 31 of the following year in which
payments were made.
If the payor is the Government of the Philippines or any
political subdivision or agency thereof, or any
government-owned or controlled corporation, the
return shall be made by the officer or employee having
control of the payments or by any designated officer or
employee.

3. Tax Payments

a. Income Taxes
(i) Payment, in general; time of payment
Pay as you file
In the case of tramp vessels, the shipping agents
and/or the husbanding agents, and in their
absence, the captains thereof are required to file
the return herein provided and pay the tax due
thereon before their departure.

Upon failure of the said agents or captains to file
the return and pay the tax, the Bureau of Customs
is hereby authorized to hold the vessel and
prevent its departure until proof of payment of the
tax is presented or a sufficient bond is filed to
answer for the tax due.

(ii) Installment payment
When the tax due is in excess of Two thousand
pesos (P2,000), the taxpayer OTHER THAN A


CORPORATION may elect to pay the tax in two (2)
equal installments: in which case,
i. The first installment shall be paid at the time
the return is filed
ii. The second installment, on or before July 15
following the close of the calendar year.
If any installment is not paid on or before the date
fixed for its payment, the whole amount of the tax
unpaid becomes due and payable, together with
the delinquency penalties.

(iii) Payment of capital gains tax
Pay as you file
However, if the seller submits proof of his
intention to avail himself of the benefit of
exemption of capital gains under existing special
laws, no such payments shall be required:

In case of failure to qualify for exemption under
such special laws and implementing rules and
regulations, the tax due on the gains realized from
the original transaction shall immediately become
due and payable, and subject to the penalties
prescribed under applicable provisions of this
Code:
If the seller, having paid the tax, submits such
proof of intent within six (6) months from the
registration of the document transferring the real
property, he shall be entitled to a refund of such
tax upon verification of his compliance with the
requirements for such exemption.
In case the taxpayer elects and is qualified to
report the gain by installments, the tax due from
each installment payment shall be paid within
thirty (30) days from the receipt of such payments.
No registration of any document transferring real
property shall be effected by the Register of Deeds
unless the Commissioner or his duly authorized
representative has certified that such transfer has
been reported, and the tax herein imposed, if any,
has been paid.

b. Estate Taxes

(1) Payment of Tax: Time of Payment
GENERAL RULE: at the time the return is filed by the
executor, administrator or the heirs but before delivery of
the distributive share in the inheritance to any heir or
beneficiary.

EXCEPTION: when the Commissioner finds that payment on
due date would impose undue hardship upon the estate or
any of the heirs, he may extend the time for payment of
such tax:
not to exceed 5 years, in case the estate is settled
through the courts; or
2 years in case the estate is settled extrajudicially

In which case it shall be paid on or before expiration of the
extension and running of the Statute of Limitations for
assessment shall be suspended for the period of any such
extension.

The Commissioner may require a bond not exceeding
double the amount of the tax and with such sureties as the
Commissioner deems necessary when an extension for
payment is granted.

Restrictions as to Extension of Time to Pay:
No extension shall be allowed when taxes are assessed by
reason of:
i. negligence
ii. intentional disregard of rules and regulations
iii. fraud on the part of the taxpayer

(2) Liability for payment

Discharge of liabilities
If the executor or administrator makes a written
application to the Commissioner for determination of
the amount of the estate tax and discharge from
personal liability, the Commissioner as soon as possible,
and in any event within one (1) year after the making of
such application, or if the application is made before
the return is filed, then within one (1) year after the
return is filed, but not after the expiration of the period
prescribed for the assessment of the tax shall notify the
executor or administrator of the amount of the tax.
The executor or administrator, upon payment of the
amount of which he is notified, shall be discharged
from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to a
receipt or writing showing such discharge.

Distribution of Estate
Upon payment, the administrator shall deliver the
distributive share in the inheritance to any heir or
beneficiary. The estate tax clearance issued by the
Commissioner or the Revenue District Officer having
jurisdiction over the estate will serve as the authority to
distribute the remaining/distributable properties/share in
the inheritance to the heir or beneficiary.

In case of installment payments, the clearance shall be
released only with respect to the property the
corresponding tax has been paid.


Definition of deficiency
The amount by which the tax imposed by this Chapter
exceeds the amount shown as the tax by the executor,
administrator or any of the heirs upon his return; but
the amount so shown on the return shall first be
increased by the amounts previously assessed (or
collected without assessment) as a deficiency and
decreased by the amounts previously abated, refunded
or otherwise repaid in respect of such tax; or
If no amount is shown as the tax by the executor,
administrator or any of the heirs upon his return, or if
no return is made by the executor, administrator, or
any heir, then the amount by which the tax exceeds the
amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts
previously assessed or collected without assessment
shall first be decreased by the amounts previously
abated, refunded or otherwise repaid in respect of such
tax.

(3) Payment before delivery by executor or administrator
No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any
party interested in the estate unless a certification
from the Commissioner that the estate tax has
been paid is shown.

Payment of tax antecedent to the transfer of shares,
bonds or rights
There shall not be transferred to any new owner in
the books of any corporation, sociedad anonima,
partnership, business, or industry organized or
established in the Philippines any share, obligation,
bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification
from the Commissioner that the taxes fixed in this
Title and due thereon have been paid is shown.
If a bank has knowledge of the death of a person,
who maintained a bank deposit account alone, or
jointly with another, it shall not allow any
withdrawal from the said deposit account, unless
the Commissioner has certified that the taxes
imposed thereon by this Title have been paid;
Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent
may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty
thousand pesos (P20,000) without the said
certification.

For this purpose, all withdrawal slips shall contain
a statement to the effect that all of the joint
depositors are still living at the time of withdrawal
by any one of the joint depositors and such
statement shall be under oath by the said
depositors.

(4) Duties of certain officers and debtors
Registers of Deeds shall not register in the Registry
of Property any document transferring real
property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification
from the Commissioner that the tax fixed in this
Title and actually due thereon had been paid is
shown, and they shall immediately notify the
Commissioner, Regional Director, Revenue District
Officer or Revenue Collection Officer or Treasurer
of the city or municipality where their offices are
located, of the nonpayment of the tax discovered
by them.
A debtor of the deceased shall not pay his debts to
the heirs, legatee, executor or administrator of his
creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter
had been paid is shown; but he may pay the
executor or judicial administrator without said
certification if the credit is included in the
inventory of the estate of the deceased.

(5) Restitution of tax upon satisfaction of outstanding
obligations
If, after the payment of the estate tax, new
obligations of the decedent shall appear, and the
persons interested shall have satisfied them by
order of the court, they shall have a right to the
restitution of the proportional part of the tax paid.

c. Donors Taxes
Within thirty days (30) after the date the gift (donation)
is made.
A separate return will be filed for each gift (donation)
made on the different dates during the year reflecting
therein any previous net gifts made during the same
calendar year.
If the gift (donation) involves
conjugal/community/property, each spouse will file
separate returns corresponding to his/ her respective
share in the conjugal/community property. This rule
will also apply in the case of co-ownership over the
property.

d. VAT
(Please see discussion under Tax Returns)

4. Penalties

administrative and penal sanctions provided for in the Tax
Code and implementing regulations, the Commissioner of


Internal Revenue or his duly authorized representative may
order suspension or closure of a business establishment for
a period of not less than five (5) days for any of the
following violations:
i. Failure to issue receipts and invoices
ii. Failure to file VAT return as required under the
iii. Understatement of taxable sales or receipts by 30% or
more of his correct taxable sales or receipt for the
taxable quarter
iv. Failure of any person to register as required under the

Surcharge, interest and other penalties: The interest on
unpaid amount of tax, civil penalties and criminal penalties
imposed in Title XI of the Tax Code shall also apply to
violations of the provisions of Title IV of the Tax Code.

======================================
G. Tax remedies under the NIRC
======================================

1. CONCEPT OF ASSESSMENT

What Constitutes an Assessment?
An assessment contains not only a computation of
tax liabilities but also a demand for payment within
the prescriptive period.
There is no form for an assessment. It can be
written anywhere as long as it is signed by the BIR.
Any notice sent to the taxpayer demanding the tax
liability is an assessment.

a. Requisites for valid assessment
The law requires that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void. [Sec. 228]

b. Constructive methods of income determination
Doctrine of Constructive Receipt an income is
constructively received when it is credited, or segregated in
favor of a person. The person may withdraw the said
account anytime without any substantial limitations or
conditions upon which payment or enjoyment is to be made
or exercised.
Examples: Cash and/or property dividends constructively
received by an individual from a domestic corporation or
from a joint stock company, insurance or mutual fund
companies and regional operating headquarters of
multinational companies, or on the share of an individual in
the distributable net income after tax of a partnership
(except a general professional partnership) of which he is a
partner, or on the share of an individual in the net income
after tax of an association, a joint account, or a joint venture
or consortium taxable as a corporation of which he is a
member or co-venturer. [Sec. 24 B]
Each partner shall report as gross income his distributive
share constructively received in the net income of the
partnership. (Sec. 26)
Assignment of Income Doctrine Ex: A is entitled to his
salary of P10 Million but assigns it to B for unknown
reasons. In this case, both A and B realized income. A
constructively received income (because he was able to
assign and thus has complete control/dominion over it) and
B actually received it. The income is taxable in the hands of
both A and B.

c. Inventory method for income determination
i. Basis: Revenue Memorandum Circular No. 43-74
ii. The taxpayers net worth is determined both at the
beginning and end of the taxable year.
iii. The increase or decrease in the net worth is adjusted
by adding all non-deductible items and subtracting
therefrom non-taxable receipts.
iv. The general theory is that the taxpayers money and
other assets in excess of liabilities after accurate and
proper adjustment of non-deductible and non-taxable
items not accounted for in his tax return is deemed to
be unreported income.

Conditions of the Net Worth Method:
1. Inadequate records as prerequisite - The taxpayers
books of account do not clearly reflect his income or he
has no books, or if he has books, he refuses to produce
them;
2. Need for evidence of source of income - That there is
evidence of possible source/ sources of income to
account for the increases in the net worth or
expenditures;
3. A definite starting point or opening net worth - That
there is a fixed starting point or opening net worth
(date beginning with a taxable year or prior to it when
his financial condition can be established with
definiteness);
4. Proper adjustments to conform with income tax laws -
That the circumstances are such that the method does
not reflect his income with accuracy and certainty and
proper and just additions of personal expenses and
non-deductible expenditures were made and correct,
fair and equitable credit were given by way of
eliminating non-taxable items.


d. Jeopardy assessment
A jeopardy assessment is a tax assessment made by an
authorized Revenue Officer without the benefit of complete
or partial trial in light of the Revenue Officers belief that
assessment and collection of tax will be jeopardized by the
delay caused by the taxpayers failure to 1) comply with
audit and investigation requirements and 2) substantiate
any or all claims, deductions or credits in his return.

e. Tax delinquency and tax deficiency
Delinquency means:
Failure to pay:
1. tax due on any return required to be filed, or
2. tax due for which no return is required, or
3. A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the
notice and demand of the Commissioner.

Deficiency means:
- The amount by which the tax imposed
exceeds the amount shown as tax by the
taxpayer on his return. The amount shown on
the return shall be increased by the amounts
previously assessed as a deficiency, and
decreased by the amount previously abated,
credited, return or repaid.
- If no amount is shown as tax by the taxpayer
on his return, or if no return is made, then the
amount by which the tax exceeds the amount
previously assessed (or collected without
assessment) as a deficiency, but such
previously assessed or collected without
assessment shall first be decreased by the
amounts previously abated, credited, return
or repaid.

2. POWER OF COMMISSIONER TO MAKE ASSESSMENTS
AND PRESCRIBE ADDITIONAL REQUIREMENTS FOR TAX
ADMINISTRATION AND ENFORCEMENT.

a. Power to obtain information, summon, examine and
take testimony of persons (Sec. 5)
For the Commissioner to ascertain:
(a) Correctness of any return or in making a return
where none has been made
(b) Liability of any person for any internal revenue tax
or in correcting such liability
(c) Tax compliance

The Commissioner is authorized:
1) To Examine any relevant Book, paper, record or other
data
2) To Obtain any Information (costs, volume of
production, receipts, sales, gross income, etc), on a
regular basis from:
(a) Any person other than the person under
investigation or
(b) Any office or officer of the national/local
government, government agencies and
instrumentalities (Bangko Sentral, GOCCs)
3) To Summon
(a) The person liable for tax or required to file a return
or
(b) Any officer or employee of such person or
(c) Any person having in his possession/custody/ care
1. The books of accounts
2. Accounting records of entries relating to the
business of the person liable for tax or any
other person
4) To Produce such books, papers, records and other data
and to give testimony
5) To take the Testimony of the person concerned, under
oath as may be relevant to the inquiry
6) To cause revenue officers and employees to make a
Canvass of any revenue district or region
Nothing in Section 5 shall be construed as granting
the Commissioner the authority to inquire into
bank deposits other than as provided for under
Sec. 6 (F) of the Code (authority to inquire into
bank deposits).

Power to make assessments, prescribe requirements for
tax administration and enforcement (Sec. 6)

1) Examination of returns and determination of tax due -
(a) After a return has been filed the Commissioner or
his representative may authorize
i. Examination of any taxpayer; and
ii. Assessment of the correct amount of tax;
(b) Failure to file a return shall not prevent the
Commissioner from authorizing the examination of
any taxpayer;

Any tax or deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or his
representative.
Any return, statement or declaration filed in any
authorized office shall not be withdrawn; but within
THREE YEARS from date of filing, the same may be
modified, changed or amended; provided that no
notice for audit or investigation of such return, has in
the meantime, been actually served upon the taxpayer.
2) Failure to submit required returns and other
documents
(a) If a person:
i. Fails to file a required return or report at the
time prescribed or
ii. Willfully or otherwise files a false or
fraudulent return,


(b) The Commissioner shall Make or Amend the return
from:
i. His own knowledge or
ii. From such information as he can obtain
through testimony or otherwise
iii. Which shall be prima facie correct and
sufficient for all legal purposes

3) Inventory-taking, Surveillance, Presumptive Gross Sales
(a) The Commissioner may, at any time during the
taxable year
v. Order the inventory taking of goods of any
taxpayer; or
vi. May place the business operations of any
person (natural/juridical) under observation
or surveillance
vii. If there is reason to believe that such person is
not declaring his correct income, sales or
receipts for tax purposes.
viii. The findings may be used as basis for
assessing the taxes and shall be deemed
prima facie correct.
(b) Commissioner may prescribe a minimum amount
of gross receipts, sales and taxable base (taking
into account the sales and income of other persons
engaged in similar business) :
i. When a person has failed to issue receipts as
required by Sec. 113 (Invoice requirements for
VAT-registered persons) and Sec. 237
(Issuance of Receipts or Commercial Invoices);
or
ii. When the books of accounts or records do not
correctly reflect the declarations made or
required to be made in a return,
iii. Such minimum amount shall be prima facie
correct

4) Terminate taxable period -
Commissioner shall declare the tax period of a taxpayer
terminated and send notice to the taxpayer of such
decision with a request for immediate payment of the
tax, when it has come to the knowledge of the
Commissioner: (RIRHO)
(a) That a taxpayer is Retiring from business subject to
tax or
(b) Is Intending to leave the Philippines or
(c) To Remove his property therefrom or
(d) To Hide or conceal his property or
(e) Is performing any act tending to Obstruct the
proceedings for the collection of tax

5) Prescribe Real Property Values -
The Commissioner is authorized to:
(a) Divide the Philippines into different zones or areas
and
(b) Determine the fair market value of real properties
located in each zone or area

For tax purposes, the value of the property shall be
whichever is higher of:
(a) Fair market value as determined by the
Commissioner; or
(b) Fair market value as shown in the schedule of
values of the provincial and city assessors.

6) Authority to Inquire into Bank Deposit
Notwithstanding R.A. 1405 (Bank Secrecy Law) the
Commissioner is authorized to inquire into the Bank
deposits of:
(a) A decedent to determine his gross estate
(b) A taxpayer who has filed an application to
compromise payment of tax liability by reason of
financial incapacity
(c) A taxpayer subject of a request for the supply of
tax information from a foreign tax authority
pursuant to an international convention or
agreement on tax matters to which the Philippines
is a signatory or a party of: Provided, That the
information obtained from banks and financial
institutions may be used by the BIR for tax
assessment, verification, audit and enforcement
purposes.

The taxpayers application for compromise shall not be
considered unless he waives in writing his privilege
under R.A. 1405 and other general or special laws. Such
waiver shall authorize the Commissioner to inquire into
his bank deposits.
The Commissioner shall provide the tax information
obtained from banks and financial institutions pursuant
to a convention or agreement upon request of the
foreign tax authority when such requesting foreign tax
authority has provided information to demonstrate the
relevance of the information under R.A. 10021.
RMC No. 29-2010 publishes R.A. 10021 entitled An Act
to Allow the Exchange of Information by the Bureau of
Internal Revenue on Tax Matters Pursuant to
Internationally-Agreed Tax Standards, Amending
Section (F), and 270 of the National Internal Revenue
Code (NIRC) of 1997, as Amended, and for Other
Purposes. The following are specified in the RA:
(a) Authority of the Commissioner of Internal
Revenue to inquire into bank deposit accounts
and related information held by financial
institutions
(b) Allowing a Foreign Tax Authority to examine Income
Tax Returns of taxpayers in the Philippines
(c) Authority of the Commissioner of Internal Revenue
to supply information to a Foreign Tax
Authority which is at his disposal


(d) Penalties, for willful refusal to supply information
(e) Obligation to maintain confidentiality of information
received
(f) Notice to taxpayers regarding respect for exchange
of information

7) Authority to Register tax agents -
(a) The Commissioner shall Accredit and Register,
individuals and general professional partnerships
and their representatives who prepare and file tax
returns and other papers or who appear before the
BIR
(b) The Commissioner shall create national and
regional accreditation boards

Those who are denied accreditation may appeal
the same to the Sec. of Finance who shall rule on
the appeal within 60 days from receipt of such
appeal. Failure of the Sec. of Finance to rule on the
appeal within the said period shall be deemed as
approval for accreditation.

8) Authority to Prescribe Additional Requirements
The Commissioner may prescribe the manner of compliance
with any documentary or procedural requirement for the
submission or preparation of financial statements
accompanying tax returns.

3. WHEN ASSESSMENT IS MADE

Sections 203 and 222 of the NIRC provide for a statute of
limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the
taxpayer against unreasonable investigation. Unreasonable
investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the
taxpayer of the assurance that it will no longer be subjected
to further investigation for taxes after the expiration of a
reasonable period of time. As was held in Republic of the
Phils. vs. Ablaza: The law on prescription being a remedial
measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording
protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law.
Phil. Journalists, Inc. v. CIR, [G.R. 162852, December 16,
2004]

Rules on Prescription
1. When the tax law itself is silent on prescription,
the tax is imprescriptible
2. When no return is required, tax is imprescriptible
NOTE: Remedy of taxpayer is to file a return
a. Prescriptive period for assessment

GENERAL RULE 3 years after the date the return is due or
filed, whichever is later (Sec 203)
Note: A return filed before the last day prescribed by law
for filing shall be considered as filed on the last day.
- False, fraudulent, and non-filing of returns

EXCEPTIONS:
1. Failure to file return: 10 years from date of
discovery of the omission to file the return (Sec.
222A)
2. False or fraudulent return with intention to evade
the tax: 10 years from the date of the discovery of
the falsity or fraud (Sec 222A)
a. Nothing in Sec 222A shall be construed to
authorize the examination and investigation or
inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.
b. Fraud must be alleged and proved as a fact. It
must be the product of a deliberate intent to
evade taxes. It may be established by the:
intentional and substantial understatement of
the tax liability by the taxpayer (substantial
under declaration of income; >30% of that
declared [Sec. 248])
intentional and substantial overstatement of
deductions of exemptions (>30% of the actual
deductions [Sec. 248])
c. Falsity constitutes a deviation from the truth
due to mistake, carelessness or ignorance.

NOTE:
1. Agreement in writing to the extension of the period
to assess between the CIR and the taxpayer before the
expiration of the 3 year period. Section 222 (b) of the
NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement
between the CIR and the taxpayer executed before the
expiration of the three-year period... The waiver must be
signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the
authority is delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized. The waiver
should be duly notarized. CIR v. Kudos Metal Corp. [G.R.
178087, May 5, 2010]

2. Notice of the assessment must be released, mailed
or sent to the taxpayer within the 3 year period. It is not
required that the notice be received by the taxpayer
within the prescribed period. But the sending of the
notice must clearly be proven. Basilan Estate v. CIR,
[G.R. No. L-22492, September 5, 1967]


Amendment of Return
If the amended return is substantially different from the
original return, the prescriptive period shall be counted from
the filing of the amended return. CIR v. Phoenix Assurance
Co., [L-19727, May 20, 1965]

b. Suspension of running of statute of limitations

1. when the CIR is prohibited from making the
assessment or beginning the distraint or levy or a
proceeding in court, and for 60 days thereafter
2. when the taxpayer requests for a reinvestigation
which is granted by the CIR
3. when the taxpayer cannot be located in the
address given by him in the return, unless he
informs the CIR of any change in his address
4. when the warrant of distraint or levy is duly served
and no property is located
5. when the taxpayer is out of the Philippines (Sec.
223)

4. GENERAL PROVISIONS ON ADDITIONS TO THE TAX

a. Civil penalties
A) Penalty: 25% of the amount due, in addition to the
tax required to be paid in case of the following:
RIDT (lets get RID of Tax)
a) Failure to file any Return and pay the tax on
the date prescribed; or
b) Filing a return with an Internal revenue officer
other than those with whom the return is
required to be filed, unless otherwise
authorized by the Commissioner; or
c) Failure to pay the Deficiency tax within the
time prescribed for its payment in the notice
of assessment; or
d) Failure to pay on or before the date
prescribed for its payment:
1. the full or part of the amount of Tax
shown on any return required to be filed;
2. the full amount of tax due for which no
return is required to be filed.

