The power of taxation is inherent in the State being an attribute of sovereignty.

As an
incident of sovereignty, the power to tax has been described as unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found
only in the responsibility of the legislature which imposes the tax on the constituency who
are to pay it. [Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667, (1996)].
Dual nature of tax: both inherent and legislative
Taxation with Police PowerTaxation involves the power to raise revenue not only in order to
support the existence of government but likewise to carry out legitimate objects of
government. Among such legitimate objects are those that police power itself can cover. As
early as the case of Lutz vs. Araneta (98 Phil. 148),
Concepts that flow from the Lifeblood Doctrine
1. No injunction
2. No set off and compensation
3. Imprescriptibility
4. Presumption of regularity and validity
5. Unilimited and plenary
6. It may result in the destruction of property
Life blood: Taxation is the indispensable and inevitable price for civilized society: without
taxes, the government would be paralyzed.
Direct duplicate taxation
1. Same:
a. Object
b. Purpose
c. Authority
d. Tax period
2. Taxing twice when it should be taxed but once.
No DDT: The impositions are of different nature and character. The fixed annual fee is in the
nature of a license fee imposed through the exercise of police power while the 5% tax on
purchase or consumption is a local tax imposed through the exercise of taxing powers.
Tax pyramiding refers to the imposition of a tax upon a tax with the accumulation borne by
the final consumer. This occurs when the tax is added as part of the tax base. It has no basis
in law because it violates the principle of in taxation (People v. Sandiganbayan, 467 SCRA
137 [2005]; CIR v. American Rubber Co., 18 SCRA 842 [1966]).
Indirect taxes. Only taxpayers are allowed to file a claim for refund. A purchaser although
a tax exempt entity cannot claim refund for indirect taxes because it paid them as part of
the price.
CIR vs Pilipinas Shell: Aviation companies are exempt from excise taxes on fuel it buys from local manufacturer.
But Shell paid Excise Tax for the Fuel it sold to airlines. Can it claim refund? YES! It is the statutory tax payer for
the Excise Tax which it paid even it should not because the sale is tax exempt.
Silkair Case: The refund was denied because it was the Airline who claimed refund. Its tax liability is only indirect.
Only the statutory TP can claim refund.

There is tax avoidance. Mr. Pascual has exploited a legally permissive alternative
method to reduce his income tax by transferring part of his rental income to a tax exempt
entity through a donation of one-half of the income producing property
The three requisite factors to constitute tax evasion are:
(1) the end to be achieved which is the payment of less than that known by them to be
legally due;
(2) an accompanying state of mind which is evil, in bad faith, willfull or deliberate and not
merely accidental;
(3) a course of action which is unlawful. [CIR v. Estate of Benigno P. Toda, Jr., 438 SCRA 290
(2004)].
The issuance of the deficiency assessment notice prior to prosecution is not necessary so
long as the act of filing fraudulent returns with intent to evade is established.
An assessment is a formal notice to the taxpayer stating that the amount thereon is due as
a tax and containing a demand for the payment thereof. Thus, an affidavit of the BIR
examiners may not be considered as an assessment of the tax liability of a TP
Interest on investment or loans in the Philippines shall be exempt from taxation, if it has
been made by foreign government-owned or controlled financing institutions or international
financing institutions established by governments.
The president may enter into treaties for grant of exemption. In which case the majority
requirement for concurrence of congress is not required. But still the general rule is tax
exemption must be legislative act.
The doctrine of recoupment arose from common law allowing offsetting of a prescribed
claim for refund against a tax liability arising from the same transaction on which an
overpayment is made and underpayment is due. The doctrine finds no application to cases
where the taxes involved are totally unrelated, and although it seems equitable, it is not
allowed in our jurisdiction (CIR v. VST, 104 Phil. 1062 [1958]).
This scheme is not effective in the Philippines as the law prohibits compensation and offset in
general.
Offsetting the amount of Tax Credit Certificate TCC after the court granted refund, against
a potential tax liability is not allowed, because both obligations are not yet fully-liquidated.
While the amount of the TCC has been determined, the amount of deficiency tax is yet to be
determined through the completion of the audit. (PhilexMining Corporation v. CIR, 294 SCRA
687[1998]).
XPNs to the no offset Rule :if the obligation to pay taxes and the taxpayers claim against
the government are both overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both obligations are extinguished to their
concurrent amounts. [Domingo v. Garlitos, 8 SCRA 443 (1963)]. (BAR 2005) Note this case
involves local government taxes.
.Ratio: axes and claims for refund cannot be the subject of set-off for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. There is
a material distinction between a tax and a claim for refund. Claims for refunds just like debts
are due from the government in its corporate capacity, while taxes are due to the
government in its sovereign capacity. [Philex Mining Corp. v. CIR, GR No. 125704, August
29, 1998).

Tax amnesty is immunity from all criminal, civil and administrative liabilities arising
from nonpayment of taxes. It is a general pardon given to all taxpayers. It applies only to
past tax periods, hence of retroactive application. (People v. Castaneda, G.R. No. L- 46881,
1988).
Tax exemption is immunity from the civil liability only. It is an immunity or privilege, a
freedom from a charge or burden to which others are subjected. (Florer v. Sheridan, 137
Ind. 28, 36 NE 365). It is generally prospective in application. (BAR 2001)
The salaries of judges are not tax-exempt and their taxability is not contrary to the
non-diminution of the salaries of members of the judiciary during their continuance in
office. The clear intent of the Constitutional Commission that framed the Constitution is to
subject their salaries to tax as in the case of all taxpayers
The exception contained in the tax statutes must be strictly construed against the one
claiming the exemption because the law does not look with favor on tax exemptions they
being contrary to the life-blood theory which is the underlying basis for taxes.
In civil cases involving the collection of internal revenue taxes, prescription is construed
strictly against the government and liberally in favor of the taxpayer.
BIR rulings are administrative opinions issued by the Commissioner of Internal Revenue
interpretative of a provision of a tax law. They are given weight by the courts but not binding
thereon. It cannot be given retroactive effect if its retroactive application is prejudicial to
the taxpayer
Inherent Limitations
1. Taxation is for a public purpose. - The proceeds of the tax must be used (a) for the
support of the State or
(b) for some recognized objective of the government or to directly promote the welfare
of the community.
2. Taxation is inherently legislative. - Only the legislature has full discretion as to the
persons, property, occupation or business to be taxed provided these are all within the
States territorial jurisdiction.
3. Taxation is territorial. - Taxation may be exercised only within the territorial
jurisdiction of the taxing authority.
4. Taxation is subject to international comity. - This is a limitation which is founded
on reciprocity designed to maintain a harmonious and productive relationships among
the various states. Under international comity, a state must recognize the generallyaccepted tenets of international law, among which are the principles of sovereign
equality
Congress cannot abolish what is expressly granted by the fundamental law. The only
authority conferred to Congress is to provide the guidelines and limitations
"Each local government unit shall have the power to create their own sources of
revenue and to levy taxes, fees, and charges subject to such guidelines and limitations
as Congress may provide consistent with the basic policy of local autonomy."
Principle of mobilia sequuntur personam in income taxation refers to the principle that
taxation follows the property or person who shall be subject to the tax.
As an off-line' airline, the revenue it derived in 1997 from sales of airplane tickets in the
Philippines, through its agent PAL, is considered as income from within the Philippines,
subject to the 35% tax based on its taxable income pursuant to Section 25(a)( 1) of the Tax
Code of 1977. The transacting of business in the Philippines through its local sales
agent, makes KIA a resident foreign corporation despite the absence of landing rights,

thus, it is taxable on income derived from within. In the instant case, it is the sale of
tickets in the Philippines which is the activity that produced the income. KIAs
income being derived from within, is subject to Philippine income tax (CIR v. British Overseas
Airways Corporation, 149 SCRA 395, [1987]).
Tax treaties are accepted limitations to the power of taxation. Thus, the CTA should
apply the treaty provision so that the claim for refund should be granted (Hawaiian-Philippine
Company v. CIR, CTA Case No. 3887, May 31, 1988).
Uniform when it operates with the same force and effect in every place where the subject
maybe found. (
Equitable when all objects or subject under same circumstances are treatses equally.
The SNITS treat professionals as one class of taxpayer so that they shall be treated alike
irrespective of whether they practice their profession alone or in association with other
professionals under a general professional partnership. What are taxed differently are
individuals and corporations. [Tan vs. del Rosario et al G.R No. 109289, October 3. 1994).
Congress can pass a law taxing income of religious institutions from its property or
activities used for profit but not on their income from exercise of religious activities.
Otherwise, it will violate their right to religious freedom. (American Bible Society v.
City of Manila, 101 Phil. 386[1957J)
The usage of the property and not the ownership" is the determining factor whether or
not the property is taxable. [Lung Center of the Philippines v. Q.C., 433 SCRA 119 (2004)].
Proof of actual use is necessary because exemptions are construed against the TP.
Income derived by a non stock, non profit educational institution will be exempt from
taxation provided they are used actually, directly and exclusively for educational purposes.
As to proprietary educational institutions,, all of its income from school related and nonschool related activities will be subject to the income tax. The only exemption granted to
proprietary educ is their exemption from the real property they use.
Note: do not apply this rule to non-stock, nonprofit charitable institutions like hospitals.
They are exempt only for not for profit activities like their wards. Their income fro pay
wards are not exempt, regardless of how the income will be spent. The income tax attaches
irrespective of the disposition of these incomes.. (St. Lukes)
In summary, if it is an educational institution, the test is the use of the profit. If it is
religious and charitable, the test is the kind of activity
Donation is, likewise, exempt from the donor's tax if actually, directly and exclusively used
for educational purposes, provided not more than 30% of the donation is used by the
donee for administration purposes.
Sale of lot used for educational charitable religious purposes: Taxable! They are only exempt from real property tax.
"flexible tariff clause "refers to the authority given to the President to adjust tariff rates
Under the Flexible Tariff Clause (Sec. 401, Tariff and Customs Code), any order issued by the
President thereunder can generally take effect only thirty (30) days after its
issuance. In cases however of an order imposing additional import duties, the law
provides that the same can take effect immediately. (BAR 1991)

What is prohibited is for the Senate to enact revenue measures on its own without a bill
originating from the House. But once the revenue bill was passed by the House and sent to
the Senate, the latter can pass its own version on the same subject matter consonant
with the latters power to propose or concur with amendments. This follows from the coequality of the two chambers of Congress [Tolentino v. Secretary of Finance, GR No. 115455,
Oct. 30, 1995).
Rational basis test - it is sufficient that the legislative classification is rationally related to
achieving some legitimate State interest.
Strict Scrutiny Test (race/ ethnic group) Government discriminates against a suspect
class as it is NECESSARY to promote a compelling state interest.
Intermediate Level of Scrutiny (gender/ legitimacy/ minority) Not really necessary or indispensable to a state
interest, but there must be substantial relation to a government objective.
The equal protection clause of the Constitution merely requires that all persons subjected to
legislation shall be treated alike, under like circumstances and conditions, both in the
privileges conferred and in the liabilities imposed. The equality in taxation rule is not
violated if classifications or distinctions are made as long as the same are based on
reasonable and substantial differences. (Pepsi-Cola Bottling Co., Inc. v. City of Butuan, 24
SCRA 789 [1968]).
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, (4) apply equally to all
members of the same class.
Unilateral grant of exemptions can be revoked, as it is merely gratuitous. If it is a contractual
grant of exemption or based on consideration, it cannot be revoked unilaterally as it will
violate the non-impairment clause.
Stages of taxation
a. Levy. This refers to the enactment of a law by Congress authorizing the imposition
of a tax.
b. Assessment and Collection. This is the act of administration and
implementation of the tax law by the executive through its administrative
agencies.
c. Payment. This is the act of compliance by the taxpayer, including such options,
schemes or remedies as may be legally available to him. (BAR 2006)
It is the probate or settlement court which is forbidden to authorize the executor or
judicial administrator of the decedents estate, to deliver any distributive share to any party
interested in the estate, unless a certification from the Commissioner of Internal Revenue
that the estate tax has been paid is shown. [Marcos U v. Court of Appeals, 273 SCRA 47
(1997)]. Hence, the approval of the court, sitting in probate, or as a settlement tribunal is not
a mandatory requirement in the collection of estate taxes
The law provides that the Commissioner may, even without a written claim therefore,
refund or credit any tax where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid. ('Sec. 229, NIRC).

