6 2018 LMT Tax 2019 01 16

Lyceum of the Philippines University College of Law 85
PRE-WEEK NOTES ON TAXATION LAW
GENERAL PRINCIPLES
1. What are taxes?

Taxes are enforced contributions, generally payable in money, proportionate in
character, levied on persons, property or exercise of a right or privilege by the
state having jurisdiction, through its legislature for public purpose and paid at
regular periods or interval.
2. What is taxation?
Taxation is the power to impose burden, exercised by the legislative as an
inherent power of sovereignty upon persons, property, or other objects within the
territorial jurisdiction of the Philippines, in order to raise revenue and defray the
necessary expenses of the government, for the benefit of the general welfare.
3. What is the nature of the power of taxation?

The power of taxation is inherent in sovereignty, a legislative function and is
subject to constitutional and inherent limitations.
4. What are the characteristics of taxation?

a) It is an enforced contribution.
b) It is generally payable in the form of money.
c) It is based on ability to pay.
d) It is comprehensive as it is levied on persons, property, rights, acts, privileges
or transactions.
e) It is levied by the State which has jurisdiction or control over the subject to be
taxed.
f) It is levied for public purpose.
5. What are the theory and basis of taxation?

a) Lifeblood Theory. Taxes are the lifeblood of the government and certain
availability is an imperious need.
b) Necessity Theory
c) Benefits-protection theory (Doctrine of Symbiotic Relationship)
6. What is the Doctrine of Symbiotic Relationship?

Every person who is able must contribute his share in the burden of running 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 material and moral values.
7. What are the canons of taxation or basic principles of sound tax system?
a) Fiscal Adequacy – the source of revenue should be sufficient to meet the
demands of public expenditure;
b) Theoretical Justice– the burden should be in proportion of the taxpayer's

ability to pay; and
c) Administrative Feasibility – tax laws must be capable of being effectively

enforced with the least inconvenience to the taxpayer.
8. What are the inherent limitations of the power of taxation?

a) Territoriality or situs of taxation;
GENERAL RULE: A state may not tax property right lying outside its borders
or lay an excise or privilege tax upon the exercise or enjoyment of a right or
privilege derived from the laws of another state and therein exercised or
enjoyed.
b) Public or governmental purpose;
c) International comity;
NOTE: The property or income of a foreign state or government may not be
the subject of taxation by another.
d) Non-delegability of the taxing power;
GENERAL RULE: The power of taxation, being purely legislative in character,
the Congress cannot delegate the powers to others.
EXCEPTIONS:
i. Delegation to the President (re: fixing tariff rates, import or export
quotas, tonnage and wharfage dues and other duties or imposts);
ii. Delegation to local governments (re: its own sources of revenues and
levy taxes, fees and charges);
iii. Delegation to administrative agencies (it must comply with the
completeness test and the existence of sufficiently determinate standard
test).
NOTE: The abovementioned exceptions are subject to limitations provided
for by Congress.
e) Exemption of the government.
NOTE: Properties of the national and local government are not subject to tax,
otherwise, it will result in the absurd situation of the government “taking
money from one pocket and putting it in another”.
9. What are the constitutional limitations of power of taxation?

a) Due process of law;
b) Equal protection;
c) Uniformity and equitability;
d) Progressive system of taxation;
e) Non-impairment clause;
f) Non-imprisonment for non-payment of poll tax;
g) Bills to originate from the House of Representatives;
h) Veto power of the president;
i) President’s power to tax;
j) Taxation and freedom of the press;
k) Taxation and freedom of religion;
l) Tax exemption of properties actually, directly and exclusively used for
religious, charitable and education purposes;
m) Tax exemption granted to non-stock non-profit educational institutions;
n) Appropriation of public money;

o) Voting requirement on grant of tax exemptions;
p) Municipal taxation;
q) Non-impairment of the Supreme Court’s jurisdiction over tax cases;
r) Special fund;
s) Necessity of an appropriation before money may be paid out of the public
treasury;
t) Constitutional requirement on the subject and title of bills; and
u) Provisions regarding allotments to local governments.
10. What are the stages or aspects of taxation?

a) Tax Legislation– levy or imposition;
b) Tax Administration– assessment and collection;
c) Payment– compliance of taxpayer;
d) Refund– recovery of any tax alleged to have been erroneously or illegally
assessed or collected.
11. What are the requisites of a valid tax?

a) It should be for a public purpose;
b) It should be uniform;
c) That either the person or property being taxed be within the jurisdiction of
the taxing authority;
d) The tax must not impinge on the inherent and constitutional limitations on the
power of taxation.
12. What are the kinds of taxes?

As to object
a) Personal/ poll or capitation tax - imposed upon all persons, or upon all
persons of a certain class, residents within a specified territory without regard
to their property or occupation.
b) Property tax – imposed on property whether real or personal.
c) Privilege/ Excise tax – charge upon the performance of an act, enjoyment
of a privilege or the engaging in an occupation.
As to burden or incidence
a) Direct – one that is demanded from the person who also shoulders the
burden of tax.
b) Indirect – one which is shifted by the taxpayer to someone.
As to tax rates
a) Specific – tax of a fixed amount imposed by the head or number, or by some
standard of weight or measurement.
b) Ad valorem – tax based on the value of the property with respect to which
the tax is assessed.
c) Mixed
As to purposes
a) General / Fiscal Revenue – tax imposed solely for the general purpose of
the government.
b) Special / Regulatory or Sumptuary – tax levied for specific purpose.
As to Scope / Authority to Impose

a) National tax
b) Local or Municipal
As to Graduation
a) Progressive – tax that increases as the tax base or bracket increases.
b) Regressive – tax decreases as the tax base or bracket increases.
c) Proportionate – tax of a fixed percentage of amounts of the base.
13. What is the rule on situs of taxation on intangible personal properties?