B) Penalty: 50% of the tax or of the deficiency tax, in
case any payment has been made on the basis of a
return before the discovery of the falsity or fraud.
In case of: [ FiFa ]
a) Willful neglect to File the return within the
period prescribed; or
b) False or fraudulent return is willfully made, in
case any payment has been made on the basis
of such return before the discovery of the
falsity or fraud.

Prima facie evidence of a false or fraudulent
return as determined by the Commissioner
pursuant to the rules and regulations
promulgated by the Sec. of Finance:
1. substantial under declaration of taxable
sales, receipts or income failure to report
sales, receipts or income in an amount
exceeding 30% of that declared per return
2. substantial overstatement of deductions
claim of deductions in an amount exceeding
30% of actual deductions

b. Interest
A) There shall be assessed and collected an Interest at
20% per annum on any unpaid amount of tax
B) OR higher rate prescribed by rules and regulations
from the date prescribed for payment until the
amount is fully paid.
C) FROM the date prescribed for its payment until the
full payment.
a) Deficiency Interest in the tax due
b) Delinquency Interest In case of failure to
pay:
4. tax due on any return required to be
filed, or
5. tax due for which no return is required, or
6. A deficiency tax, or any surcharge or
interest thereon on the due date
appearing in the notice and demand of
the Commissioner.
D) Interest shall form part of the tax.

NOTE: Pursuant to Section 249 of the Tax Code, the
imposition of interest on delinquency is mandatory.
Jamora v. Meer, [74 Phil. 22] The imposition of interest
is but a just compensation to the state for the delay in
the payment of the tax, and for the concomitant use by
the taxpayer of funds that rightfully should be in the
government's hands.[BIR Ruling No. 019-03]

E) Interest on extended payment.
a. any person who is qualified and elects to pay
the tax on installment but fails to pay the tax,
or any installment, or any part on or before
the date prescribed; or
b. where the Commissioner has authorized an
extension of time within which to pay a tax or
a deficiency tax or any part thereof,
c. from the date of notice and demand until it is
paid.


5. ASSESSMENT PROCESS

a. Tax audit

b. Notice of informal conference
A written notice informing a taxpayer that the
findings of the audit conducted on his accounting
records indicate that additional taxes or
deficiency assessment has to be paid.
If, after the culmination of an audit, a revenue
officer recommends the imposition of deficiency
tax assessment, this recommendation is
communicated by the BIR to the taxpayer during
an informal conference. The taxpayer shall have
15 days from the receipt of the notice of informal
conference to explain his side.

c. Issuance of preliminary assessment notice
Communication issued by the BIR informing a
taxpayer who has been audited of the findings by
the BIR. The assessment shall be in writing, and
should inform the taxpayer of the law and the
facts on which the assessment is made;
otherwise, the assessment is void.
There is a presumption of correctness and good
faith on the part of the CIR, thus, the burden lies
on the taxpayer. Otherwise, the finding of the CIR
will be conclusive and he will assess the taxpayer.
The same is true even if the CIR is wrong, if the
taxpayer does not controvert it. Cagayan Robina
Sugar Milling v. CA, [G.R. No. 122451, October
12, 2000]

Indeed, Section 228 of the Tax Code clearly requires that the
taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present
their case and adduce supporting evidence.

From the provision [of RR 12-99] it is clear that the sending
of a PAN to taxpayer to inform him of the assessment made
is but part of the "due process requirement in the issuance
of a deficiency tax assessment," the absence of which
renders nugatory any assessment made by the tax
authorities. CIR v. METRO STAR SUPERAMA, [G.R. 185371,
December 8, 2010]

d. Notice of informal conference (see above)

e. Issuance of preliminary assessment notice (see
above)

f. Exceptions to issuance of preliminary assessment
notice

Instances where a pre-assessment notice NEED NOT be
given: MET DC
when the finding for deficiency tax is a result of
Mathematical error in the computation of tax
appearing on the face of the return; or
Discrepancy is determined between the tax
withheld and the amount actually remitted by the
withholding agent
a taxpayer who opted to claim a refund or tax
credit was determined to have Carried over and
applied the amount against succeeding tax
liabilities
Excise tax has not been paid
an article locally purchased or imported by an
exempt person has been sold, traded or
Transferred to non-exempt persons

g. Reply to preliminary assessment notice
If the taxpayer disagrees with the PAN, he has 15
days to file a written reply to contest the
proposed assessment.

h. Issuance of formal letter of demand and assessment
notice/final assessment notice
A notice of assessment is a formal letter of
demand where a declaration of deficiency taxes is
issued to a taxpayer who fails to respond to a pre-
assessment notice within the prescribed period of
time, or whose reply to the PAN was found to be
without merit. This is commonly known as the
final assessment notice.

i. Disputed assessment

j. Administrative decision on a disputed assessment

6. PROTESTING ASSESSMENT

a. Protest of assessment by taxpayer

- Protested assessment
A protest is a vital document which is a formal
declaration of resistance of the taxpayer. It is a
repository of all arguments. It can be used in court in
case of administrative remedies have been exhausted.
It is also the formal act of the taxpayer questioning the


official actuations of the CIR. This is equivalent to a
pleading.

- When to file a protest
File a request for reinvestigation or reconsideration
within 30 days from receipt of the assessment

- Forms of protest
a. request for reinvestigation a plea for re-
evaluation of an assessment on the basis of
newly discovered or additional evidence that a
taxpayer intends to present in the
reinvestigation. Involves a question of fact or
law or both.
b. request for reconsideration a plea for re-
evaluation of the assessment on the basis of
existing records without need of additional
evidence. Involves a question of fact or law or
both.

b. Submission of documents within 60 days from filing
of protest
Submission of documents within the 60 days period is
optional to the taxpayer. The relevant supporting
documents mentioned in the law refers to such
documents which the taxpayer feels would be
necessary to support his protest and not what the
Commissioner feels should be submitted, otherwise
the taxpayer would always be at the mercy of the BIR
which may require production of such documents
which taxpayer could not produce. Standard
Chartered Bank v. CTA, [CTA Case No. 5696, August
16, 2001]

After the company submitted its letter-reply stating
that it would not comply with the presentation of the
proof of DST payment, no reply was then heard from
the CIR. The company has complied with the requisites
in disputing an assessment, which provides that in
case the protest is not acted upon within 180-days
from the submission of the documents, the taxpayer
adversely affected may appeal to the CTA within 30-
days from the lapse of the 180-day period. Thus, the
tax assessment cannot be considered as final,
executory and demandable. CIR v. First Express
Pawnshop Company, Inc., [G.R. No. 172045-46, June
16, 2009]

c. Effect of failure to protest
Within 60 days from filing of protest, all relevant
supporting documents should have been submitted,
otherwise, the assessment shall become FINAL
(cannot be appealed). (Sec. 228)

7. RENDITION OF DECISION BY COMMISSIONER

a. Denial of protest
- Commissioners actions equivalent to denial of protest
If protest is denied, elevate the matter with the CIR
within 30 days from receipt of the decision of the CIRs
duly authorized representative.

(a) Filing of criminal action against taxpayer

Criminal action may be filed during the pendency of an
administrative protest in the BIR
It is not a requirement for the filing thereof that there
be a precise computation and assessment of the tax,
since what is involved in the criminal action is not the
collection of tax but a criminal prosecution for the
violation of the NIRC. Provided, however, that there is a
prima facie showing of a willful attempt to evade taxes.
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfully filed a fraudulent
return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to
discover the error and promptly to assess has no
connections with the commission of the crime. Ungab
v. Cusi, [L-41919-24, May 30, 1980]
See also CIR v. Pascor Realty, [G.R. No. 128315, June
29,1999], which reached the same conclusion as in
Ungab.

HOWEVER, in the case of CIR v. CA, CTA, & Fortune
Tobacco [G.R. No. 119761, August 29, 1996), the CIR
held a contrary position

b. Issuing a warrant of distraint and levy
- Inaction by commissioner

8. REMEDIES OF TAXPAYER TO ACTION BY COMMISSIONER
Appeal of Protest to the CTA (Judicial Relief)

Grounds:
a. In case of denial of protest
b. In case of inaction by commissioner within 180 days
from submission of documents

Period to appeal:
a. within 30 days from receipt of decision
denying the protest or
b. 30 days from the lapse of 180 day period


c. Effect of failure to appeal
The decision shall be final, executory and
demandable (NOTE: See the CTA case of Lascona
which gives the taxpayer the option either to
appeal to the CTA after 180 days or to await the
decision of the CIR.)

B. COLLECTION

1. REQUISITES

2. PRESCRIPTIVE PERIODS

1. Local taxes, fees or charges five (5) years from the
date they became due (sec. 194, LGC)
2. When there is fraud or intent to evade the payment of
taxes, fees or charges ten (10) years from discovery of
fraud or intent to evade payment (sec. 194, LGC)

Local taxes, fees or charges may be collected within five
years from the date of assessment by administrative or
judicial action. No such action shall be instituted after the
expiration of such period. [Sec. 194, LGC]

3. DISTRAINT OF PERSONAL PROPERTY INCLUDING
GARNISHMENT

a. Summary remedy of distraint of personal property
- Procedure for distraint and garnishment

1) Report on the distraint (Commencement of distraint
proceedings)
(a) by the distraining officer submitted within 10
days from receipt of the warrant to the Revenue
District Officer or Revenue Regional Officer.
(b) by the Revenue Regional Director - a consolidated
report, as may be required by the Commissioner

The order of distraint may be lifted by the
Commissioner or his representative [Sec. 207(a)]
2) Service of warrant of distraint. Procedures with
respect to:
(a) Goods, effects, chattels and other personal
property
1. a copy of an account of the property
distrained, signed by the officer, shall be left
either with the owner or the person from
whom the property was taken or at the
dwelling or place of business of such person
and with someone of suitable age and
discretion
2. together with a statement of the sum
demanded
3. and also a note of the time and place of sale
(b) Stocks and other Securities
- serving a copy of the warrant upon the
taxpayer AND upon the president, manager,
treasurer or other responsible officer of the
issuing corporation, company, association
(c) Debts and Credits
1. leaving a copy of the warrant with the person
owing the debts or having in his possession
such credits or his agent.
2. the warrant shall be sufficient authority to the
person served to pay to the Commissioner the
amount of such debts or credits
(d) Bank accounts (garnishment)
1. serve a warrant of garnishment upon the
taxpayer AND upon the president, manager,
treasurer or other responsible officer of the
bank
2. bank shall turn over to the Commissioner so
much of the bank accounts as may be
sufficient [Sec.208]

3) Posting of Notice [Sec. 209]
(a) Notice specifying the time and place of sale and
the articles disdained.
(b) The posting shall be made in not less than 2 public
places in the city or municipality where the
distraint is made.
(c) One of the places for posting of such notice is the
Office of the Mayor of such city or municipality.

4) Sale of Property Distrained
- Sale of property distrained and disposition of
proceeds

(a) Release of distrained property upon payment prior
to sale
- Purchase by the government at sale upon distraint
- Report of sale to the BIR
- Constructive distraint to protect the interest of the
government
There may be no actual delinquency.
Taxpayer is prohibited from disposing of the
property and must preserve the same

4. SUMMARY REMEDY ON REAL PROPERTY
a. Advertisement and sale
Advertisement of the time and place of sale, which shall
contain:
a. The amount of tax and penalties due
b. Name of the taxpayer
c. Short description of the property to be sold

The advertisement shall be made within 20 days after
the levy, and the same shall be for a period of at least
30 days. It shall be effected by:
i. posting a notice at the main entrance of the


municipal building or the city hall and in public and
conspicuous place in the barrio or district where
the property is located
ii. by publication once a week for 3 consecutive
weeks in newspaper of general circulation in the
municipality or city where the property is located
[Sec. 213]

b. Redemption of property sold

Within 1 year from the date of sale, the property may
be redeemed by the delinquent taxpayer or any one
from him, upon the payment of the taxes, penalties and
interest thereon from the date of delinquency to the
date of sale together with interest on purchase price at
15% per annum from the date of sale to the date of
redemption. [Sec. 214]
The owner shall not be deprived of the possession of the
said property and shall be entitled to the rents and other
income thereof until the expiration of the time allowed
for its redemption.

c. Final deed of purchaser
If the property is not redeemed, a final deed of sale shall
be issued to the purchaser.

5. FORFEITURE TO THE GOVERNMENT FOR WANT OF
BIDDER

Forfeiture is the divestiture of property without
compensation, in consequence of a default or offense.

a. Remedy of enforcement of forfeitures
- Action to contest forfeiture of chattel
In case of the seizure of personal property under claim of
forfeiture, the owner desiring to contest the validity of
the forfeiture may, at any time before sale or
destruction of the property, bring an action against the
person seizing the property or having possession thereof
to recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within six (6)
months, he may bring an action to recover the net
proceeds realized at the sale. [Sec. 231]

b. Resale of real estate taken for taxes
The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in
payment or satisfaction of taxes, penalties or costs
arising under this Code or in compromise or adjustment
of any claim therefore, and said Commissioner may,
upon the giving of not less than twenty (20) days notice,
sell and dispose of the same of public auction or with
prior approval of the Secretary of Finance, dispose of the
same at private sale. In either case, the proceeds of the
sale shall be deposited with the National Treasury, and
an accounting of the same shall rendered to the
Chairman of the Commission on Audit. [Sec. 216]

c. When property to be sold or destroyed
Forfeited property shall not be destroyed until at
least 20 days from seizure.

d. Disposition of funds recovered in legal proceedings
or obtained from forfeiture

The Revenue District Officer or his duly authorized
representative, other than the officer referred to in
Section 208 of this Code shall, according to rules and
regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, forthwith cause
a notification to be exhibited in not less than two (2)
public places in the municipality or city where the
distraint is made, specifying; the time and place of sale
and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for the
posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is
distrained.

At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects,
or other personal property, including stocks and other
securities so distrained, at public auction, to the highest
bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or
stock exchanges.

In the case of stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the
corporation, company or association which issued the
stocks or other securities. Upon receipt of the copy of
the bill of sale, the corporation, company or association
shall make the corresponding entry in its books, transfer
the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding
certificates of stock or other securities.
Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to the
owner of the property sold. The expenses chargeable
upon each seizure and sale shall embrace only the actual
expenses of seizure and preservation of the property
pending; the sale, and no charge shall be imposed for
the services of the local internal revenue officer or his
deputy. [Sec. 209]


6. FURTHER DISTRAINT OR LEVY

The remedy of distraint and levy may be repeated if
necessary until the full amount of the tax delinquency due
including all expenses is collected from the taxpayer. [Sec.
217]
Otherwise, a clever taxpayer who is also able to conceal
most of the valuable part of his property would escape
payment of his tax liability by sacrificing an insignificant
portion of his holdings.

7. TAX LIEN

Tax Lien is a legal claim or charge on property, either real or
personal, established by law as a security in default of the
payment of taxes [51 AmJur 881]. Generally, it attaches to
the property irrespective of ownership or transfer thereof

Nature: a lien in favor of the Government of the
Philippines when a person liable to pay a tax neglects or
refuses to do so upon demand
Duration: lien exists from the time assessment is made
by the Commissioner until paid, with interests,
penalties and costs that may accrue in addition thereto
Extent: upon all property and rights to property
belonging to the taxpayer
Effectivity against third persons: only when notice of
such lien is filed by the Commissioner in the Register of
Deeds in the province/city where the property is
situated [Sec. 219]

NOTE:
A tax lien is superior to judgment claim of private
person.
Attaches not only from the time the warrant was
served BUT from the time tax was due and demandable
(from the time when the assessment was made [Sec.
219].

8. COMPROMISE
a. Authority of the commissioner to compromise and
abate taxes
BIR Commissioner as expressly authorized by the NIRC
subject to certain conditions [Sec. 204, NIRC];

1. Before the complaint is filed with the
prosecutors office: the CIR has full discretion
to compromise except those involving fraud
2. After the complaint is filed with the
prosecutors office but before the information
is filed with the court: the CIR can still
compromise provided the prosecutor must
give consent
3. After information is filed with the court: the
CIR is no longer permitted to compromise
with or without the consent of the Prosecutor
People v. Magdaluyo, [G.R. No. L-16235,
April 20, 1961]
This is more so when the court has
rendered a final judgment. As a mere
agent of the Government, the
Commissioner is not authorized to accept
anything less than what is adjudicated in
favor of the government by virtue of such
final judgment; the government has
already acquired a vested rights.
The BIR Commissioner may compromise
the payment of tax liabilities on the basis
of the doubtful validity of the assessment
if the assessment is based on a decision
by the Supreme Court which is adverse to
BIR. [RR No. 30-02 as amended by RR No.
08-04]

9. CIVIL AND CRIMINAL ACTION

1. Must be brought in the name of the Government
of the Philippines
2. Conducted by legal officers of the BIR
3. In case of actions for recovery of taxes or
enforcement of a fine, penalty or forfeiture, must
be filed with the approval of the Commissioner
[Sec. 220]

a. Suit to recover tax based on false or fraudulent
returns
Prima facie evidence of a false or fraudulent return as
determined by the Commissioner pursuant to the rules
and regulations promulgated by the Sec. of Finance:
a) substantial under declaration of taxable sales,
receipts or income failure to report sales,
receipts or income in an amount exceeding 30% of
that declared per return
b) substantial overstatement of deductions claim of
deductions in an amount exceeding 30% of actual
deductions

C. REFUND

1. GROUNDS AND REQUISITE FOR REFUND

a) taxpayer files in writing with the
Commissioner a claim for credit or refund for:
Taxes erroneously or illegally received
Penalties imposed without authority
Any sum alleged to have been excessively
or in any manner wrongfully collected
Refund the value of internal revenue
stamps when returned in good condition
by the purchaser


Redeem or change unused stamps
rendered unfit for use and refund their
value upon proof of destruction, in the
discretion of the Commissioner
b) application must be filed within 2 yrs after the
payment of the tax or penalty (no suit or
proceeding shall begun after the expiration of
the said 2 yrs regardless of any supervening
cause that may arise after the payment)
a) a return filed showing an overpayment shall
be considered a written claim for credit or
refund

2. Requirements for refund as laid down by cases
a. Necessity of written claim for refund
b. Claim containing a categorical demand for
reimbursement
c. Filing of administrative claim for refund and the
suit/proceeding before the CTA within 2 years from date
of payment regardless of any supervening cause

3. Legal basis of tax refunds
Broadly speaking, tax refunds are based on the legal
principle of quasi-contracts or solutio indebiti. The pertinent
rules are found in Arts. 2142 and 2154 of the Civil Code:
Art. 2142. Certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at
the expense of another.
Art. 2154. If something is received when there is no right
to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.

Particular references in the NIRC:

Sec. 204 C. Credit or refund taxes erroneously or illegally
received or penalties imposed without authority, refund
the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have
been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax
or penalty: Provided, however, that a return filed
showing an overpayment shall be considered as a written
claim for credit or refund.

Sec. 229. No suit or proceeding shall be maintained in
any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of any
sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
xxx

4. Statutory basis for tax refund under the tax code

a. Scope of claims for refund
Taxes erroneously or illegally received
Penalties imposed without authority
Any sum alleged to have been excessively or in
any manner wrongfully collected
Refund the value of internal revenue stamps
when returned in good condition by the
purchaser
Redeem or change unused stamps rendered
unfit for use and refund their value upon proof
of destruction, in the discretion of the
Commissioner

b. Necessity of proof for claim or refund
It partakes of the nature of an exemption and is strictly
construed against the claimant. CIR v. Tokyo Shipping
Ltd., [244 SCRA 332].

c. Burden of proof for claim of refund
The burden of proof is on the taxpayer claiming the
refund that he is entitled to the same CIR v. Tokyo
Shipping Ltd., [244 SCRA 332].

d. Nature of erroneously paid tax/illegally assessed
collected
Taxes are erroneously paid when a taxpayer pays under
a mistake of fact, such as, he is not aware of an existing
exemption in his favor at the time that payment is
made. Taxes are illegally collected when payments are
made under duress.

e. Tax refund vis--vis tax credit

TAX REFUND TAX CREDIT
Tax refund takes
place when there is
actually a
reimbursement of tax.