Direct taxes are demanded from the statutory tax payer who should pay the tax which he
cannot shift to another; while an indirect tax is demanded in the first instance from one
person with the expectation that he can shift the burden to someone else, not as a
tax, but as part of the purchase price (Maceda v. Macaraig, Jr., 223 SCRA 217 [1993]).
Examples of direct taxes are income tax, estate tax and donors tax. Examples of indirect
taxes are value-added tax, percentage tax and excise tax on excisable articles.
NIRC Taxes:
a) Income tax;
b) Estate and donors taxes;
c)Value-added tax;
d) Other percentage taxes;
e) Excise taxes;
f) Documentary stamp taxes
Schedular
system,-the
various
types/items
of
income
(Le.
compensation;
business/professional income) are classified accordingly and are accorded different tax
treatments,
Global System -, all income received by the taxpayer are treated without any distinction
as to the type or nature of the income, and after deducting therefrom expenses and
other allowable deductions, are subjected to tax at a fixed rate.
Features of our Income Tax system
a. It has adopted a comprehensive tax situs by using the nationality, residence, and
source rules.
b. The individual income tax system is mainly progressive in nature in that it
provides a graduated rates of income tax. Corporations in general are taxed at a
flat rate of thirty five percent (35%) of net income.
c. It has retained more schedular features with respect to individual taxpayers
but has maintained a more global treatment on corporations.
As a general rule, stockholders cannot be held personally liable for the unpaid taxes of
a dissolved corporation. The rule prevailing under our jurisdiction is that a corporation is
vested bylaw with a personality that is separate and distinct from those of the persons
composing it (Sunio v. NLRC, 127 SCRA 390 [1984]).
But they can be held liable if there is ground for piercing or where they have unpaid subscriptions.
The amount of income to be distributed annually to the beneficiary is a deduction
from the gross income of the trust but must be reported as income of the beneficiary
(Section 61(A), NIRC).
The trustee has to pay the income tax on the trusts net income determined annually if the
income is required to be accumulated. Once a taxable trust is established , its net
income is either taxable to the trust, represented by the trustee, or o the beneficiary
depending on the provision for distribution of income following the one-layer taxation
scheme (Section 61(A), NIRC).
The co-ownership of inherited property is automatically converted into an unregistered
partnership from the moment the said properties are used as a common fund with Intent to
produce profits for the heirs In proportion to their shares in the inheritance
If after partition, he allows his shares to be held in common with his co-heir under a
single management to be used with the intent of making profit thereby in proportion to

his share, there can be no doubt that, even if no document or instrument were executed for
the purpose, for tax purposes, at least, an unregistered partnership is formed (Lorenzo
Ona, et at v. CIR, 45 SCRA 74).
Caveat:
The mere sharing of income does not of itself establish a partnership absent any dear
intention of the co-owners who are only awaiting liquidation of the estate. Thus, if there is
co-ownership, the parties are liable for individual tax income (which is lower than corporate
income tax imposed on partnerships)
Stock dividends are not realized income. It is a mere increase in capital.
However, if the distribution of stock dividends is the equivalent of cash or property, as when
the distribution results in the increase of ownership interest of the shareholders, the
stock dividends will be subject to income tax
Exchange of properties for stock or in payment of subscription:
GR: It is subject to CGT because the payment was just converted from cash to kind
XPN: To gain control of the corporation. (TAX-FREE EXCHNAGE)
*** As to the corporation the land contributed is a mere capital, thus not yet a realized
income.
When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual
recognition, express or implied, of an obligation to repay and without restriction as to their
disposition, he has received taxable income, even though it may still be claimed that he
is not entitled to retain the money, and even though he may still be adjudged to
restore its equivalent (James us. U.S.,366 U.S. 213, 1961).
The all events test is a test applied in the realization of income and expense by an
accrual-basic taxpayer. The test requires (1) the fixing to the right to the income or
liability to pay; and (2) the availability of reasonably accurate determination of such
income or liability, (CIR v. Isabela Cultural Corporation, GR No. 172231, Feb 12, 2007).
Expenses as deductions can be claimed on the year that it has accrued or was fixed.
Gross income includes those, which have been withheld for tax compliance (FWT). The
tax payer need not physically receive the income.
Gross income means all wealth which flows into the taxpayer other than as a mere return
of capital
A borrowed money or loan is not income as it is not a gain. It is a mere outlay that has to
be returned.
Taxable income = gross income - deductions and/ or personal and additional
exemptions, Sec. 31. NIRC of 1997)
The proceeds under an insurance policy on the loss of goods is not an item of income but
merely a return of capital hence not taxable.
NOTE: FWT on interest from foreign currency deposits is 7.5%. Exempted from these are
OCWs and Seamen.

If the shares of stocks were given to an employee in consideration of his services to the
corporation, the same shall constitute taxable compensation income to the recipient because
it is a compensation for services rendered under an employer-employee relationship,
hence, subject to income tax.
There was no prior agreement or negotiations between Mr. Osorio and Mr. Perez that the
former will be compensated for his services. Mr. Perez, in behalf of his company, gave the car
to Mr. Osorio out of gratitude. Legal obligation test It is a gift and not compensation if
there is no legal obligation to give it. Gifts are excluded from gross income but may be
subject to donors tax.
A Christmas bonus and other work incentives and gifts given to employees is taxable as
additional compensation (Sec. 21 (a). Tax Code).
Transportation and representation allowances are actually reimbursements for
expenses incurred by the employee for the employer and thus are not income for the
employees. Said allowances are designed to enhance the quality of the service that
the employer is supposed to perform for its clientele like the people of the municipality.
(BAR 1994)
The BIR cannot impose any tax because there was no real transfer of the ownership of
the subject Capitol Golf Club, Inc. (Capitol) proprietary share from X to Y. Oriental. Inc. is
the true owner of the Capitol proprietary share. It remained the true owner from the time of
the Capitol shares use by X, to the transfer of the Capitol shares use to Y. There is no
exchange of value for value.
Rent of real properties in the Phil = Income within
The one sack of rice given to the supervisors and managers are considered de minimis fringe
benefits considering that the value per sack does not exceed PI,000, hence exempted
from the fringe benefits tax. (Section 33, NIRC as implemented by RR No. 10-2000).
De minimis benefits are not subject to scheduler income tax and from fringe benefit tax.
The fringe benefit tax is imposed as a final withholding tax placing the legal obligation to
remit the tax on the employer. It is the employer who pays.
Only managerial or supervisory employees are entitled to a fringe benefit subject to the
fringe benefits tax.
Convenience of the employer, Benefit shall not be considered income for the
employee if it is for the convenience of the employee. Ex.: Uniform, Housing, Hotel, car
***Beyond what could help the employer, the can be taxed ratably to the excess as it will be
considered income.
Free board and lodging are not taxable incomes provided that it is
1. given in the business premises of the lawyer and
2. for employers convenience and
3. the free lodging was given to X as a condition for employment.
***Thus there is a need to qualify between ERs with offices and none.
Realty Company selling house and lot: 35% ITR Tax
Other Companies selling house and lots: CGT

NOT ALL SALE OF CAPITAL ASSETS are subject to CGT. Only disposition of capital assets in
the form of real property or shares of stocks in domestic corporations are subject to final
taxes or CGT
Income realized from the sale of ordinary assets is taxable and the said income shall be
declared in the annual income tax return.
Ordinary assets:
(1) stock in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable
year;
(2) property held by the taxpayer primarily for sale to customers in the ordinary
course of trade or business;
(3) property used in the trade or business of a character which is subject to the
allowance for depreciation provided in Section 34 (F) of the Tax Code or
(4) real property used in trade or business of the taxpayer.
Capital gains are gains realized from the sale or exchange of capital assets, while ordinary
gains refer to gains realized from the sale or disposition of ordinary assets.
Capital gains are gains realized from the sale or exchange of capital assets, while ordinary
gains refer to gains realized from the sale or disposition of ordinary assets.
In a tax-free exchange, gaining control means acquiring at least 51% of the voting rights
A tax-free exchange merely defers the recognition of income on the exchange transaction.
The sale of such shares will eventually be subject to Net Capital Gains tax (5/10%) the basis
of which will be the difference between the selling price of the shares (P2 Million) and the
basis of the real property in the hands of the transferor (the price for which he acquired it, or
the price at the time he inherited it.)
If the exchange of stocks for something in kind is not a tax-free exchange, there will be no
gain subject Net CGT (5/10%) for sale of shares when the shares are eventually sold for the
same value of the land. This is because, selling price will be the same as the basis of the
property, and thus no gain is earned.
I DONT GET THIS! :
The basis in computing capital gains tax in a qualified tax-free exchange under Sec. 34 (c)
(2) is:
(a) With respect to the asset received by the corporation the 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.
(b) With respect to the shares received by the stockholders in exchange of the assets the same as the basis of the property, stock or securities exchanged,
decreased by the money received and the fair market value of the other property
received, and increased by the amount treated as dividend of the shareholder and
the amount of any gain that was recognized on the exchange.
In a qualified merger under Section 34 (c) (2) of the Tax Code, the tax basis for computing
the capital gains on:
(a) The sale of the assets received by the surviving corporation from the absorbed
corporation shall be the original/historical cost of the assets when still in the hands
of the absorbed corporation.
(b) The sale of the shares of stock received by the stockholders from the surviving
corporation shall be the acquisition/historical cost of assets transferred to the
surviving corporation. (BAR 1994)