GENERAL RULE: mobilia sequuntur personam – Taxation of intangible
personal properties follows the residence or domicile of the owner thereof. Situs
is the owner’s residence or domicile. [Collector v. Fisher]
EXCEPTIONS:
a) Rule of reciprocity;
b) Inconsistency with the express provisions of law; and
c) Justice demands that it should not be, as where the property in fact has a
situs elsewhere.
14. What are the intangible properties that are considered situated here in
the Philippines?
a) Franchise which must be exercised in the Philippines;
b) Shares, obligations, or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws;
c) Shares, obligations, or bonds issued by any foreign corporation whose 85% of
the business is located in the Philippines;
d) Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired business situs in the Philippines; and
e) Shares or rights in any partnership, business, or industry established in the
Philippines.
15. What is the difference between tax exemption and tax amnesty?
TAX EXEMPTION TAX AMNESTY

The general or intentional overlooking by
the State of its authority to impose
A grant of immunity to particular penalties on persons otherwise guilty of
persons or corporations from the evasion or violation of a revenue or tax
obligation to pay taxes. law. It partakes of an absolute
forgiveness or waiver of the government
of its right to collect.
Immunity from all criminal, civil and

Immunity from civil liability only. administrative liabilities arising from
non-payment of taxes.
Prospective application Retroactive application
16. What is the nature of tax refunds?

Tax refunds are in the nature of tax exemptions. They are regarded as in
derogation of sovereign authority and to be constructed strictissimijuris against
the person or entity claiming the exemption.
17. What is the Doctrine of Imprescriptibility?

Taxes are imprescriptible because they are the lifeblood of the government
unless tax statutes provides for a prescriptive period.
18. What is the rule on Non-retroactivity of Repeal?

Any revocation, modification or reversal of any of the rules and regulations or
any of the rulings or circular promulgated by the CIR cannot be given retroactive
effect when such will be prejudicial to the taxpayer, EXCEPT in the following
cases:
a) Where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the BIR;
b) Where the facts subsequently gathered by BIR are materially different from
the facts on which the ruling is based; or
c) Where the taxpayer acted in bad faith.
19. Is double taxation forbidden?

Generally, no. It is not expressly forbidden in our Constitution, but the Court has
recognized it as obnoxious “where the taxpayer is taxed twice for the benefit of
the same governmental entity or by the same jurisdiction for the same purpose.”
20. When an item of income is taxed in the Philippines and the same income
is taxed in another country, is there a case of double taxation?
Yes, although it is only a case of indirect duplicate taxation which is not legally
prohibited because the taxes are imposed by different taxing authorities.
21. What does “the power to tax involves power to destroy” mean?
It describes not the purposes for which the taxing power may be used but the
extent to which it may be employed in order to raise revenues. Thus, even if a
tax should destroy a business, such fact alone could not invalidate the tax.
22. What is the difference between tax evasion and tax avoidance?
TAX EVASION TAX AVOIDANCE
The use of legally permissible

alternative tax rates or methods of
The use of illegal or fraudulent means to
assessing property or income in order
escape tax. It connotes fraud and bad
to reduce tax liability. A tax saving
faith to defeat taxes.
device within the means sanctioned by
law.
Taxpayer is subject to civil and criminal No civil or criminal liability on the part
liabilities. of the taxpayer.
23. Can taxes be subject to compensation or set-off?

No. Taxes cannot be the subject of compensation or set-off because the
government and the taxpayer are not creditors and debtors of each other.
Obligations in the nature of debts are due to the government in its corporate
capacity, while taxes are due to the government in its sovereign capacity.
EXCEPTION: In case of solutio indebiti and if the case involves local government
taxes.
24. What is the Doctrine of Equitable Recoupment?

Where the refund of a tax illegally or erroneously collected or overpaid by a
taxpayer is barred by prescription, a tax presently being assessed against a
taxpayer may be recouped or set-off against the tax whose refund is now barred
by prescription. This doctrine is NOT followed in the Philippines because of the
Lifeblood Theory.
25. What are the forms of escape from taxation?

The following are forms of escape:
a) Shifting – the transfer of the burden of a tax by the original payer, or the
one on whom the tax was assessed or imposed, to another;
b) Capitalization – reduction in the price of the tax object equal to the
capitalized value of future taxes which the purchaser expects to be called
upon to pay;
c) Transformation – the manufacturer or producer upon whom the tax has
been imposed, pays the tax and endeavors to recoup himself by improving his
process of production, thereby turning out his units at a lower cost;
d) Tax avoidance – exploitation by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income, in
order to avoid or reduce tax liability; (also called tax minimization)
e) Tax evasion – a scheme used outside of those lawful means to lessen or
defeat taxes, which however subjects the taxpayer to civil or criminal
liabilities; and
f) Tax exemption – grant of immunity to particular persons or corporations or
to persons or corporations of a particular class, from a tax which persons or
corporations generally within the same state or taxing district are obliged to
pay.
26. What is the Willful Blindness Doctrine?

A taxpayer can no longer raise the defense that errors on their tax returns are
not their responsibility or that it is the fault of the accountants they hired.
27. Distinguish direct taxes from indirect taxes.
DIRECT TAX INDIRECT TAX
Tax which is demanded from the person Tax wherein the incidence/liability for
who also shoulders the burden of the tax; the payment falls on one person but
taxpayer is directly or primarily liable the burden can be shifted or passed
which he cannot shift to another. on to another.
28. May an injunction be issued against the collection of taxes?

GENERAL RULE: No. Taxes, being the chief source of revenue for the
Government to keep it running, must be paid immediately and without delay.
EXCEPTION: If in the opinion of the Court of Tax Appeals, the collection would
jeopardize the interest of the Government and/or the taxpayer, it could suspend
the collection and require the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount of the tax assessed.
29. What is a BIR ruling?