The government issues a Tax
Credit Certificate covering the
amount determined to be
reimbursable, which is applied
after proper verification against
any sum that may be due to the
taxpayer.
Tax Credit Certificate:
a) may be applied
against any internal


revenue tax, EXCEPT
withholding taxes
b) original copy is
surrendered to the
revenue officer
c) no tax refund will be
given resulting from
availment of
incentives granted
by law where no
actual payment was
made (Sec. 204 C)
The following must be established:
a) that there was an actual collection and receipt of the
government of the tax to be recovered and this
requires actual proof; and
b) that there is a legal basis for granting the refund or
credit including the verification of compliance with the
statutory requirements relative to the filing of the
claims within the reglamentary two-year period.
Forfeiture of cash refund/tax credit:
a) Forfeiture of refund in favor of the government when
a refund check or warrant remains unclaimed or
uncashed within 5 yrs. from date of mailing or delivery
b) Forfeiture of Tax Credit a tax credit certificate which
remains unutilized after 5 yrs. from date of issue, shall
be invalid, UNLESS revalidated. [Sec. 230]

f. Essential requisites for claim of refund
a) a claim for refund or credit has been filed with
the Commissioner
b) the suit may be maintained whether or not
such tax/penalty/sum has been paid under
protest
c) in any case, suit must be filed in court within 2
yrs. from date of payment of the tax/penalty
regardless of any supervening cause that may
arise after payment
d) the Commissioner may, even without a
written claim, refund or credit a tax, where on
the face of the return upon which payment
was made, payment appears to be erroneous.
[Sec. 204 C, 229]

5. WHO MAY CLAIM/APPLY FOR TAX REFUND/TAX CREDIT
a. Taxpayer/withholding agents of non-resident foreign
corporation

6. PRESCRIPTIVE PERIOD FOR RECOVERY OF TAX
ERRONEOULSY OR ILLEGALLY COLLECTED

Commencement of 2-year period
CASE 2-YEAR PERIOD
STARTS FROM
NOTES
If the tax sought
to be refunded is
illegally or
erroneously
collected
From date tax
was paid [CIR v.
Victorias
Milling]

If the tax is paid
in installment or
only in part
From date of
the last or final
installment or
CIR v. Prieto,
[G.R. No. L-
13912,
September 30,
1960]

There is no
payment until the
whole/entire tax
liability is fully
paid
If the taxpayer
merely made a
deposit
From
conversion of
the deposit to
payment
[Union
Garment v.
Coll]
Merely making a
deposit is not
equivalent to
payment until the
amount is actually
applied to the
purpose for which
it was deposited

If tax has been
withheld from
source (through
the withholding
tax system)
From date it
falls due at the
end of the
taxable year
Gibbs v. CIR,
[G.R. No. L-
17406,
November 29,
1965]
A taxpayer who
contributes to the
withholding tax
system performs
and extinguishes
his tax obligation
for the year
concerned.
Corporate
taxpayer
At the earliest,
on the date of
the filing of the
adjusted final
return [ACCPA
v. CA]
It is only then that
the corporation
can ascertain
whether it made
profits or incurred
losses.
If tax was not
erroneously or
illegally paid but
the taxpayer
became entitled
to refund
because of
supervening
circumstances
From the date
the taxpayer
becomes
entitled to
refund and not
from the date
of payment
CIR v. Don
Pedro Central
Azucarera,
[G.R. No. L-
28467
February 28,
1973]
Before the right
to refund or
credit arises,
there is absolutely
no basis to file a
claim with the CIR
or commence a
suit in court


Section 230 of the NIRC provides for a 2-yr prescriptive
period to be counted "from the date of payment of tax"
for actions for refund of corporate income tax. Thus,
the 2-yr period should be reckoned from the actual
filing of the Adjustment Return or Annual ITR, because
at this point, it can be determined whether there has
been an overpayment of tax. CIR v. CA, CTA & BIR [G.R.
No. 117254, January 21, 1999]

If a Revenue Regulation provides for a prescriptive period
different from the NIRC, then the regulation is invalid and
the NIRC period should be used. PBCom v. CIR, [G.R. No.
112024, January 28, 1999]

Suspension of the 2 yr Prescriptive Period
1. there is a pending litigation between the
government and the taxpayer
2. The Commissioner in that litigated case agreed to
abide by the decision of the SC as to the collection
of taxes relative thereto Panay Electric Co. v.
Collector, [May 28, 1958]

7. OTHER CONSIDERATION AFFECTING TAX REFUNDS
1. Sec. 112 (A)
Zero-Rated or Effectively Zero-Rated Sales. - any
VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax
due or paid attributable to such sales, except
transitional input tax, to the extent that such input
tax has not been applied against output tax:
Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer
is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods of
properties or services, and the amount of
creditable input tax due or paid cannot be directly
and entirely attributed to any one of the
transactions, it shall be allocated proportionately
on the basis of the volume of sales.
2. Payment Under Protest is NOT Necessary under
NIRC
A suit or proceedings for tax refund may be
maintained whether or not such tax, penalty or
sum has been paid under protest or duress [Sec.
229]

Similarly, payment under protest is not necessary
in refund for local taxes. [Sec. 196 LGC], however,
payment under protest is necessary is case of:
(a) real property taxes [Sec. 252 LGC]
(b) custom duties [Sec 2308 TCC]
3. The Commissioner may, even without a written
claim, refund or credit a tax, where on the face of
the return upon which payment was made,
payment appears to be erroneous. (Sec. 229)
4. The partial payment of a tax cannot be a basis for a
tax refund. CIR v. Prieto [G.R. L-11976, August 26,
1961]
5. in case taxes are payable in installments, the two-
year period is counted from the payment of the
last installment. CIR v. Palanca [G.R. No. L-16890,
October 29, 1966]
6. If a taxpayer had lost his right to dispute the
validity of a tax assessment in view of his failure to
appeal the Commissioners decision to CTA, may
he be granted a refund?
NO. The expedient of an appeal from a denial of a
tax request for cancellation of warrant of distraint
and levy cannot be utilized for the purpose of
testing the legality of an assessment, which had
become conclusive and binding on the taxpayer,
there being no appeal, the procedure set forth in
Section 306 (now Sec. 204 C and 229) of the
National Internal Revenue Code is not available to
revive the right to contest the validity of an
assessment once the same had been irretrievably
lost not only by the failure to appeal but likewise
by the lapse of the reglementary period within
which to appeal could have been taken. CIR v.
Concepcion [G.R. No. L-23912, March 15, 1968]


III. LOCAL GOVERNMENT CODE OF 1991,
as amended
======================================
A. Local Government Taxation
======================================

1. Fundamental Principles
The fundamental principles governing the exercise of the
taxing and other revenue-raising powers of LGUs are [ULIP]:

(a) Taxation shall be Uniform in each local government
unit;
(b) Taxes, fees, charges and other impositions shall
(EPuJuL):
1) be Equitable and based as far as practicable on the
taxpayer's ability to pay;
2) be levied and collected only for Public purposes;
3) not be unJust, excessive, oppressive, or
confiscatory;
4) not be contrary to Law, public policy, national
economic policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other
impositions shall in no case be Let to any private
person;
(d) The revenue collected shall Inure solely to the benefit
of the local government unit levying the tax, fee, charge
or other imposition unless otherwise specifically
provided herein; and,
(e) Each local government unit shall, as far as practicable,
evolve a Progressive system of taxation. [Sec. 130]

Equality and uniformity in local taxation means that all
taxable articles or kinds of property of the same class
shall be taxed at the same rate within the territorial
jurisdiction of the taxing authority or local government
unit and not necessarily in comparison with other units
although belonging to the same political subdivision. In
fine, uniformity is required only within the geographical
limits of the taxing authority. [Punzalan v. City of
Manila, G.R. No. L-4817, May 26, 1954]

A city can validly tax the sales to customers outside the
city as long as the orders were booked and paid for in
the companys branch office in the city. A different
interpretation would defeat the tax ordinance in
question or encourage tax evasion by simply arranging
for the delivery at the outskirts of the city. [Philippine
Match Company v. City of Cebu, G.R. No. L-30745
January 18, 1978]

2. Nature and Source of Taxing Power (CITE LAW)
The 1987 Constitution provides that:
Article X Section 5. Each local government unit shall
have the power to create its own sources of
revenues and to levy taxes, fees and charges subject
to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.

The grant of taxing power to local government units is also
embodied in the LGC:

Section 129. Power to Create Sources of Revenue. -
Each local government unit shall exercise its power
to create its own sources of revenue and to levy
taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.

Power to Prescribe Penalties for Tax Violations and
Limitations Thereon

1. The Sanggunian is authorized to prescribe fines or other
penalties for violations of tax ordinances
a. in no case shall fines be less than P1,000 nor more
than P5,000
b. nor shall the imprisonment be less than one month
nor more than six months
2. Such fine or other penalty shall be imposed at the
discretion of the court.
3. The Sanggunian Barangay may prescribe a fine of not
less than P100 nor more than P1000.

Power to Adjust Local Tax Rate (Sec. 191 LGC)

LGUs are authorized to adjust the tax rates as prescribed
herein not oftener than once every 5 years, and in no case
shall such adjustment exceed 10% of the rates fixed under
the LGC.

Power to Grant Local Exemptions (Sec. 192 LGC)

LGUs, may through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.

Tax exemptions shall be conferred through the issuance of a
non-transferable tax exemption certificate.


Tax Exemptions existing before the Effectivity of the LGC:

Unless otherwise provided by the LGC, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including GOCCs are hereby
withdrawn upon the effectivity of the LGC except the ff:

1. local water districts,
2. cooperatives duly registered under RA 6938, non-stock
and non-profit hospitals and
3. educational institutions.

Tax Exemptions not applicable to Regulatory Fees
The power to grant tax exemptions, tax incentives and tax
reliefs shall not apply to regulatory fees which are levied
under the police power of the LGU.

Guidelines for the Granting of Tax Exemptions, Tax
Incentives and Tax Reliefs

(Art. 282 [B], Rules and Regulations Implementing the LGC)

1. On the grant of tax exemptions or tax reliefs:
a. the same may be granted in cases of natural
calamities, civil disturbance, general failure of
crops, or adverse economic conditions such as
substantial decrease in prices or agricultural or
agri-based products.
b. The grant shall be through an ordinance.
c. Any exemption or relief granted to a type or kind
of business shall apply to all business similarly
situated.
d. The same shall take effect only during the next
calendar year for a period not exceeding 12
months as may be provided by the ordinance.
e. In the case of shared revenue, the exemption or
relief shall only extend to the LGU granting such
exemption or relief.

2. On the grant of tax incentives
a. The same shall be granted only to new investments
in the locality and the ordinance shall prescribe the
terms and conditions therefore.
b. The grant shall be for a definite period of not
exceeding 1 calendar year.
c. The grant shall be by ordinance passed prior to the
1
st
day of January of any year.
d. Any grant to a type or kind of business shall apply
to all businesses similarly situated.

Nature of the Taxing Power of Local Government Units
(1987 Constitution Article X Section 5,LGC Sec. 129) .

1. not inherent Everett Steamship Corp. v. Municipality
of Medina [G.R. No. L-21191, 30 April 30, 1966]
2. exercised only if delegated to them by law or
Constitution Mactan Cebu International Airport v.
Marcos [G.R. No. 120082, September 11, 1996]
3. not absolute subject to limitations provided for by law
Manila Electric Company v. Province of Laguna [G.R.
No. 131359, May 5, 1995]

3. Local Taxing Authority

a) Power to Create Sources of Revenue

Each local government unit has the power to:

1. create its own sources of revenue and
2. levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local
autonomy. [Sec. 129]

Such taxes, fees, and charges shall accrue exclusively to the
local government units. (NOTE: As distinguished from
internal revenue taxes which do not accrue exclusively to the
national government but are shared to the local
governments in the form of internal revenue allotments. See
Title XI, NIRC of 1997)

4. Residual Taxing Powers of the LGU (Sec. 186 LGC)

LGUs have the power to levy taxes, fees or charges on any
base or subject NOT:

a. specifically enumerated in LGC
b. taxed under the provisions of the NIRC, as
amended
c. other applicable laws

Conditions:

a. That the taxes, fees or charges shall not be unjust,
excessive, oppressive, confiscatory or contrary to
declared national policy.
b. The ordinance levying such taxes, fees or charges
shall not be enacted without any prior public
hearing conducted for the purpose.

Sources of Revenues

1. Internal Revenue Allotment (IRA)
National internal revenue collected and not applied as
hereinabove provided or otherwise specially disposed
of by law shall accrue to the National Treasury and shall


be available for the general purposes of the
Government, with the exception of the amounts set
apart by way of allotment as provided for under
Republic Act No. 7160, otherwise known as the Local
Government Code of 1991. [Sec. 283, NIRC]
National internal revenue collected and not applied as
hereinabove provided or otherwise specially disposed
of by law shall accrue to the National Treasury and shall
be available for the general purposes of the
Government, with the exception of the amounts set
apart by way of allotment as provided for under
Republic Act No. 7160, otherwise known as the Local
Government Code of 1991. [Sec. 283, NIRC]
Local government units shall have a share in the
national internal revenue taxes based on the collection
of the third fiscal year preceding the current fiscal year
as follows (c) On the third year and thereafter, 40%...
[Sec. 284, RA 7160]

2. 50% share in collections for the ff: (2
nd
par., Sec. 283,
NIRC)
a. VAT on sale of goods or properties under Sec. 106,
NIRC
b. VAT on sale of services and use or lease of
properties under Sec. 108, NIRC
c. Percentage taxes under Sec. 116, NIRC

b) Procedure for approval and effectivity of tax ordinances

The power to impose a tax, fee or charge or to generate
revenue is exercised by the Sanggunian of the LGU
concerned through an appropriate ordinance. [Sec. 132]

1. The procedure applicable to local govt ordinances in
general should be observed. [Sec. 187, LGC]
2. Procedural details [Secs. 54, 55, and 59 LGC]:
a. necessity of quorum
b. submission for approval by the local chief
executive
c. the matter of veto and overriding the same
d. the publication and affectivity
3. Public hearings are required before any local tax
ordinance is enacted [Sec. 187, LGC]
4. Within 10 days after their approval, publication in full
for 3 consecutive days in a newspaper of general
circulation. In absence of such newspaper in the
province, city or municipality, then the ordinance may
be posted in at least two conspicuous and publicly
accessible places [Sec. 189 LGC]

4. Scope of Taxing Power
1. Grant of tax power under existing law [Sec. 129, LGC]
2. Power to prescribe penalties for tax violations and
exemptions [Sec. 516, LGC]
3. Power to grant local tax exemptions [Sec. 192, LGC]
4. Power to adjust local tax rates [Sec. 191, LGC]
5. Residual taxing powers of local governments [Sec. 186,
LGC]

Limitations of the Residual Power

1. Constitutional limitations on taxing power
2. Common limitations prescribed in Sec. 133 of LGC
3. Fundamental principles governing the exercise of the
taxing power of the LGUs prescribed under Sec. 130 of
the LGC
4. The ordinance levying such residual taxes shall not be
enacted without any prior public hearing conducted for
the purpose and
5. The principle of preemption

5. Specific Taxing Power of Local Government Unit (LGU)

A. PROVINCES

TYPE OF TAX RATE EXCEPTIONS NOTES
Tax on Transfer of Real Property
Ownership. The province may
impose a tax on the sale, donation,
barter, or on any other mode of
transferring ownership or title of
real property.
Not more than 50% of the
1% of the total
consideration or of the fair
market value, whichever is
higher
Sale, transfer or other
disposition of real
property pursuant to
R.A. No. 6657 (CARL)
It shall be the duty of the seller,
donor, transferor or administrator
to pay the tax imposed within 60
days from the date of the
execution of the deed or from the
date of the decedent's death.
Tax on Business of Printing and
Publication. The province may
impose a tax on the business of
persons engaged in the printing
and/or publication of books, cards,
posters, leaflets, handbills,
Not exceeding 50% of 1%
of the gross annual
receipts for the preceding
calendar year.
Newly started business,
the tax shall not exceed
1/20 of 1% of the capital
investment. School texts
or references,
prescribed by the DECS

TAX LAW REVIEWER Page 124 of 162
certificates, receipts, pamphlets,
and others of similar nature.
shall be exempt from
the tax.
Franchise Tax. Notwithstanding any
exemption granted by any law or
other special law, the province may
impose a tax on businesses enjoying
a franchise.
Not exceeding 50% of 1%
of the gross annual
receipts for the preceding
calendar year, within its
territorial jurisdiction.
Newly started business,
the tax shall not exceed
1/20 of 1% of the capital
investment.

Tax on Sand, Gravel and Other
Quarry Resources. The province
may levy and collect taxes on
ordinary stones, sand, gravel, earth,
and other quarry resources
extracted from public lands or from
the beds of seas, lakes, rivers,
streams, creeks, and other public
waters within its territorial
jurisdiction.
Not more than 10% of fair
market value in the locality
The permit to extract resources
shall be issued exclusively by the
provincial governor, pursuant to
the ordinance of the Sangguniang
Panlalawigan. Proceeds
distributed as follows: Province -
30%
Component City or Municipality
where the quarry resources are
extracted - 30%
Barangay where the quarry
resources are extracted - 40%.
Professional Tax. The province may
levy an annual professional tax on
each person engaged in the exercise
or practice of his profession
requiring government examination.
To be paid on or before the 31
st
day
of January. Any person first
beginning to practice a profession
after the month of January must,
however, pay the full tax before
engaging therein.
At such amount and
reasonable classification as
the Sangguniang
Panlalawigan may
determine but shall in no
case exceed P300.00.
Professionals exclusively
employed in the
government shall be
exempt from the
payment of this tax.
To be paid to the province where
he/she practices his/her
profession or where he/she
maintains principal office in case
the practice is in several places
Provided, After payment he/she
shall be entitled to practice
his/her profession in any part of
the Phils. w/out being subjected
to any other national or local tax,
license, or fee for the practice of
the profession.
Amusement Tax. The province may
levy an amusement tax to be
collected from the proprietors,
lessees, or operators of theaters,
cinemas, concert halls, circuses,
boxing stadia, and other places of
amusement
Not more than 30% of the
gross receipts from
admission fees.
The holding of operas,
concerts, dramas,
recitals, painting and art
exhibitions, flower
shows, musical
programs, literary and
oratorical presentations,
except pop, rock, or
similar concerts shall be
exempt.
Sangguniang Panlalawigan may
prescribe the time, manner, terms
and conditions for the payment of
tax. In case of fraud or failure to
pay, the Sangguniang Panlalawigan
may impose surcharges, interest
and penalties. The proceeds from
the amusement tax shall be shared
equally by the province and the
municipality where such
amusement places are located.
Annual Fixed Tax For Every Delivery
Truck or Van of Manufacturers or
Producers, Wholesalers of, Dealers,
or Retailers in, Certain Products.
The province may levy an annual
fixed tax for every truck or any
vehicle used by manufacturers,
producers, wholesalers, dealers or
retailers in the delivery of distilled
spirits, soft drinks, cigars and
cigarettes, and other products as
may be determined by the
Sanggunian, to sales outlets, or
consumers, whether directly or
indirectly, within the province.
Amount not exceeding
P500.00.


B. CITIES

The city may levy the taxes, fees, and charges which
the province or municipality may impose.
The tax rates that the city may levy may exceed the
maximum rates allowed for the province or
municipality by not more than 50% except the rates of
professional and amusement taxes. [Sec. 151]

C. MUNICIPALITIES

SCOPE: Municipalities may levy taxes, fees and charges not
otherwise levied by provinces. [Sec. 142]

I. Tax on Business

The municipality may impose taxes on the following:

a. On manufacturers, assemblers, repackers, processors,
brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of
any article of commerce of whatever kind or nature.
b. On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature.
c. On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or retailers
of the following essential commodities (where the rate
prescribed is only of the regular rate [Sec. 143 par. c,
LGC]
1. Rice and corn;
2. Wheat or cassava flour, meat, dairy products,
locally manufactured, processed or preserved
food, sugar, salt and other agricultural, marine,
and fresh water products, whether in their original
state or not;
3. Cooking oil and cooking gas;
4. Laundry soap, detergents, and medicine;
5. Agricultural implements, equipment and post-
harvest facilities, fertilizers, pesticides and other
farm inputs;
6. Poultry feeds and other animal feeds;
7. School supplies; and
8. Cement.
d. On retailers
e. On contractors and other independent contractors
f. On banks and other financial institutions,

g. On peddlers engaged in the sale of any merchandise or
article of commerce
h. On any business, which the Sanggunian concerned may
deem proper to tax. For businesses subject to the
excise, value-added or percentage tax, the tax rate shall
not exceed 2% of gross sales of the preceding calendar
year.

