You are on page 1of 28

LAW ON TAXATION

PART l. GENERAL PRINCIPLES OF TAXATION

A. Definition, Concept and Purpose of Taxation

TAXATION is the power by which the sovereign, through its law-making


body, raises revenue to defray the necessary expenses of government.

Taxation is a way of apportioning the costs of government among those who


in some measure are privilege to enjoy its benefits and must bear its burdens

Taxation as a “symbiotic” relationship whereby in exchange for the protection


that the citizens get from the Government, taxes are paid.

Rationale:

“It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to surrender
part of one’s hard-earned income to the taxing authorities, every person who
is able must contribute his share in the running of the government.

The government for its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and
enhance their moral and material values.

The symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the
seat of power.”

Fair-dealing on both sides of this symbiotic relationship is of paramount


importance in order to maintain its harmonious character, “taxpayers owe
honesty to government just as government owes fairness to taxpayers.”

“If the State expects its taxpayers to observe fairness and honesty in paying
their taxes, so must it apply the same standards against itself. No one, not
even the State, should enrich itself at the expense of another.”

TAXES

Page 1 of 28
Taxation Law
Taxes are the enforced proportional contributions from persons and property
levied by the law-making body of the State by virtue of its sovereignty for the
support of government and for public needs.

B. Nature and Characteristics of Taxation

The following are attributes or characteristics of taxes:

(a) A tax is a forced charge, imposition or contribution and as such it


operates in invitum, which means that it is in no way dependent on the
will or contractual assent, express or implied, of the person taxed.

They are not contracts, either expressed or implied, but positive acts of
government

(b) It is a pecuniary burden payable in money, such that a tax is not


necessarily confined to those payable in money,

as in the case, for instance,

i. backpay certificates which under R.A. 304 could be used as


payment of taxes
ii. backpay certificates under R.A' 304 may be used to pay real estate
taxes

(c) It is levied by the legislative body of the state because the taxing power
is peculiarly and exclusively legislative in character.
Taxes are obligations created by law.

(d) It is assessed in accordance with some reasonable rule of


apportionment, which means that conformably with the constitutional
mandate on progressivity of a taxing system, taxes must be based on
ability to pay.

Do regressive taxes go against the constitutional mandate in, Sec. 28(1),


Art. VI of the Constitution?

The supreme court, in upholding the validity of the Expanded Value-


Added Tax Law (R.A. 7716), said: "The constitution does not really
prohibit the imposition of indirect taxes which, Iike the VAT, are
Page 2 of 28
Taxation Law
regressive. What it simply provides is that congress shall “evolve a
progressive system of taxation.”

Resort to indirect taxes should be minimized but not avoided entirely


because it is difficult, if not impossible, to avoid tem by imposing such
taxes according to t taxpayers’ ability to pay.

(e) It is imposed by the State on


i. Persons,
ii. Property or
iii. Service
within its jurisdiction

(f) A tax is levied for a public purpose as taxation in itself involves a burden
to provide revenue for public purposes of a general nature.
A tax creates a civil liability on the part of a delinquent taxpayer, although
the non-payment thereof (whether it be on account of the taxpayer’s
failure or refusal to pay it) creates criminal liability, which could be the
subject of criminal prosecution under existing laws.

Taxation is one’s civil liability to pay taxes that gives rise to criminal
liability.

IMPORTANCE OF TAXES.

Taxes are important because they are the lifeblood of the Government and so
should be calculated without unnecessary hindrance.

The legislature, in adopting measures to implement our tax laws, wants to be


assured that taxes are paid and collected without delay.

Being the lifeblood of the Government, their prompt and certain availability is an
imperious need.

The primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common will.

Due process of law under the Constitution does not require judicial proceeding
in tax cases, because it is upon taxation that the Government and it is of utmost

Page 3 of 28
Taxation Law
importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible.

TAXES, PERSONAL TO TAXPAPER.

Taxes are personal to the taxpayer.

A corporation’s tax delinquency cannot be enforced against its stockholders


because not only would this run counter to the principle that taxes are personal,
but it would also not be in accord with the rule that a corporation is vested by
law with a personality that is separate and distinct from those of the persons
composing it, as well as from the of any other legal entity to which it may be
related.

Stockholders may be held liable for the unpaid taxes of a dissolved corporation
if it appears the corporate assets have passed into their hand, or when
stockholders have unpaid subscriptions to the capital of the corporation.

Estate taxes accruing upon transmission of the decedent’s estate to his heirs
are not liabilities which can be enforced against his heirs, for estate taxes are
supposed to be obligations that must be paid by the executor/administrator out
of the net estate, before delivery to any beneficiary of his distributive share.

However, if prior to the payment of the estate tax due on the transfer of
decedent’s estate, the properties of the deceased are distributed to any
beneficiary, then such beneficiary shall be subsidiarity liable for the payment of
such portion of the estate tax as his distributive share bears to the total value of
the ne estate.

NATURE OF THE TAXING POWER.

The power to tax is an attribute of sovereignty.