Capital Loss limitation rule: Losses from sales or exchanges shall be allowed as deductions only to the extent of
the gains fro such sale or transactions
Net loss carry-over:
1. Allowed for individual TP
2. Deducted for the succeeding year only
3. Deducted from the sale of SHORT-TERM capital assets
Sale of principal residence:
1. The proceeds are fully utilized in acquiring or constructing a new principal
residence within 18 calendar months from the sale or disposition of the principal
residence
2. 2.The Commissioner of Internal Revenue must have been informed within thirty (30)
days from the date of sale or disposition on July 12, 2000 through a prescribed return
of their intention to avail of the tax exemption.
3. That the said exemption can only be availed of once every ten (10) years.
4. 6% supposed tax must be deposited in escrow
Interest from Bank deposits:
Local banks: 20% FWT
Residents deposit in offshore banks and foreign currency deposits: 7.5%
Non-residents deposit in offshore banks and foreign currency deposits exempt
Non-resident alien not in TBP 30% Gross income
Dividends received by a domestic corporation from a foreign corporation is subject
to income tax and shall form part of the gross income. There is no law exempting this type of
dividend from income tax. (Section 32 (7), NIRC).
Dividends received by a domestic corporation from a domestic corporation is tax
exempt.
Stock dividends are not realized income. Only cash and property dividends are subject
to tax.
Disguised dividends are those income payments made by a domestic corporation,
disproportionately larger than the actual value of the services rendered to a parent
non-resident foreign corporation. In such case, the excess shall be treated as a
dividend, and shall be subjected to the corresponding tax of 35% on gross income for a
non-resident foreign corp.
The royalties paid to the non-resident foreign corporation for the use of rights in the
Philippines is subject to a 20% final withholding tax, unless a lower tax rate is prescribed
under an existing tax treaty. (Sec. 28(B)(1), NIRC).
Insurance proceeds = exempt because it is indemnification for loss
But annuities proceed or the return of premiums (which can also be confusingly called
insurance proceeds) to the insured himself is taxable as to the excess of what was
cpaid as premium.
The prize constitutes a taxable income if it was made primarily in recognition of artistic
achievement which he won due to an action on his part to enter the contest. It is subject
to FWT of 20%.
Prize and Award tax exempt only if:

The recipient was selected without any action on his part to enter the contest or
proceeding: and
(ii) The recipient is not required to render substantial future services as a condition
to receiving the prize or award.
(i)

All prizes and awards granted to athletes in local and International sports tournaments and
competitions held in the Philippines or abroad and sanctioned by their respective
national sports associations shall be exempt from income tax".
The donors of said prizes and awards shall be exempt from the payment of the
donors tax.
The separation benefits to employees are excluded from gross income being in the nature of
benefits given to employees whose services were terminated due to causes beyond their
control
Under Republic Act No. 4917 (those received under a reasonable private benefit plan):
1. the retiring official or employee must have been in service of the same employer for
at least ten (10) years;
2. At least 50 years of age
3. Availed only once
Under Republic Act No. 7641 (those received from employers without any retirement plan):
1. Under a valid CBA and other agreements,
2. In the absence of retirement plan or agreement providing for retirement benefits the
benefits are excluded from gross income and exempt from income tax if:
A. retiring employee must have served at least flve (5) years; and
B. that he is not less than sixty (60) years of age but not more than sixty
five (65).
Benefits received on account of separation due to causes beyond the employees' control are
specifically excluded from gross income. Thus separation pay after voluntary resignation is
taxable. Resignation due to health and fitness reasons is not taxable as it is not voluntary.
The controlling facts which would lead to the conclusion that the amount received by the
widow is not an income are as follows:
a. the gift was made to the widow rather than the estate:
b. there was no obligation for the corporation to make further payments to the
deceased;
c. the widow had never worked for the corporation;
d. the corporation received no economic benefit; and
e. the deceased had been fully compensated for his services (Estate of Sydney
Carter us. Commissioner, 453 F. 2d 61 (2d Cir. 1971).
The commutation of leave credits or the cash equivalent of accumulated vacation and
sick leave credits given to an officer or employee who retires, or separated from the
service through no fault of his own, is exempt from income tax. (BIR Ruling 238-91 dated
November 8, 1991; Commissioner vs. CA and Efren Castaneda, GRNo. 96016, October 17,
1991).
Recovery of bad debts previously charged off is taxable to the extent of income tax
benefit of said deduction

Refund for taxes erroneously paid is taxable but only to the extent of the income tax
benefit of said deduction. (Sec. 34(C)(1), NIRC).
Tax benefit rule = to the extent of the tax benefit enjoyed by the taxpayer when the bad
debts were written-off and claimed as a deduction from income. It also applies when taxes
paid and claimed as deductions are refunded.
Exclusions from gross income refer to a flow of wealth to the taxpayer which are not
treated as part of gross income either because:
(1) It is exempted by the fundamental law;
(2) It is exempted by statute; or
(3) It does not come within the definition of income. (Section 61, RR No. 2).
Deductions from gross income, on the other hand, are the amounts, which the law allows
to be deducted from gross income in order to arrive at net income.
Exclusions pertain to the computation of gross income, while deductions pertain to the
computation of net income.
Tax credit which reduces the tax liability is different from a tax deduction which merely
reduces the taxable income. Since the law allowed bookstores to claim in full the discount as
a tax credit, the BIR is not allowed to expand or contract the legislative mandate (CIR v.
Central Luzon Drug Corp., Id.).
The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of
the insured are not included as part of the gross income of the recipient. (Section 32(B)(1),
NIRC). There is no income realized because nothing flows to Noels parents other than a mere
return of capital, the capital being the life of the insured. Distinguish this from return of
premiums to the insured himself, which is taxable as to the excess.
The value of a property acquired by gift is an exclusion from gross income
The assignment can neither be held to be a gift. To be considered a gift within the context
of the NIRC, there must be a transfer of ownership or a quantifiable interest. Thus
assignment of Club shares among incumbent officers of a corporation is not a gift because
the ownership remains with employer-corporation
Compensation for injuries, damages, death, etc is excluded from gross income. These damages are
considered by law as mere return of capital, that is the injury itself.
Requisites of deductions:
1. Expenses must be ordinary and necessary
2. Paid or incurred during the taxable year
3. Paid or incurred in carrying out a trade, business or profession
4. Substantiated
Under Sec. 29 (h) 11) of the National Internal Revenue Code charitable contributions to
be deductible must be:
a. actually paid or made to domestic corporations or associations organized and
operated exclusively for religious. charitable, scientific, youth and sports
development, cultural or educational purposes or for rehabilitation of veterans or to
social welfare institutions no part of which inures to the benefit of any private
individual;
b. made within the taxable year;

c. not more than 6% (for individuals) of 3% (for corporations) of the taxpayers

taxable income to be computed without including the contribution

Note that the law accorded no privilege to similar contributions extended to private
individuals. Hence, the P5,000.00 contribution to the crippled girl cannot be claimed as a
deduction.
Employees receiving purely compensation income can only deduct from gross compensation
income personal exemption, additional personal exemption and special additional personal
exemption (Section 29. NIRC as amended).
The tuition fees for pre- bar classes and the bar examination fees paid to the Supreme Court
by X do not qualify as deductible expenses for a new lawyer.
The deductibility of the contributions in times of calamity is based on two criteria, to wit:
1. The donee or recipient must be the government or accredited relief
organization: and
2. The contribution must be utilized for the rehabilitation of calamity-stricken
areas declared by the President
When asked if it can be deducted, always qualify your answer with assuming it was paid or incurred during the
taxable year. And provided the deductions are substantiated
Donation of blood is not deductible as it has no monetary value.
Deductions shall not be allowed if the expense is contrary to law, public policy or for immoral
purposes (Zamora vs. Collector, SCRA 163; Roxas vs. CTA, 23 SCRA 276). Ex. Bribe money
*** but it is income as to the recipient
Giving an extra bonus at a time that the company suffers operating losses is not a
payment in good faith and is not normal to the business, hence unreasonable and would not
qualify as ordinary and necessary expense.
Donations to political parties and candidates are exempt from donors tax, provided that he complies with
the requirement of filing returns of contributions with the Commission on Elections as
required under the Omnibus Election Code. These are not deductible expenses to the donor
because it is not business related and not one of the deductions under the law.
An advertising expense for immediate boost of sales is deductible. But if the benefit to be
enjoyed by the taxpayer goes beyond one taxable year or for future sales, it becomes
maintenance of goodwill which can depreciated like acquisition of capital assets.
No deduction for dividends on preferred shares. Preferred shares shall be considered
capital regardless of the conditions under which such shares is issued and, therefore,
dividends paid thereon are not considered interests which are allowed to be deducted
from the gross income of the corporation. (Revenue Memorandum Circular No. 17-71, July 12,
1971). (BAR 1999)
For interest to be deductible, the following requirements must be met:
(a) That there must be an indebtedness:
(b) That there is an interest on such indebtedness:
(c) Such interest was paid or accrued within the taxable year
(d) Interest was paid on a debt related to ones profession, trade or business

Interest on loans used to acquire capital assets are capital assets themselves which
can be can be deducted at once or amortized
The requisites for deductibility of a loss are
a) loss belongs to the taxpayer;
b) actually sustained and charged off during the taxable year;
c) evidenced by a closed and completed transaction;
d) not compensated by insurance or other forms of indemnity;
e) not claimed as a deduction for estate tax purposes in case of individual
taxpayers; and
f) if it is a casualty loss it is evidenced by a declaration of loss filed within 45
days with the BIR.
Only costs or expenses incurred in earning the income shall be deductible for income tax
purposes consonant with the requirement of the law that only necessary expenses are
allowed as deductions from gross income. The term necessary expenses presupposes that
in order to be allowed as deduction, the expense must be business connected, which is not
the case insofar as capital losses are concerned
Worthless securities, which are ordinary assets, are not allowed as deduction from
gross income because the loss is not realized. However, if these worthless securities are
capital assets, the owner is considered to have incurred a capital loss and, therefore,
deductible to the extent of capital gains. (Section 34(D)(4), NIRC). This deduction,
however, is not allowed to a bank or trust company. (Section 34(B)(2), NIRC).
Requisites of deducting bad debts:
1. The debt must be valid and subsisting;
2. The debt is connected with the taxpayer's trade or business
3. The debt is not between related parties;
4. There is an actual ascertainment that the debt is worthless; and
5. The debt is charged-off within the taxable year. (PRC v. CA, 256 SCRA 667
11996]; Revenue Regs. No. 5-99).
Reserve for bad debts are not allowed as deduction from gross income. Bad debts must be
charged off during the taxable year to be allowed as deduction from gross income. The mere
setting up of reserves will not give rise to any deduction
Depreciation for goodwill is not allowed as deduction from gross income. While
intangibles maybe allowed to be depreciated or amortized, it is only allowed to those
intangibles whose use in the business or trade is definitely limited in duration. A
goodwill has no duration. (Basilan Estates, Inc. v. CIR, 21 SCRA 17).
When a building is erected by a lessee in the leased premises in pursuance of an
agreement:
1. The lessor may report as income the market value of the building at the time
when such building is completed, ir
2. The lessor may spread over the life of the lease the estimated depreciated
value of such building at the termination of the lease and report as income for each
year of the lease an aliquot part thereof (amortization method)