NOTES:

Rates of Tax within the Metropolitan Manila Area shall
not exceed by 50% the maximum rates prescribed for a-
h. [Sec. 144]

The Sanggunian concerned may prescribe a schedule of
graduated tax rates but in no case shall exceed the
rates prescribed in the LGC.
The tax is payable for every separate or distinct
establishment or place where business is conducted.
[Sec. 146]

A tax that bears a direct relation to the volume of sales
or when there is a set ration on the volume of sales and
the amount of tax, such may not be imposed by the
local government since these amounts to percentage
tax on sales. Serafica v. Treasurer of Ormoc City, [G.R.
No. L-24813, April 28, 1969]

However, if the tax is based on past quarterly sales,
these could be valid. [MMIC v. Hinobangan]

II. Fees and Charges

Municipalities may impose:

a. The municipality may impose and collect such
reasonable fees and charges on business and
occupation except professional taxes reserved for
provinces. [Sec 147]
b. Reasonable fees for the sealing and licensing of weights
and measures. [Sec 148]
c. Fishery rentals, fees and charges, including the
authority to grant fishery privileges within municipal
waters, as well as issue licenses for the operation of
fishing vessels of three tons or less. [Sec. 149]

III. Payment of Business Taxes:

a. It shall be payable for every separate or distinct
establishment or place where the business subject to
the tax is conducted and one line of business does not
become exempt by being conducted with some other
business for which such tax has been paid.
b. The tax on a business must be paid by the person
conducting the same.
c. In cases where a person conducts or operates 2 or
more of the businesses mentioned in Section 143 of
LGC, the tax shall be computed as follows:
1. If these are subject to the same rate of tax, the tax
shall be computed on the combined total gross
sales or receipts of the said 2 or more related
businesses.
2. If these are subject to different rates of tax, the
gross sales or receipts of each business shall be

separately reported for the purpose of computing
the tax due from each business.

IV. Situs of Local Taxation

a. Situs According to the Cases:

Excise Tax not dependent on the domicile of the taxpayer,
but on the place in which the act is performed or the
occupation is engaged in; not upon the location of the
office, but the place where the place is perfected. Allied
Thread Co., Inc. v. City Mayor of Manila, [G.R. No. L-4029,
November 21, 1984]

Sales Tax it is the place of the consummation of the sale,
associated with the delivery of the things which are the
subject matter of the contract that determines the situs of
the contract for purposes of taxation, and not merely the
place of the perfection of the contract. Shell Co., Inc. v.
Municipality of Sipocot, Camarines Sur, [105 Phil 1263]

b. Situs According to Section 150 of LGC

Rule 1: For purposes of collection of the taxes under Section
143 (tax on business), businesses maintaining or operating
branch or sales outlet elsewhere shall record the sale in the
branch or sales outlet making the sale or transaction, and
the tax thereon shall accrue and shall be paid to the
municipality where such branch or sales outlet is located.

Rule 2: In case there is no branch or sales outlet in the city
or municipality where the sale is made, the sale shall be
recorded in the principal office and the taxes due shall
accrue and be paid to such city or municipality.

Rule 3: The following sales allocation for sales recorded in
the principal office of businesses with factories, project
offices, plants, and plantations:

30% of all sales recorded in the principal office shall be
taxable by the city or municipality where the principal
office is located; and

70% of all sales recorded in the principal office shall be
taxable by the city or municipality where the factory,
project office, plant, or plantation is located.

Rule 4: Where the plantation located at a place other than
the place where the factory is located, the above mentioned
70% shall be divided as follows:

60% to the city or municipality where the factory is
located; and

40% to the city or municipality where the plantation is
located.

Rule 5: Where there are 2 or more factories, project offices,
plants, or plantations located in different localities, the
above mentioned 70% shall be prorated among the
localities where the factories, project offices, plants, and
plantations are located in proportion to their respective
volumes of production during the period for which the tax is
due. [Sec. 150]

NOTE: In case of manufacturers or producers which engage
the services of an independent contractor to produce or
manufacture some of their products, these rules shall apply
except that the factory or plant and warehouse of the
contractor utilized for the production and storage of the
manufacturers products shall be considered as the factory
or plant and warehouse of the manufacturer. (IRR)

The city or municipality where the port of loading is located
shall not levy and collect reasonable fees unless the
exporter maintains in said city or municipality its principal
office, a branch, sales office, or warehouse, factory, plant or
plantation in which case, the rule on the matter shall apply
accordingly. (IRR)

D. BARANGAYS

Scope of Taxing Powers: The barangays may levy the
following taxes and charges, which shall exclusively accrue
to them: [ TOBS ]

(a) Taxes - On stores or retailers with fixed business
establishments with gross sales of receipts of the
preceding calendar year of P50,000.00 or less for cities
and P30,000.00 or less, in the case of municipalities,
rate = not exceeding 1% on gross sales or receipts.
(b) Service Fees or Charges for services rendered in
connection with the regulations or the use of barangay-
owned properties or service facilities such as palay,
copra, or tobacco dryers.
(c) Barangay Clearance. - No city or municipality may issue
any license or permit for any business or activity unless
a clearance is first obtained from the barangay where
such business or activity is located or conducted.
(d) Other fees and Charges. - The barangay may levy
reasonable fees and charges: (CRB)
1. On commercial breeding of fighting Cocks and
cockpits;
2. On places of Recreation which charge admission
fees; and
On Billboards, signboards, neon signs, and outdoor ads.
(Sec. 152)

E. COMMON REVENUE-RAISING POWERS OF LGUS (Secs.
153-155) [ SPT ]

a. Service Fees and Charges for services rendered
b. Pubic Utility Charges for the operation of public utilities
owned, operated and maintained by LGUs within their

jurisdiction.
c. Toll Fees or Charges for the use of any public road, pier,
or wharf, waterway, bridge, ferry or telecommunication
system funded and constructed by the LGU concerned.
Except:
1. officers and enlisted men of the AFP and PNP on
mission,
2. post office personnel delivering mail,
3. physically-handicapped, and disabled citizens who
are sixty-five (65) years or older.

F. COMMUNITY TAX

Cities or municipalities may levy a community tax (Sec.
156)

1) Individuals Liable to Community Tax [IER]

a. Inhabitant of the Philippines
b. Eighteen years of age or over
c. Regularly employed on a wage or salary basis for at
least 30 consecutive working days during any
calendar year, or who is engaged in business or
occupation, or who owns real property with an
aggregate assessed value of P1,000.00 or more, or
who is required by law to file an income tax return

Rate: P5.00 and an annual additional tax of P1.00 for every
P1,000.00 of income regardless of whether from business,
exercise of profession or from property which in no case
shall exceed P5,000.00.

In the case of husband and wife, the tax imposed shall be
based upon the total property owned by them and the total
gross receipts or earnings derived by them. [Sec. 157]

2) Juridical Personalities (Sec. 158)

Corporations, no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business
in the Philippines are also liable to pay an annual community
tax.

Rate: P500.00 and an annual additional tax, which shall not
exceed P10,000.00 in accordance with the following
schedule:

a. For every P5,000.00 worth of real property in the
Philippines owned by it during the preceding year
based on the valuation used for the payment of real
property tax - P2.00; and
b. For every P5,000.00 of gross receipts derived by it from
its business in the Philippines during the preceding year
- P2.00.

The dividends received by a corporation shall, for the
purpose of the additional tax, be considered as part of the
gross receipts or earnings of said corporation.

3) Those exempt from the community tax are:

1. Diplomatic and consular representatives; and
2. Transient visitors when their stay does not exceed 3
months.

4) Place and time of Payment

Place of Payment - place of residence of the individual,
or in the place where the principal office of the juridical
entity is located. [Sec. 160]

Time for Payment - accrues on the 1
st
day of Jan. of
each year which shall be paid not later than the last day
of Feb. of each year

Penalties for Delinquency. - An interest of 24% per
annum from the due date until it is paid shall be added
on the amount due.

A community tax certificate may also be issued to any
person or corporation not subject to the community tax
upon payment of P1.00. [Sec. 162]

5) Presentation of Community Tax Certificate on
Certain Occasions: (Sec. 163, LGC)

A. Individual
1. When an individual subject to the comm. tax
acknowledges any document before a notary
public;
2. Takes the oath of office upon election or
appointment to any position in the government
service;
3. Receives any license, certificate or permit from any
public authority;
4. Pays any tax or fee;
5. Receives any money from any public fund;
6. Transacts other official business; or
7. Receives any salary or wage from any person or
corporation.

The presentation of the CTC shall not be required in
connection with the registration of a voter.

B. Corporation
1. receives any license, certificate or permit from any
public authority;
2. pays any tax or fee;
3. receives any money from any public fund; or
4. transacts other official business.


6. Common Limitations on the Taxing Powers of LGUs and
common revenue
LGUs CANNOT LEVY: [ IDECTA_BEV_TRELEBI ]
(a) Income tax, except on banks and other financial
institutions;
(NOTE: Since income tax is already imposed by the
National Government under NIRC, LGUs cannot impose
the same even on banks and other financial institutions.
The exception is referring to the percentage tax on
banks specified income.)
(b) Documentary stamp tax;
(c) Estate Tax, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise
provided;
(d) Customs duties, registration fees of vessel and
wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues, except wharfage on
wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees, and charges and other impositions upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise,
(f) Taxes, fees or charges on Agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board
of Investments as pioneer or non-pioneer for a period
of 6 and 4 years, respectively from the date of
registration;
(h) Excise taxes on articles enumerated under the national
Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or VAT on sales, barters or exchanges or
similar transactions on goods or services except as
otherwise provided;
(j) Taxes on the gross receipts of Transportation
contractors and persons engaged in the transportation
of passengers or freight by hire and common carriers by
air, land or water, except as provided in the Code;
(k) Taxes on premiums paid by way of Reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of Licenses or
permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually Exported, except as otherwise provided;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered
under R.A. 6810 and R.A. 6938 (Cooperative Code of
the Philippines); and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and Instrumentalities, and
local government units.

Classification of Common Limitations

1. Taxes which are levied under the NIRC unless otherwise
provided by the LGC (*a, b, c, h, I, j)
2. Taxes, fees, etc. which are imposed under the TCC (*d)
3. Taxes, fees and charges where the imposition of which
contravenes existing govtal policies or which are
violative of the fundamental principles of taxation (*e,
f, g, k, m, n, s)
4. Taxes, fees and charges imposed under special laws. (*
l)

The imposition of 5% tax on the gross receipts on
rentals or lease of space in privately-owned public
markets are not income tax, rather, these constitutes as
valid license fees for the regulation of the business.
Progressive Development Corp. v. Quezon City, [G.R.
No. L-36081, April 24, 1989]

Principle of Preemption or Exclusion

Where the national government elects to tax a particular
area, it impliedly withholds from the local government the
delegated power to tax the same field. This doctrine
principally rests on the intention of Congress.

Excluded impositions pursuant to the doctrine of
preemption

1. Taxes which are levied under the NIRC, unless
otherwise provided by LGC of 1991;
2. Taxes, fees, etc. which are imposed under the TCC;
3. Taxes, fees, etc. the imposition of which
contravenes existing govtal policies or which
violates the fundamental principles of taxation;
A province may not levy excise taxes on articles already
taxed by the NIRC. The current Tax Code already imposes a
tax on ALL quarry resources, regardless of origin, hence, the
Province may no longer impose any additional amounts
from Republic Cement. Province of Bulacan v. CA, [G.R. No.
126232, November 27, 1998]

7. Collection of Business Taxes

Taxable Period The tax period of all local taxes, fees and
charges shall be the calendar year, unless otherwise
provided in the Code.

Accrual of Tax All local taxes, fees, and charges accrue on
first day of January of each year, unless otherwise provided
in the Code.

Time of Payment ALL local taxes, fees, and charges shall
be paid within the first twenty (20) days of January or of
each subsequent quarter, as the case may be, unless
otherwise provided in the Code.

Surcharges and Penalties on Unpaid Taxes, Fees, or
Charges The Sanggunian may impose a surcharge not
exceeding twenty five percent (25%) of the unpaid taxes,
fees or charges not paid on time. They may impose interest
at the rate not exceeding two percent (2%) per month of the
unpaid taxes, fees or charges including surcharges, until
such amount is fully paid but in no case shall the total
interest on the unpaid amount or portion thereof exceed
thirty six (36) months.

Interest on other unpaid revenues On any other source of
revenue, LGUs are authorized to impose an interest of a
maximum of 2% per month, maximum of 36 months, on the
amount unpaid.

Collection of Revenues by the Local Treasurer

All local taxes, fees and charges shall be collected by the
provincial, city, municipal or barangay treasurer, or their
duly authorized deputies.

The provincial, city or municipal treasurer may designate the
barangay treasurer or his deputy to collect local taxes, fees
or charges. In case a bond is required for the purpose, the
provincial city or municipal government shall pay premiums
thereon in addition to the premiums of the bond that may
be required under the Code.

8. Taxpayers Remedies

a) Periods of assessment and collection of local taxes, fees
or charges

I. Administrative

1. Before assessment

Protest against a newly enacted ordinance any question
on constitutionality or legality of tax ordinance within 30
days from effectivity thereof to Secretary of Justice (sec.
187, LGC) Such appeal shall not have the effect of
suspending the effectivity of the ordinance and the accrual
and payment of tax.

2. After Assessment

a. Protest within 60 days from receipt of
assessment (sec. 195, LGC). Payment under protest
is not necessary.
b. Payment and subsequent refund or tax credit
within 2 years from payment of tax to local
treasurer (Sec. 196, LGC). It is to be noted that,
unlike in internal revenue taxes, the supervening
cause applies in local taxation because the period
for the filing of the claims for refund or credit of
local taxes is counted not necessarily from the date
of payment but from the date of taxpayer is
entitled to a tax credit.

b) Protest of assessment (Sec. 195, LGC)

1. The Local Treasurer or his duly authorized
representative shall issue a notice of assessment stating
the nature of the tax, fee, or charge, the amount of
deficiency, surcharges, interests and penalties.
2. Within 60 days from the receipt of the notice of
assessment, the taxpayer MAY file a WRITTEN PROTEST
with the Local Treasurer contesting the assessment
(otherwise the assessment shall become FINAL and
EXECUTORY).
3. The Local Treasurer shall decide the protest within 60
days from the time of filing of the written protest.
a. IF the protest is found to be MERITORIOUS, he
shall issue a notice canceling wholly or partially the
assessment.
b. IF the assessment is found to be wholly or partly
correct, the Local Treasurer shall DENY the protest
wholly or partly with notice to the taxpayer.
i. The taxpayer has 30 days from the receipt of
the denial of the protest or from the lapse of
the sixty-day period prescribed herein within
which to appeal with the court of competent
jurisdiction (otherwise the assessment
becomes CONCLUSIVE and UNAPPEALABLE).
[Sec. 195, LGC]

c) Claim for refund of tax credit for erroneously or illegally
collected tax, free or charge

1. A WRITTEN claim for refund or credit must be filed
with the Local Treasurer for the recovery of any tax,
fee, or charge erroneously or illegally collected.
2. The claim must be filed within 2 years from the
date the taxpayer is entitled to a refund or credit. [Sec.
196, LGC]

9. Civil Remedies by the LGU for the Collection of
Revenues

a) Local governments lien for delinquent taxes, fees or
charges

b). Civil Remedies, in general

i) By administrative actionthrough
distraint of personal property and by levy
upon real property
a. Distraint of personal property
b. Levy of real property, procedure
c. Further distraint or levy
d. Exemption of personal property from
distraint or levy
e. Penalty on local treasurer for failure to

issue and execute warrant of distraint
or levy

ii) Judicial action

NOTE: Either of these remedies or all may be pursued
concurrently or simultaneously at the discretion of the LGU
concerned.

c) Procedure for administrative action

(i) Distraint of personal property

(ii) Levy of real property, procedure

Local Governments Lien Local taxes, fees, charges and other
revenues, constitute a lien, superior to all liens, charges or
encumbrances in favor of any person, enforceable by any
appropriate administrative or judicial action.
Deficiency
Seizure or confiscation of personal property belonging to the
person subject to tax or subject to lien in sufficient quantity to
satisfy the liability
Accounting for distrained goods
Posting of notices of the sale of distrained properties in not less
than 3 public and conspicuous place, including the office of the
chief executive, in the territory of the LGU concerned.
The sale shall be scheduled in not less than 20 days after notice
to the owner or possessor of the property and the publication
and posting the property shall be sold to the highest bidder. The
local treasurer shall make a report of the proceedings within 5
days from the sale.
Disposition of the proceeds of the sale by application of such
proceeds to the delinquency and expenses of sale and return of
the balance to the owner.
If property is not disposed of within 120 days from date of
distraint, the property shall be considered sold to the LGU
concerned for the amount of the assessment made thereon by
the Committee on Appraisal. The tax delinquency shall be
cancelled to the extent of such amount.
Deficiency
Levy of real property before, simultaneously or after distraint of
personal property belonging to the delinquent taxpayer.
Local treasurer shall prepare a duly authenticated certificate
showing the name of the taxpayer and amount of tax, fee and
penalty due him.
Written notice of levy to the assessor, register of deeds of the
province or city where the property is located and the
delinquent taxpayer.
Report on levy within 10 days from levy by the levying officer.
Advertisement of the sale of the property through sale or
auction within 30 days after levy. The advertisement shall be
effected by: (a) posting a notice in the main entrance of the
municipal building or city hall and a conspicuous place in the
barangay where the real property is located. (b) publication
once a week for 3 consecutive weeks in a newspaper of general
circulation in the province, city or municipality where the
property is located.
Sale of levied property.
Issuance of the certificate of sale to the purchaser. The owner of
the property has 1 year from date of sale to redeem.
If property redeemed, a certificate of redemption will be issued.
If not redeemed, a final deed of sale shall be issued to the
purchaser.
The local treasurer shall purchase the property on behalf of the
LGU if: (a) there is no bidder for the real property (b) the highest
bid is insufficient to pay the deficiency tax. In this case, the
owner also has 1 year to redeem.

(iii) Further distraint or levy

(iv) Exemption of personal property from distraint
or levy

The following property shall be exempt from distraint
and the levy, attachment or execution thereof for
delinquency in the payment of any local tax, fee or charge,
including the related surcharge and interest:

(a) Tools and the implements necessarily used by the
delinquent taxpayer in his trade or employment;
(b) One (1) horse, cow, carabao, or other beast of
burden, such as the delinquent taxpayer may select,
and necessarily used by him in his ordinary occupation;
(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for
housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value
not exceeding Ten thousand pesos (P10,000.00);
(e) Provisions, including crops, actually provided for
individual or family use sufficient for four (4) months;
(f) The professional libraries of doctors, engineers,
lawyers and judges;
(g) One fishing boat and net, not exceeding the total
value of Ten thousand pesos (P10,000.00), by the lawful
use of which a fisherman earns his livelihood; and
(h) Any material or article forming part of a house or
improvement of any real property. [Sec. 185, LGC]

(v) Penalty on local treasurer for failure to issue
and execute warrant of distraint or levy

The Local Treasurer who:
1. Fails to issue or execute the warrant of distraint or
levy after the expiration of the time prescribed, or
2. Who is found guilty of abusing the exercise thereof
by competent authority

shall be automatically dismissed from the service after
due notice and hearing without prejudice to criminal
prosecution under the Revised Penal Code and other
applicable laws. [Sec. 177, LGC]

d) Procedure for judicial action

1. Court action

a. within 30 days after receipt of decision or lapse of
60 days of Secretary of Justices inaction [Sec. 187,
LGC]
b. within 30 days from receipt when protest of
assessment is denied [Sec. 195, LGC]
c. if no action is taken by the treasurer in refund
cases and the two year period is about to lapse
[Sec. 195, LGC]
d. if remedies available does not provide plain,
speedy and adequate remedy.

2. Action for Declaratory Relief

Injunction if irreparable damage would be caused to the
taxpayer and no adequate remedy is available.

IV. Jurisdiction of Courts Over Local Taxation Cases

1. With the amendment brought by R.A. No. 9282, the
Court of Tax Appeals now has appellate jurisdiction
over local taxation cases decided by the RTC in the
exercise of its appellate or original jurisdiction.

2. Regular judicial courts are not prohibited from
enjoining the collection of local taxes, subject to Rule
58 (Preliminary Injunction) of the Rules of Court.

NOTE: Unlike the NIRC, the Local Tax Code does not
contain any specific provision prohibiting courts from
enjoining the collection of local taxes. Such statutory
lapse or intent may have allowed preliminary injunction
where local taxes are involved. But it cannot negate the
procedural rules and requirements under Rule 58 of the
Rules of Court Valley Trading Co. v. CFI of Isabela
[1989]

======================================
III. LOCAL GOVERNMENT CODE OF 1991
B. Real Property Taxation
======================================
1. Fundamental Principles in Assessment of Real Property
Taxes (Sec. 198) [CUANE]

1. CURRENT and fair market value is the basis of appraisal
2. UNIFORMITY in classification in each local government
unit should be observed
3. ACTUAL USE of the property should be the basis of
classification
4. Appraisal, assessment, levy and collection should NOT
BE LET to any private person.
5. EQUITABLE appraisal and assessment

2. Nature of Real Property Tax

Real Property Tax is a direct tax on ownership of lands and
buildings or other improvements thereon payable
regardless of whether the property is used or not, although
the value may vary in accordance with such factor.