It is inherent in the State.

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" (

Page 4 of 28
Taxation Law
The power to tax is an awesome power.

However, no matter how awesome it may be, it must not be exercised arbitrarily.

Taxation is a
i. power emanating from necessity;
ii. a necessary burden to preserve the State's sovereignty,
iii. a means to give the citizenry an army to resist an aggression,
iv. navy to defend its shores from invasion"
v. a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's
territory and facilities, and
vi. protection which a government is supposed to provide

Taxation is a
i. high prerogative of sovereignty
ii. the relinquishment of which is never presumed, and
iii. any reduction or diminution thereof with respect to its mode or rate must
be strictly construed and the same must be couched in clear terms.

The general rule:

Any claim for exemption from tax statutes should be construed strictly
against the taxpayer.

The power to tax is not granted in the Constitution.

Constitutional provisions relating to the power of taxation do not operate as grants of


the power of taxation to the Government, but merely constitutes limitations upon a
power which would otherwise be practically without limit.

The taxing power is peculiarly and exclusively legislative in character and remains
undiminished in the legislature in the absence of an express surrender thereof, clear
and explicit in its terms.

The power to tax is subject to inherent and constitutional limitations.

Purposes and objectives of taxation

(a) Revenue –
Page 5 of 28
Taxation Law

The purpose of taxation is to provide funds or property with which the State
promote the general welfare and protection of its citizens.

(b) Regulation. –

Taxation also has a regulatory purpose.


as in the case of
i. Taxes levied on excises or privileges like those imposed on
a) tobacco and alcoholic products, or
b) amusement places like nigh clubs, cabarets, cockpits

Taxation is a power that is exercised in order to raise revenue for the support of
the Government.

Taxes may also be imposed for the support of the Government.

Taxes may also be imposed for a regulatory purpose as,


i) rehabilitation and stabilization of a threatened industry which is affected
with public interest, like oil industry.

(c) Promotion of General Welfare –

Taxation may be used as an implementation of the police power in order to


promote the general welfare of the people

The Supreme Court upheld the validity of the Sugar Adjustment Act, which
imposed a tax on milled sugar since the purpose of the law was to strengthen
an industry that is o undeniably vital to the economy – the sugar industry.

The Oil Price Stabilization Fund (OPSF), a devise designed to protect the
public from the adverse effects of fluctuations in the prices of imported crude
oil.

While the funds collected under the (OPSF) may be referred to as taxes, they
are exacted in the exercise of the police power to the State.

From such fund, amounts are drawn to reimburse oil companies when
appropriate situations arise for increase in, as well as under-recovery of, the
cost of crude oil importation
Page 6 of 28
Taxation Law

(d) Reduction of social Inequality –

This is made possible through the progressive system of taxation, where the
objective is to prevent the undue concentration of wealth in the hands of a few
individuals.

Progressivity is keystoned on the principle that

”those who are able to pay should shoulder the bigger portion of the tax burden.

The present rates of


i. income,
ii. estate and
iii. gift taxes
present a good example of progressivity.

(e) Encourage Economic Growth –

Taxation raise public revenue, but in the realm of tax exemptions and tax
reliefs, the purpose is to grant incentives or exemptions in order to encourage
investments and thereby promote the country's economic growth.

It is worthwhile to note that since the power to tax is inherent in the state, the
power to exempt from tax is inherent in the state also.

This is not necessarily so in the domain of local taxation. Since in local taxation,
the taxing power is only delegated, i.e., either under the constitution or by virtue
of legislation or both, it follows that in order to grant tax exemptions, Iocal
governments must justify its exercise under constitutional or statutory law or
both, as the case may be.

Local governments may grant tax exemptions.

It is, however, significant to note that with respect to real property taxes, no
such power exists, save in the case of condonation of taxes which can be
granted only for certain justifiable reasons which are expressly stated in the
law.

Page 7 of 28
Taxation Law

(f) Protectionism –

In foreign importations, taxes sometimes provide protection to local


industries like protective tariffs and customs duties.

THEORY AND BASIS OF TAXATION.

There are two reasons why the exercise by the State of its taxing power is justified.
1. Necessity
2. Grant of protection and benefits by the State to its citizens.

(a) Necessity Theory –


Taxes proceed upon the theory that the existence of government is a necessity;
that it cannot continue without the means to pay its expenses; and that for those
means, it has the right to compel all citizens and property within its limits to
contribute.

Taxation is a power emanating from necessity.

It is a necessary burden
i. to preserve the State’s sovereignty and
ii. a means to give the citizenry an army to resist aggression,
iii. a navy to defend its shores form invasion,
iv. a corps of civil servants to serve, public improvements designed for the
enjoyment of the citizenry and those which come within the State’s
territory and facilities, and
v. protection which a government is supposed to provide

(b)The Benefits-Protection Theory –

The State demands and receives taxes form the subjects of taxation within its
jurisdiction so that it may be enabled to carry its mandate into effect and perform
the functions of government and the citizen pays from his property the portion
demanded in order that he may, by means thereof, be secured in the enjoyment
of the benefits of organized society.