The proper allowance of depreciation of any property used in trade or business refers to
the reasonable allowance for the exhaustion, wear and tear (including reasonable allowance
for obsolescence) of said property.
Basis of deduction for donations to qualified institutions: Donations and/or contributions
made to qualified donee institutions consisting of property other than money shall be based
on the acquisition cost of the property, not the fair market value/zonal value of the lot
donated. (Sec. 34(H), NIRC).
OSD: Not exceeding 40% of their gross sales or receipts
Not qualified to use OSD:
1. Non-resident alien (whether or not in TBP)
2. Nonresident foreign corporation
The choice of using it is irrevocable for the taxable year. This means , the ITR cannot be
amended to use itemized deductions
The distinction between allowable deductions and personal exemptions are as follows:
1. As to amount Allowable deductions generally refer to actual expenses incurred
in the pursuit of trade, business or practice of profession while personal
exemptions are arbitrary amounts allowed by law.
2. As to nature Allowable deductions constitute business expenses while personal
exemptions pertain to personal expenses.
3. As to purpose Deductions are allowed to enable the taxpayer to recoup his
cost of doing business while personal exemptions are allowed to cover personal,
family and living expenses.
4. As to claimants Allowable deductions can be claimed by all taxpayers,
corporate or otherwise, while personal exemptions can be claimed only by
individual taxpayers. (BAR 2001)
Personal exemption: P50000 per TP
Additonal:
1. 25000 per
a. 21 year-old child unmarried, dependent and living with the parent TP
b. any age, incapable of self-support because of physical or mental support
2. Not more than 4 dependents
Status at the end of the year- Change in status within the year will not affect the status
at the end of the year.
Premiums for insurance on the life of an employee:
1. For the benefit of his employees: deductible expense for the employer as it is an
ordinary expense
2. For the benefit of the corporations: not deductible by express provision of law.
More than 180 days= NR-A is engaged in TBP. Thus he will be taxed similar to a RA
Only managerial or supervisory employees are entitled to a fringe benefit subject to the
fringe benefits tax. And even so, it should not be for the convenience of the employer
Limited 13th Month Pay exclusion:

13th month pay is excluded from the gross income for income tax purposes to the extent of
P30,000.00. Any excess will be included in the gross income per income tax return as part of
gross compensation income. (Sec. 32(B)(7)(e), NIRC).
Gross compensation income earners are now allowed at least an item of deduction in the
form of premium payments on health and/or hospitalization insurance in an amount not
exceeding P2.400 per annum [Section 34(M)]. This deduction is allowed if the aggregate
family income do not exceed P250.000 and by the spouse, in case of married individual,
who claims additional personal exemption for dependents. (BAR 2001)
Basis of 6% CGT:
1. Fair market value as determined by the provincial assessor of the CIR
2. Gross selling price
**Actual gain is not required for the imposition of the tax but it is the gain by fiction of law
which is t
axable.
50% fraud surcharge in cases of tax evasion and fraudulent returns
Note: CGT is imposed in public sales of real property
Sale od House and Lots or Condo:
1. Real estate company Orndinary income: 30% corporate income tax or VAT
2. Not in the business 6%CGT
Sale of Capital Assets in personal property other than sharesof stocks:
- consider the holding period of the asset. The capital asset having been held for more than
twelve months (short-term), only 50% of the gain is recognized.
Real property transactions subject to capital gains tax are not limited to sales but also
exchanges of property unless exempted by a specific provision of law
Apartment for rent as business are ordinary assets. Thus, when sold are not subject to CGT.
A BIR regulation establishing gross income as the tax base for corporations doing
business in the Philippines (domestic as well as resident foreign) is not valid until the
requisites are present.
MCIT
2% of gross income
Beginning in the fourth year of operation
Excess of the MCIT from the normal tax can be carried over to the normal tax in the 3 taxable years
Obviously it does not apply to NRFC because they are always taxed 305 on their gross income.
Rationale of MCIT: is designed to forestall the prevailing practice of corporations of over
claiming deductions in order to reduce their income tax payments. The filing of
income tax returns showing a tax loss every year goes against the business motive which
impelled the stockholders to form the corporation.
Exempt from MCIT:
1. Proprietary educational institutions (10% of net taxable income)
2. Non-profit hospitals (10% of net taxable income)
3. Off shore banks (10% on taxable income)
4. Regional headquarters of Multinational corporations (10% of taxable income)

5. International carriers (2.5% on gross Philippine billings)

OSD = 40 of gross income (not gross recipts)
Who can fix FMV for CGT purposes:
1. CIR
2. City or Provincial assessor
The donation of lot and building to a proprietary educational institution is subject to the
donors tax because a donation to an educational institution is exempt only if the school is
incorporated as a non-stock entity paying no dividends.
All income of a proprietary educational institution from school related and non-school related
activities will be subject to the income tax of 10% based on its aggregate net income derived
from both activities
Improperly accumulated earnings tax
-applies to closely held corporations (at least 50% shares belong to not more than 20 individuals)
-10% tax on IAE
-ex. accumulation of earnings in excess of 100% of the paid up capital
The immediacy test is applied to determine whether the accumulation of the tax profits
by a domestic or resident foreign corporation is really for the reasonable needs of the
business. Under this test, the corporation should be able to prove an immediate need for
the accumulation of earnings and profits, or the direct correlation of anticipated needs to
such accumulation of profits to justify the said accumulation
Actual CGT on Capital Net Gains from dealings with stock is not a withholding tax. It is paid by the seller though a
CGT return. It is impossible for the buyer to determine the capital to deduct from the price to determine the gains.
While the general rule is that a foreign corporation is the same juridical entity as its branch
office in the Philippines, when, however, the corporation transacts business in the Philippines
directly and independently of its branch, the taxpayer would be the foreign
corporation itself and subject to the dividend tax similarly imposed on non-resident
foreign corporation. The dividends attributable to the Home Office (non-resident foreign corp)
would not qualify as dividends earned by a resident foreign corporation, which is exempt
from tax. (Marubeni Corporation v. Commissioner, GR No. 76573, September 14, 1989).
Careful with the combination of NRFC and services outside the Philippines (income withut). This is exempt!
A domestic corporation is required to file income tax returns four (4) times for income
earned during a single taxable year. Quarterly returns are required to be filed for the
first three quarters where the corporation shall declare its quarterly summary of gross
income and deductions on a cumulative basis. (Section 75, NIRC). Then, a final adjustment
return is required to be filed covering the total taxable income for the entire year ,
calendar or fiscal. (Section 76, NIRC).
An individual deriving compensation concurrently from two or more employers at any
time during the taxable year shall file an income tax return (Sec. 51(A)(2)(b), NIRC.). this
is notwithstanding the fact that there has been proper withholding of compensation income
tax and that employee earns more than 60000.
Income tax to be paid by NRFC or NRA not in TBP is collected through withholding. The government cannot
require persons outside of its territorial jurisdiction to file a return; for this reason, the
income tax on income derived from within must be collected through the withholding tax

system and thus relieve the recipient of the income the duty to file income tax
returns. (Section 51, NIRC).
Exemption from income tax does not, necessarily mean an exemption likewise from the filing
of an income tax return.
The Tax Code allows an individual taxpayer to pay in two equal installments, the first
installment to be paid at the time the return is filed, and the second on or before July
15 of the same year, if his tax due exceeds P2,000. (within minimum of 3 months)
In expropriation, the expropriating body cannot impose FWT because the TP has the option of treating it as ordinary
income or subjecting it to CGT. Withholding will deny TP of such option.
When the donor makes his will within a short time of, or simultaneously with, the making of
gifts, the gifts may be considered as having been made in contemplation of death. (Roces v.
Posadas, 58 Phil. 108) but not always since the circumstances should still be concirdered.
Donations inter vivos, actually constituting taxable lifetime like transfers in contemplation of
death or revocable transfers (Sec. 78 (b) and (c). Tax Code) may be taxed for estate tax
purposes, the theory being that the transferors control thereon extends up to the time of his
death.
The value of the property for estate tax purposes shall be the fair market value thereof at
the time of death.
Indemnity for decedents death is not a property existing as of the time of decedents
death; hence, it cannot be said that she exercised control over its disposition. Since
the privilege to transmit the property is not exercised by the decedent, the estate tax cannot
be imposed thereon.
Classes of decedents:
Citizens or Residents properties wherever situated to the extent of the interest therein of the
decedent at the time of his death
Nonresident alien properties situated in the Philippines to the extent of the interest therein of the
decedent at the time of his death
Compoisition of Gross Estate:
value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated to the extent of the interest therein of the decedent at the time of
his death [Sec. 85 (A). NIRC of 1997].
The proceeds from a LIFE insurance policy taken out BY THE DECEDENT is included
as part of the gross estate of the decedent if:
1. The designation of the beneficiary is revocable or
2. Irrespective of the nature of designation, the designated beneficiary is the estate, the
executor or administrator.
***note that the Insurance Code provides that designation of beneficiary is presumed
revocable unless express made irrevocable by the insured or by law.
***If the designated beneficiary is other than the estate, executor or administrator and the
designation is irrevocable, the proceeds shall not form part of his gross estate. (Section
85 (E)
*** because it should be taken out by the decedent, insurance from SSS or GSIS are excluded
When answering inclusion in the gross estate, reason out that he has interest or he has control

Deductions from gross estate:

1. funeral expenses (5% of GE but not to exceed 200000)
2. expenses for the testamentary proceedings
3. claims against the estate
4. unpaid mortgage/indebtedness on the property
5. taxes oaid
6. losses
7. vanishing deductions
Special deductions
1. Standard: 1000000 (1M)
2. Family home
3. Medical expenses (1 year prior to his death in an amount not exceeding 500000)
***special deductions are NOT for nonresident aliens who are only taxed for properties within.
Vanishing deductions Memorize!
1. Decedent dies within 5 years from the receipt of the property through donation or succession.
2. Propertyis located in the Philippines
3. No vanishing deduction was use on the last transfer
100% - within 1 year
80% - within 2 years
60% within 3 years
40%- within 4 years
20%within 5 years
*** Not that this deduction applies only to a particular property subject of the transfers.
Under the graduated tax rates of the estate tax, a net estate of P200,000 is exempt.
(10000 in donation)
Funeral expenses may include expenses during burial but not expenses incurred after
burial nor expenses incurred to commemorate the death anniversary. (De Guzman V. De
Guzman, 83 SCRA 256).
Medical expenses, on the other hand, are allowed only if incurred by the decedent within
one year prior to his death.
Fideicommissary substitution Forms part of the estate of the original testator but in the gross estate of the first
heir since he was bound to transmit it upon death to the second heir.
When to file return: 6 months, 30 days, 5 years, 2 years
1. The filing of the return and payment of estate tax is within 6 months from date
of death following the pay-as-you-file concept.
2. The period to file the return is extendible for a maximum of 30 days under
meritorious cases as maybe determined by the Commissioner
3. The payment of the estate tax may also be extended when the Commissioner finds
that the payment of the tax on the due date would impose undue hardship upon
the estate or any of the heirs. The period of extension to pay shall not exceed 5
years if the estate is settled through the courts, or shall not exceed 2 years if
settled extrajudicially.
4. The Commissioner may also require the posting of a bond to secure the payment of
the tax.
Where to file and pay:
Except in cases where the Commissioner of Internal Revenue otherwise permits, the estate
tax return shall be filed with an authorized agent bank, or Revenue District Officer,

Collection Officer, or duly authorized Treasurer City in which the decedent was
domiciled at the time of his death.
In a case where the estate has been distributed to the heirs, the collection remedies
available to the BIR in collecting tax liabilities of an estate may either
(1) sue all the heirs and collect from each of them the amount of tax proportionate to the
inheritance received or
(2) sue only one heir and subject the property he received from the estate to the payment
of the estate tax subject to his right to reimbursement.
Under Sec. 90 of the NIRC a bank with knowledge of the death of a person who maintains a
deposit account with such bank shall allow withdrawals therefrom only if the
mandatory requirement of a certification from the Commissioner that the taxes due
thereon have been paid could be presented by an heir. Otherwise, the bank may withhold.
However, the Commissioner may authorize the withdrawal without a certification provided
the amount to be withdrawn shall not exceed P 20,000.00.
*** In summary, a person who wishes to withdraw should get the certification from CIR that it
has been paid, or at least get a permission to withdraw an amount not to exceed P20000.
DONORS TAX
If the renunciation is a general renunciation such that the share of the heir who waives his
right to the inheritance goes to the other co-heirs in accordance with their respective interest
in the inheritance, the law on accretion applies and the property waived is
considered to pass through the other co-heirs by inheritance; hence, it has no tax
implication.
If it is not a general renunciation in favor of the other co-heirs, the heir renouncing his
right is considered to have made a donation and the renunciation is subject to
donors tax.
*** A general renunciation of share in the ACP or CGP between spouses is a donation.
If the sale is for an insufficient consideration, the difference in value is subject to donors
tax. It arises only if a tax is avoided as a result of selling a property at a price lower than its
fair market value.
This provision on sale deemed gift is not applicable to
1. A sale of real property subject to the 6% presumed capital gains tax. This is so
because the tax is always based on the gross selling price or fair market value,
whichever is higher, and therefore, the seller cannot avoid any tax by selling his
property below its fair market value.
2. A sale of shares of stock because the basis of computing the net capital gains is the
FMV
A condonation of the unpaid balance of the obligation has the effect of a donation made
on the part of the creditor, who shall be made liable for donors tax.
***be keen here on applying the rules on bad debts. If the condonation was due to
insolvency of the debtor, it shall have no donors tax implication but instead a deduction on
gross income of the creditor.
The rule of reciprocity applies only if the property transferred by a non-resident alien is an
intangible personal property situated in the Philippines. This is designed to reciprocate the
exemption from donor's tax granted by a foreign country to Filipinos who are not residing
thereat
It does not apply to tangible properties.

