Situs of Taxation

Property Tax

(Properties which have acquired actual situs in the Philippines)

Section 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts'
include real and personal property, whether tangible or intangible, or mixed, wherever
situated: Provided, however, That where the decedent or donor was a nonresident alien at
the time of his death or donation, as the case may be, his real and personal property so
transferred but which are situated outside the Philippines shall not be included as part of his
'gross estate' or 'gross gift': Provided, further, That franchise which must be exercised in the
Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws; shares, obligations or
bonds by any foreign corporation eighty-five percent (85%) of the business of which is
located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or
rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that no tax shall be collected
under this Title in respect of intangible personal property: (a) if the decedent at the time of
his death or the donor at the time of the donation was a citizen and resident of a foreign
country which at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the Philippines not residing
in that foreign country, or (b) if the laws of the foreign country of which the idecedent or
donor was a citizen and resident at the time of his death or donation allows a similar
exemption from transfer or death taxes of every character or description in respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign
country.

The term 'deficiency' means: (a) the amount by which tax imposed by this Chapter exceeds
the amount shown as the tax by the donor upon his return; but the amount so shown on the
return shall first be increased by the amount previously assessed (or Collected without
assessment) as a deficiency, and decreased by the amounts previously abated, refunded or
otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the
donor, then the amount by which the tax exceeds the amounts previously assessed, (or
collected without assessment) as a deficiency, but such amounts previously assessed, or
collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax.

Excise Tax

1. Income Tax

Section 23. General Principles of Income Taxation in the Philippines. - Except when
otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines;

(B) A nonresident citizen is taxable only on income derived from sources within the
Philippines;

(C) An individual citizen of the Philippines who is working and deriving income from abroad
as an overseas contract worker is taxable only on income derived from sources within the
Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as an overseas contract worker;

(D) An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources within the Philippines;

(E) A domestic corporation is taxable on all income derived from sources within and without
the Philippines; and

(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.

2. Donor's Tax

Section 98. Imposition of Tax. -

(A) There shall be levied, assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed as provided in Section 99.

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct
or indirect, and whether the property is real or personal, tangible or intangible.

(Read also Section 104)

3. Estate Tax

Section 85. Gross Estate. - the value of the gross estate of the decedent shall be
determined by including the value at the time of his death of all property, real or personal,
tangible or intangible, wherever situated: Provided, however, that in the case of a
nonresident decedent who at the time of his death was not a citizen of the Philippines, only
that part of the entire gross estate which is situated in the Philippines shall be included in his
taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of
his death;

(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise, in contemplation of or
intended to take effect in possession or enjoyment at or after death, or of which he has at
any time made a transfer, by trust or otherwise, under which he has retained for his life or
for any period which does not in fact end before his death (1) the possession or enjoyment
of, or the right to the income from the property, or (2) the right, either alone or in
conjunction with any person, to designate the person who shall possess or enjoy the
property or the income therefrom; except in case of a bonafide sale for an adequate and full
consideration in money or money's worth.

(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in money
or money's worth) by trust or otherwise, where the enjoyment thereof was subject at the
date of his death to any change through the exercise of a power (in whatever capacity
exerciseable) by the decedent alone or by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired such power), t o alter,
amend, revoke, or terminate, or where any such power is relinquished in contemplation of
the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of the
power is subject to a precedent giving of notice or even though the alteration, amendment
or revocation takes effect only on the expiration of a stated period after the exercise of the
power, whether or not on or before the date of the decedent's death notice has been given
or the power has been exercised. In such cases, proper adjustment shall be made
representing the interests which would have been excluded from the power if the decedent
had lived, and for such purpose if the notice has not been given or the power has not been
exercised on or before the date of his

death, such notice shall be considered to have been given, or the power exercised, on the
date of his death.

(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2)
by deed executed in contemplation of, or intended to take effect in possession or enjoyment
at, or after his death, or (3) by deed under which he has retained for his life or any period
not ascertainable without reference to his death or for any period which does not in fact end
before his death (a) the possession or enjoyment of, or the right to the income from, the
property, or (b) the right, either alone or in conjunction with any person, to designate the
persons who shall possess or enjoy the property or the income therefrom; except in case of
a bona fide sale for an adequate and full consideration in money or money's worth.

(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not the insured retained the power of
revocation, or to the extent of the amount receivable by any beneficiary designated in the
policy of insurance, except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.
(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C)
and (E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers
and relinquishment of powers, as severally enumerated and described therein, whether
made, created, arising, existing, exercised or relinquished before or after the effectivity of
this Code.

(G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests,
rights or powers enumerated and described in Subsections (B), (C) and (D) of this Section is
made, created, exercised or relinquished for a consideration in money or money's worth, but
is not a bona fide sale for an adequate and full consideration in money or money's worth,
there shall be included in the gross estate only the excess of the fair market value, at the
time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.

(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall
not, for the purpose of this Chapter, be deemed a part of his or her gross estate.

(Read also Section 104)

4. Value Added Tax

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

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

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

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