In exchange for the protection that the State give to its citizens, taxes must be
correspondingly paid to it.
Page 8 of 28
Taxation Law

Taxes are intended for general benefits.

From the contribution received, the Government renders no special or


commensurate benefit to any particular person or property.

A tax is not imposed on the basis of a special or particular benefit accruing to


each citizen in proportion to the tax paid.

A person cannot object to or resist the payment of taxes solely because no


personal benefit to him can be pointed out as arising from the tax.

The Supreme Court upheld the validity of the Anti-TB Stamp Law which
required the affixture of a semi-postal stamp on mail matter between August 19
and Sept 30 of each year.

It was held that although no special benefit accrues to mail users by such
stamp, it is not necessary, to constitute a public purpose, that special benefits
accrue to a taxpayer; it is enough that he enjoys the benefits of living in an
organized society.

SCOPE OF THE LEGISLATIVE TAXING POWER

Legislative taxing power or discretion extends to the following:

(a) The person, property, or occupation to be taxed; Excises or privileges,


provided they are within the taxing jurisdiction, are also included.

The taxing authority can select the subjects of taxation

(b) The amount or rate of the tax


(c) The purposes for which taxes shall be levied provided they are public purposes;
(d) The kind of tax to be collected;
(e) The apportionment of the tax; i.e., whether the tax shall be general or limited to
a particular locality or partly general and partly local
(f) The situs of taxation
(g) The method of collection

The purpose of levy is exclusively within the discretion of the legislature, but
courts may determine whether the purpose is public or not.
Page 9 of 28
Taxation Law

The legislature has full discretion as to the person, property, occupation or


business to be taxed provided these are all within the State’s territorial
jurisdiction.

The legislature can determine the amount or rate of tax, the mode, methods or
kind of tax like property, excise, license, occupation or income tax.

IS TE POWER TO TAX THE POWER TO DESTROY?

The power to impose taxes is one so unlimited in force and so searching in extent so
that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it.

Rule: The power to tax involves the power to destroy.

Describe the degree of vigor with which the taxing power may be employed in order
to raise revenue

CONSTITUTIONAL RESTRAINTS

RE: “TAXATION IS THE POWER TO DESTROY”

“power to tax is not the power to destroy while the Supreme Court sits,” because of
the constitutional restraints placed on a taxing power that violates fundamental rights.

A federal excise tax upon artificially colored oleomargarine may be prohibited entirely
without any violation of fundamental rights

The power of taxation is sometimes called the power to destroy, in order to maintain
the general public’s trust and confidence in the Government, this power must be used
justly and not treacherously.

Examples:
1. Taxpayers, in order to accommodate the Government’s program of providing
land for the landless tenants, took it upon themselves to pursue that program
by subdividing a large tract of land owned by them into smaller lots and selling
them to said tenants at cost, there was no legal bais for the Bureau of Internal
Revenue to consider them as being actually engaged in business and
subjecting them to the real estate dealer’s tax.
Page 10 of 28
Taxation Law
2. No basis to assess the income as though the land sold by them was a business
or ordinary asset.
3. Since the taxpayers were acting only in response to the Government’s desire
to ameliorate, unable as it was to finance the purchase of the desire to
ameliorate, unable as it was to finance the purchase of the large tract of land
from the taxpayers, assessing them as if they were actually engaged in the real
estate business would run counter to the principle that although taxation is the
power to destroy, such power must not be used treacherously.

Taxpayers owe honesty to the Government just as the Government owes


fairness to taxpayers.

“Fair deal is expected by our taxpayers from the BIR and the duty demands that
the BIR should refund without any unreasonable delay what it has erroneously
collected.”

The Power of taxation is the power to destroy,


i. it should be exercised with caution to minimized injury to the propriety
rights of a taxpayer.
ii. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the “hen that lays the golden egg”
iii. must be used justly and not treacherously in order to maintain the general
public trust and confidence in the Government

POWER OF JUDICIAL REVIEW

The courts cannot inquire into the wisdom of a taxing act.

Courts cannot review the wisdom or advisability or expediency of a tax.

The judicial tribunals of the State have no concern with the policy of legislation.

The judicial power cannot legitimately question or refuse to sanction te provisions of


any law not inconsistent with the fundamental law of the State.

Nor can the motives which have influenced the selection of objects for taxation or
determined the rate, be inquired into.

Judicial non-interference: as long as the legislature, in imposing a tax, does not


violate applicable constitutional limitations or restrictions, the courts have no concern
Page 11 of 28
Taxation Law
with the wisdom or policy of the exaction, the political or other collateral motives
behind it, the amount to be raised, or the persons, property or other privileges to be
taxed.

The court’s power in taxation is limited only to the application and interpretation of the
law.

The petitioner’s argument that the affixture of the documentary stamp on freight
receipts is impracticable should not be entertained because according to the Court,
the impracticability and absurd consequences of the law should be addressed to the
legislature and administrative authorities. Courts merely apply the law as they find it.