Classes of donors:
Citizens or Residents properties wherever situated
Nonresident alien properties situated in the Philippines
Under the graduated tax rates of the estate tax, a net estate of 100000 is exempt.
(200000 in estate)
Exempt donations:
1. Dowry or donation on account of marrige (not to exceed P10000)
***applies to gifts of parents to legitimate, illegitimate, and adopted children
2. Donations to the government or its agencies
3. Donations to non-stock institutions (not more than 30% is for admin)
a. Not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes;
b. The educational institution is incorporated as a nonstock entity,
c. paying no dividends,
d. governed by trustees who receive no compensation, and
devoting all its income, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation. [Sec. 101 (A) (3), NIRC of 1997)
***a non-resident alien is not entitled to the dowry exemption.
Shares of stocks of a foreign corporation are deemed properties outside the Philippines
(Thus, donations thereof by NRA or NRFC is not subject to tax). Unless, 85% of the
business of the foreign corporation is located in the Philippines or the shares donated
have acquired business situs in the Philippines
***Same rule applies to situs of estate tax
Note: The basis of the cost of the donated property would be the same as it would be in
the hands of the donor (thus, the cost is the price for he bought the property if acquired by
sale). In succession, it would b the value at the time of transmission. (value at the time of
death of the decedent)
Doc Stamp Tax tax on transmissions via deed of properties for a consideration?
Justification for valid splitting of donations: While the donor is tax is computed on the
cumulative donations, the aggregation of all donations made by a donor is allowed only over
one calendar year.
A Donation to strangers: 30% of the net gifts
stranger is a person who is not a:
1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or
2) Relative by consanguinity in the collateral line within the fourth degree of
relationship." [Sec. 98 (B), NIRC of 1997] (BAR 2000)
***relatives by affinity (in-laws) are always strangers
SKIP VAT:

TAX REMEDIES
The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative
and judicial levels, may be classified into those for assessment, collection and refund
The procedures for the administrative remedies for assessment are as follows:
a. After receipt of the Pre-Assessment Notice, he must within fifteen (15) days
from receipt explain why no additional taxes should be assessed against him.
b. If the Commissioner of Internal Revenue Issues a Final Assessment Notice, the
taxpayer must administratively protest or dispute the assessment by filing a
motion for reconsideration or reinvestigation within thirty (30) days from receipt of
the notice of assessment. (4th par., Sec. 228, NIRC of 1997)
Within sixty (60) days from filing of the protest, the taxpayer shall submit all
relevant supporting documents.
The judicial remedies of an aggrieved taxpayer relative to an assessment notice are as
follows:
1. The taxpayer has a period of thirty (30) days from the denial or from the lapse of
said 180 days within which to interpose a petition for review with the Court of Tax
Appeals division. The tax payer may wait for the decision of the Commissioner
because he files a petition for review.
2. The adverse decision of the Court of Tax Appeals division is appealable to the CTA en
banc by means of a petition for review within a period of fifteen (15) days from receipt
of the adverse decision., extendible for another period of fifteen (15) days for
compelling reasons, but the extension is not to exceed a total of thirty (30) days in all
3. From CTA en banc, Rule 45 within 15 days to the SC
Administrative remedies for refund:
1. within 2 years from payment, file a written claim for refund with the CIR
2. CIR has 180 days to act upon the claim
3. Within the same 2 year period, file a petition for review with the CTA division
4. Etc, etc
An assessment notice is a formal notice to the taxpayer stating that the amount thereon is
due as a tax and containing a demand for the payment thereof. {Alhambra Cigar and
Cigarette Mfg. Co.v. Collector, 10S PR 1337[1959]; CIR v. Pascor Realty and Development
Corp., 309 SCRA 402 [1999]). To be valid:
1. It must be made within the prescriptive period to assess; (Section 203,
NIRC)
2. There must be a preliminary assessment previously issued, except in those
instances allowed by law; (Section 228, NIRC)
3. The taxpayer must be informed in writing about the law and facts on
which the assessment is based; (Section 228, NIRC) and
4. It must be served upon the taxpayer or any of his authorized
representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421 SCRA
266[2004]).
As a general rule, a deficiency tax assessment is not a bar to a claim for tax refund
or tax credit. It is logically appropriate; however, that if the deficiency tax assessment is
already final, the Commissioner should not grant the claim unless the taxpayer pays the
deficiency. Likewise, no tax refund or tax credit will be granted as long as there is
pending a deficiency tax assessment for the same taxable period. To award a tax refund

or tax credit despite the existence of deficiency assessment for the same taxable period is
an absurdity and a polarity in conceptual effects. A taxpayer cannot be entitled to a refund
and at the same time be liable for a tax deficiency assessment. In order to avoid
multiplicity of suits, it is logically necessary and legally appropriate that the issue
of deficiency tax assessment be resolved jointly with the taxpayers claim for tax
refund, to determine once and for all in a single proceeding the true and correct amount of
tax due or refundable. [CIR v. CA, City trust Banking Corp. and CTA, 234 SCRA 348 (1994)].
A taxpayer whose ITR is filed by an accountant is liable for the deficiency tax as well as for
the deficiency interest. However, he is not liable to the fraud penalty because the
accountant acted beyond the limits of his authority. A tax return which does not correctly
reflect taxable income may only be false but not necessarily fraudulent where it appears that
the return was not prepared by the taxpayer himself but by his accountant. Accordingly, the
50% surcharge for fraud could not be imposed. [Aznar v. CTA, 58 SCRA 719, (1974)].
On the other hand, the accountant may be held criminally liable for violation of the Tax
Code when he falsified the tax return by underdeclaring the sale and overstating the
expense deductions. (Sec. 257, NIRC). If Danny's accountant is a Certified Public Accountant,
his certificate as CPA shall automatically be revoked or cancelled upon conviction.
A revenue tax is considered delinquent when it is unpaid after the lapse of the last
day prescribed by law for its payment. Likewise, it could also be considered as
delinquent where an assessment for deficiency tax has become final and the
taxpayer has not paid it within the period given in the notice of assessment.
An embezzlers liability to pay the tax is based on his having realized a taxable income from
his swindling activities and will not affect his obligation to make restitution. Payment of the
tax is a civil obligation imposed by law while restitution is a civil liability arising
from a crime.
The 50% fraud surcharge attaches only if a false or fraudulent return is willfully made by tax
payer
If the TP admits deficiency, what he can do is amend his ITR for that year and include the
deficiency. He cannot pay it in the following year during which it has not been earned.
Commissioner of Internal Revenue has the authority to inquire into bank deposit
accounts of a decedent to determine his gross estate notwithstanding the provisions of the
Bank Secrecy Law. This is one of the recognized exceptions to the laws on bank secrecy.
Hence, the banks holding the deposits in question may not refuse to disclose the amount of
deposits on the ground of secrecy of bank deposits. (Section 6(F) of the 1997 Tax Code)
The shall not allow any withdrawal from the said deposit account, unless the Commissioner
has certified that the taxes imposed thereon have been paid. To enable the CIR to certify
correctly, he must inquire into the assets.

The Commissioner of Internal Revenue or his duly authorized representative may be

allowed to inquire or look into the bank deposits of a taxpayer in the following
cases:
a) For the purpose of determining the gross estate of a decedent;

b) Where the taxpayer has filed an application for compromise of his tax
liability by reason of financial incapacity to pay such tax liability. [Sec. 6 (F),
NIRC of 1997]
c) Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representatives to inquire into the bank deposits.
Prescriptive period for assessment:
3years from the time ITR was filed or must have been filed, whichever is later
10 years from discovery of falsity failure or fraud if ITR is false or fraudulent
***However, if the return originally filed is amended substantially, the counting of the
three-year period starts from the date the amended return was filed
Prescription of collection
3 years from issuance of assessment (not finality)
10 years from discovery of falsity failure or fraud
***the period runs from issuance of assessment but protest of the TP suspends the
running of the period and begins to run again only once the CIR makes a final assessment
notice or denial of the protest.
What is the remedy if right to assess has prescribed but such assessment has become
final for failure of TP to protest?
-Wait for collection. File a petition for review against the collection and raise the defense
of prescription.
If the CIR charged penalty or surcharge, it is a hint that the ITR is fraudulent and thus apply
10-year prescription
A false return implies a deviation from the truth or fact whether intentional or not,
whereas the second is intentional and deceitful with the aim of evading the correct tax
due. Falsity is not subject to surcharge while fraud is subject thereto. (Aznar v.
Commissioner, GR No. L-20569, August 23, 1974, 58 SCRA S19[1974]).
Prima facie evidence of false or fraudulent return (30% Rule)
30% underdeclaration of income
30% overdeclaration of deductions
The waiver of the statute of limitation executed by a taxpayer is not a waiver of the
right to invoke the defense of prescription. The waiver of the statute of limitation is merely
an agreement to extend period to assess and collect. If prescription has already set in at
the time of the execution of the waiver, it is invalid, the taxpayer can still raise
prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec. 16, 2004)
A request for reconsideration which does not express or specify the grounds therefor
stated is insufficient, not being substantiatied, to stop the running of the 30-day period
within which the assessment may be disputed
Before the CIR can collect from a compromise penalty, there must be showing that the
compromise penalty was imposed by the Commissioner of Internal Revenue with the
agreement and conformity of the taxpayer. (Wonder Mechanical Engineering Corporation v.
Court of Tax Appeals, et al. 64 SCRA 555)
When are taxes paid?
Income tax: Filing of return (15th day of the fourth month after the end of the taxable year
CGT: 30 days from transaction