A BIR ruling is an administrative interpretation of the Revenue Law as applied
and implemented by the Bureau. They can be relied upon by taxpayers and are
valid until otherwise determined by the courts or modified or revoked by a
subsequent ruling or opinion. They are accorded great weight and respect, but
not binding on the courts. [Commission v. Ledesma]
30. Does a BIR ruling have a retroactive effect, considering the principle
that tax exemptions should be interpreted strictly against the taxpayer?
GENERAL RULE: No. A BIR ruling cannot be given retroactive effect if it would be
prejudicial to the taxpayer.
EXCEPTIONS: [Section 246 of the NIRC]

a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal
Revenue;
b) Where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the rulings is based; or
c) Where the taxpayer acted in bad faith.
31. May the bank deposits of an individual taxpayer be disclosed by a

commercial bank to the Commissioner of Internal Revenue, in
connection with a tax investigation being conducted by revenue
officials, without violating the relevant bank secrecy laws?
No. As a general rule, bank deposits of an individual taxpayer may not be
disclosed by a commercial bank to the Commissioner. As exceptions, the
Commissioner is authorized to inquire into the bank deposits of: a) a decedent to
determine his gross estate; and b) any taxpayer who has filed an application for
compromise of his tax liability by reason of financial incapacity to pay his tax
liability.
32. The Commissioner of the U.S. Internal Revenue Service (IRS) requested
the CIR to get the information from a bank in the Philippines, regarding
the deposits of a U.S. Citizen residing in the Philippines, pursuant to the
US-Philippine Tax Treaty and other existing laws. Should the BIR
Commissioner agree to obtain such information from the bank and
provide the same to the IRS?
Yes. The Commissioner should agree to the request pursuant to the principle of
international comity. The Commissioner of Internal Revenue has the authority to
inquire into bank deposits accounts and related information held by financial
institutions of a specific taxpayer subject of a request for the supply of tax
information from a foreign tax authority pursuant to an international convention
or agreement to which the Philippines is a signatory or party of. [Section 3, RA
10021]
INCOME TAXATION
33. What is income tax?

It is a tax on all yearly profits arising from property, possessions, trade or
business, or as a tax on a person’s income, emoluments, profits and the like.
34. What is taxable income?

It refers to the pertinent items of gross income specified in the NIRC, less the
deduction and/or personal and additional exemptions, if any, authorized for such
types of income by the Code.
35. What is the scope of taxable income in the Philippines?

SOURCE OF
TAXPAYER TAX BASE
TAXABLE INCOME
Resident citizen Within and Without Net income

Non-resident citizen Within Net income
Resident alien Within Net income
Non-resident alien engaged in

trade or business in the Within Net income
Philippines
Non-resident alien not engaged in
trade or business in the Within Gross income
Philippines
NOTE: A non-resident alien individual who has stayed for an aggregate period of
more than 180 days during the calendar year is deemed to be a non-resident
alien doing business in the Philippines.
36. Who are the individual taxpayers exempt from filing income tax?
The following are exempt from filing income tax:
a) Minimum wage earners;
b) Those whose gross income does not exceed the personal and additional
exemptions dictated by BIR. All taxpayers are entitled to P50,000 personal
exemption, while those with dependents have additional exemption of
P25,000 for each qualified dependent (but it should only up to 4 dependents);
c) Those whose annual salary from just one employer will not exceed P60,000;
d) Those whose income has been subjected to final withholding tax filed by the
employer; and
e) Those who are qualified under “substituted filing.” Substituted filing is when
the employer's annual tax return may be considered as the “substitute” ITR
as they contain the same information.
37. Differentiate global tax system from schedular tax system.
GLOBAL TAX SYSTEM SCHEDULAR TAX SYSTEM
All items of deductions and

personal and additional
Income is classified into different
exemptions, if any, are
As to nature types upon which the tax rate
deducted from all items of
applicable is based.
gross income. No classification
of income.
Separate return is filed for the

As to return
One income tax return appropriate type of income
received.
As to rates One set of tax rates Graduated or flat income tax rate
As to tax Either gross income or net

Gross income
base income
38. What are the general classifications of income for income tax purposes?
CLASSIFICATION TAX RATE/TAX BASE
Ordinary Income (Gross Income less 5%-32%

Allowable Deductions) = Taxable Taxable Income(except for NRANETB
Income – 25% of GI)
FWT at Varying Rates
Passive Income derived from sources
Gross Receipts
within the Philippines
(except NRANEB – 25% of GI)
Capital Gains from Sale of Shares of
Capital Gains Tax
Stock Not Traded in the Stock Exchange
Net Capital Gains
in a Domestic Corporation
Capital Gains from Sale of Real Property
Capital Gains Tax
located in the Philippines, classified as
Presumed Gain
capital assets
39. How are individuals classified for tax purposes?

BASIC
CLASSIFICATION OF ADDITIONAL
TAXABLE PERSONAL TAX
INDIVIDUAL PERSONAL
INCOME EXEMPTION RATES
TAXPAYER EXEMPTION
(PE)
Income
from
5%-
sources
P25,000 each; 32% of
Resident Citizen within and P50,000
maximum of 4 Taxable
outside
Income
the
Philippines
Income
5%-
Non-resident Citizen from
P25,000 each; 32% of
(including Overseas sources P50,000
Contract Workers) within the
Income
Philippines
Income
5%-
from
P25,000 each; 32% of
Resident Alien sources P50,000
within the
Income
Philippines
Lower
Income amount No specific
5%-
Non-resident Alien from between PE provision.
32% of
ENGAGED in trade or sources allowed to Reciprocity may
Taxable
business within the Filipinos in apply. (Secure
Income
Philippines the foreign BIR Ruling)
country
where he
resides vs. PE
in the
Philippines
25%
of
Income
Gross
Non-resident Alien from
Income
NOT ENGAGED in sources Not Allowed Not Allowed
(Final
trade or business within the
Withhol
Philippines
ding
Tax)
40. What are the tax rates on certain passive income? (subject to final
withholding tax)
PASSIVE INCOME (derived RES. CIT.
NONRES. NRA
from sources within the & RES. NRAETB
CIT NETB
Philippines) ALIEN
Interests from any currency bank 20% 20% 20% 25%
deposits and yield or any other
monetary benefit from deposit
substitutes and from trust funds
and similar arrangements
Royalties, except on books, as 20% 20% 20% 25%
well as other literary works and
musical compositions
Royalties on books as well as 10% 10% 10% 25%
other literary works and musical
compositions
Prizes, except prizes amounting 20% 20% 20% 25%
to P10,000 or less. Prizes
amounting to P10,000 or less is
subject to 5%-32%
Other winnings, except PCSO and 20% 20% 20% 25%
Lotto winnings
Interest income from a 7 1/2% None None None
depository bank under the
Expanded Foreign Currency
Deposit System
Interest income from long-term Exempt Exempt Exempt 25%
deposit or investment in the form
of savings, common or individual
trust funds, deposit substitutes,
investment management
accounts and other investments
evidenced by certificates in such