It is not within its province to inquire into the wisdom of the law for indeed courts are
bound by the words in the mouth of the lawmaker “A verbo non est recedendum”

Courts has not authority to pass judgment upon the taxation policy of the
Government. It is inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that “inequalities which result
from singling out of one particular class for taxation, or exemption, infringe no
constitutional limitation.”

The question as to whether or not the BIR’s reclassification is counterproductive could


be properly addressed to respondents Secretary of Finance and Commissioner of
Internal Revenue or Congress.

ASPECT OF TAXATION.

Taxation embraces two aspects or phases:


1. levy or imposition of the tax on persons, property or excises
2. the collection of the taxes already levied

Levy is a legislative power, includes the determination of the persons, property


or excises to be taxed, the sum or sums to be raised, the due date thereof and
the time and manner of levying and collecting taxes.

Collecting (including assessment) consists of the manner of enforcement of the


obligation on the part of those who are taxed.

Page 12 of 28
Taxation Law
BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy

The sources of government revenue must be sufficient to meet government


expenditure and other public needs.

This is essential in order to avoid budgetary deficits and to minimize foreign


and local borrowings.

Requires that sources of revenue must be adequate to meet government


expenditures and their variations.

2. Theoretical Justice

A good tax system must be based on the taxpayer’s ability to pay

This suggest tat taxation must be progressive conformably with the


constitutional mandate that Congress shall evolve a progressive system of
taxation.

3. Administrative Feasibility

Taxes should be capable of being effectively enforced.

It must not lay down obstacles to business growth and economic


development.

VAT law, an example of administrative simplicity. It is principally aimed to


rationalize the system of taxes on goods and services, simplify tax
administration and make the system more equitable to enable the country to
attain economic recovery.

Taxation could be enhanced through the exercise of police power. If under


the police power, a local government can classify ands as residential and
commercial, then, since conversion of industrial lands is usually assessed on
a higher assessment level, tax collections are increased.

Page 13 of 28
Taxation Law
C. Power of Taxation as distinguished from Police Power and
Power of Eminent Domain

1. As to Purpose. Taxation is levied for the purpose of raising


revenue; police power is exercised to promote public welfare
through regulations.
2. As to amount of exaction – In taxation there is no limit; in police
power, the exaction should only be such as to cover the cost of
regulation, issuance of the license or surveillance.
3. As to Benefits Received – In taxation, nospecial or direct is
received by the taxpayer other than the fact that the Government
only secures to the citizen that general benefit resulting form the
protection of his person and property

Purpose - Taxation is levied for the purpose of raising I r , \.r,il il ( .; 1rt-


rlice power is exercised to promote public welfare through 1, ;,,rlrrl
tttlls. 7, ,'ls tct Amount of Exaction - In taxation there is no limit; in
gil,lrr.r. l)ower, the exaciion should only be such as to cover the cost of
1 r,grrr lrr(,iotr, issuance of the"license or surveillance' ._ :t ils to
Benefits Receiued, - In taxation, no special or direct benefit t;r |,rr'('rV()d
by the taxpayer other than the fact that the Government ,,il1y rrr,r:urer
to th".itir"n that general benefit resulting from the 1,1,,1,', lirrn <rf his
person and property and welfare of all (51 Am' Irtr l:l 4:l). As to police
power, however, while no direct benefits ,itr. I.r.(.(,iv()d, a healthy
economic standard of society known as 't!ttut nrt ttt ubsque injuria" is
attained. .l ,'l.s lo Non-Impairmen't of Con,tracts - In taxation, the r,,i,,
,,,,1,,,irrnent of contracts rule subsislS: "h3"-tuxing ac[ cannot i r r r ;, i
r r I i l r c obligation of contra itr ( 5"c. l O,, A,t IIL Iy, Constitution)'

D. Theory and Basis of Taxation


E. Principles of a Sound Tax System
F. Scope and Limitations of Taxation
1. Inherent limitations
2. Constitutional limitations
G. Stages or Aspects of Taxation
H. Definition, Nature and Characteristics of Taxes
Requisites of a Valid Tax
J. Tax as distinguished from other forms of exactions

Page 14 of 28
Taxation Law
K. Kinds of Taxes
L. Situs of Taxation
M. Construction and Interpretation of
1. Tax Laws
2. Tax Exemption and Exclusion
3. Tax Rules and Regulations
4. Penal provisions of Tax Laws
5. Non-retroactive application to Taxpayers
N. Sources of Tax Laws
O. Doctrines in Taxation
1 . Prospectivity of Tax Laws
2 Imprescriptibility of Taxes
3 Double Taxation
4 Power to Tax involves Power to Destroy
5 Escape from Taxation
a. Shifting of Tax Burden
b. Tax Avoidance
c. Tax Evasion
6. Exemption from Taxation
7. Doctrine of Equitable Recoupment
8. Compensation and Set-off
9. Compromise and Tax Amnesty
1 0. Taxpayer's Suit
a. Nature and Concept
b. As distinguished from a citizen's suit
c. Requisites of a Taxpayer's suit challenging the constitutionality of a tax
measure or act of a taxing authority; concept of locus standi, doctrine
of transcendental importance and ripeness for judicial determination