Estate tax: 6 months from death

Donors tax: 30 days after the gist is paid
VAT: generally paid on a mothy basis
Percentage tax: 25 days from the end of each taxable quarter
DST; 10 days from the close of the month when the document was signed, accepted, or
transferred.
Failure to respond to a PAN puts a TP in default to the investigaton. But it does not bar
him from filing a protest once the FAN is issued by the CIR.
Final Notice Before Seizure is a final decision of the Commissioner on the disputed
assessment [CIR v. Isabela Cultural Corp., 361 SCRA 71 (2001)]. It is an act deemed to be a
denial of the protest.
Collection without deciding on the protest shall be tantamount to denial. Because there is
collection pending, the TPs Petition for Review before the CTA division must have an
application for issuance of a writ of preliminary injunction to enjoin the Bureau of
Internal Revenue.
The CTA may, however, remand the case to the BIR and require the Commissioner to
specifically rule on the protest.
There is no final, executory and demandable assessment which can be enforced by the
BIR, once a timely appeal is filed. Thus, a timely appeal of the assessment is a ground for the
dismissal of the collection case with the RTC.
The remedy of a taxpayer with the inaction of CIR:
1. File a petition for review with the CTA within 30 days after the
expiration of the 180-day period from submission of all relevant documents;
or
2. Await the final decision of the Commissioner on the disputed assessment
and appeal such final decision to the CTA within 30 days after receipt of a copy
of such decision.
*** These options are mutually exclusive such that resort to one bars the application of the
other (RCBC v. OR, 522SCRA 144(2007]
A protest filed out of time is invalid and does not suspend the running of the prescriptive
period for the collection of the tax. So that, 3 years for collection will lapse if the CIR does not
make a move (CIR v. Atlas Mining and Development Corp., February 14,2000).
The 5-year period to file a criminal action commences to run only when the assessment
becomes final and appealable.
The BIR is authorized to issue a warrant of garnishment against the bank account
of a taxpayer despite the pendency of protest ????
Financial incapacity is a ground allowed by law in order that the Commissioner of Internal
Revenue may compromise a tax liability
The Commissioner of Internal Revenue may be authorized to compromise the payment
of any internal revenue tax where:
1) A reasonable doubt as to the validity of the claim against the taxpayer exists: or
2) the financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

The Commissioner of Internal Revenue may abate or cancel a tax liability when:
1) The tax or any portion thereof appears to be unjustly or excessively assessed: or
2) The administration and collection costs involved do not justify the collection of
the amount due. (Sec. 204 (B). NIRC of 1997]
A taxpayer who is constituted as withholding agent who has deducted and withheld at
source the tax on the income payment made by him holds the taxes in trust for the
government. His financial inability will not be ground for compromise. Those are not taxes
due from withholding agent but from the TP themselves and which the agent is authorized
to collect.
The compromise of the tax liability is possible at any stage of litigation and the
amount of compromise is left to the discretion of the Commissioner except with
respect to final assessments issued against large taxpayers wherein the Commissioner
cannot compromise for less than fifty percent (50%). Any compromise involving large
taxpayers lower than fifty percent (50%) shall be subject to the approval of the
Secretary of Finance
All criminal violations except those involving fraud, can be compromised by the
Commissioner but only prior to the filing of the information with the Court.
The filing of an administrative claim for refund with the BIR is necessary in order:
1) To afford the Commissioner an opportunity to consider the claim and to have a
chance to correct the errors of subordinate officers (Gonzales v. CTA. et aL, 14
SCRA 79): and
2) To notify the Government that such taxes have been questioned and the
notice should be borne in mind in estimating the revenue available for
expenditures. [Bermejo v. Collector, G.R. No. L-3028. Jufy 29, 1950)
Refund by the commissioner without any claim from TP: When the taxpayer files a
return which on its face shows an overpayment of the tax and the option to refund/ claim
a tax credit was chosen by the taxpayer, the Commissioner shall grant the refund or tax
credit without the need for a written claim. This is so, because a return filed showing an
overpayment shall be considered as a written claim for credit or refund. (Secs. 76
and 204, NIRC).
Withholding agents (WA) can claim refund because he is not only an agent of the
government but is also an agent of the taxpayer/income earner. Hence, ABCD is also an
agent of the beneficial owner of the dividends with respect to the actual payment of the tax
to the government, such authority may reasonably be held to include the authority
to file a claim for refund and to bring an action for recovery of such for refund (CIR v.
Procter & Gamble, 204 SCRA 377, {1991})
The two-year period of limitation for filing a claim for refund is not only a limitation for
pursuing the claim at the administrative level but also a limitation for appealing the case to
the Court of Tax Appeals.
The law provides that no suit or proceeding shall be filed after the expiration of two years
from the date of the payment of the tax or penalty regardless of any supervening
cause that may arise after payment (Section 229, NIRC).

The Supreme Court ruled that in the case of overpaid quarterly corporate income tax,
the two-year prescriptive period for tax refunds (Sec. 230, Tax Code) is counted from the
filing of the final, adjustment return under Sec. 67 of the Tax Code, and NOT from the
filing of the quarterly return and payment of the quarterly tax. (Commissioner v. TMX
Sales.fnc., 205 SCRA 184)

The theory of supervening event expresses that an event which is beyond the
control of the parties would allow recovery of refund provided the proceeding for such
recovery is made within the prescriptive period from the occurrence of such
event. The law now disregards all supervening event and thus does shall not suspend the
running of the period anymore.
The summary prepared by the CPA is not enough evidence as it does not prove
anything unless the documents which were the basis of the summary are submitted to the
CTA and adduced in evidence. The invoices and receipts must be presented because they are
the only real and direct evidence that would enable the Court to determine with particular
certainty the basis of the refund (CIR v. Rio Tuba Nickel Mining Corp., 207SCRA S49[l992]).
The law may provide that only tax credit is used and not tax refund in money. The term tax
credit connotes that the amount when claimed shall only be treated as a reduction from
any tax liability, plain and simple. There is nothing in the law that grants a refund when the
bookstore has no tax liability against which the tax credit can be used. This is true even if
its business is closed due to losses without being able to recoup the discount. The
right shall be lost all together. (CIR v. Central Luzon Drug Corp., 456 SCRA 414 [2005]).
Conditions for a valid refund:
(1) A written claim for refund is filed by the taxpayer with the Commissioner of
Internal Revenue. (Sec. 204, NIRC);
(2) The claim for refund must be a categorical demand for reimbursement. [Bermejo
v. Collector of Internal Revenue, 87 Phil. 96 (1950)]
(3) The claim for refund or tax credit must be filed with the Commissioner, or the suit or
proceeding therefore must be commenced in court within 2 years from date of
payment of the tax or penalty regardless of any supervening cause (Sec. 229, NIRC).
A withholding agent should be allowed to claim for tax refund, because under the law
said agent is the one who is held liable for any violation of the withholding tax law
should such violation occur [Commissioner of Internal Revenue v. Wander Philippines Inc.,
160 SCRA 570, (1988)1. Furthermore, since the withholding agent is made personally
liable to deduct and withhold any tax under Section 53(c) of the Tax Code, it is
imperative that he be considered the taxpayer for all legal intents and purposes. Thus,
by any reasonable standard, such person should be regarded as a party in interest to bring
suit for refund of taxes [Commissioner of Internal Revenue v. Procter and Gamble Philippines
Manufacturing Corporation and CTA, 204 SCRA 377, (1991).
A subsidiary, while not the real party in interest, could prosecute a claim of refund
in behalf of its non-resident stockholders by virtue of its being the withholding agent for the
government in respect of the cash dividends it declared [Comm. vs. Wander Phils.)
Payment under Protest

For taxes imposed under the NIRC, protest at the time of payment is not required to
preserve the taxpayers right to claim refund. This is clear under Section 230 of the NIRC
which provides that a suit or proceeding maybe maintained for the recovery of national
internal revenue tax or penalty alleged to have been erroneously assessed or collected,
whether such tax or penalty has been paid under protest or not.
For duties imposed under the Tariff and Customs Code, a protest at the time of payment
is required to preserve the taxpayers claim for refund. The procedure under the TCC is to
the effect that when a ruling or decision of the Collector of Customs is made whereby liability
for duties is determined, the party adversely affected may protest such ruling or
decision by presenting to the Collector, at the time when payment is made, or within
fifteen days thereafter, a written protest setting forth his objections to the ruling or
decision in question (Sec. 2308, TCC).
Deficiency interest for purposes of the income tax is the interest due on any amount of tax
due or installment thereof which is not paid on or before the date prescribed for its
payment computed at the rate of 20% per annum or the Manila Reference Rate,
whichever is higher, from the date prescribed for its payment (or the deadline for filing the
ITR) until it is fully paid
Delinquency interest is the interest of 20% or the Manila Reference Rate, whichever is
higher, required to be paid in case of failure to pay:
a) the amount of the tax due on any return required to be filed; or
b) the amount of the tax due for which return is required; or
c) the deficiency tax or any surcharge or interest thereon, on the due date
appearing in the notice and demand of the Commissioner of Internal Revenue.
***Delinquency begins from the deadline of payment of assessment, while
deficiency begins from the date of filing a return.
Delinquent accounts may be compromised if either of the two conditions is present: (1)
the assessment is of doubtful validity, or (2) the financial position of the taxpayer
demonstrates a clear inability to pay the tax.
Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he
signed the required agreement form, cannot be compromised. By giving his conformity
to the revised assessment, the taxpayer admits the validity of the assessment and
his capacity to pay the same. (Sec. 2 of Revenue Regulations No. 30-2002).
The compromise settlement of the criminal violations will not relieve the taxpayer from its
civil liability. But the civil liability for taxes may also be compromised independently if the
financial position of the taxpayer demonstrates a clear inability to pay the tax.
The prosecutor in criminal actions for violation of tax laws must be a legal officer of the
Bureau of Internal Revenue to whom the conduct of criminal actions is lodged by the Tax
Code.
During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise, ie.
doubtful validity of assessment and financial incapacity of taxpayer, is present. A
compromise of a tax liability is possible at any stage of litigation, even during appeal,
although legal propriety demands that prior leave of court should be obtained
(Pasudeco vs. CIR. L-39387. June 29. 1982).

BIR rulings are the best guess of the moment and incidentally often contain such wellconsidered and sound law, but the courts have held that they are merely advisory - sort of an
information service to the taxpayer.
A BIR ruling of first impression to be valid must not be against the law and it must be
issued only by the Commissioner of Internal Revenue.
The general rule is that a BIR ruling does not have a retroactive effect if giving it a
retroactive application is prejudicial to the taxpayer.
However, if the first ruling is tainted with either of the following:
(1) misstatement or omission of material facts,
(2) the facts gathered by the BIR are materially different from the facts upon which the
ruling is based, (3) the taxpayer acted in bad faith,
a subsequent ruling can have a retroactive application. (ABS-CBN Broadcasting Co.
v. CTA & CIR, 08 SCRA 142 [1981]; Sec 246, NIRC).
***Note that these circumstances must be clearly present in order for the exception to
apply.
The taxing power of the provinces, municipalities and cities is directly conferred by the
Constitution by giving them the authority to create their own sources of revenue,
subject only to the limitations that the Congress may impose. The local government units do
not exercise the power to tax as an inherent power or by a valid delegation of the
power by Congress, but pursuant to a direct authority conferred by the Constitution.
(Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 [1996]; NPC v. City of
Cabanatuan, 401 SCRA 259 [2003]).
Considering that inasmuch as the power to tax may be exercised by local legislative bodies,
no longer by valid congressional delegation but by direct authority conferred by the
Constitution, in interpreting statutory provisions on municipal fiscal powers, doubts will,
therefore, have to be resolved in favor of municipal corporations (City Government of San
Pablo, Laguna v. Reyes, 305 SCRA 353 (1999]). This means that the court must adopt a
liberal construction of a law granting a municipal corporation the power to tax.
Constitutional basis:
"Each local government unit shall have the power to create their own sources of revenue and
to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may
provide consistent with the basic policy of local autonomy."
Only the Sanggunian can impose taxes by way of an ordinance. The Mayor or Governor
cannot.
No public hearing is required before the enactment of a local tax ordinance levying the
basic real property tax (Art. 324, LGC Regulations).
Only cities and provinces can impose professional tax. This authority is to impose a
professional tax only on persons engaged in the practice of their profession requiring
government examination and lawyers are included within that class of professionals.
A professional is given the option to pay professional taxes either in the city where he
practices his profession or where he maintains his principal office in case he
practices his profession in several places.
This will entitle him to practice his profession in any part of the Philippines without being
subjected to any other national or local tax, license, or fee for the practice of such
profession. (Sec. 139 in relation to 151, Local Government Code).