form prescribed by BSP
In case of pre-termination of 4 to less Same as Same as

long-term deposit or investment than 5 to Res. Res. Cit.
before the 5th year, entire years – Cit.
income shall be subject to 5%;
3 to less
than 4
years –
12%;
Less than 3
years –
20%
Cash and/or Property Dividends 10%, Same as 20% 25%
from: beginning to Res.
a) Domestic corporation; January Cit.
b) Joint stock company, 2000;
insurance or mutual fund 8%
companies; beginning
c) Regional operating January
headquarters of multinational 1999;
companies; 6%
d) The share of an individual in beginning
the distributable net income January
tax of a partnership (except 1998
GPP) of which he is a partner;
e) Share in the net income after
tax of an association, joint
account, or a joint venture or
consortium taxable as a
corporation of which he is a
member or co-venturer
Capital Gains from Sale of Shares Not over Same as Same as Same
of Stocks not Traded in the Stock P100,000 – to the to the as to
Exchange - Net capital gains 5%; Res. Cit. Res. Cit. the
realized during the taxable year In excess of Res.
from the sale, barter, exchange P100,000 – Cit.
or other disposition of shares in a 10%
domestic corporation, except
shares sold, or disposed of
through the stock exchange
Capital gains presumed to have 6% based Same as Same as Same
been realized from the sale, on the to Res. to the Res as to
exchange, or other disposition of gross Cit. Cit. the
real property located in the selling price Res
Philippines, classified as capital or current Cit.
assets, including pacto de retro FMV,
sales and other forms of whichever
conditional sales (including those is higher
made by estates and trusts)
Cinematographic films and N.A. N.A. 25% 25%

similar works
41. What are the income tax rates and base for ordinary income of domestic
corporations?
TAXPAYER TAX BASE TAX RATES
Ordinary
Taxable income Effective January 1, 2009 – 30% RCIT
domestic
Gross income On the 4th year of operations – 2% MCIT
corporation
Proprietary non- GENERAL RULE: 10%
profit EXCEPTION: If gross income from unrelated
educational Taxable income trade, business or other activity exceeds
institutions and 50% - 30%, RCIT shall be imposed on the
hospitals entire taxable income.
Same rate of tax upon their taxable income as are imposed upon
GOCCs, agencies, corporations or associations engaged in a similar business,
instrumentalities industry or activity. EXEMPT: GSIS, SSS, PCSO, Philippine
Health Insurance Corp.
42. What are the income tax rates and base of domestic corporations for
certain passive income derived from sources within the Philippines?
PASSIVE INCOME TAX BASE TAX RATES
Interest on currency bank deposit and yield or any
other monetary benefit from deposit substitutes and Interest income 20%
from trust funds and similar arrangements
Interest income derived from a depositary bank under
Interest income 7.5%
the expanded foreign currency deposit system (EFCDS)
Royalties Gross Royalty 20%
Not over
P100,000 –
Capital gains from the sale, exchange or other
5%
disposition of shares of stocks in a domestic Net capital gain
Amount in
corporation.
excess –
10%
Income derived by a depositary bank under the
expanded foreign currency deposit system from foreign
currency transactions with non-residents, offshore Income EXEMPT
banking units (OBU) in the Philippines, local
commercial banks, including branches of foreign banks
Interest income from foreign currency loans granted by
such depositary banks under EFCDS to residents other Interest income 10%
than OBU or other depositary banks under EFCDS
Intercorporate dividends, i.e., dividends received by a
domestic corporation from another domestic Dividend income EXEMPT
corporation
Capital gains realized from the sale, exchange or Presumed gain
6%
disposition of lands and/or buildings treated as capital i.e., Gross Selling
assets. Price or Fair

Market Value,
whichever is
higher
43. What are the income tax rates and base for resident foreign
corporations in terms of ordinary income?
TAX BASE TAX RATES
Effective
January 1,
Taxable income 2009 – 30%
Resident Foreign
RCIT
Corporation Gross income On the 4th year
of operations –
2% MCIT
International Carrier,
2 ½% as a
e.g., Air carrier and Gross Philippine Billings
general rule
shipping lines
Offshore Banking Units Income from foreign currency transactions EXEMPT
(OBU) with non-residents, other offshore banking
units, local commercial banks, including
branches of foreign banks. Final tax of
10%
Interest income from foreign currency
loans granted to residents, other than
RCIT 30%
OBUS.
Other income
Foreign Branch (except Taxable income 30% RCIT
those activities which are 2% MCIT
Gross income
registered with PEZA) Branch Profits
Profit remittance Remittance
Tax – 15%
Regional or Area
Headquarters of
Not Applicable EXEMPT
Multinational
Companies
Regional Operating
Headquarters of
Taxable Income 10%
Multinational
Companies
44. What are the income tax rates and base of a resident foreign
corporation in certain types of income?
TAX
PASSIVE INCOME TAX BASE
RATES
Interest on currency bank deposit and yield or any other
Interest
monetary benefit from deposit substitutes and from trust funds 20%
income
and similar arrangements
Interest income derived from a depositary bank under the Interest
7.5%
expanded foreign currency deposit system (EFCDS) income
Gross
Royalties 20%
Royalty
Not
over
P100,00
Capital gains from the sale, exchange or other disposition of Net capital 0 – 5%
shares of stocks in a domestic corporation gain Amount
in
excess –
10%
Income derived by a depositary bank under the expanded foreign
currency deposit system from foreign currency transactions with
Income EXEMPT
non-residents, offshore banking units (OBU) in the Philippines,
local commercial banks, including branches of foreign banks
Interest income from foreign currency loans granted by such
Interest
depositary banks under EFCDS to residents other than OBU or 10%
income
other depositary banks under EFCDS
Intercorporate dividends, i.e., dividends received by a resident Dividend
EXEMPT
foreign corporation from another domestic corporation income
45. What are the income tax rates and bases of non-resident foreign
corporations in terms ordinary income?
TAX BASE TAX RATES
Final tax of
Non-resident foreign corporation Gross income
30%
Non-resident cinematographic film owner, Final tax of
Gross income
lessor or distributor 25%
Non-resident owner or lessor of vessels Gross rentals, lease or Final tax of
chartered by Philippine nationals charter fees 4 ½%
Non-resident owner or lessor of aircraft, Gross rentals and other Final tax of
machineries and other equipment fees 7 ½%
46. What is Improperly Accumulated Earnings Tax?