PART ll. NATIONAL TAXATION


A. Organization and Functions of the Bureau of Internal Revenue
1. Rule-making authority of the Secretary of Finance
a. Authority of the Secretary of Finance to promulgate rules and
regulations
b. Specific provisions to be contained in rules and regulations

Page 15 of 28
Taxation Law
2. Jurisdiction, Power and Functions of the Commissioner of Internal
Revenue
a. Powers and duties of the Bureau of Internal Revenue
b. Power of the Commissioner to interpret tax laws and to decide tax
cases.
c. Non-retroactivity of rulings
B. National Internal Revenue Code (NIRC) of 1997, as amended
1. Income taxation
a. Definition, Nature and General Principles
a. 1 Income Tax systems — Global, Schedular and Semi-schedular
or Semi-Global Taxpayer's income
a.2 Features of the Philippine Income Tax Law
a.3 Criteria in imposing Philippine income tax
a.4 Types of Philippine income tax
a.5 Taxable period
a.6 Kinds of taxpayers
b. Income Tax
b. 1 Definition, Nature and General principles
b.2 Income
b.2.1 Definition and nature
b.2.2 When income is taxable
i. Existence of income
ii. Realization of income iii. Recognition of income iv. Cash
method of accounting versus Accrual method of
accounting
b.2.3 Tests in determining whether income is earned for tax
purposes
i. Realization test ii. Claim of right doctrine or doctrine of
ownership, command or control iii. Economic benefit test,
doctrine of proprietary interest iv. Severance test
v. All events test
b.2.4 Classification of income
b.2.5 Situs of Income Taxation
b.3 Gross Income
b.3.1 Definition
b.3.2 Concept of income from whatever source derived
b.3.3 Gross income vis-a-vis net income vis-a-vis taxable
income

Page 16 of 28
Taxation Law
b.3.4 Sources of income subject to tax
b.3.5 Classification of income subject to tax
Compensation income ii. Fringe benefits iii.
Professional income iv. Income from business
v. Income from dealings in property vi. Passive
investment income vii. Annuities, proceeds from life
insurance or other types of insurance viii. Prizes and
awards ix. Pensions, retirement benefit or separation pay
x. Income from any source whatever
b.3.6 Exclusions from gross income Rationale for the
exclusions ii. Taxpayers who may avail of the exclusions iii.
Exclusions distinguished from deductions and tax credit iv.
Exclusions under the Constitution
v. Exclusions under the Tax Code vi. Exclusions
under special laws
b.4 Deductions from Gross Income
b.4.1 General rules
b.4.2 Return or capital
b.4.3 Itemized deductions
b.4.5 Optional Standard Deduction
b.4.6 Personal and Additional Exemptions
b.4.7 Items not deductible
c. Income Tax on Individuals
c. 1 Income Tax on Resident Citizens, Non-resident Citizens and
Resident Aliens
c. 1.1 Coverage — Income from all sources within and without
the Philippines; exception
c. 1.2 Taxation on compensation income
i. Inclusions — monetary and non-monetary compensation
ii. Exclusions — Fringe benefit subject to tax; De Minimis
benefits; 13th month pay and other benefits and payments
specifically excluded from taxable compensation income iii.
Deductions — Personal and additional exemptions; Health
and hospitalization insurance
c. 1.3 Taxation of business income/income from practice of
profession
c. 1.4 Taxation of Passive Income
c. 1.5 Taxation of capital gains
c.2 Income Tax on Non-Resident Aliens Engaged in Trade or
Business
Page 17 of 28
Taxation Law
c.3 Income Tax on Non-Resident Aliens Not Engaged in Trade or
Business
c.4 Individual Taxpayers Exempt from Income Tax
c.4.1 Senior citizens
c.4.2 Minimum wage earners
c.4.3 Exemptions granted under international agreements
d. Income Tax on Corporations
d. 1 Income Tax on Domestic Corporations and Resident Foreign
Corporations
d. 1 .1 Regular tax
d. 1.2 Minimum Corporate Income Tax (MCI T)
d. 1.3 Branch Profit Remittance Tax
d.1.4 Allowable deductions
i. Itemized deductions ii. Optional Standard
Deductions
d. 1.5 Taxation of Passive Income
d. 1.6 Taxation of capital gains
d.2 Income Tax on Non-Resident Foreign Corporations
d.3 Income Tax on Special Corporations
d.3.1 Domestic Corporations
i. Proprietary educational institutions and hospitals ii.
Non-profit hospitals iii. Government-owned or controlled
corporations, agencies or instrumentalities iv. Depository
banks (foreign currency deposit units)
d.3.2 Resident Foreign Corporations
i. International carrier doing business in the Philippines ii.
Off-shore banking units iii. Resident depository banks
(foreign currency deposit units) iv. Regional or Area
Headquarters and Regional
Operating Headquarters of Multinational
Companies
d.4 Improperly Accumulated Earnings Tax
d.5 Exemption from Tax on Corporations
d.6 Tax on General Partnerships, General Professional
Partnerships, Co-ownerships, Joint Ventures and
Consortiums
e. Filing of Returns and Payment of Income Tax
e. 1 Definition of a Tax Return and Information Return