Real Property Taxation covers the administration, appraisal,
assessment, levy and collection of Real Property Tax, i.e. tax
on land and building and other structures and
improvements on it, including machineries. (Subject to the
definition given by Art. 415 of the Civil Code)


Improvement valuable addition made to a property or
amelioration in its condition amounting to more than a
mere replacement of parts involving capital expenditures
and labor.

3. Imposition of Real Property Tax

a. Power to Levy Real Property Tax

Characteristic of Real Property Tax [LIPAD]

1. Direct tax on the ownership of real property
2. Ad Valorem tax. The value is based on the tax base
3. Proportion - the tax is calculated on the basis of a
certain percentage of the value assessed
4. Indivisible single obligation
5. Local Tax

Properties Liable for Real Property Tax

According to the Local Government Code, Real Property
liable for Real Prop tax are:

1. Land
2. Buildings
3. Machinery and
4. Other improvements not otherwise exempted under
said code [Sec 232]

NOTE: Although the term real property has not been
expressly defined in the LGC, early decisions of the Supreme
Court in Mindanao Bus Co. v. City Assessor of Cagayan de
Oro; Board of Assessment Appeals v. Meralco; Manila
Electric Co. v. Board of Assessment Appeals, seem to
suggest that Art. 415 of the Civil Code could also be
controlling.

Machinery embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which
may or may not be attached, permanently or temporarily, to
the real property. It includes the physical facilities for
production, the installations and appurtenant service
facilities, those which are mobile, self-powered or self-
propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to
meet the needs of the particular industry, business or
activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes.
[Sec. 199 [o], LGC]

Machinery which are of general purpose use including but
not limited to office equipment, typewriters, telephone
equipment, breakable or easily damaged containers (glass
or cartons), microcomputers, facsimile machines, telex
machine, cash dispensers, furniture and fixtures, freezers,
refrigerators, display cases or racks, fruit juice or beverage
automatic dispensing machines which are not directly and
exclusively used to meet the needs of a particular industry,
business or activity shall not be considered within the
definition of machinery. [Sec. 290 [o], IRR of RA 7160]

Classification of Land for Purposes of Assessment - Sec
218(a) [CARMITS]

1. Commercial 6. Timberland
2. Agricultural 7. Special
3. Residential
4. Mineral
5. Industrial

Special Classes of Real Property (Sec. 216)
1. Hospitals
2. Cultural and scientific purposes
3. owned and used by local water districts
4. GOCCs rendering essential public services in the
supply and distribution of water and/or generation or
transmission of electric power.

b. Properties Exempt from Real Property Tax (Sec. 234)
1. Owned by the REPUBLIC of the PHILS or its political
subdivisions. Except: when beneficial use has been
granted to a taxable person
2. Charitable institutions, churches, parsonages, convents
appurtenant thereto, mosques, non-profit or religious
cemeteries, buildings and improvements actually
directly and exclusively used for religious, charitable or
educational purposes.
3. Machinery and Equipment actually, directly, and
exclusively used by local Water districts and GOCCs
engaged in the supply and distribution of water and/or
generation and transmission of electric power
4. Real property owned by duly registered Cooperatives
under R.A. 6938
5. Machinery & equipment for pollution control and
Environment protection

Exemptions previously granted, (not falling within the above
enumeration) are withdrawn.

Although powerless to grant RPT exemption, LGU in
MM can exempt the 5% ad valorem tax on idle lands.
LGUs (within and outside MM) may also grant
condonation which actually partake of exemption.

Proof of Tax Exemption:

Every person by or for whom real property is declared who
shall claim the exemption shall file with the provincial, city
or municipal assessor within 30 days from date of
declaration of real property sufficient documentary
evidence in support of such claim (i.e. corporate charters,
title of ownership, articles of incorporation, contracts,
affidavits, etc.)


4. Appraisal and Assessment of Real Property Tax

Actual Use of Property as Basis for Assessment (LGC Sec.
217)

Real property shall be classified, valued and assessed on the
basis of actual use regardless of where located, whoever
owns it, and whoever uses it.

Unpaid realty taxes attach to the property and are
chargeable against the person who had actual or beneficial
use and possession of it regardless of whether or not he is
the owner. To impose the RPT on the subsequent owner
which was neither the owner nor the beneficial user of the
property during the designated periods would not only be
contrary to law but also unjust. Estate of Lim v. City of
Manila, [G.R. No. 90639, February 21, 1990]

Types of Real Property Tax

1. Basic real property tax
2. Special levies:
a. Special Education Fund (SEF) 1% additional real
estate tax to finance the SEF [Sec. 235, LGC]
within MM area only
b. Additional Ad Valorem on the Lands not
exceeding 5% of the assessed value of the property
[Sec. 236. LGC]
c. For Public Works on lands specially benefited by
public works, projects or improvements funded by
the LGU
May be imposed even by municipalities
outside MM provided:
Special levy shall not exceed 60% of the actual
cost of such projects and improvements,
including the costs of acquiring land and such
other real property in connection therewith
not apply to lands exempt from basic real
property tax and the remainder of the land
had been donated to the local government
unit concerned for the construction of said
projects. [Sec. 240, LGC]

What Are Considered as Idle Lands: (Sec. 237, LGC)
1. Agricultural lands More than 1 hectare if more than
of which remain uncultivated or unimproved by the
owner of the property or person having legal interest
therein.

Not Idle Lands:
Agricultural lands planted to permanent or
perennial crops with at least 50 trees to a hectare
Lands actually used for grazing purposes
2. Non-Agricultural Lands More than 1,000 sq. m. in area
if more than of which remain uncultivated or
unimproved by the owner of the property or person
having legal interest therein.

Under Sec. 238 of the LGC, idle lands may be exempt from
tax by reason of force majeure, civil disturbance, natural
calamity or any cause which physically or legally prevents
the owner of the property or person having legal interest
therein from improving the land

5. Collection of Real Property Tax

Steps in the Assessment and Collection of RPT

STEP 1 - DECLARATION OF REAL PROPERTY

1. Declared by Owner or Administrator (Secs. 202-203,
LGC)
If newly acquired property file with the assessor
within 60 days from date of transfer a sworn
statement containing FMV and description of
property
If improvement on real property file w/in 60 days
upon completion or occupation (whichever is earlier)
a sworn statement of FMV and description of
property

2. Declared by Provincial / City / Municipal Assessor (Sec.
204, LGC)

This is done only when the person under Sec 202
refuses or fails to make the Declaration within the
prescribed time. No oath by the assessor is required.

NOTE (1): If filing for exemption under Sec. 206 of LGC, the
person claiming exemptions must file with assessor
sufficient documentary evidence to support claim within 30
days from the date of declaration of property.

If the required evidence is not submitted within 30 days, the
property will be listed as taxable.

NOTE (2): If property is declared for the first time, Sec. 222
of LGC states that the property shall be assessed for back
taxes for not mare than 10 years prior to the date of initial
assessment. The taxes shall be computed on the basis of
applicable schedule of values in force during the
corresponding periods.

STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENT
ROLLS (Secs. 205, 207, LGC)

1. Listing of all Real Property whether taxable or exempt
within the jurisdiction of LGU.
2. All declarations shall be kept and filed under a uniform
classification system to be established by the provincial,
city or municipal assessor.

STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY
(Secs. 212-214, LGC For machineries: 224-225)

How to determine Fair Market Value:

FOR LAND
1. Assessor of the province/city or municipality may
summon the owners of the properties to be affected
and may take depositions concerning the property, its
ownership, amount, nature and value.
2. Assessor prepares a schedule of FMV for different
classes of properties
3. Sanggunian enacts an ordinance
4. The schedule of FMV is published in a newspaper of
general circulation in the province, city or municipality
concerned or in the absence thereof, shall be posted in
the provincial capitol city or municipal hall places
therein.

FOR MACHINERY
1. For brand new machinery: FMV is equivalent to
acquisition cost
2. In all other cases:
FMV = Remaining eco. life X Replacement cost
Estimated eco. life

STEP 4: DETERMINE ASSESSED VALUE (Sec 218)

Procedure
1. take the schedule of FMV
2. Assessed value = FMV X Assessment level
3. Tax = Assessed value X Tax rate

STEP 5: PAYMENT AND COLLECTION OF TAX

WHEN: January 1 of every year (Sec 246)
HOW a. basic real prop tax in 4 equal installments (Mar
31, Jun 30, Sep 30, Dec 31)
b. special levy - governed by ordinance

NOTE (1): Interest for late payment
two percent (2%) each month on unpaid amt.
until the delinquent amt is paid.
provided in no case shall the total interest
exceed thirty-six (36) months

NOTE (2): Advance and prompt payment
advance payment - discount not exceeding 20%
of annual tax (Sec 251, LGC)
prompt payment - discount not exceeding 10%
of annual tax due(Art 342 IRR)

WHO COLLECTS The provincial, city, municipal or barangay
treasurer

PERIOD WITHIN WHICH TO COLLECT (LGC Sec 270):
within five (5) yrs from the date they become
due
within ten (10) yrs. from discovery of fraud, in
case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when: (LGC Sec
270)
1. local treasurer is legally prevented to collect tax
2. the owner of prop requests for reinvestigation and
writes a waiver before expiration of period to collect
3. the owner is out of the country or cannot be located

Remedies of LGUs for the Collection of Real Property Tax

A. Administrative

A) Lien (Sec. 257, LGC) superior to all liens, charges or
encumbrances and is enforceable by administrative or
judicial action. It is extinguished only upon payment of
tax and other expenses.

B) Levy (Sec. 258, LGC)

The proceeds of the sale in excess of the delinquent
tax, the interest due thereon and the expenses of the
sale shall be remitted to the owner of real property or
person having legal interest.

C. Distraint (Sec. 254, LGC) - with notice of
delinquency posted and published. Personal property
may be distrained to effect payment.

6. Claim for Tax Refund or Credit (Sec 253, LGC)
a. The taxpayer may file a written claim for refund or
credit with the provincial or city treasurer within 2
years from the date the taxpayer is entitled to such
reduction or adjustment.
b. Provincial or city treasurer should decide the claim
within 60 days from receipt of the claim.
c. In case of denial of refund or credit, appeal to
LBAA within 30 days as in protest case.

B. Judicial

Civil Action (Secs. 266, 270, LGC) filed by the local
treasurer within 5 or 10 years as provided in Sec. 270 of the
LGC.

7. Taxpayers Remedies

A. Administrative

1. Protest

Pay the tax under protest
File written protest with local treasurer (within 30 days from
payment of tax)
Treasurer decides (within 60 days from receipt of protest)
Approved Denied
Apply for tax refund or tax
credit
Appeal with the LBAA (in
case of denial or inaction of
the treasurer after the
lapse of 60 days)
Appeal with the CBAA
(within 30 days from
receipt of adverse decision
of LBAA)
Appeal to CTA (within 30
days from receipt of
adverse decision of CBAA)
Appeal to SC (within 15
days from receipt of
adverse decision of CTA)
Pay the tax under protest
Issuance of warrant by the LGU treasurer (on or before or
simultaneously with the institution of civil action for collection
of delinquent tax)
Advertise sale or auction (within 30 days after service of
warrant) by posting and publication
Sale
Report of sale (within 30 days after sale). Preparation of
certificate of sale (containing the name of the purchaser,
description of the property, amount of delinquent tax and its
interest, expenses.
Redemption (within 1 year from date of sale)
Issuance of Final Deed to purchaser (upon the delinquent
taxpayers failure to redeem)
Purchase of property by local treasurer for want of bidder in
case there is no bidder for the real property advertised or if the
highest bid is insufficient to pay the RPT and other costs.


2. Redemption of Real Property (Sec. 261, LGC)
a. Within 1 year from the date of sale, the owner of
the delinquent real property, or person having
legal interest or his representative, shall have the
right to redeem the property upon payment to the
local treasurer the ff:

Amount of delinquent tax
Interest thereon
Expenses of sale from date of delinquency to
date of the sale
Interest of not more than 2% per month on
the purchase price from date of sale to date of
redemption

b. A certificate of redemption shall be issued, and the
certificate of sale issued to the purchaser shall be
invalidated.

B. Judicial

1. Court Action appeal of CBAAs decision to CTA en
banc;
2. Suit assailing the validity of tax;
3. Recovery of refund of taxes paid [Sec. 64, PD 464]
4. Suit to declare invalidity of tax due to irregularity in
assessment and collection;
5. Suit assailing the validity of tax sale [Sec. 83, PD 464
and Sec. 267, LGC]

CONDONATION OF REAL PROPERTY TAXES

1. By Sanggunian RPT may be condoned wholly or
partially in a given LGU when:
a. There is general failure of crops;
b. There is substantial decrease in the price of
agricultural or agri-based products; or
c. There is calamity.

2. By the President of the Philippines - when public
interest so requires

IV. TARIFF AND CUSTOMS CODE OF
1978, as amended
======================================
A. Definitions
======================================

1. TARIFF: Custom duties, toll or tribute payable upon
merchandise to government.
2. CUSTOMS DUTIES: Tax assessed upon merchandise
from or exported to a foreign country Garcia v.
Executive Sec., [211 SCRA 227, 1992]

======================================
IV. TARIFF AND CUSTOMS CODE OF 1987
B. General Rule
======================================
All imported articles are subject to duty. Importation by the
government taxable, Tariff and Customs Code (TCC) Sec.
101.
BUREAU OF CUSTOMS

Functions:

1. Assessment and collection of the lawful revenues from
imported articles and all other dues, fees, charges, fines
and penalties accruing under the tariff and customs
laws.
2. Prevention and suppression of smuggling and other
frauds upon the customs.
3. Supervision and control over the entrance and
clearance of vessels and aircraft engaged in foreign
commerce.
4. Enforcement of tariff and customs laws, rules and
regulations relating to the tariff and customs
administration.
5. Supervision and control over the handling of foreign
mails arriving in the Phils. For the purpose of the
collection of the lawful duty on dutiable articles thus
imported and prevention of smuggling through the
medium of such mails
6. Supervision and control all import and export cargoes,
landed or stored in piers, airports, terminal facilities
including container yards and freight stations for the
protection of government revenue.
7. Exercise exclusive jurisdiction over seizure and
forfeiture cases under the tariff and customs laws. [Sec.
602]

Jurisdiction of Collector of Customs over Importation of
Articles

1. Cause all articles for importation to be entered in the
customhouse
2. Cause all such articles to be appraised and classified
3. Assess and collect the duties, taxes and other charges
thereon
4. Hold possession of all imported articles until the duties,
taxes and other charges are paid thereon (Sec 1206)

Territorial Jurisdiction of the BOC

1. All the seas within the jurisdiction of the Phils.
2. All coasts, ports, airports, harbors, bays, rivers and
inland waters whether navigable or not from the sea
[Sec. 603, 1
st
par.]

Other Types of Fees Charged by the BOC:

1. Arrastre charge
2. Wharfage due- counterpart of license, charged not for
the use of any wharf but for a special fund- Port Works
Fund
3. Berthing fee
4. Harbor fee
5. Tonnage due

======================================
C. Purpose for Imposition
======================================
Tariff and customs duties are taxes constituting a significant
portion of the public revenue which are the lifeblood that
enables the government to carry out functions it has been
instituted to perform. Commissioner of Customs v.
Makasiar, [177 SCRA 27]

LIABILITY FOR CUSTOMS DUTIES

GENERAL RULE: No exemptions from customs duties

The provisions of general and special laws, including
those granting franchises, to the contrary
notwithstanding, there shall be no exemptions
whatsoever from the payment of customs duties [Sec.
105, last par.]

EXCEPTIONS:
1. If provided under the TCC (e.g. conditionally-free
importation)
2. Exemptions granted to GOCCs with existing contracts,
commitments, agreements or obligations with foreign
countries
3. Exemptions of international institutions, associations or

organizations pursuant to agreements and special laws
4. Exemptions granted by the President of the Phils. Upon
recommendation of NEDA in the interest of national
economic development. [Sec. 1205]

Liability of Importer for Customs Duties

A personal debt due from the importer which can be
discharged only by payment in full of all duties and taxes

a lien upon imported articles which may be enforced while
they are in custody or subject to the control of the
government [Sec. 1204]

Extend of Importers Liability

Limited to the value of the imported merchandise. In case
of forfeiture of the seized materials, the maximum civil
penalty is the forfeiture itself. Mendoza v. David, [1 SCRA
791]

Imported Goods Must be Entered in the Customhouse

Imported goods must be entered in the customhouse at
their port of entry otherwise they shall be considered
as contraband and the importer shall be liable for
smuggling [Sec. 1201]
Port of entry means a domestic port open to both
foreign and coastwise trade including airport of entry.
[Sec. 3514]
All articles when imported from any country into the
Philippines shall be subject to duty upon each
importation, even though previously exported from the
Phils. except as otherwise specifically provided for in
the TCC or other laws. [Sec. 1201]

Preference on the Owner of Imported Articles for Customs
Purposes
All articles imported into the Philippines shall be held to be
the property of:
the person to whom the property is consigned
the holder of the bill of lading duly endorsed by the
consignee therein named
the consignee if consigned to order by the consignor
the underwriters of the abandoned articles saved from
a wreck at sea, along the coast or in any area in the
Phils.

======================================
D. Flexible Tariff
======================================
Import duties which are modified by the President upon
investigation by the Tariff Commission and recommendation
of the NEDA in the interest of national economy, general
welfare and national security.

Sec. 28, ART VI of the 1987 Constitution and Sec. 401, TCC.
The President may fix tariff rates, import and export
quotas, etc. under TCC

1. To increase, reduce or remove existing protective rates
of import duty (including any necessary change in
classification)
the existing rates may be increased or decreased
to any level on one or several stages but in no case
shall be higher than a maximum of 100% as
valorem
2. To establish import quota or to ban imports of any
commodity, as may be necessary
3. To impose an additional duty on all imports not
exceeding 10% ad valorem whenever necessary

Limitation Imposed Regarding the Flexible Tariff Clause

1. Conduct by the Tariff Commission of an investigation in
a public hearing
a. The Commissioner shall also hear the views and
recommendations of any government office,
agency or instrumentality concerned
b. The NEDA thereafter shall submits its
recommendation to the President
2. The power of the President to increase or decrease the
rates of import duty within the abovementioned limits
fixed in the Code shall include the modification in the
form of duty.
3. In such a case the corresponding ad valorem or specific
equivalents of the duty with respect to the imports
from the principal competing country for the most
recent representative period shall be used as bases.
[Sec. 401, TCC]

======================================
E. Requirements for Importation
======================================
1. Beginning and Ending of Importation

Application of the TCC

TCC applies only after importation has begun but
before importation is terminated

Importation Begins: when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with
the intention to unload therein

NOTE: If there is intention to unload, even if cargo not
yet unloaded, and there is unmanifested cargo,

forfeiture may take place because importation has
already begun.

Importation Terminates:
1. Upon payment of the duties, taxes, and other
charges due upon the articles, or secured to be
paid at the port of entry and legal permit for
withdrawal shall have been granted
2. In case the articles are free of duties, taxes and
other charges until they have legally left the
jurisdiction of customs [Sec. 1202]

REQUIREMENT TO KEEP RECORDS
(Sec. 3514 TCC, as amended by R.A. 9135)

All importers are required to keep at their principal place of
business, in the manner prescribed by regulations to be
issued by the Commissioner of Customs and for a period
three (3) years from the date of importation, all the records
of their importations and/or books of accounts, business
and computer systems and all customs commercial data
including payment records relevant for the verification of
the accuracy of the transaction value declared by the
importers/customs brokers on the import entry.

All brokers are required to keep at their principal place of
business, in the manner prescribed by regulations to be
issued by the Commissioner of Customs and for a period of
three (3) years from the date of importation copies of the
above mentioned records covering transactions that they
handle.

======================================
F. Importation in Violation of TCC
======================================
Goods prohibited from being Imported

1. Absolutely prohibited

a. Weapons of war
b. Immoral/obscene or insidious articles
c. Articles for treason
d. Prohibited drugs/narcotics
e. Gambling paraphernalia/devices
f. Those prohibited under Special Laws [Sec. 102,
TCC]

2. Qualifiedly prohibited

Where such conditions as to warrants a lawful importation
do not exist, the legal effects of the importation of
qualifiedly prohibited articles are the same as those
absolutely prohibited articles. Auyong Hian v. CTA, [59
SCRA 110]

======================================
G. Goods Conditionally-free from Tariff and
Customs Duties
======================================
Certain imported articles are exempt from import taxes
upon compliance with certain requirements. These are

1. Those provided for in Sec. 105 of the TCC;
2. Those granted to government agencies, GOCC with
agreements with foreign countries;
3. Those given to international institutions entitled to
exemption by agreement or special law; and
4. Those that may be granted by the President upon
NEDAs recommendation.