It refers to the 10% imposed tax on the profits of domestic and closely-held
corporations that are permitted to accumulate instead of being distributed to its
shareholders for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of another corporation.
47. What are the income tax exempt corporations under the Tax Code?
a) Labor, agricultural or horticultural organization not organized principally for
profit;
b) Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual
purposes and without profit;
c) A beneficiary society, order or association, operating for the exclusive benefit
of the members such as a fraternal organization operating under the lodge
system, or a mutual aid association or a non-stock corporation organized by
employees providing for the payment of life, sickness, accident, or other
benefits exclusively to the members of such society, order, or association, or

non-stock corporation or their dependents;
d) Cemetery company owned and operated exclusively for the benefit of its
members;
e) Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset shall belong to or
inure to the benefit of any member, organizer, officer or any specific person;
f) Business league, chamber of commerce, or board of trade, not organized for
profit and no part of the net income of which inures to the benefit of any
private stockholder or individual;
g) Civic league or organization not organized for profit but operated exclusively
for the promotion of social welfare;
h) A non-stock and non-profit educational institution;
i) Government educational institution;
j) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of
meeting its expenses; and
k) Farmers', fruit growers', or like association organized and operated as a sales
agent for the purpose of marketing the products of its members and turning
back to them the proceeds of sales, less the necessary selling expenses on
the basis of the quantity of produce finished by them;
l) Employee's trust [Section 60];
m) Regional or area headquarters shall not be subject to income tax [Sec. 28].
48. What is gross income?

It is all income derived from whatever source (except those excluded or
exempted by law) including, but not limited to the following: CART – DRIP -
GPP
a) Compensation;
b) Annuities;
c) Rents;
d) Gross income from profession, trade or business;
e) Dividends;
f) Royalties;
g) Interests;
h) Prizes and winnings;
i) Gains from dealings in property;
j) Pensions; and
k) Partner’s share in the net income of the general professional partnership.
49. What comprises gross income from sources with situs within the
Philippines?
a) Interests;
b) Dividends from:
i. Domestic corporation;
ii. Foreign corporation – only in an amount which bears the same ratio to
such dividends as the gross income of the corporation for such period
derived from sources within the Philippines bears to its gross income
from all sources;
c) Services (compensation for labor/ personal services);
d) Rentals and royalties from property or use of property located in the
Philippines, or interest therein;
e) Gains, profits and income from the sale of real property located in the
Philippines;
f) Gains, profits and income from the sale of personal property whereby the
place of sale is in the Philippines, although the place of purchase is abroad.
50. What are the allowable deductions from gross income for individuals?
a) Business expenses and expenses from practice of profession;
b) Special deduction for actual premium payments for health and/or
hospitalization insurance provided that:
i. The taxpayer’s family gross income does not exceed P250,000 in a
taxable year;
ii. The amount deductible should only be limited to P2,400 per family or
P200 per month; and
iii. In case of married taxpayer, this can only be claimed by the spouse
claiming the additional exemption.
51. What are the exclusions from gross income?

a) Life insurance, unless proceeds are held by the insurer under an agreement to
pay interest thereon, the interest payments;
b) Amount received by insured as return of premium;
c) Gifts, bequests, and devises;
d) Compensation for injuries or sickness. Amounts received, through Accident or
Health Insurance or under Workmen's Compensation Act, as compensation for
personal injuries or sickness, plus the amounts of any damages received,
whether by suit or agreement, on account of such injuries or sickness;
e) Income exempt under treaty;
f) Retirement benefits, pensions, gratuities;
REQUISITES:
i. The retiring official or employee has been in the service of the same
employer for at least 10 years;
ii. He must not be less than 50 years of age at the time of his retirement;
iii. The benefits herein granted shall be availed of by an official or employee
only once; and
iv. The plan must be approved by the BIR.
g) Miscellaneous items.
i. Income derived by foreign government.
ii. Income derived by the government or its political subdivisions from any
public utility or from the exercise of any essential governmental function
accruing to the Government of the Philippines or to any political
subdivision thereof.
iii. Prizes and awards made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary, or civic achievement, provided
that:
1. The recipient was selected without any action on his part to enter the
contest or proceeding; and
2. The recipient is not required to render substantial future services as a
condition to receiving the prize or award;
iv. Prizes and awards in sports competition – all prizes and awards granted
to athletes in local and international sports competitions and tournaments
whether held in the Philippines or abroad and sanctioned by their national
sports associations;
v. 13th Month Pay and other benefits received by officials and employees of
public and private entities, provided that, the total exclusion shall not
exceed P30,000;
vi. GSIS, SSS, Medicare and other contributions;
vii. Gains from the sale of bonds, debentures or other certificate of
indebtedness with a maturity of more than 5 years; and
viii. Gains from Redemption of Shares in Mutual Fund.
52. When are returns filed?

WHO FILES WHAT TO FILE WHEN TO FILE (DUE
(PERIOD) DATE FOR FILING)
Individual deriving purely trade, Q1 return April 15 of the same
business, or professional income year
or mixed income
Q2 return August 15 of the same
year
Q3 return November 15 of the
same year
Annual return April 15 of the
following year
Domestic corporation and resident Q1 return 60 days after the close
foreign corporation of each of the first 3
Q2 return
quarters of the taxable
Q3 return year
Annual Return On or before the 15th
day of the 4th month
following the taxable
year
53. Is withholding tax a type of tax?

No. It is merely a manner of collecting a kind of tax (advance payment of tax
due) to provide the taxpayer a convenient manner to meet his probable income
tax liability and to minimize tax evasion, thus resulting in a more efficient tax
collection system.
54. What is a fringe benefit?