Page 18 of 28
Taxation Law
e.2 Period to file Income Tax Return of Individuals and
Corporations
e.3 Persons liable to file Income Tax Returns
e.3.1 Individual taxpayers
i. General rule and exceptions ii.
Substituted filing
e.3.2 Corporate taxpayers
e.4 Where to file Income Tax Returns
e.5 Penalties for Non-filing of Returns
f. Withholding of taxes
f. 1 Concept of withholding taxes
f.2 Kinds of Withholding Taxes
2. Transfer Tax
a. Estate Tax
a. 1. Basic principles, concept and definition
a.2. Nature, purpose and object
a.3. Time and transfer of properties
a.4. Classification of decedent
a.5. Gross estate and net estate
a.6. Determination of gross and net estate
a. 7. Items to be included in the gross estate
a.8. Deductions and exclusions from estate
a.9. Tax credit for estate taxes paid in a foreign country
a. 10.Exemption of certain acquisitions and transmissions
a. 1 1. Filing of notice of death
a. 12. Estate tax return
b. Donor's Tax
b. 1. Basic principles, concept and definition
b.2. Nature, purpose and object
b.3. Time and transfer of properties
b.4. Requisites of a valid donation
b.5. Transfers which may be constituted as donation
b.5.1 sale/exchange/transfer of property for insufficient
consideration
b.5.2 condonation/remission of debt
b.6. Transfer for less than adequate and full consideration
Classification of donor
b.8. Determination of gross gift

Page 19 of 28
Taxation Law
b.9. Composition of gross gift
b.10. Valuation of gifts made in property
b. l l . Tax credit for donor's taxes paid in a foreign country
b.12. Exemption of gifts from donor's tax
b. 13. Person liable
b. 14. Tax basis
3. Value-Added Tax
a. Concept, characteristics/elements of VAT-taxable
transactions
b. Impact and incidence of tax
c. Tax credit method
d. Destination Principle / Cross Border Doctrine
e. Persons liable
f. Imposition of VAT
f. 1. On sale of goods or properties
f.2. On importation of goods
f.2.1 Transfer of goods by tax exempt persons
f.3. On services
g. Transactions deemed sale
g. 1. Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the
course of business
g.2. Distribution or transfer to shareholders, investors or creditors
g.3. Consignment of goods if actual sale is not made within 60 days
from date of consignment
g.4. Retirement from or cessation of business with respect to
inventories on hand
h. Change or cessation of status as VAT-registered person
h. 1. Subject to VAT
h.l.l. Change of business activity from VAT taxable status to
VAT-exempt status
h. 1.2. Approval of request for cancellation of a registration due
to reversion to exempt status
h. 1.3. Approval of request for cancellation of registration due
to desire to revert to exempt status after lapse of 3
consecutive years
h.2. Not subject to VAT
h.2.1 Change of control of a corporation
Page 20 of 28
Taxation Law
h.2.2 Change in the trade or corporate name
h.2.3 Merger or consolidation of corporations
Zero-rated and effectively zero-rated sales of goods or properties
j. VAT-exempt transactions
j. 1. VAT exempt transactions, in general
j.2. Exempt transaction, enumerated
k. Input and Output tax
k. 1. Definition
k.2. Sources of input tax
k.2.1. Purchase or importation of goods
k.2.2. Purchase of real properties for which a
VAT has actually been paid
k.2.3. Purchase of services in which VAT has actually been
paid
k.2.4. Transactions deemed sale
k.2.5. Presumptive input
k.2.6. Transitional input
k.3. Persons who can avail input tax credit
k.4. Determination of output/input tax; VAT payable; excess input
tax credits
k.4.1. Determination of output tax
k.4.2. Determination of input tax creditable
k.4.3. Allocation of input tax on mixed transactions
k.4.4.Determination of the output tax and VAT payable and
computation of VAT payable or excess tax credits
l. Substantiation of input tax credits
m. Refund or tax credit of excess input tax
m. 1. Who may claim for refund/apply for issuance of tax credit
certificate
m.2. Period to file claim/apply issuance of tax credit certificate
m.3. Manner of giving refund
m.4. Destination principle/Cross-border doctrine
n. Invoicing Requirements
n. 1. In general
n.2. In deemed sale transactions
n.3. Consequences of issuing erroneous VAT invoice or VAT
official receipt
o. Filing of return and payment
Page 21 of 28
Taxation Law
p. Withholding of final VAT on sales to government
4. Percentage Taxes (concept and nature only)
5. Excise Tax (concept and nature only)
6. Documentary Taxes (concept and nature only)
7. Tax Remedies under the NIRC
a. General Concepts
a. 1 Assessment
a. 1 .1 Definition and requisites of a valid assessment
a. 1.2 Tax delinquency as distinguished from Tax deficiency
a.1.3 Jeopary assessment
a. 1.4 Prescriptive period for assessment General rule ii. False
or fraudulent returns and non-filing of returns iii. Suspension
of running of statute of limitations
a. 1.5 Civil penalties, additions to the tax
i. Delinquency interest and deficiency interest ii.
Surcharge iii. Compromise penalty
a. 1.6 Assessment process and reglementary periods
i. Letter of Authority and Tax Audit ii. Notice of Informal
Conference iii. Issuance of Preliminary Assessment Notice,
general rule and exceptions iv. Issuance of Formal Letter of
Demand and
Final Assessment Notice
v. Disputed Assessment
a.2 Collection
a.2.1 Requisites
a.2.2 Prescriptive periods; suspension of running of statute of
limitations
b. Taxpayer's remedies
b. 1. Protesting an assessment
b. 1 .1 Protested assessment
b. 1.2 Period to file protest
b. 1.3 Form, content and validity of protest
b. 1.4 Submission of supporting documents
b. 1.5 Effect of failure to file protest
b. 1.6 Decision of the Commissioner on the protest filed
i. Period to act upon or decide on protest filed ii. Remedies
of the taxpayer in case the Commissioner denies the protest
of fails to act on the protest.
iii. Effect of failure to appeal
Page 22 of 28
Taxation Law
b.2 Compromise and abatement of taxes
b.3 Recovery of Tax Erroneously or Illegally Collected
b.3.1 Tax refund as distinguished from Tax credit
b.3.2 Grounds, requisites and period for filing a claim for refund
or issuance of tax credit certificate
b.3.3 Statutory basis and proof for claim of refund or tax credit
b.3.4 Proper party to file claim for refund or tax credit
c. Government remedies
c. 1 Administrative remedies
c. 1.1 Tax lien
c. 1.2 Distraint and levy
c. 1.3 Forfeiture of real property
c. 1.4 Suspension of business operation
c. 1.5 Non-availability of injunction to restrain collection of tax
c.2 Judicial remedies — civil or criminal action