The Local Tax Code only allows provinces and cities to impose a tax on the transfer of
ownership of real property or the so called transfer tax (Sec. 7 and Sec. 23, Local Tax
Code). Municipalities are prohibited from imposing said tax that provinces are specifically
authorized to levy. (Sec. 22, Local Tax Code)
Retiring business under the LGC are taxed on their gross sales or gross receipts in the
current year and not on the preceding year. If the tax paid in the current year is less
than the tax due on gross sales or receipts of the current year, the difference shall be paid
before the business is considered officially retired (Sec. 145, LGC).
The business tax on contractors is a graduated annual fixed tax based on the gross
receipts for the preceding calendar year. However, when the gross receipts amount to
P2 million or more, the business tax on contractors is imposed as a percentage tax at
the rate of 50% of 1% (Sec. 143(e), LGC).
Rules in Sales Tax
70%-where factory is located
30% where principal office is located
*** if it does not have a separate office then it shall be taxed wholly on the place of the
factory
100% of sale on each branch shall be taxed on the place where branch is located
The municipality is authorized to impose reasonable fees and charges as a regulatory
measure in an amount commensurate with the cost of regulation, inspection and licensing
(Section 147, LGC).
A warehouse used for keeping or storing copra is an establishment likely to endanger
the public safety or likely to give rise to conflagration because the oil content of the copra,
when ignited, is difficult to put under control by water and the use of chemicals is necessary
to put out the fire. It is, thus, reasonable that the Municipality impose storage fees for its own
surveillance and lookout (Procter & Gamble Philippine Manufacturing Corporation v.
Municipality of Jagna, Province of Bohol, 94 SCRA 894 [1979])
***the usual issue raised is if the imposition is income tax which only the national
government can impose. Income tax is on the privilege of earning.
LGUs cannot legally levy the Gross Receipts Tax on the shipping line, because taxes on the
gross receipts of carriers by air, land or water is a limitation on the exercise of taxing powers
by local government units (Sec, 133(f), LGC).
The tax period for local taxes is generally the calendar year.
The inaction of the Secretary of Finance does not bar the professionals from
questioning the legality of the ordinance. While it is true that the Secretary of Finance may
himself suspend the tax ordinance within a 120-day period from receipt thereof, his failure to
do so, however, has no preclusive effect on taxpayers who may be adversely affected by the
ordinance.
Professional fee can not be based on income. LGU cannot impose income tax.
A local tax payer may pursue his remedies either administratively or Judicially.
1. He may, if collection has not yet been enforced, file a formal protest with the Secretary
of Finance or query with the Provincial Fiscal whose opinion is appealable to the Secretary of
Justice whose decision may be contested in the proper court. The taxpayer has the right to
protest an assessment within 60 days from receipt thereof

5. The judicial remedy would be to file a special civil action for declaratory relief (if
circumstances still warrant) or
6. To pay the tax and thereafter to file a court action for refund within six (6) years after
such payment.
From protest, the taxpayer has 30 days from receipt of the denial of the protest or from
the lapse of the 60-day period for the treasurer to decide, whichever comes first,
otherwise the assessment becomes conclusive and unappeallable.
The remedies available to the local government units to enforce collection of taxes, fees, and
charges are:
1. Administrative remedies of distraint of personal property of whatever kind whether
tangible or intangible, and levy of real property and interest therein;
2. Judicial remedy by institution of an ordinary civil action for collection with the regular
courts of proper jurisdiction.
Fundamental principles governing real property taxation:
1. The appraisal must be at the current and fair market value;
2. Classification for assessment must be on the basis of actual use.
3. Assessment must be on the basis of uniform classification;
4. Appraisal, assessment, levy and collection shall not be let to private persons; and
5. Appraisal and assessment must be equitable. (Sec. 198, Local Government Code)
*Study the definition of Real Property in taxation
ex. Machineries or fixtures which are necessary to the business are always real properties
whether permanent or not, and whether placed by the lessee or the owner.
Taxes on real property:
1. Real Estate Tax
2. Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
3. Additional Ad-valorem tax on Idle lands (Sec. 236, LGC); and
4. Special levy (Sec, 240),
Only provinces, cities, and municipalities within the Metro Manila area (Sec. 232,
Local Government Code) may impose an ad valorem tax not exceeding five percent
(5%) of the assessed value (Sec.236, Ibid.) of idle or vacant residential lots in a
subdivision, duly approved by proper authorities regardless of area. (Sec. 237, Ibid.)
*** In fact, only these LGUs can impose real property taxes. Municipalities can only impose
special levy
Those exempt from Real Prop Tax under the constitution are also exempt from special levy.
The special levy under the Real Property Tax Code on lands, specially benefited by the
proposed infrastructure, may not exceed sixty per cent (60%) of the cost of said
improvement. All lands comprised within the district benefited are subject to the special levy
except lands exempt from the real property tax (Sec. 47. RPT). The rate of two
percent (2%) of the assessed value refers to the real property tax and not to special
levies. While ad valorem tax on idle lands cannot exceed 5%.
Before a council could enact an ordinance imposing a special levy, it shall conduct a public
hearing thereon; notify in writing the owners of the real property to be affected or the
persons having legal interest therein as to the date and place thereof and afford the latter
the opportunity to express their positions or objections relative to the proposed
ordinance.

Advise owners liable to ad valorem tax for idle lands to construct or place improvements on
their idle lands by making valuable additions to the property or ameliorations in the lands
conditions so the lands would not be considered as idle
The test of exemption from the tax is not ownership but the beneficial use of the property
(City of Baguio v. Busuego, L-29772, Sept. 18, 1980).
The following properties are exempt from the real property tax:
1. Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise to a taxable person
2. haritable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious, charitable
or educational purposes;
3. All machineries and equipment that are actually, directly and exclusively
used by local water utilities and government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
4. All real property owned by duly registered cooperatives as provided for under R.A.
6938; and
5. Machinery and equipment used for pollution control and environmental
protection. [Sec. 234, LGC]
Whenever the decision of the Collector of Customs is adverse to the government, it is
automatically elevated to the Commissioner for review and if he affirms it, it is
automatically elevated to the Secretary of Finance for review
For purposes of the real property tax, the registered owner of the property is deemed
the taxpayer, not the user or lessee. Neither shall the unregistered owner the tax payer.
Thus, warrant of levy served upon the registered owner without notice upon the possessor or
unregistered owner is VALID.
The law requires that a notice of the auction sale must be properly sent to the registered
owner. A mere publication of the notice of delinquency would not suffice, considering that
the procedure in tax sales is in personam. An auction sale, although preceded by
advertisement and publication but without an actual notice to the delinquent taxpayer, is
void. (Tan
Bantegui, 473 SCRA 663 [2005];
The CTA is devoid of jurisdiction to entertain appeals from the decision of the Local Board of
Assessment Appeals. Said decision is instead appealable to the Central Board of Assessment
Appeals, which under the Local Government Code, has appellate jurisdiction over decisions
of Local Board of Assessment Appeals. (Caltex Phils. Inc. v. Central Board of Assessment
Appeals, L- 50466. May 31, 1982)
Importation begins from the time the carrying vessel or aircraft enters Philippine
territorial jurisdiction with the intention to unload therein and ends at the time the
goods are released or withdrawn from the customhouse
1. upon payment of the customs duties, or
2. with legal permit to withdraw (Viduya vs. Berdiago, 73 SCRA 553).

The Freeport Zone is an extension of a foreign territory so that the vehicles imported while
still within its secured perimeter is not subject to Philippine taxes
The tax base for the customs duties is the transaction value while for VAT purposes, the
tax base is the value used in computing customs duties plus customs duties,
excise taxes and other charges incident to importation. (Section 107 (A), NIRC). These
taxes on importation must be paid to the Bureau of Customs before the Authority to Release
Imported Goods will be issued by the BIR. (Revenue Regulations No. 16-2005).
The term returning residents refers to nationals who have stayed in a foreign country
for a period of at least six (6) months. (Section 105(f) of the Tariff and Customs Code). Credit
must likewise be given if the candidate answered in the affirmative, considering that
Travelers or tourists are given the same tax treatment as that of returning
residents, treating their personal effects, not in commercial quantities, as conditionally
free importation.
The basis of dutiable value of an imported article subject to an ad valorem tax under the
Tariff and Customs Code is its transaction value which shall be the price actually paid or
payable for the goods when sold for export to the Philippines, adjusted by adding certain
cost elements 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.
*** If transaction value could not be determined, then the following values are to be
utilized in their sequence:
1. Transaction value of identical goods
2. Transaction value of similar goods
3. Deductive value
4. Computed value
5. Fallback value
Dumping Duty - This is a duty levied on imported goods where it appears that a specific
kind or class of foreign article is being imported into or sold or is likely to be sold in the
Philippines at a price less than its fair value:
Countervailing Duty - This is a duty equal to the ascertained or estimated amount of the
subsidy or bounty or subvention granted by the foreign country on the production,
manufacture, or exportation into the Philippines of any article likely to injure an industry
in the Philippines or retard or considerable retard the establishment of such
industry
Marking Duty - This is a duty on an ad valorem basis imposed for improperly marked
articles. The law requires that foreign Importations must be marked in any official
language of the Philippines the name of the country of origin of the article:
Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever
it is found as a fact that the country of origin discriminates against the commerce of
the Philippines in such a manner as to place the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign country.
"When articles have entered and passed free of duty or final adjustment of duties made, with
subsequent delivery, such entry and passage free of duty or settlement of duties will, after
the expiration of one (1) year, from the date of the final payment of duties, in the
absence of fraud or protest, be final and conclusive upon all parties, unless the
liquidation of import entry was merely tentative" (Sec 1603, TCC).