It is any good, services, or other benefit furnished or granted by an employer, in
cash or in kind, in addition to basic salaries, to an individual employee.
55. What is the tax treatment of de minimis benefits?

De minimis benefits are non-taxable fringe benefits. They are not to be reported
in the income tax return because they are tax exempt. They are also exempt
from the imposition of the fringe benefits tax.
56. What is the tax treatment of 13th month pay?

13th month pay is excluded from the gross income for income tax purposes to
the extent of P82,000. Any excess will be included in the gross income per
income tax return as part of gross compensation income.
57. What is the tax treatment of dividends received by a domestic

corporation from another domestic corporation?
Dividends received by a domestic corporation from another domestic corporation
are not subject to income tax hence, should not be declared in the income tax
return. [Sec. 27 (D)(4), NIRC]
58. What is the tax treatment of dividends received by a domestic

corporation from a foreign corporation?
Dividends received by a domestic corporation from a foreign corporation are
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]
59. Are salaries of judges subject to withholding tax?

Yes. Its taxability is not contrary to Sec.10, Art. VII of the Constitution providing
for the non-diminution of the salaries of members of the judiciary during their
continuance in office. The clear intent of the Constitution is to subject their
salaries to tax as in the case of all taxpayers. The deduction of withholding tax is
not a diminution contemplated by the Constitution.
60. What is capital gains tax?

Capital gains tax is a tax imposed on the gains presumed to have been realized
by the seller from the sale, exchange, or other disposition of capital assets
located in the Philippines, including pacto de retro sales and other forms of
conditional sale.
61. What are capital and ordinary assets?

Ordinary assets are:
a) 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;
b) Property held by the taxpayer primarily for sale to customers in the ordinary
course of business or trade;
c) 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;
d) Property used in the trade or business of a character which is subject to the
allowance of depreciation.
Capital assets, on the other hand, pertain to properties held by the taxpayer
whether or not connected with his trade or business which is not ordinary asset.
62. Is actual gain required for the imposition of capital gains tax?
No. Actual gain is not required for the imposition of capital gains tax. It is
imposed on income presumed to have been realized which is the fair market
value, selling price thereof, whichever is higher. It is the gain by fiction of law
which is taxable.
The rate of 6% CGT is based on the higher amount between gross selling price or
fair market value. In computing the CGT, you simply determine the higher value
of the property, and simply multiply by 6%. It would not matter how much the
seller actually earned because the tax is based on gross amount.
For sale of shares of stock of a domestic corporation held as capital asset (not
traded through the stock exchange), the tax is based on the net capital gains.
This means that the cost of the shares is deductible from the selling price in order
to arrive at the taxable gain. Rates: 5% for the first 100k and 10% in excess of
100k.
NOTE: If the FMV is higher than the selling price, the difference is deemed a
donation subject to donor’s tax.
63. What is minimum corporate income tax (MCIT)?

MCIT is a tax imposed on domestic and resident foreign corporations:
a) Whenever such corporation has zero or negative taxable income; or
b) Whenever the amount of MCIT is greater than the normal income tax due
from such corporation.
The tax rate is 2% of the gross income except income exempt from income tax
and income subject to final withholding tax.
64. When does MCIT commence?

Fourth taxable year immediately following the year the corporation commenced
its business operation. [Section 27 (E) (1) of the Tax Code]
65. What is a General Professional Partnership (GPP)?

GPP is a partnership formed by persons for the sole purpose of exercising a
common profession and no part of the income of which is derived from engaging
in any trade or business. GPPs are not subject to income tax, but are required to
file returns of their income. Each partner in a GPP are liable in their separate and
individual capacity, and are thus required to report as gross income his
distributed share actually or constructively received in the net income of the
partnership.
66. Distinguish exclusions from gross income and deductions from gross
income.
EXCLUSION DEDUCTION
Refers to flow of wealth which is not

treated as part of gross income because
Refers to the amounts which the law
it is either: a) exempted by the
allows to be subtracted from gross
fundamental law; b) exempted by
income in order to arrive at net income.
statute; or c) do not come within the
definition of income.
Pertains to computation of gross Pertains to computation of net income.

income.
Something received or earned by the

Something spent or paid in earning
taxpayer which do not form part of the
gross income.
gross income.
67. What are the differences between allowable deductions and personal
exemptions?
ALLOWABLE DEDUCTIONS PERSONAL EXEMPTIONS
Generally refers to the actual

As to expenses incurred in the pursuit of Arbitrary amounts allowed
amount trade, business, or practice of by law.
profession.
As to
Pertains to personal
nature Constitute business expense.
expenses.
To cover personal, family

As to To enable taxpayer to recoup his cost
and living expenses.
purpose of doing business.
As to Claimed only by individual

Claimed by all taxpayers.
claimant taxpayers.
68. What is the Tax Benefit Rule?

This doctrine holds that a taxpayer is obliged to declare as taxable income any
subsequent recovery of bad debts in the year they were collected to the extent of
the tax benefit enjoyed by the taxpayer when the bad debts were written off and
claimed as deduction from gross income. This also applies to taxes previously
deducted from gross income but which were subsequently refunded or credited
by the BIR.
69. What are the kinds of deduction?

The kinds of deduction are:
a) Optional standard deduction – deduction, in lieu of the itemized
deductions, is merely a privilege that may be enjoyed by certain individual
taxpayers. The amount of such deduction is limited to 40% of the taxpayer’s
gross income.
b) Itemized deductions – deductions which include:
i. Ordinary and necessary expenses;
ii. Interests;
iii. Taxes;
iv. Losses;
v. Bad debts;
vi. Depreciation of property;
vii. Depletion of oil and gas wells and mines;
viii. Charitable and other contributions;
ix. Research and development;
x. Pension trust contributions of employees; and
xi. Premium payments on health and/or hospitalization insurance.
NOTE: Unless the taxpayer signifies in his return his intention to elect the OSD,
he shall be considered as having availed himself of the itemized deductions. Such
election is irrevocable for the taxable year for which the return is made.
70. What are the requisites for valid deduction of bad debts from the gross
income?
a) Existing indebtedness due to the taxpayer which must be valid and legally
demandable;
b) Connected with the taxpayer’s trade, business or practice of profession;
c) Not be sustained in a transaction entered into between related parties
enumerated under Sec. 36(B) of the Tax Code of 1997;
d) Actually charged off the books of accounts of the taxpayer as of the end of
the taxable year; and
e) Actually ascertained to be worthless and uncollectible as of the end of the
taxable year.
Before a taxpayer may charge off and deduct a debt, he must ascertain and be
able to demonstrate with reasonable degree of certainty the uncollectibility of the
debt.
71. Are tax exemptions constitutionally granted to non-stock, non-profit