PART Ill. LOCAL GOVERNMENT CODE OF 1991, as amended


A. Local government taxation
1. Fundamental principles
2. Nature and source of taxing power
a. Grant of local taxing power under the local government code
b. Authority to prescribe penalties for tax violations
c. Authority to grant local tax exemptions
d. Withdrawal of exemptions
e. Authority to adjust local tax rates
f. Residual taxing power of local governments
g. Authority to issue local tax ordinances
3. Local taxing authority
a. Power to create revenues exercised through Local Government Units
b. Procedure for approval and effectivity of tax ordinances
4. Scope of taxing power
5. Specific taxing power of Local Government Units
a. Taxing powers of provinces (Exclude: Rates)
a. 1 Tax on transfer of real property ownership
a.2 Tax on business of printing and publication
a.3 Franchise tax
a.4 Tax on sand, gravel and other quarry services
Page 23 of 28
Taxation Law
a.5 Professional tax
a.6 Amusement tax
a. 7 Tax on delivery truck/van
b. Taxing powers of cities (Exclude: Rates)
c. Taxing powers of municipalities (Exclude: Rates)
c. 1 Tax on various types of businesses
c.2 Ceiling on business tax impossible on municipalities within Metro
Manila
c.3 Tax on retirement on business
c.4 Rules on payment of business tax
c.5 Fees and charges for regulation & licensing
c.6 Situs of tax collected
c. 7 Tax on delivery truck/van
d. Taxing powers of barangays (Exclude: Rates)
e. Common revenue raising powers
e. 1 Service fees and charges
e.2 Public utility charges
e.3 Toll fees or charges
f. Community tax
6. Common limitations on the taxing powers of LGUs
7. Collection of business tax
a. Tax period and manner of payment
b. Accrual of tax
c. Time of payment
d. Penalties on unpaid taxes, fees or charges
e. Authority of treasurer in collection and inspection of books
8. Taxpayer's remedies
a. Periods of assessment and collection of local taxes, fees or charges
b. Protest of assessment
c. Claim for refund of tax credit for erroneously or illegally collected tax,
fee or charge
9. Civil remedies by the LGU for collection of revenues
a. Local government's lien for delinquent taxes, fees or charges
b. Civil remedies, in general
b. 1 Administrative action
b.2 Judicial action
Page 24 of 28
Taxation Law
B. Real property taxation
1 . Fundamental principles
2. Nature of real property tax
3. Imposition of real property tax
a. Power to levy real property tax
b. Exemption from real property tax
4. Appraisal and assessment of real property tax
a. Rule on appraisal of real property tax at fair market value
b. Declaration of real property
c. Listing of real property in assessment rolls
d. Preparation of schedules of fair market value
d. 1. authority of assessor to take evidence
d.2. amendment of schedule of fair market value
e. Classes of real property
f. Actual use of property as basis of assessment
g. Assessment of property
g. 1. General revisions of assessments and property classification
g.2. Date of effectivity of assessment or reassessment
g.3. Assessment of property subject to back taxes
g.4. notification of new or revised assessment
5. Collection of real property tax
a. Date of accrual of real property tax and special levies
b. Collection of tax
b. 1 Collecting authority
b.2 Duty of assessor to furnish local treasurer with assessment rolls
b.3 Notice of time for collection of tax
c. Periods within which to collect real property tax
d.Special rules on payment
d. 1 Payment of real property tax in installments
d.2 Interests on unpaid real property tax
d.3 Condonation of real property tax
e. Remedies of LGUs for collection of real property tax
e. 1 Issuance of notice of delinquency for real property tax payment
e.2 Local government's lien
e.3 Remedies in general
e.4 Resale of real estate taken for taxes, fees or charges
e.5 Further levy until full payment of amount due