Exempt articles under Sec. 105

ARTICLE CONDITIONS
Animals and plants For scientific, experimental, propagation, botanical, breeding,
zoological and national defense purposes
Aquatic products caught or gathered by vessels of Philippine registry
Not have landed in foreign territory, or if landed, solely for
transshipment
Equipment used for the salvage of vessels or aircraft
not available locally
Bond= 1 x of ascertained duties, taxes and charges
Must be exported within 6 months
Costs of repair made in foreign country of Phil vessels
or aircraft
Phil must not have adequate facilities to make repair
Vessel was compelled by weather or casualty to go to a foreign
port of repair
Excludes value of article used for repair
Articles brought into the Philippines for repair,
processing, or reconditioning
to be re-exported upon completion of the repair, processing or
reconditioning
Bond = 1 x of ascertained duties, taxes and charges
Trophies, prizes (medals, badges, cups) Those
received as honorary distinction

Samples in such quantity and of such dimensions or
constructions as to render them unsaleable or of no
appreciable commercial value,
models not adopted for practical use, and
samples not for sale
marked sample sale punishable by law
for purpose of introducing new product
imported by person duly registered and identified to be engaged in
that trade
Importations authorized by Sec of Finance

Personal and household effects of returning Phil
residents

formally declared and listed before departure and identified under
oath before the Collector of Customs when exported from the Phil
by such returning residents upon their departure therefrom or
during their stay abroad
personal and household effects including wearing apparel, articles
of personal adornment (except luxury items) toilet articles,
instruments related to ones profession and analogous personal or
household effects, excluding vehicles, watercraft, aircraft and
animals, purchased in foreign countries by residents of the
Philippines which were necessary, appropriate and normally used
for their comfort and convenience during their stay abroad,
accompanying them on their return or arriving within a reasonable
time which, barring unforeseen and fortuitous events, in no case
shall exceed 60 days after the owners return, subject however to
the following provisions:
1. That the personal and household effects shall neither be in
commercial quantities nor intended for barter, sale or hire and
that the total dutiable value of which shall not exceed P10,000
2. That the returning resident has not previously availed of the
privilege under this section within 365 days prior to his arrival
3. That a 50% ad valorem duty across the board shall be levied and
collected on the personal and household effects in excess of
P10,000
Wearing apparel, articles of personal adornment,
toilet articles, portable tools and instruments,
theatrical costumes and similar personal effects
accompanying travelers or tourists in their baggage
arriving within a reasonable time, before or after the owners,
in use of and necessary and appropriate for the wear or use of such
persons according to their profession or position
for the immediate purposes of their journey and their present
comfort and convenient.
Personal and household effects, vehicles of foreign Accompany them or arrive at a reasonable time

consultants and experts hired or rendering service to
govt, including staff and families
In quantities and kind necessary and suitable to the profession,
rank or position
For their own use, NOT for sale, barter, hire
Collector may require: written commitment or bond
Professional instruments, tools of trade, wearing
apparel, domestic animals, personal and household
effects belonging to persons coming to settle in the
Phil and OFW
In quantities and kind necessary and suitable to the profession,
rank or position
For their own use, NOT for sale, barter, hire
Change of residence is bona fide
Privilege of free entry was never granted to them before or
qualifies under LOI 105, 163, 210
Articles used exclusively for public entertainment;
display in public expos; exhibition or competition for
prizes; devices for projecting picture
Must file bond
Exported within 6 months
Not exhibited for profit
Otherwise, confiscation +penalty

Brought by foreign film producers for making or
recording motion pictures on location in Phil.

Photographic and cinematographic films,
undeveloped, exposed outside Phil by resident
Filipinos or Phil. producing companies
Must file a bond
Exported within 6 months (unless extended by the Collector for
another 6 months)
Principal actors are Filipinos
Affidavit by importer that the exposed films are same films
previously exported
Importations used by foreign embassies, legations,
agencies of foreign govt
Reciprocity: such foreign country must grant same privilege to Phil.
Agencies
Articles for personal or family use of members and
attaches of foreign embassies, legations, consular
officers and other reps of foreign govt
Such privileges must be accorded in a special agreement between
Phil and the foreign country
Privilege may be granted only upon specific instructions of Sec. of
Finance which will be given only upon request of the DFA
Articles donated to or for account of relief
organization
Org not for profit
For free distribution to the needy
Containers, holders and similar receptacles Except those that are reusable for shipment or transportation of
goods
Supplies of vessel or aircraft For use or consumption of passengers on board
Any surplus or excess shall be dutiable
Articles and salvage after 2 years from filing protest Vessels must have been wrecked or abandoned in Phil waters
Coffins or urns containing human remains, bones
ashes. Personal and household effects of deceased
except vehicles
Not exceed P10,000
Economic, technical, vocational, scientific,
philosophical, historical, and cultural books and
publications

Phil articles previously exported and returned
without increasing value or improved condition.
Foreign articles previously exported when returned
after having been exported and loaned for use
temporarily abroad solely for exhibition

Foreign container used in packing exported Phil
products
Note that if a drawback or bounty was allowed to any Phil article
under this subsection, upon re-importation article shall be subject
to duty equal to the bounty or drawback
Articles and supplies imported by and for use of
scheduled airlines operating under congressional
franchise
Such articles are not available locally in reasonable quantity, quality
and price
Necessary or incidental to proper operations
Machineries, equipments, tools for production,
plants to convert mineral ores into saleable form,
spare parts, supplies, materials, accessories,
explosives, chemicals, transpo and communications
Such articles are not available locally in reasonable quantity, quality
and price
Necessary or incidental to proper operations
Used in their agri and industrial operations

facilities imported by and used by new mines and old
mines

Aircrafts imported by agro industrial companies,
spare parts and accessories
Spare parts of vessels or aircrafts of foreign registry
engaged in foreign trade
Brought to Phil as replacement or for emergency repair
Spare parts utilized to secure safety, seaworthiness, or
airworthiness, enable it to continue voyage or flight
Articles for easy identification exported from Phil for
repair and subsequently reimported
Cannot be repaired locally
Cost of repair made on article shall pay 30% ad valorem
Trailer chassis imported by shipping companies for
handling containerized cargo
Bond (1 x) to cover 1 year
Must be properly identified and registered with the LTO
Subject to customs supervision fee
Deposited in Customs zone when not in use
Upon expiration of period (1 year or as extended by Commissioner)
duties and taxes shall be paid
Personal and household effects (including one car)
officer or employee of DFA, attach, staff assigned to
Phil diplomatic mission abroad, personnel of
Reparations Missions in Tokyo, AFP military
personnel in SEATO, AFP military personnel accorded
diplomatic rank on duty abroad

= returning from regular assignment, reassignment,
dies, resigns or retires
Car must have been purchased or ordered before the mission or
consulate received his order of recall
The value of personal and household effects shall not exceed 30%
of his total salary.

======================================
H. Classification of Duties
======================================
1. Ordinary/ Regular Duties
- those which are imposed ordinarily as a matter of course
without order from the higher authorities and collected
merely as a source of revenue

a. Ad Valorem - this is a duty based on the value of the
imported article

Dutiable Importation
Articles although previously exported from the
Philippines, become dutiable from the entry of the
vessel or aircraft into the Philippine jurisdiction until
the payment of duties, taxes, and other charges and
the issuance of the permit for the withdrawal of said
goods from the custom houses.

Methods of Valuation/ Basis of Dutiable Value (Sec. 201
TCC, as amended by RA 9135)

(A) Method One. Transaction Value. - The dutiable value
of an imported article subject to an ad valorem rate of duty
shall be the transaction value, which shall be the price
actually paid or payable for the goods when sold for export
to the Philippines, adjusted by adding:
1. The following to the extent that they are incurred by
the buyer but are not included in the price actually paid
or payable for the imported goods:
a. Commissions and brokerage fees (except
buying commissions);
b. Cost of containers;
c. The cost of packing, whether for labor or
materials;
d. The value, apportioned as appropriate, of the
following goods and services: materials,
components, parts and similar items
incorporated in the imported goods; tools;
dies; moulds and similar items used in the
production of imported goods; materials
consumed in the production of the imported
goods; and engineering, development,
artwork, design work and plans and sketches
undertaken elsewhere than in the Philippines
and necessary for the production of imported
goods, where such goods and services are
supplied directly or indirectly by the buyer
free of charge or at a reduced cost for use in
connection with the production and sale for
export of the imported goods;
e. The amount of royalties and license fees
related to the goods being valued that the
buyer must pay, either directly or indirectly,
as a condition of sale of the goods to the
buyer;
2. The value of any part of the proceeds of any
subsequent resale, disposal or use of the imported
goods that accrues directly or indirectly to the seller;
3. The cost of transport of the imported goods from the
port of exportation to the port of entry in the
Philippines;
4. Loading, unloading and handling charges associated
with the transport of the imported goods from the
country of exportation to the port of entry in the
Philippines; and
5. The cost of insurance.

All additions to the price actually paid or payable shall be
made only on the basis of objective and quantifiable data.

No additions shall be made to the price actually paid or
payable in determining the customs value except as
provided in this Section: Provided, That Method One shall
not be used in determining the dutiable value of imported
goods if:

a) There are restrictions as to the disposition or use of the
goods by the buyer other than restrictions which:
Are imposed or required by law or by Philippine
authorities;
Limit the geographical area in which the goods
may be resold; or
Do not substantially affect the value of the goods.
b) The sale or price is subject to some condition or
consideration for which a value cannot be determined
with respect to the goods being valued;
c) Part of the proceeds of any subsequent resale, disposal
or use of the goods by the buyer will accrue directly or
indirectly to the seller, unless an appropriate
adjustment can be made in accordance with the
provisions hereof; or
d) The buyer and the seller are related to one another,
and such relationship influenced the price of the goods.
Such persons shall be deemed related if:
They are officers or directors of one anothers
businesses;
They are legally recognized partners in business;
There exists an employer-employee relationship
between them;
Any person directly or indirectly owns, controls or
holds five percent (5%) or more of the outstanding
voting stock or shares of both seller and buyer;
One of them directly or indirectly controls the
other;
Both of them are directly or indirectly controlled
by a third person;
Together they directly or indirectly control a third
person; or

They are members of the same family, including
those related by affinity or consanguinity up to the
fourth civil degree.

Persons who are associated in business with one another in
that one is the sole agent, sole distributor or sole
concessionaire, however described, of the other shall be
deemed to be related for the purposes of this Act if they fall
within any of the eight (8) cases above.

(B) Method Two. Transaction Value of Identical Goods.
Where the dutiable value cannot be determined under
method one, the dutiable value shall be the transaction
value of identical goods sold for export to the Philippines
and exported at or about the same time as the goods being
valued. "Identical goods" shall mean goods which are the
same in all respects, including physical characteristics,
quality and reputation. Minor differences in appearances
shall not preclude goods otherwise conforming to the
definition from being regarded as identical.

(C) Method Three. Transaction Value of Similar Goods.
Where the dutiable value cannot be determined under the
preceding method, the dutiable value shall be the
transaction value of similar goods sold for export to the
Philippines and exported at or about the same time as the
goods being valued. "Similar goods" shall mean goods
which, although not alike in all respects, have like
characteristics and like component materials which enable
them to perform the same functions and to be commercially
interchangeable. The quality of the goods, their reputation
and the existence of a trademark shall be among the factors
to be considered in determining whether goods are similar.

If the dutiable value still cannot be determined through the
successive application of the two immediately preceding
methods, the dutiable value shall be determined under
method four or, when the dutiable value still cannot be
determined under that method, under method five, except
that, at the request of the importer, the order of application
of methods four and five shall be reversed: Provided,
however, That if the Commissioner of Customs deems that
he will experience real difficulties in determining the
dutiable value using method five, the Commissioner of
Customs may refuse such a request in which event the
dutiable value shall be determined under method four, if it
can be so determined. xxx

(D) Method Four. Computed Value. the computed
value which is the sum of:
(1) cost or the value of materials and fabrication or
other processing employed;
(2) amount for profit and general expenses;
(3) freight, insurance fees and other transportation
expenses for the importation of the goods;
(4) any assist, if its value is not included under (1);
and
(5) cost of containers and packing, if their values
are not included under (1).

(E) Method Five. Fallback Value. determined by using
other reasonable means and on the basis of data available
in the Philippines.

b. Specific - this is duty based on the dutiable weight of
goods (either the gross weight, legal weight or the net
weight)

2. Special Duties
- those which are imposed and collected in addition to
ordinary duties usually to protect local industries against
foreign competition:

SPECIAL DUTIES are:
NATURE AMOUNT /RATE IMPOSING
AUTHORITY
DUMPING
Imposed on foreign
articles:
a. Being imported
into, sold or is
likely to be sold in
the Phils.
b. At a price less than
its normal value
The importation or
sale of which might
injure an industry
producing like goods
in the Phils.

Difference
between the
actual price
and the normal
value of the
article (extent
of the
underpricing)
Special
Committee on
Anti-dumping
(Sec. of Finance-
chairman;
members: Sec.
of DTI, Sec. of
Agriculture/ Sec.
of Labor)
COUNTERVAILING
Imposed upon foreign
goods enjoying
subsidy thus allowing
them to sell at lower
prices to the
detriment of local
products similarly
situated
Equivalent to
the bounty,
subsidy or
subvention
Secretary of
Finance
MARKING
Imposed upon those
not properly marked
as to the place of
origin of the goods
5% ad valorem
of articles
Commissioner of
Customs
DISCRIMINATORY
Imposed upon goods
coming from countries
that discriminate
against Philippine
products
President of the
Philippines

Nature and Purpose of Special Customs Duties
1. These are additional import duties imposed on specific
kinds of imported articles under certain conditions
2. These are imposed for the protection of consumers and
manufacturers as well as Phil. Products from undue
competition posed by foreign made products.
3. These cannot be imposed without regular duties
because the law says that it is to be in addition to
such.

======================================
I. Drawback
======================================

DRAWBACK: It is a device resorted to for enabling a
commodity affected by taxes to be exported and sold in
foreign markets upon the same terms as if it had not been
taxed at all. Uy Chiaco Sons v. Collector of Customs, [24
Phil 562]

IMPORT ENTRY: It is a declaration to the BOC showing
particulars of the imported article that will enable the
customs authorities to determine the correct duties. An
importer is required to file an import entry. It must be
accomplished at the moment the last cargo is disembarked
from the vessel.

Conditions for Grant of Drawback

1. Imported material was actually used in the production
of article to be exported.
2. Refund or credit shall not exceed 100% of duties paid
on the imported material
3. No determination by NEDA of the requirement for
certification on non-availability of locally produced or
manufactured competitive substitutes for the imported
material (no local substitute for the materials)
4. Exportation must be made within 1 year after
importation of material and claim for refund or credit
must be made within 6 months from exportation
5. When 2 or more result from the used of same imported
material, apportionment shall be made.
6. Every application for drawback must pay P500 filing,
processing, and supervision fees
7. Claims shall be paid by BoC within 60 days after receipt
of properly accomplished claims

======================================
J. Tax Remedies under the TCC
======================================

1. Government

I. Administrative/Extrajudicial

1. Tax Lien (Sec. 1508, TCC)
Attaches on the goods, regardless of ownership,
while still in the custody or control of the Govt.
Availed of when the importation is neither
prohibited nor improperly made.

2. Administrative Fines and Forfeitures
Applied when the importation in unlawful;
And it may be exercised even where the articles
are not or no longer in Customs custody unless
the importation is merely attempted in which case
it may be effected only while the goods are still
within the Customs jurisdiction or in the hands of
a person who is aware thereof [Secs. 2531 & 2530
TCC]
Under Sec. 2530 (a) of the TCC, in order to warrant
forfeiture, it is not necessary that the vessel or
aircraft must itself carry the contraband. The
complementary if collateral use of the Cessna
plane for smuggling operations is sufficient for it to
be deemed to have been used in smuggling
Llamado v. Comm. of Customs, [122 SCRA 118]

3. Reduction of customs duties/compromise:
- Subject to approval of Sec. of finance [Secs.
709, 2316 TCC]

4. Seizure, Search, Arrest [Secs. 2205, 2210, 2211 TCC]

II. Judicial

This remedy is normally availed of when the tax lien is lost
by the release of the goods

1. Civil action [Sec. 1204 TCC]
2. Criminal action

2. Taxpayer

I. Administrative

1. Protest
- Any importer or interested party dissatisfied
with published value within 15 days from date
of publication, or within 5 days from the date
the importer is entitled to refund if payment is

rendered erroneous or illegal by events
occurring after the payment.
- Taxpayer - within 15 days from assessment.
Payment under protest is necessary [Secs.
2308, 2210 TCC]

2. Refund
- A written claim for refund may be submitted
by the importer in abatement cases on
missing packages, deficiencies in the contents
of packages or shortages before arrival of the
goods in the Philippines, articles lost or
destroyed after such arrival, dead or injured
animals, and for manifest clerical errors and
- Drawback cases where the goods are re-
exported. [Secs. 1701-1708 TCC]

3. Settlement of any seizure by payment of fine or
redemption
- BUT this shall not be allowed in any case
where importation is absolutely prohibited or
the release would be contrary to law or when
there is an actual and intentional fraud [Sec.
2307, TCC]

4. Appeal
- Within 15 days to Commissioner after
notification by collector of his decision [Sec.
2313, TCC]
II. Judicial

1. Appeal
- Within 30 days from receipt of decision of the
Commissioner or Secretary of Finance to the
division of the CTA [Sec. 2403, TCC, Sec. 7 R.A.
1125, as amended by Sec. 9 R.A. 9282]
- Since Sec. 11 of RA 1125, as amended by Sec.
9 RA 9282 empowers the tax court to issue
injunctions, it would appear than an importer
may appeal without first paying the duties,
such as in seizure but not in protest cases.

2. Action to question the legality of seizure

3. Abandonment (Sec. 1801 TCC)
- Expressly
- impliedly
i. failure to file an import entry within 30 days
from the discharge of goods or
ii. having filed an entry, fails to claim within 15
days but it shall not be so effective until so
declared by the collector. [Sec. 1801, as
amended by R.A. 7651]

Two Kinds of Proceedings in the BOC

A. Customs Protest Cases

These are cases which are solely with liability for customs
duties, fees, and other charges.

Before filing a protest there must first be a payment under
protest.

When Customs Protest Applicable

- The customs protest is required to be filed
only in case the liability of the taxpayer for
duties, taxes, fees and other charges is
determined and the taxpayer disputes said
liability.

When Customs Protest NOT Required
- When there is no dispute, but the claim for
refund arises by reason of the happening of
supervening events such as when the raw
material imported is utilized in the production
of finished products subsequently reported
and a duty drawback is claimed.

Requirements for Making a Protest

1. Must be in writing
2. Must point out the particular decision or ruling of the
Collector of Customs to which to which exception is
taken or objection made;
3. Must state the grounds relied upon for relief;
4. Must be limited to the subject matter of a single
adjustment;
5. Must be filed when the amount claimed is paid or
within 15 days after the payment;
6. Protestant must furnish samples of goods under
protest when required.

Procedure on Customs Protest Cases

1. The Collector acting within his jurisdiction shall cause
the imported goods to be entered at the customhouse.
2. The Collector shall assess, liquidate, and collect the
duties thereon, or detain the said goods if the party
liable does not pay the same.
3. The party adversely affected may file a written protest
on his foregoing liability with the Collector within 15
days after the liquidated amount (the payment under
protest rule applies)
4. Hearing within 15 days from receipt of the duly
presented protest. Upon termination of the hearing,
the Collector shall decide on the same within 30 days

IF DECISION IS ADVERSE TO
THE PROTESTANT
IF DECISION IS ADVERSE TO
THE GOVERNMENT
Appeal with the
Commissioner within 15
days from notice
Automatic review by
Commissioner
Appeal with CTA division
within 30 days from notice
Automatic review by Sec. of
Finance
Appeal with the CTA en
banc
If decision of Commissioner
or Sec. is adverse to the
protestant, he may appeal to
the CTA and SC under the
same procedure on the left.
Appeal by certiorari to the
SC within 15 days from
notice

B. Seizure and Forfeiture Cases

These refer to matters involving smuggling. It is civil and
administrative in nature and is directed against the res or
imported articles and entails a determination of the legality
of their importation. These actions are in rem.
Thus, it is of no defense that the owner of the vessel sought
to be forfeited had no actual knowledge that his property
was used illegally. The absence or lack of actual knowledge
of such use is a defense personal to the owner himself
which cannot in any way absolve the vessel from the liability
of forfeiture. Comm. Of Customs v. Manila Starr Ferry, Inc.,
[227 SCRA 317]

Smuggling

A. An act of any person who shall:

Fraudulently import any article contrary to law, or
Assist in so doing, or
Receive, conceal, buy, sell, facilitate or transport such
article knowing its illegal importation [Sec. 3601, TCC]
Export contrary to law [Sec. 3514, TCC]

B. The Philippines is divided into various ports of entry -
entry other than thru port of entry will be SMUGGLING.

Port of Entry: A domestic port open to both foreign and
coastwise trade including airport of entry. [Sec. 3514,
TCC]

ALL articles imported into the Philippines whether
subject to duty or not shall be entered through a
customs house at a port of entry.