educational institutions subject to limitations imposed by law?
No. The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive use
of their assets, revenues and income for educational purposes. [CIR v. DLSU,
2016]
72. Does the BIR require presentation of financial statements if a taxpayer

opted to use OSD instead of itemized deduction?
No. An individual who is entitled to and claimed for the optional standard
deduction shall not be required to submit with his tax return such financial
statements otherwise required under this Code: Provided, further, that except
when the Commissioner otherwise permits, the said individual shall keep such
records pertaining to his gross sales or gross receipts, or the said corporation
shall keep such records pertaining to his gross income as defined in Section 32 of
this Code during the taxable year, as may be required by the rules and
regulations promulgated by the Secretary of Finance, upon recommendation of
the Commissioner. [Sec. 34(L) NIRC]
73. What are the rules on deductibility of expenses?

As a general rule, the requisites for the deductibility of an expense are:
a) The expense must be ordinary and necessary;
b) It must have been paid or incurred during the taxable year;
c) It must have been paid or incurred during the conduct of the trade or
business of the taxpayer; and
d) It must be supported by receipts, records or other pertinent papers.
An additional requirement is that the withholding tax on the amount paid as

expense must have been withheld and remitted to the BIR.
74. What are the requisites for deductibility of casualty loss?

The Tax Code allows the deduction from gross income of casualty losses arising
from damage to or loss of property used in business, to the extent that these are
not compensated for by insurance or other forms of indemnity, and subject to
compliance with certain requirements as outlined in RMO No. 31-09, dated Oct.
16, 2009.
To be deductible, casualty losses must be incurred on properties that are actually

used in business. These properties must have been properly reported as part of
the taxpayer’s assets in the accounting records and financial statements in the
year immediately preceding the occurrence of the loss, with the cost of
acquisition clearly established and recorded. The deduction of the losses must be
properly recorded in the accounting reports, with the adjustment of the
applicable accounts.
Within 45 days from the date of the event causing the loss, a sworn declaration
of loss must be filed with the nearest BIR RDO in the BIR-prescribed format,
stating the nature of the event that gave rise to the loss and time of its
occurrence; description and location of damaged properties; items needed to
compute the loss such as the cost or other basis of the properties, any
depreciation allowed, value of properties before and after the event, and cost of
repair; and the amount of insurance or other compensation received or
receivable.
The sworn declaration must be accompanied by the audited financial statements

for the preceding year and copies of any insurance policies covering the
concerned properties. Failure to submit the sworn declaration within the
prescribed 45-day period may result in the disallowance of the loss claimed.
TRANSFER TAXES
75. What is an estate tax?

It is a tax levied on the transmission of properties from a decedent to his heirs. It
is the tax on the privilege to transmit property at death and on certain transfers
which are made equivalent of testamentary dispositions by the statute.
76. What are the inclusions in the gross estate?

In capsule form, the following are the inclusions in the gross estate, to wit:
a) Transfer under general power of appointment;
b) Revocable transfers;
c) Transfers in contemplation of death;
d) Proceeds of life insurance;
e) Transfers for insufficient consideration;
f) Decedent's interest at the time of his death; and
g) Prior interests.
77. What are the deductions on gross estate that are applicable to resident
aliens and citizens?
a) Vanishing deduction;
b) Ordinary deductions;
i. Funeral expenses – actual amount of 5% of the gross estate, but must
not exceed P200,000;
ii. Judicial expenses of the testamentary or intestate proceedings;
iii. Claims against the estate;
iv. Claims against insolvent persons;
v. Unpaid mortgages;
vi. Losses;
vii. Taxes.
c) Transfer for public use;
d) Family home;
e) Standard deduction equivalent to one million pesos (P1,000,000);
f) Medical expenses incurred by the decedent within one (1) year prior to his
death which must not exceed five hundred thousand (P500,000);
g) Amounts received by heirs under RA 4917 (Retirement Benefits); and
h) Net share of the surviving spouse in the conjugal or community property.
78. What is a vanishing deduction?

It is a deduction allowed from the gross estate for properties that were subject to
donor’s or estate taxes. The requisites for it to be allowed are as follows:
a) The present decedent died within 5 years from receipt of the property from a
prior decedent or donor;
b) The property must be located in the Philippines;
c) The property formed part of the taxable estate of the prior decedent, or of the
taxable gift of the donor;
d) The estate tax or donor’s tax on the gift must have been finally determined
and paid;
e) The property must be identified as the one received from the prior decedent,
or something acquired in exchange therefor; and
f) No vanishing deduction on the property was allowable to the estate of the
prior decedent.
79. What are the deductions from gross estate that are applicable to non-
resident aliens?
a) Ordinary deductions;
b) Transfer for public use;
c) Vanishing deduction on property in the Philippines; and
d) Conjugal share of the surviving spouse.
80. What are the transfers which may be considered as donations?