The Bureau of Customs normally avails itself of the administrative remedy of seizure,
such as by enforcing the tax lien on the imported articles if it is still in the custody or control
of the Government. In the case, however, of Importations which are prohibited or
undeclared, the remedy of seizure and forfeiture may still be exercised by the Bureau of
Customs even if the goods are no longer in its custody.
On the other hand, when the goods are properly released and thus beyond the reach
of tax lien, the government can seek payment of the tax liability through judicial action
since the tax liability of the importer constitutes a personal debt to the
government, therefore, enforceable by action.
The issuance of a warrant of seizure and detention by the Collector of Customs for
goods released contrary to law
-When outside dwelling: it is valid
-When inside a dwelling, it is void as it is within the jurisdiction of the regular courts to
issue search warrant for it
Undervaluation by more than 30% of the actual value of an article gives rise to a prima
facie evidence of fraud which subjects the vehicle to forfeiture.. Thus, it may be forfeited by
BOC.
An action for forfeiture is an action in rem, or an action directed against the imported goods
themselves independently of any criminal action, which is in the nature of an action in
personam, that may result as a consequence of a violation of an existing law. Forfeiture is
not a criminal action (C.F. Sharp and Co. Inc., v. Commissioner of Customs, 22 SCRA 760
[1968]).
Regular courts cannot issue injunction against BOC to stop forfeiture and seizure because
this is within BOCs jurisdiction not the courts.
the Collector of Customs of the port can seize and forfeit a truck as an instrument in the
smuggling activity, if the same is used to carry smuggled articles. The mere carrying of
such articles on board the truck (in commercial quantities) shall subject the truck to
forfeiture, since it was not being used as a duly authorized common carrier, which was
chartered or leased as such. (Sec. 2530 (a], TCC)
The procedure in seizure cases may be summarized as follows:
(a) The collector issues a warrant for the detention or forfeiture of the imported
articles; (Sec. 2301. Tariff and Customs Code)
(b) The Collector gives the importer a written notice of the seizure and fixes a
hearing date to give the importer an opportunity to be heard: (Sec. 2303, TCC)
(c) A formal hearing is conducted; (Sec. 2312. TCC)
(d) The Collector renders a declaration of forfeiture; (Sec. 2312, TCC)
(e)The importer aggrieved by the action of the Collector in any case of seizure may
appeal to the
Commissioner for his review within fifteen (15) days from written notice of the
Collectors decision; (Sec. 2313, TCC)
(f) The importer aggrieved by the action or ruling of the Commissioner in any case of
seizure may appeal to the Court of Tax Appeals; (Sec. 2402, TCC)
(g) The importer adversely affected by the decision of the Court of Tax Appeals may
appeal to the Supreme Court.

The RTC has no jurisdiction to pass upon the validity or regularity of the seizure and forfeiture
proceedings conducted by the Bureau of Customs. [Commissioner of Customs vs. Makasiar.
177 SCRA 27, 33-34 (1989) citing Pacis vs. Averin, 18 SCRA 9071966)]. Neither does it have
review powers over Customs
What determines validity of warrant of seizure is whether there was, in fact, an irregularity
committed in the importation of the articles and their release from customs.
As a rule, decisions of the Collector of Customs are not appealable to the Court of Tax
Appeals. If the Collector of Customs, however, does not decide a protest for a long
period of time, the inaction may be considered as an adverse decision by the Collector of
Customs and the aggrieved taxpayer may appeal to the CTA even without the Collectors and
Commissioners actual decision (Commissioner of Customs v.
Planters Products, Inc. G.R. No. 82018, March 16, 1989).
PROTEST under NIRC: The remedy before payment consists of administrative remedy
which is the filing of protest within 30 days from receipt of assessment, and judicial
remedy which is the appeal of the adverse decision of the Commissioner on the protest
with the Court of Tax Appeals, thereafter to the Court of Appeals and finally with the
Supreme Court.
REFUND under NIRC: Filing a claim for refund or tax credit of these taxes on grounds
that they are erroneously paid within two years from date of payment. If there is a
denial of the claim, appeal to the CTA shall be made within thirty days from denial but
within two years from date of payment. If the Commissioner fails to act on the claim for
refund or tax credit and the two- year period is about to expire, the taxpayer should
consider the continuous inaction of the Commissioner as a denial and elevate the case to
the CTA before the expiration of the two- year period.
REFUND under TCC: taxpayers remedies arise only after payment of duties. The
administrative remedies consist of filing a claim for refund which may take the form
of abatement or drawback.
PROTEST under TCC: The taxpayer can also file a protest within 15 days from
payment (note: only after payment) if he disagrees with the ruling or decision of the
Collector of Customs regarding the legality or correctness of the assessment of customs
duties. If the decision of the Collector is adverse to the taxpayer, he can notify the
Collector within 15 days from receipt of said decision of his desire to have his case
reviewed by the Commissioner. The decision of the Collector on the taxpayers protest, if
adverse to the Government, is automatically elevated to the Commissioner for review;
and if such decision is affirmed by the Commissioner, the same shall be automatically
elevated to and finally reviewed by the Secretary of Finance.
Resort to judicial relief can be had by the taxpayer by appealing the decision of the
Commissioner or of the Secretary of Finance (for cases subject to automatic review)
within 30 days from the promulgation of the adverse decision to the CTA. (BAR 1996)

Remedies in forfeiture:
During the pendency of seizure proceedings the importer may secure the release of the
imported property for legitimate use by posting a bond in an amount to be fixed by the
Collector, conditioned for the payment of the appraised value of the article and/or any fine,
expenses and costs which may be adjudged in the case; provided, that articles the
importation of which is prohibited by law shall not be released under bond.

The importer may also offer to pay to the collector a fine imposed by him upon the
property to secure its release or in case of forfeiture, the importer shall offer to pay
for the domestic market value of the seized article, which offer subject to the approval
of the Commissioner maybe accepted by the Collector in settlement of the seizure case,
except when there is fraud. Upon payment of the fine or domestic market value, the property
shall be forthwith released and all liabilities which may or might attach to the property
Summary of remedies in protest
1. Protest with the Collector of Customs (Sec. 2308, TCC);
2. Review by the Commissioner of Customs (Sec. 2313, TCC);
3. Appeal to the Court of Tax Appeals (RJL 9282); and
4. Petition for Review on Certiorari with the Supreme Court (RJL 9282).
Automatic review a decision of the collector adverse to the government is raised
automatically to the commissioner and if affirmed shall be raise ultimately to the secretary of
finance.
Automatic review is intended to protect the interest of the Government in the collection of
taxes and customs duties in seizure and protest cases. Without such automatic review,
neither the Commissioner of Customs nor the Secretary of Finance would know about the
decision laid down by the Collector favoring the taxpayer.
A Revenue Memorandum Order (RMO) is in reality a ruling or an opinion issued by the
Commissioner in implementing the provisions of the Tax Code dealing with the taxability of
pawnshops. The power to review rulings issued by the Commissioner is lodged with the Court
of Tax Appeals (CTA) and not with the Regional Trial Court. A ruling falls within the purview of
other matters arising under the Tax Code, appealable only to the CTA (CIR v. Leal, 392
SCRA 9 [2002]).
The power to issue writ of injunction provided for under Section 11 of RA 1125 is only
ancillary to its appellate jurisdiction of the CTA. It cannot be filed without a jointly filed
appeal..
In instances in which the Commissioner of Internal Revenue is vested with authority to
compromise, such authority should be exercised in accordance with the Commissioner's
discretion, and courts have no power, as a general rule, to compel him to exercise
such discretion one way or another. (Koppel Phils., Inc. v. CIR, 87 Phil. 35
If the Commissioner abuses his discretion by not following the parameters set by law, the
CTA, not the Court of Appeals, may correct such abuse if the matter is appealed to it or by
certioratu in the exercise of its appellate jurisdiction.
NOTE: Jurisdiction of CTA is over decisions of Commissioner of Internal Revenue or of
Customs. Decisions of the collector or the assessor are not yet ripe for appeal or review.
When the Commissioner decided to collect the tax assessed without first deciding on the
taxpayer's protest, the effect of the Commissioner is action of filing a judicial action for
collection is a decision of denial of the protest, in which event the taxpayer may file an
appeal with the CTA. (Republic v. Lim Tian Teng &. Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L39910, Sept. 26, 1988)
The Supreme Court has ruled that the CIR must categorically state that his action on a
disputed assessment is final; otherwise, the period to appeal will not commence to run.
That final action cannot be implied from the mere issuance of a warrant of distraint and levy.
(CIR v. Union Shipping Corporation, 185 SCRA 547)

In criminal cases where the Court of Tax Appeals (CTA) has exclusive original jurisdiction ,
the right to file a separate civil action for the recovery of taxes may not be reserved
there is no prohibition for this procedure considering that the filing of a civil action for
collection during the pendency of an administrative protest constitutes the final
decision of the Commissioner on the protest (CIR v. Union Shipping Corp., 85 SCRA 548
[1990]).
***Once collection is instituted, the remedy of the TP now is to participate in and appeal the
collection suit.
The employment by the Bureau of Internal Revenue of any of the administrative
remedies for the collection of the tax like distraint, levy, etc. may be administratively
appealed by the taxpayer to the Commissioner whose decision is appealable to the
Court of Tax Appeals under other matter arising under the provisions of the National Internal
Revenue Code. The judicial appeal starts with the Court of Tax Appeals, and continues in the
same manner as shown above.
Should the Bureau of Internal Revenue decide to utilize its judicial tax remedies for
collecting the taxes by means of an ordinary suit filed with the regular courts for the
collection of a sum of money, the taxpayer could oppose the same going up the ladder of
judicial processes from the Municipal Trial Court (as the case may be) to the Regional Trial
Court, to the Court of Appeals, thence to the Supreme Court.
Assessment under the Local Government Code - Local taxes, fees, or charges shall be
assessed within five (5) years from the date they became due. In case of fraud or intent to
evade the payment of taxes, fees or charges the same maybe assessed within ten years
from discovery of the fraud or intent to evade payment. They shall also be collected either
by administrative or judicial action within five (5) years from date of assessment (Sec. 194,
LGC).
The CTA may suspend the collection of internal revenue taxes if the following conditions are
met:
a. the case is pending appeal with the CTA;
b. in the opinion of the Court the collection will jeopardize the interest of the Government
and/ or the taxpayer; and
c. the taxpayer is willing to deposit in Court the amount being collected or to file a
surety bond for not more than double the amount of the tax (Sec. 11, RA 1125,
as amended by RA 9282).
However, An appeal to the CTA shall not suspend the enforcement of the tax liability, unless
a motion to that effect shall have been presented in court and granted by it on the basis that
such collection will jeopardize the interest of the taxpayer or the Government (Pirovano v.
CIR, 14 SCRA 832 [1965]).
In the case of failure to file a return, a proceeding in court for the collection of the tax
may be filed without an assessment. (Sec. 222(a), NIRC). The tax can be collected by
filing a criminal action with the RTC because a criminal action is a mode of collecting
the tax liability. (Sec. 205, NIRC). Besides, the Commissioner is empowered to prepare a
return on the basis of his own knowledge, and upon such information as he can obtain from
testimony or otherwise, which shall be prima facie correct and sufficient for legal purposes
(Sec. 6(B), NIRC; The issuance of a formal deficiency tax assessment, therefore is not
required.
Finally, assessment is different from criminal prosecution
Prescription of criminal actions fro violations of tax laws : 5 YEARS from commission

***It is only when the assessment has become final and unappealable that the 5-year period
to file a criminal action commences to run (Tupaz v. Ulep, 316 SCRA 118 [1999]).
The accountant may be held criminally liable for violation of the Tax Code when he
falsified the tax return by underdeclaring the sale and overstating the expense
deductions.
A taxpayer's suit may only be allowed when an act complained of, which may include a
legislative enactment, directly involves the illegal disbursement of public funds derived from
taxation (Pascual vs. Secretary of Public Works, 110 Phil. 331).