ENTRY in Customs law means -

1. The documents filed at the Customs house
2. The submission and acceptance of the documents
3. The procedure of passing goods through the
customs house Rodriguez v. CA, [September 18,
1995]

Evidence for Conviction in Smuggling Cases

- Mere possession of the article in question
UNLESS the defendant could explain that his
possession is lawful to the satisfaction of the
court [Sec. 3601, TCC]
- Payment of the tax due after apprehension is
not a valid defense Rodriguez v. CA, [248
SCRA 288]

Things Subject to Confiscation in Smuggling Cases
Anything that was used for smuggling is subject to
confiscation, like the vessel, plane, etc. Llamado v. Comm.
of Customs, [1983]

Exception: Common carriers that are not privately
chartered cannot be confiscated.

Contraband: Articles of prohibited importations or
exportations. [Sec. 3514, TCC]

Right of Customs Officers to Effect Seizure & Arrest

May seize any vessel. Aircraft, cargo, article, animal or
other movable property when the same is subject to
forfeiture or liable for any time as imposed under tariff
and customs laws, rules and regulations.
May exercise such powers only in conformity with the
laws and provisions of the TCC [Sec. 2205]

Common Carriers Forfeiture

Common carriers are generally not subject to forfeiture
although if the owner has knowledge of its use in
smuggling and was a consenting party, it may also be
forfeited.
If a motor vehicle is hired to carry smuggled goods but
it has no Certificate of Public Convenience (CPC), It is
not a common carrier. It is thus subject to forfeiture
and lack of personal knowledge of the owner or carrier
is not a defense to forfeiture.

Properties Not Subject to Forfeiture in the Absence of
Prima Facie Evidence

The forfeiture of the vehicle, vessel or aircraft shall not
be effected if it is established that the owner thereof or
his agent in charge of the means of conveyance used as
aforesaid has no knowledge of or participation in the
unlawful act:

Provided, however, that a prima facie presumption
shall exist against the vessel, vehicle or aircraft under
any of the following circumstances:
1. If the conveyance has been used for smuggling at
least twice before;
2. If the owner is not in the business for which the
conveyance is generally used; and
3. If the owner is financially not in the position to
own such conveyance.

Doctrine of Hot Pursuit

Requisites:

1. Over Vessels
a. An act is done in Phil. Waters which constitute a
violation of the tariff and custom laws.
b. A pursuit of such vessel began within the
jurisdictional waters which
i. may continue beyond the maritime zone, and
ii. The vessel may be seized on the high seas.

2. Over Imported Articles
a. There is a violation of the tariff and customs laws.
b. As a consequence, they may be pursued in the
Phils.
c. With jurisdiction over them at any place
therein for the enforcement of the law.
[Sec. 603, 2
nd
par., TCC]

Jurisdiction of RTC over seizure and forfeiture proceedings

The RTC do not have jurisdiction over seizure and
forfeiture proceedings conducted by the BOC and to
interfere with these proceedings. The Collector of
Customs has exclusive jurisdiction over all questions
touching on the seizure and forfeiture of dutiable
goods.
No petitions for certiorari, prohibition or mandamus
filed with the RTC will lie because these are in reality
attempt to review the Commissioners actuations.
Neither replevin filed with the RTC will issue.
Rationale: Doctrine of Primary Jurisdiction. Even if a
Customs seizure is illegal, exclusive jurisdiction (to the
exclusion of regular courts) still belongs to the Bureau
of Customs. Jao v. CA, [October 6, 1995]

Goods in Customs Custody Beyond Reach of Attachment

Goods in the customs custody pending payments of
customs duties are beyond the reach of attachment. As
long as the importation has not been terminated, the
imported goods remain under the jurisdiction of the
Bureau of Customs. Viduya v. Berdiago,[73 SCRA 553]

Persons Having Police Authority to Enforce the Tariff and
Customs Laws and Effect Searches, Seizures and Arrests

1. Officials of the BOC, district collectors, police officers,
agents, inspectors and guests of the BOC;
2. Officers of the Phil. Navy and other members of the
AFP and national law enforcement agencies when
authorized by the Comm. Of Customs;
3. Officials of the BIR on all cases falling within the regular
performances of their duties, when the payment of
internal taxes are involved
4. Officers generally empowered by law to effect arrests
and execute processes of courts, when acting under the
direction of the Collector. [Sec. 2203, TCC]

Administrative and Judicial Procedures Relative to Customs
Seizures and Forfeitures

1. Determination of probable cause and issuance of
warrant.
2. Actual seizure of the articles.
3. Listing of description, appraisal and classification of
seized property.
4. Report of seizure to Comm. Of Customs and the
Chairman, Comm. On Audit.
5. Issuance by the Collector of warrant of detention.
6. Notification to owner or importer.
7. Formal hearing.
8. District collector renders his decisions.

IF DECISION IS NOT
FAVORABLE TO THE
AGGRIEVED OWNER OR
IMPORTER
IF DECISION IS NOT
FAVORABLE TO THE
GOVERNMENT
Appeal by aggrieved owner
or importer
Automatic review by Comm.

Requirements for Customs Forfeiture

1. The wrongful making by the owner, importer, exporter
or consignee of any declaration or affidavit, or the
wrongful making or delivery by the same persons of
any invoice, letter or paper - all touching on the
importation or exportation of merchandise; and
2. That such declaration, affidavit, invoice, letter or paper
is false. Farolan, Jr. v. CTA, [217 SCRA 298]

Places Where Searches and Seizures May Be Conducted

1. Enclosures
2. dwelling house (there must be search warrant
issued by a judge)
3. vessels or aircrafts and persons or articles
conveyed therein
4. vehicles, beasts or persons
5. persons arriving from foreign countries

Burden of Proof in Seizure or Forfeiture

claimant [Sec. 2535, TCC]

Requirements for Manifest

A manifest in coastwise trade for cargo and passengers
transported from one place or port in the Phils. to another is
required when one or both of such places is a port of entry.
[Sec. 906, TCC] Manifests are also required of vessels from
a foreign port. [Sec. 1005, TCC]

Query: Is Manifest Required Only for Imported Goods?

No. Articles subject to seizure do not have to be imported
goods. Manifests are also required of articles found on
vessels or aircrafts engaged in coastwise trade Rigor v.
Robles, [117 SCRA 780]

Unmanifested Cargo is Subject to Forfeiture

Whether the act of smuggling is established or not under
the principle of res ipsa loquitur. It is enough that the cargo
is unmanifested and that there was no showing that
payment of duties thereon had been made for it to be
subject to forfeiture.

Settlement of Forfeiture Cases

General Rule: Settlement of cases by payment of fine or
redemption of forfeited property is allowed.

Exceptions:

1. The importation is absolutely prohibited or
2. The surrender of the property to the person offering to
redeem would be contrary to law, or
3. Where there is fraud [Sec. 2307, TCC]

Acquittal in Criminal Charge Not Res Judicata in Seizure or
Forfeiture Proceedings

Reasons:

Criminal proceedings are actions in personam while
seizure or forfeiture proceedings are actions in rem.
Customs compromise does not extinguish criminal
liability Pp. v. Desiderio, [Nov. 26, 1965]

At any time prior to the sale, the delinquent importer may
settle his obligations with the Bureau of Customs in which
case the aforementioned articles may be delivered upon
payment of the corresponding duties and taxes and
compliance with all other legal requirements. [Sec. 1508,
TCC]

Abatement

The reduction or non-imposition of customs duties on
certain imported materials as a result of;
Damage incurred during voyage;
Deficiency in contents package;
Loss or destruction of articles after arrival;
Death or injury of animals.

Fraudulent Practices Considered As Criminal Offences
Against Customs Revenue Laws

1. Unlawful importation;
2. Entry of imported or exported article by means of
any false or fraudulent practices, invoice,
declaration, affidavit or other documents;
3. Entry of goods at less than their true weights or
measures or upon a classification as to quality or
value;
4. Payment of less than the amount due.

V. Judicial Remedies; Republic Act 1125 The
Act that Created the Court of Tax Appeals
(CTA), as amended, and the Revised Rules of
the Court of Tax Appeals
======================================

What is the new law governing the CTA?
R.A. 9282, an act expanding the jurisdiction of the CTA,
and elevating it to the level of the Court of Appeals

What is the composition of the CTA and how may the CTA
rule?
CTA shall consist of a Presiding Justice and five (5)
Associate Justice
They may rule as follows:
1. En banc
2. Sitting in 2 divisions, each division with 3 justices
each

What is the quorum?
The affirmative votes of 4 Justices for sessions En Banc
and 2 Justices for sessions of a Division shall be
necessary for the rendition of a decision or resolution
When the required quorum cannot be constituted, the
Presiding Justice shall designate any Justice of other
Divisions of the court to sit temporarily therein

======================================
V. JUDICIAL REMEDIES
A. Jurisdiction of the Court of Tax Appeals
======================================
What is the APPELLATE JURISDICTION OF THE CTA?

The CTA shall exercise exclusive appellate jurisdiction to
review by appeal:
1. Decisions of CIR
2. Inaction of CIR
3. Decisions of RTC on local tax cases
4. Decisions of Commissioner of Customs
5. Decisions of CBAA (on exercise of appellate
jurisdiction over RPT tax cases decided by LBAA)
6. Decisions of DOF on customs cases elevated to him
on automatic review due to adverse decision
versus the government
7. Decisions of DTI (on non-agricultural products) and
Department of Agriculture (on agricultural
products) involving dumping and countervailing
duties

Does the CTA have jurisdiction over criminal cases?

Yes, the CTA have jurisdiction over the following cases
involving criminal offenses:
Original jurisdiction over all criminal offenses
arising from violation of the NIRC and TCC and
other laws administered by BIR and BOC where the
principal amount of taxes and fees, exclusive of
charges and penalties claimed, is P1,000,000 or
more.
Appellate jurisdiction over appeals from the
judgments, resolutions or order of the RTC in their
original jurisdiction in criminal offenses arising
from violation of NIRC and TCC and other laws
administered by BIR and BOC where the principal
amount is less than P1,000,000 or there is no
specified amount.
Over petitions for review of the decisions of the
RTC in the exercise of their appellate jurisdiction
over tax cases originally decided by the MTC.

======================================
B. Judicial Procedures
======================================
1. Judicial action for collection of taxes

The CTA have jurisdiction over the following cases
involving tax collection:
Original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees,
charges and penalties where the principal amount
of taxes and fees, exclusive of charges and
penalties, claimed is P1,000,000 or more.
Appellate jurisdiction over appeals from the
judgment, resolutions or orders of the RTC in tax
collection cases originally decided by them within
their respective jurisdiction.
Over petitions for review of the decisions of the
RTC in exercise of their appellate jurisdiction over
tax collection cases originally decided by MTC.

What is the Procedure? (Sec. 9, R.A. 9282)

1. Appeal within 30 days from receipt of decision or
period of inaction of CIR, COC, Secretary of Finance,
Secretary of Trade and Industry or Secretary of
Agriculture, or the CBAA or the RTC:
a. Generally, appeal will be to a Division
b. Except: appeal by filing a petition for review to En
Banc in case of decisions of CBAA or RTC in the
exercise of its appellate jurisdiction
2. In case the decision of the Division is adverse:
a. File MR with same Division within 15 days from
notice thereof
3. In case resolution of Division on the MR or new trial is
still adverse:
a. File petition for review with CTA En Banc

4. In case the decision of the CTA En Banc is adverse, file a
review on certiorari with the SC pursuant to Rule 45 of
Rules of Court

Where can you appeal a decision of a local assessment
board? (Sec. 9, R.A. 9282)

To the Central Board of Assessment Appeals (CBAA)
and not yet to the CTA.
It is only after the CBAA has ruled that an appeal may
be made to the CTA
In which case, the appeal shall be by petition for review
to the CTA En Banc

What is the rule on suspension of collection?

General Rule: no injunction to restrain collection of
taxes
Exception: Under Section 9 of R.A. 9282, suspension is
allowed when the following conditions concur:
It is an appeal to the CTA from a decision of CIR,
COC or the RTC, provincial, municipal treasurer, or
the Secretary of Finance, Secretary of Trade and
Industry or Secretary of Agriculture, as the case
may be; and
In the opinion of the Court, the collection by the
aforementioned government agencies may
jeopardize the interest of the Government and/or
taxpayer

In case of suspension, what is the taxpayer required to do?

The taxpayer will be required to either deposit the amount
claimed or file a surety bond for not more than double the
amount with the Court.

General rule: No injunction to restrain collection of
taxes.
Exception: Suspension is allowed when the following
conditions concur:
1. There is an appeal to the CTA, and
2. In the opinion of the court, the collection by the
government agencies may jeopardize the interest
of the Government and/or the taxpayer, and
3. Taxpayer either to deposit the amount claimed or
to file a surety bond for not more than the double
the amount with the Court.

Doctrine discussion
The jurisdiction of the CTA is to review by appeal
decisions of the CIR on disputed assessments. When a
taxpayer does not protest an assessment, and appeals
the assessment itself to the CTA, his appeal is
premature. [CIR v. Villa]
A final demand letter for payment of delinquent taxes
may be considered a decision on a disputed or
protested assessment. Thus, the taxpayer can file an
appeal with the CTA. [CIR v. Isabela Cultural]
o Demand letter of the CIR - which states a
warning that in the event the taxpayer fails to
pay, collection will be enforced - constitutes
the order appealable to the CTA. [Surigao
Electric v. CIR]
o The BIR should always indicate to the taxpayer
in clear and unequivocal language what
constitutes final action on a disputed
assessment. The object is to avoid repeated
requests for reconsideration by the taxpayer,
thereby delaying the finality of the
assessment, and consequently, the collection
of the taxes due.
o This would also prevent the taxpayer from
groping in the dark, speculating as to which
communication or action of the BIR may be
the decision appealable to the CTA.
o Now, the BIR should make it clear to the
taxpayer that he can appeal if not satisfied
with the assessment.
o Since the power to make an assessment may
be delegated to subordinate officers, the act
of issuance of the demand letter by a
subordinate officer is an order that is
appealable to the CTA. (Oceanic v. CIR,
wherein the taxpayer failed to appeal to the
CTA within 30 days of receipt of the demand
letter made by the Chief of the Accounts
Receivable and Billing Division of the BIR)
In this case, the investigation was
started and concluded by the same
division.
Sir asks, what if the CIR himself starts
the investigation, and then delegates
it to his deputy, do you appeal it to
the CIR or straight to the CTA?
The jurisdiction of the CTA has been expanded to
include not only decisions or rulings but inaction as well
of the CIR. [RCBC v CIR]
o In case the CIR fails to act on the disputed
assessment within the 180-day period from
date of submission of documents, a taxpayer
can either:
1. File a petition for review with the CTA
within 30 days after the expiration of the
180-day period, or
2. Await the final decision of the
Commissioner or the disputed
assessments and appeal such final
decision to the CTA within 30 days after
receipt of a copy of such decision.
However, these options are mutually
exclusive, and resort to one bars the
application of the other.

After availing the first option, but filing it
out of time, a taxpayer cannot
successfully resort to the second
option (awaiting the final decision of
the CIR and appealing the same to
the CTA, on the pretext that there is
yet no final decision on the disputed
assessment because of the CIRs
inaction).
You cant have your cake and eat it too.
Remember that when a taxpayer protests an
assessment, he is given 60 days to submit supporting
documents. From the time he submits the documents,
the 180-day period for the CIR to act on the protest
starts. But what if the taxpayer submits the documents
with the protest?
This is what happened in CIR v. First Express
Pawnshop.
In that case, the CIR was contending that First
Express did not submit the relevant
documents. However, given that First Express
submitted their documents along with their
protest, the Court said that the BIR cannot
demand what type of supporting documents
should be submitted. Otherwise, a taxpayer
will be at the mercy of the BIR, which may
require the production of documents that a
taxpayer cannot submit.
From the case, we learn that the 60-day period is
given for the benefit of the taxpayer. He can
take up the entire 60 days or not. The
taxpayer has a choice of not utilizing the
period, by immediately submitting the
documents, effectively starting the 180-day
period of the BIR to act much earlier.
The legal implication of this is when the taxpayer
appeals to the CTA because of the expiration
of the 180-day period, the taxpayer must
allege that the supporting documents were
submitted along with the protest. If not, the
CTA may dismiss the case because it was filed
still within the 180-day period, and thus,
prematurely filed.
The question is, how does the taxpayer know if the
documents are in fact, complete? What if the
BIR asks him to submit additional documents
to substantiate his claim?
If he doesnt submit any more
documents, then the 180-day period
should start from the time he
submitted the initial documents.
Because of CIR v. First Express
Pawnshop, the BIR cant demand for
the specific documents.
If he does submit more documents within
the 60-day period, then the 180-day
period should start from the time he
submitted the additional documents,
since the 60-day period is given for
the benefit of the taxpayer, and it is
his choice whether or not to use the
whole period or not.
If he submits the additional documents
after the 60-day period and there is
no decision yet. The 180-day period
will start from the time he submitted
the first documents, since it is
mandatory that the supporting
documents have to be given within
the 60-day period.
Filing a motion for reconsideration of a decision of the
CIR denying a protest does not toll or suspend the
period to appeal to the CTA. The 30-day period to
appeal to the CTA is still reckoned from the date the
taxpayer is notified of the denial of the CIR. [Fishwealth
Canning Corp v. CIR]
Compare this to asking for a reinvestigation and it
being granted by the CIR.
In that case, what is being tolled is the
time for the CIR to collect, not the
period to appeal to the CTA. But can
the period to appeal to the CTA be
extended?
Yes. In City of Manila v. Coca-Cola
[2009], the Court stated that in
appeals to the CTA, the Rules of
Court are applicable. Since in the
Rules of Court, Rule 42 allows
extensions to file petitions for review
to be filed with Court of Appeals, the
same should be applicable in
petitions for review with the CTA.
Hence, the 30-day original period for filing a Petition for
Review with the CTA may be extended for a period of 15
days. No further extension shall be allowed thereafter,
except only for the most compelling reasons, in which case
the extended period shall not exceed 15 days.

======================================
C. Taxpayers Suit Impugning the Validity of Tax
Measures
======================================
1. TAX PAYERS SUIT

Not every action filed by a taxpayer can qualify to challenge
the legality of official acts done by the government. A
taxpayer's suit can prosper only if the governmental acts
being questioned involve disbursement of public funds upon
the theory that the expenditure of public funds by an officer
of the state for the purpose of administering an
unconstitutional act constitutes a misapplication of such

funds, which may be enjoined at the request of a taxpayer.
[Dean Jose Coya v. PCCG G.R. No. 96541, August 24, 1993]
A taxpayers suit is properly brought only when there is an
exercise of the spending or taxing power of Congress.
Automotive Industry Workers Alliance v. Romulo [G.R. No.
157509. January 18, 2005]
2. DISTINGUISHED FROM CITIZENS SUIT

Taxpayers are allowed to sue, for example, where there is a
claim of illegal disbursement of public funds or where a tax
measure is assailed as unconstitutional. Voters are allowed
to question the validity of election laws because of their
obvious interest in the validity of such laws. Concerned
citizens can bring suits if the constitutional question they
raise is of "transcendental importance" which must be
settled early. Legislators are allowed to sue to question the
validity of any official action which they claim infringes their
prerogatives qua legislators. KILOSBAYAN v. Morato, [G.R.
No. 118910, November 16, 1995]

Case law in most jurisdictions now allows both "citizen" and
"taxpayer" standing in public actions. De Castro v. JBC, [G.R.
No. 191002, March 17, 2010]
The distinction was first laid down in Beauchamp v. Silk:
The plaintiff in a taxpayer's suit is in a different
category from the plaintiff in a citizen's suit.
In the former, the plaintiff is affected by the
expenditure of public funds, while in the latter, he is
but the mere instrument of the public concern.
As held by the New York Supreme Court in People ex rel
Case v. Collins:
In matter of mere public right, the people are the real
partiesIt is at least the right, if not the duty, of every
citizen to interfere and see that a public offence be
properly pursued and punished, and that a public
grievance be remedied.
With respect to taxpayer's suits, Terr v. Jordan held that:
The right of a citizen and a taxpayer to maintain an
action in courts to restrain the unlawful use of public
funds to his injury cannot be denied.
3. REQUISITES
To constitute a taxpayer's suit, two requisites must be met,
namely, that:
(1) Public funds are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some
irregularity is committed, and
(2) Petitioner is directly affected by the alleged ultra vires
act. Anti-Graft League v. San Juan [G.R. No. 97787, August
1, 1996]
CONCEPT OF LOCUS STANDI
Another requisite rooted in the very nature of judicial power
is locus standi or standing to sue. Thus, generally, a party
will be allowed to litigate only when he can demonstrate
that:
(1) he has personally suffered some actual or threatened
injury because of the allegedly illegal conduct of the
government;
(2) the injury is fairly traceable to the challenged action; and
(3) the injury is likely to be redressed by the remedy being
sought Oliver Lozano v. Speaker Nograles, [G.R. No.
187883, June 16, 2009]

DOCTRINE TRANSCENDETAL IMPORTANCE

Determinants whether a matter is of transcendental
importance:

(1) the character of the funds or other assets involved in the
case;

(2) the presence of a clear case of disregard of a
constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government;
and

(3) the lack of any other party with a more direct and
specific interest in the questions being raised.