Page 25 of 28
Taxation Law
6. Refund or credit of real property tax
a. Payment under protest
b.Repayment of excessive collections
7. Taxpayer's remedies
a. Contesting an assessment of value of real property
a. 1 Appeal to the Local Board of Assessment Appeals
a.2 Appeal to the Central Board of Assessment Appeals
a.3 Effect of payment of tax
b. Payment of real property tax under protest
b. 1 File protest with local treasurer
b.2 Appeal to the Local Board of Assessment Appeals
b.3 Appeal to the Central Board of Assessment Appeals
b.4 Appeal to the CTA
b.5 Appeal to the Supreme Court

PART IV. TARIFF AND CUSTOMS CODE OF THE PHILIPPINES, as amended by the
CUSTOMS MODERNIZATION AND TARIFF ACT
(Republic Act No. 10863, which took effect on June 16, 2016)
A. Tariff and duties
1. Definition
2. Purpose for Imposition
3. Kinds or Classification of Duties
a. Ordinary/regular duties
a. 1 Ad valorem (Exclude: Methods of Valuation);
a.2 Specific
b. Special duties
b.1 Dumping duties
b.2 Countervailing duties
b.3 Marking duties
b.4 Retaliatory/discriminatory duties
b.5 Safeguard Measure
4. Flexible tariff clause
B. Requirements of importation
1. Beginning and ending of importation
2. Obligations of importer
a. Cargo manifest
b. Import entry
c. Declaration of correct weight or value
Page 26 of 28
Taxation Law
d. Liability for payment of duties
e. Liquidation of duties
f. Keeping of records
C. Accrual and Payment of Tax and Duties
1. General Rule: Except as otherwise provided, all goods imported into the
Philippines shall be subject to duty upon importation, including goods
previously exported from the Philippines.
a. Taxable Importations
b. Prohibited Importations
c. De Minimis Importations (Small Value Importations)
d. Conditionally-Free and Duty-Exempt Importations
d. 1 Returning residents
d.2 Conditions for exemption from tax and duties
d.3 Balikbayan box
2. Goods Declaration
a. Formal entry distinguished from Informal entry
b. Filing of Goods Declaration
c. Assessment and Payment of Duties and Taxes, Interest and
Surcharge
d. Provisional Goods Declaration
e. Relief Consignment
f. Misdeclaration, Misclassification and Undervaluation in Goods
Declaration
f. 1 Definition and distinction
f.2 Imposition of Surcharge
D. Unlawful Importation or Exportation (Exclude: Penalties)
1. Technical smuggling and Outright smuggling
2. Other fraudulent practices
E. Remedies
1. Government
a. Administrative/extrajudicial
a. 1 Search, seizure, forfeiture, arrest
a.2 Authority of the Commissioner to Make Compromise
b. Judicial
b. 1 Rules on appeal including jurisdiction
2. Taxpayer
a. Protest
Page 27 of 28
Taxation Law
b. Abandonment
c. Abatement and refund
PART V. JUDICIAL REMEDIES (R.A. No. 1125, as amended, and the Revised Rules
of the Court of Tax Appeals)
A. Jurisdiction of the Court of Tax Appeals
1. Exclusive appellate jurisdiction over civil tax cases
a. Cases within the jurisdiction of the court en banc
b. Cases within the jurisdiction of the court in divisions
2. Criminal cases
a. Exclusive original jurisdiction
b. Exclusive appellate jurisdiction in criminal cases
B. Judicial procedures
1. Judicial action for collection of taxes
a. Internal revenue taxes
b. Local taxes
b. 1 Prescriptive period
2. Civil cases
a. Who may appeal, mode of appeal, effect Of appeal
a. 1 Suspension of collection of tax
a. 1 .1 Injunction not available to restrain collection
a.2 Taking of evidence
a.3 Motion for reconsideration or new trial
b. Appeal to the CTA, en banc
c. Petition for review on certiorari to the Supreme Court
3. Criminal cases
a. Institution and prosecution of criminal actions
a. 1 Institution of civil action in criminal action
b. Appeal and period to appeal
b. 1 Solicitor General as counsel for the people and government officials
sued in their official capacity
c. Petition for review on certiorari to the Supreme Court

Page 28 of 28