(CREBA v. ERC and Meralco, G.R. No. 174697, 8 July 2010;
citing Senate of the Philippines vs. Ermita, G.R. No. 169777,
April 20, 2006, 488 SCRA 1, 39-40; and Francisco v.
Nagmamalasakit na mga Manggagawang Pilipino, Inc., G.R.
No. 160261, November 10, 2003, 415 SCRA 44, 139, citing
Kilosbayan v. Guingona, G.R. No. 113375, May 5, 1994, 232
SCRA 110, 155-157.)

RIPENESS

An aspect of the "case-or-controversy" requirement is the
requisite of "ripeness."
In the United States, courts are centrally concerned
with whether a case involves uncertain contingent
future events that may not occur as anticipated, or
indeed may not occur at all.
Another approach is the evaluation of the twofold
aspect of ripeness:

(1) the fitness of the issues for judicial decision; and
(2), the hardship to the parties entailed by withholding
court consideration.
In our jurisdiction, the issue of ripeness is generally treated
in terms of actual injury to the plaintiff. Hence, a question is
ripe for adjudication when the act being challenged has had
a direct adverse effect on the individual challenging it.
Oliver Lozano v. Speaker Nograles, [G.R. No. 187883, June
16, 2009]


T TA AX X O ON N I IN ND DI IV VI ID DU UA AL LS S
**a nonresident alien engaged in trade or business is an individual who shall come to the Philippines & stay therein for an aggregate period of more than 180 days during any calendar
year

TYPE OF INCOME
TAX RATE FOR
RESIDENT
CITIZEN
RATE FOR NON-
RESIDENT CITIZEN
(INCL. OCW)
TAX RATE FOR
RESIDENT ALIEN
NON-RESIDENT ALIEN
ENGAGED IN TRADE /
BUSINESS
NON-RESIDENT ALIEN
NOT ENGAGED IN
TRADE / BUSINESS
Interest from any currency bank deposit & yield or
any other monetary benefit from deposit
substitutes & from trust funds & similar
arrangements
Royalties (except on books & other literary works
& musical compositions)
Prizes > P10,000
Other winnings except PCSO & Lotto
20% Final Tax 20% Final Tax 20% Final Tax 20% Final Tax 25% Final tax
Royalties on books & other literary works &
musical compositions
Final Tax of 10% Final Tax of 10% Final Tax of 10% Final Tax of 10% 25% Final tax
Prizes < P10,000

Schedular rate Schedular rate Schedular rate Schedular rate 25% Final tax
Winnings from PCSO & Lotto exempt exempt Exempt Exempt 25% Final tax
Interest Income received by an individual (except a
nonresident individual) from a depositary bank
under the expanded foreign currency deposit
system
7.5% Final Tax exempt 7.5% Final Tax Exempt Exempt
Interest income from long term deposit or
investment in the form of savings, common or
individual trust fund, deposit substitutes,
investment management accounts & other
investments evidenced by certification in such
form prescribed by the BSP
Exempt from tax Exempt from tax Exempt from tax Exempt from tax 25% Final tax
Pre-termination of such certificate before the 5
th

year (i.e. 4 years to less than 5 years)
5% Final tax on
the entire income
5% Final tax on the
entire income
5% Final tax on the
entire income
5% Final tax on the
entire income
N/A
3 years to less than 4 years 12% 12% 12% 12% N/A
less than 3 years 20% 20% 20% 20% N/A
Cash and/or Property Dividends from a domestic
corp. or from a joint stock co., insurance or mutual
fund companies & regional operating headquarters
of multinational companies;
Share of an individual in the distributable net
income after tax of a partnership (except GPP);
Share of an individual in the net income after tax
10% Final Tax 10% Final Tax 10% Final Tax 20% Final Tax 25% Final tax

TYPE OF INCOME
TAX RATE FOR
RESIDENT
CITIZEN
RATE FOR NON-
RESIDENT CITIZEN
(INCL. OCW)
TAX RATE FOR
RESIDENT ALIEN
NON-RESIDENT ALIEN
ENGAGED IN TRADE /
BUSINESS
NON-RESIDENT ALIEN
NOT ENGAGED IN
TRADE / BUSINESS
of an assn., a joint account or a joint venture or
consortium taxable as a corp. of w/c he is a
member/co-venturer
Capital gains from sale, barter, exchange or other
disposition of shares of stock (of domestic corp.)
not traded in the stock exchange

For the first P100,000
5% Final tax on
net capital gains
realized during
the taxable yr:
5% Final tax on net
capital gains
realized during the
taxable yr:
5% Final tax on net
capital gains realized
during the taxable yr:
5% Final tax on net
5% Final tax on net
On any amount in excess of P100,000 10% 10% 10% 10% 10%
Capital gains from sale, exchange or other
disposition of real property located in Philippines,
classified as capital assets, including pacto de retro
sales & other forms of conditional sales

6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is
higher
6% Final Tax on the
gross selling price
or current fair
market value or
zonal value
whichever is higher
6% Final Tax on the
gross selling price or
current fair market
value or zonal value
whichever is higher
6% Final Tax on the
current fair market
whichever is higher
6% Final Tax on the
current fair market
whichever is higher

CG from sale/disposition of principal residence by
natural persons, the proceeds of which is fully
utilized in acquiring/constructing a new principal
residence w/in 18 mos. from date of sale, provided
historical cost/adjusted basis of sold prop be
carried to the new principal residence
built/acquired Commissioner. Duly notified w/in 30
days from sale Tax exemption can only be availed
once every 10 years If no full utilization of
proceeds of sale, such portion shall be subject to
CG tax

Exempt from CG
tax

Exempt from CG tax

Exempt from CG tax

Exempt from CG tax

Exempt from CG tax


TAX ON CORPORATIONS

TYPE OF INCOME DOMESTIC CORP RESIDENT FOREIGN CORP NON-RESIDENT FOREIGN
Interest on currency bank deposits & yield or any other monetary
benefit from deposit substitutes & from trust funds & similar
arrangement
Royalties (similar within the Philippines)
20% Final Tax 20% Final Tax 35%/30% Income Tax
Interest income from a depositary bank under the expanded foreign
currency deposit system (EFCDS)
7.5% Final Tax 7.5% Final Tax Exempt from tax
CG from sale, barter, exchange or other disposition of shares of stock
(of domestic corp.) not traded in the stock exchange
For the first P100,000
5% Final tax on net capital
gains realized during the
taxable yr:
5% Final tax on net capital
taxable yr:
5% Final tax on net cap.l
taxable yr:
On any amount in excess of P100,000 10% 10% 10%
Income derived by depositary bank under the EFCDS from foreign
currency transactions with non-residents, offshore banking unites in
the Philippines, local commercial banks including branches of foreign
banks that may be authorized by the BSP to transact business with
FCDS units & other depositary banks under the EFCDS
Exempt from Final tax Part
of gross income subject to
35%/30% corp. income tax
(RA 9294)
Exempt from Final tax Part
of gross income subject to
35%/30% corp. income tax
(RA 9294)
N/A
Interest income from foreign currency loans granted by such
depository banks under said EFCDS to RESIDENTS
10% Final Tax 10% Final Tax N/A
Inter-corporate dividends (from a domestic corp.) Exempt from tax Exempt from tax 15% Final Tax
* subject to the rule on tax
credit for tax actually paid
and tax deemed paid.
Otherwise, subject to
regular income tax rate of
35%/30%
CG from sale, exchange or other disposition of lands and/or buildings
which are not used in the business of a corp. & are treated as capital
assets
6% Final tax on gross selling
price or FMV or zonal value,
whichever is higher
35%/30% income tax 35%/30% income tax


TYPE OF CORPORATE TAXPAYER TAX RATE
International Air Carrier
Gross Phil. Billings = amount of gross revenue derived from carriage of persons, excess baggage, cargo & mail
originating from the Philippines in a continuous & uninterrupted flight, irrespective of the place of sale/issue & the
place of payment of the ticket or passage document; Includes tickets revalidated, exchanges &/or indorsed to another
intl airline if the passenger boards a plane in a port/point in the Philippines. For a flight which originates from the
Philippines but transshipment of passenger takes place at any port outside the Philippines on another airline, only the
aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of the GPB

International Shipping
Gross Phil Billings = gross revenue whether for passenger, cargo or mail originating from the Philippines. up to final
destination, regardless of the place of sale/ payments of passage of freight documents
2 % on Gross Phil Billings
Offshore Banking Units Final Tax of 10% on gross income from
transactions with residents
Branch
Profits remitted (connected with the conduct of its trade/business in the Philippines.) = based on the total profits
applied/earmarked for remittance without any deduction for the tax component thereof (except the PEZA-registered)
15% on branch profits remittance
Regional/Area Headquarters of Multinational Cos. = do not earn/derive income from the Philippines. & w/c act as
supervisory, communication & coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific
Region & other foreign markets

Regional Operating Headquarters of Multinational Companies = engaged in any of the following services:
a. General Administration & planning j. Technical support & maintenance
b. Business planning & coordination k. Data processing & communication
c. Sourcing & procurement of raw materials & components l. Business development
d. Corporate finance advisory services
e. Marketing control & sales promotion
f. Training & personnel mgt.
g. Logistic services
h. Research & development
i. Services & product development
Exempt from tax

10% of taxable income


TYPE OF TAXPAYER
TAX RATE
Nonresident cinematographic film owner, lessor or distributor (NOTE: Even to individuals) 25% of gross income
Nonresident owner or lessor of vessels chartered by the Phil. Nationals 4.5% of gross rentals, lease or charter fees
Nonresident owner or lessor of aircraft, machineries & other equipment 7.5% of gross rentals or fees

TYPE OF INCOME TAX RATE FOR ALIEN INDIVIDUAL EMPLOYED BY
Regional Or Area Headquarters
& Regional Operating
Headquarters of Multinational
Cos.
Offshore Banking Units Petroleum Service Contractor &
Subcontractor
Gross Income = Salaries, Wages, Annuities,
Compensation, Remuneration and Other Emoluments
(i.e. honoraria & allowances) received from such cos.
Provided, same tax treatment shall apply to Filipinos
abroad employed & occupying same positions in these
companies
15% of gross income 15% of gross income 15% of gross income
Other income (that is income other than compensation
from being employed by a RHQ/ROHQ, OBU or
Petroleum Service Contractor & Subcontractor)
Subject to regular graduated tax
rate
rate
rate

** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets.


PROCEDURE TO PROTEST CUSTOM COLLECTORS ASSESSMENT

Articles appraised, classified and assessed
Taxpayer agrees with assessment Taxpayer disagrees with assessment
Pays duties, taxes, etc.
Files written protest with ruling of Collector (Sec.
2303, TCC)
Within 15 days from receipt of assessment
No protest considered unless amount due is paid
Goods released Collector schedules hearing of protest
w/in 15 days from receipt of protest
Collector renders decision w/in 30
days from termination of hearing
Protest Denied Protest Granted
Automatic appeal to Customs
Commissioner
(Sec. 2313, TCC)
Appeal to Customs Commissioner
w/in 15 days from notice
(Sec. 2313, TCC)
Protest Denied
Protest Denied
Automatic appeal to Sec. of
Finance
Commissioner of Customs fails to
render decision w/in 30 days
Protest Affirmed
Assessment final
If unfavorable, appeal to CTA w/in
30 days from receipt of decision
(Sec. 7, RA 1125)
Assessment final
Automatic appeal to Sec. of
Finance reports elevated w/in 5
days from promulgation or after
lapse of 30 days if no decision
Assessment final
CTA decides w/in
30 days
Appeal to SC w/in 15 days
from notice (Rule 43, ROC)
No appeal assessment final
Protest Affirmed
Articles enter customs
house


REMEDIES OF GOVERNMENT AND TAXPAYER UNDER NIRC, TCC and LGC

NIRC TCC LGC
GOVERNMENT REMEDIES
A. TO EFFECT TAX COLLECTION:
1. Compromise (Sec. 204)
2. Distraint (actual and constructive) (Sec. 205-
208) and Levy (Sec. 207-B)
3. Tax Lien (Sec. 219)
4. Civil Action (Sec. 220, 205-B)
5. Criminal Action (Sec. 220, 221, 205-B)
6. Forfeiture of Property (Sec. 224-225)
7. Suspension of Business Operations in Violation
of VAT (Sec. 115)
8. Enforcement of Administrative Fine

B. TO CANCEL TAX LIABILITY:
1. Abatement (Sec. 204-B)
GOVERNMENT REMEDIES
2. Administrative Fines and Forfeitures (Sec.
2530, 2531)
3. Reduction of customs duties/compromise
subject to approval of Sec. of Finance (Sec.
709, 2316)
4. Seizure, Search, Arrest (Sec. 2205, 2210, 2211)
5. Civil Action (Sec. 1204)
6. Criminal Action

1. Abatement reduction or non-imposition of
customs duties on certain imported materials
(Sec. 1701-1708)

C. POWER/AUTHORITY TO ASSESS AND COLLECT ALL LAWFUL
REVENUE FROM IMPORTED ARTICLES AND ALL OTHER DUTIES,
FEES, CHARGES, FINES AND PENALTIES ACCRUING UNDER TCC IS
WITH COMMISSIONER OF CUSTOMS. (Sec. 602)

NOTE: Automatic Appeal if the collector renders
decision adverse to the government, it will be
automatically elevated to the Commissioner. If affirmed
by the latter, decision shall be reviewed automatically by
the Secretary of Finance.
GOVERNMENT REMEDIES
LOCAL TAX
2. Distraint and Levy (Sec. 174, 175)
3. Civil Action (Sec. 183)
4. Purchase of property by local government
units for want of bidder (Sec. 181)

Property distrained not disposed within 120 days from
date of distraint considered sold to the local
government for the amount of assessment made and to
that extent, the tax delinquency shall be cancelled. (Sec.
175)

- May grant tax exemptions but may not condone or
remit taxes (Sec. 192)

REAL PROPERTY TAX
1. Tax Lien (Sec. 246, 251)
2. Distraint and Levy (Sec. 254)
3. Civil Action formal demand not required
(Sec. 266)
4. Purchase of property by local treasurer for
want of bidder (Sec. 263)

Condonation or reduction of real property tax by
the President when public interest requires or by
the Sanggunian concerned in cases of general
failure of crops, or substantial decrease in the price
of agricultural/ agri-based products or calamity
(Sec. 277, 276)

PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION
1. Power/Authority to assess tax: Commissioner
of Internal Revenue
a. 3 yrs from filing of return or date
prescribed by law, whichever is later date
PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION
LOCAL TAX
1. Assessment:
a. 5 yrs from the day they become due
(Sec. 194)

NIRC TCC LGC
(Sec. 203)
b. 10 yrs when (1) no return is filed, (2) the
return is false or fraudulent with intent to
evade tax (from date of discovery) (Sec.
222)
2. Collection of tax:
a. 5 yrs from assessment or within the
period for collection agreed upon in
writing before expiration of the 5 yr.
Period (Sec. 222)
3. Criminal Liability
a. 5 yrs from commission or discovery of
violation, whichever of later (Sec. 281)

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE STATUTE OF
LIMITATIONS:
1. When the CIR is prohibited from making the
assessment or beginning the distraint or levy
or a proceeding in court, and for sixty (60)
days thereafter;
2. When the taxpayer requests for a
reconsideration which is granted by the CIR;
3. When the taxpayer cannot be located in the
address given by him in the return, unless he
informs the CIR of any change in his address;
4. When the warrant of distraint or levy is duly
served and no property is located;
5. When the taxpayer is out of the Philippines.
(Sec. 223)
b. 10 yrs in case of fraud or intent to
evade payment of taxes from discovery of
fraud or intent to evade payment (Sec.
194)
2. Collection
a. 5 yrs from day of assessment by
administrative or judicial action (Sec. 194)

Local government may appeal to courts from
adverse decision of Sanggunian on purely legal
issue.

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE PERIODS OF
PRESCRIPTION:
1. When the treasurer is legally prevented from
making the assessment or collection;
2. When the taxpayer requests for a
reinvestigation and executes a waiver in
writing before expiration of the period within
which to assess or collect; and
3. When the taxpayer is out of the country or
otherwise cannot be located.

REAL PROPERTY TAX
1. Collection:
a. 5 yrs from the date they become due
(Sec. 270)
b. 10 yrs in case of fraud or with intent to
evade payment from the discovery of
fraud or intent to evade payment

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE PERIODS OF
PRESCRIPTION WITHIN WHICH TO COLLECT:
1. When the local treasurer is legally prevented
from collecting the tax
2. When the owner of the property of the person
having the legal interest therein requests for
reinvestigation and executes a waiver in
writing before the expiration of the period
within which to collect; and
3. When the owner of the property or the person

NIRC TCC LGC
having legal interest therein is out of the
country or otherwise cannot be located.

TAXPAYER REMEDIES
A. ADMINISTRATIVE:
1. Before Payment
a. Protest filing a petition for
reconsideration or reinvestigation within
30 days from receipt of assessment (Sec.
228)
b. Entering into a compromise (Sec. 204)
2. After Payment
a. Filing a claim for refund or tax credit
within 2 years from date of payment
regardless of any supervening cause (Sec.
229)

Note the suspension of the 2-year period
(Panay Electric Co. v. Collector; May 28, 1958)
Note that payment under protest is not
necessary
Note that the taxpayer is given the right of
redemption within 1 year from the date of sale
or forfeiture (Sec. 215)

B. JUDICIAL:
1. Civil Action
a. Appeal within 30 days from receipt of
decision on the protest or from the lapse
of 180 days inaction of the Commissioner
to the CTA (Sec. 228)
b. Action to contest forfeiture of chattel
(Sec. 231)
c. Action for damages (Sec. 227)

2. Criminal Action
1. Against erring BIR officials and employees
2. Injunction when the CTA in its opinion
the collection by BIR may jeopardize
taxpayer. Court may require deposit of an
amount or surety bond for not more than
double the amount. (Sec. 1, RA 1125)
TAXPAYER REMEDIES
A. ADMINISTRATIVE:
1. Protest
a. Any importer or interested party if
dissatisfied with published value within 15
days from date of publication or within 5
days from the date the importer is entitled
to refund if payment is rendered
erroneous or illegal by events occurring
after the payment
b. Taxpayer within 15 days from
assessment. Payment under protest is
necessary (Sec. 2308, 2210)
2. Refund
a. A written claim for refund may be
submitted by the importer in abatement
cases on missing packages, deficiencies in
the contents of packages or shortages
before arrival of the goods in the
Philippines, articles lost or destroyed after
such arrival, dead or injured animals, and
for manifest clerical errors; and
b. Drawback cases where the goods are re-
exported. (Sec. 1701-1708)
3. Settlement of any seizure by payment of fine
or redemption BUT this shall not be allowed
in any case where importation is absolutely
prohibited, or the release would be contrary to
law, or when there is an actual and intentional
fraud (Sec. 2307)
4. Appeal within 15 days to Commissioner after
notification by collector of his decision (Sec.
2313)

B. Judicial
1. Appeal to the CTA division within 30 days
from receipt of decision of the Commissioner
of Secretary of Finance (Sec. 2403 TCC, Sec. 7
RA 1125)
2. Action to question the legality of seizure
TAXPAYER REMEDIES
LOCAL TAX
A. ADMINISTRATIVE:
1. Before Payment
a. Appeal any question on
constitutionality or legality of tax
ordinance within 30 days from effectivity
thereof to Secretary of Justice (Sec. 187)
b. Declaratory relief whenever applicable
2. After assessment
a. Protest within 60 days from receipt of
assessment (Sec. 195). Payment under
protest not necessary.
b. Payment and subsequent refund or tax
credit within 2 yrs from payment of tax
to local treasurer (Sec. 196)
c. Right of redemption 1 yr from the date
of forfeiture (Sec. 181)

Real Property Tax
1. Protest payment under protest is required.
Filed within 30 days (From date of payment) to
provincial, city or municipal treasurer
2. Refund or tax credit within 2 years from the
date the taxpayer is entitled thereto (Sec. 253)
3. Redemption of real property within 1 yr from
date of sale (Sec. 261)
4. Appeal within 60 days from assessment of
provincial, city or municipal assessor to LBAA
(Sec. 226)
- Within 30 days from receipt of
decision of LBAA to CBAA
- In case of denial of refund or credit,
appeal to BAA as in protest case
LOCAL TAX
B. JUDICIAL:
1. Court action within 30 days after receipt of
decision or lapse of 60 days of Secretary of
Justices inaction (Sec. 187)
- Within 30 days from receipt when

NIRC TCC LGC
3. Abandonment (Sec. 1801) protest of assessment is denied
- If no action is taken by the treasurer in
refund cases and the two year period
is about to lapse (Sec. 195)
- If remedies available do not provide
plain, speedy and adequate remedy.
2. Action for declaratory relief
3. Injunction if irreparable damage would be
caused to the taxpayer and no adequate
remedy is available.
REAL PROPERTY TAX
1. Court Action appeal of CBAAs decision to
CTA
2. Suit assailing validity of tax; recovery of refund
of taxes paid (Sec. 64 PD 464)
3. Suit to declare invalidity of tax due to
irregularity in assessment and collection (Sec.
64 PD 464)
4. Suit assailing the validity of tax sale

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