a) Transfer for less than the adequate and full consideration;
b) Condonation/remission of debt; and
c) Sale/exchange/transfer of property for insufficient consideration.
81. What are the donations exempt from payment of donor’s tax?
If gifts are made by a resident:
a) Dowries or gifts made on account of marriage and before its celebration or
within one year thereafter by parents to each of their legitimate, illegitimate,
or adopted children to the extent of the first P10,000;
b) Gifts made to or for the use of the National Government or any entity created
by any of its agencies which is not conducted for profit; and
c) Gifts in favor of educational, charitable, religious, cultural or social welfare
corporation, institutions, accredited NGOs, provided that not more than 30%
of said gifts shall be used by such donee for administration purposes.
If gifts are made by non-resident:

a) Gifts made to or for the use of the National Government or any entity created
by any of its agencies which is not conducted for profit;
b) Gifts in favor of educational, charitable, religious, cultural or social welfare

corporation, institutions, foundations, trust or philanthropic organization,
provided that not more than 30% of said gifts shall be used by such done for
administration purposes. (EXCLUDED: gifts in favor of NGOs)
82. Are contributions for election campaign subject to payment of donor’s

tax?
No. Under Sec. 13 of RA No. 7166, political or electoral contributions are not
subject to payment of donor’s tax, provided that, the donor complies with the
requirement of filing returns of contribution with the COMELEC as required by the
Omnibus Election Code.
83. Are donations to non-stock non-profit institutions subject to payment

of donor’s tax?
No. A non-profit educational and/or charitable corporation, institution, accredited
non-government organization, trust or philanthropic organization, research
institution or organization is exempt from payment of donor’s tax provided that:
a) It is incorporated as a non-stock entity;
b) It pays no dividends;
c) Governed by trustees who receive no compensation;
d) Devotes all its income to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation; and
e) Not more than 30% of the gifts donated to it shall be used by such done for
administration purposes.
84. Distinguish donor’s tax from estate tax.

DONOR’S TAX ESTATE TAX
Nature of Transfer
During the lifetime of the donor. After death of decedent.
May take place between natural and Transfer takes place only between
juridical persons. natural persons.
Amount Exempt
P100,000 P200,000
Rate of Tax
2-15% 5-20%
Grant of Exemption
Sec. 101, NIRC Yes, Sec 87, NIRC
Grant of Deductions
None Yes. Sec. 86, NIRC
Notice Requirement
GR: Notice of donation is not required. Notice of death required in the
XPNs: following cases:
a) Donations to NGO worth at least P50, a) Transaction subject to estate tax.
000. Provided, not more than 30% of b) Transaction exempt from estate tax
which will be used for administration but exceeds P20,000.
purposes.
b) Donation to any candidate, political
party, or coalition of parties.
Notice, When Filed
Within 2 months after the decedent’s
death or after qualifying as executor
or administrator.
Filing of Return
A transfer subject to donor’s tax. a) A transfer subject to estate tax.
b) Exempt from tax but the gross
estate exceeds P200,000.
c) Estate consists of registered or
registrable property, regardless of
value of gross estate.
Contents of Return
a) Each gift made during the calendar
year which is to be included in
computing net gifts; a) Value of the gross estate;
b) The deductions claimed and allowable; b) Deductions under Sec. 86, NIRC;
c) Any previous net gifts made during the c) Other pertinent information;
same calendar year; d) If gross estate exceeds P2M,
d) The name of the donee; certified by a CPA as to assets,
e) Such further information as may be deductions, tax due, whether paid
required by rules and regulations or not.
made pursuant to law.
Time of Filing of Return

Within 30 days after donation was made. Within 6 months from death of
decedent.
Extension for Filing of Return
Within 30 days after donation was made. Within 6 months from death of
decedent.
Payment of Tax Due
Pay as you file Pay as you file
Extension of Payment
None GR: Extension of payment is not
allowed.
XPN: When it would impose undue
hardship upon the estate or any of
the heirs, extension may be allowed
but not to exceed 5 years in case of
judicial settlement or 2 years in case
of extra-judicial settlement.
XPN to XPN: When taxpayer is guilty
of:
a) Negligence;
b) Intentional disregard of rules and
regulations; or
c) Fraud.
Requirement for grant of extension of payment
Bond not exceeding double the
amount of the tax and with such
sureties as the Commissioner deems
necessary.
VALUE-ADDED TAX
85. What is Value Added Tax (VAT)?

VAT is a tax on consumption levied on the sale, barter, exchange, or lease of
goods or properties or services in the Philippines and on importation of goods into
the Philippines.
86. What is tax credit method?

This method relies on the invoices, an entity can credit against or subtract from
the VAT charged its sales or outputs the VAT paid on its purchases, inputs and
imports. Here, the input tax shifted by the seller to the buyer is credited against
the buyer's output taxes when he, in turn, sells the taxable goods, properties or
services.
87. What is Cross Boarder Doctrine or Destination Principle?

No VAT shall be imposed to form part of the goods destined for consumption
outside the territorial border of the taxing authority. [CIR vs. Seagate Technology
Philippines]
88. What are VAT-exempt transactions?

Those pertaining to the sale of goods or properties and/or services and the use or
lease of properties that is not subject to output tax and the seller is not allowed
any tax credit of input tax on purchases.
89. What is the difference between output tax and input tax?
OUTPUT TAX INPUT TAX
VAT due from or paid by a VAT-registered
VAT due on the sale or lease of
person in the course of his trade or
taxable goods or properties or
business on importation of goods or local
services by any person registered or
purchase of goods or services, from VAT-
required to register under NIRC.
registered person.
90. Are services rendered abroad by a non-resident foreign corporation in

favor of a domestic corporation subject to VAT?
No. Payments for the sale or exchange of services are subject to VAT only if the
services are performed in the Philippines pursuant to Section 108(A) of the Tax
Code. Accordingly, since the services are performed by the non-resident foreign
corporation outside the Philippines, the service fees are not subject to VAT.
91. What is meant by a “zero-rated” sale?

A zero-rated sale of goods, properties and/or services (by a VAT registered
person) is a taxable transaction for VAT purposes, but shall not result in any
output tax. However, the input tax on purchases of goods, properties or services,
related to such zero-rated sale, shall be available as tax credit or refund in
accordance with existing regulations. Under this type of sale, no VAT shall be
shifted or passed on by VAT-registered sellers/suppliers from the Customs
Territory on their sale, barter or exchange of goods, properties or services to the
subject registered Freeport Zone enterprises.
92. What is meant by a “VAT-exempt” transaction?

It refers to the sale of goods, properties or services or the use or lease of
properties that is not subject to VAT (output tax) under Section 109 of the Tax
Code of 1997, and the seller/supplier is not allowed any tax credit of VAT (input
tax) on purchases related to such exempt transaction.
93. Is the sale of supply by an ecozone entity subject to VAT?

While an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regulated in laws as foreign soul. Sales by supplies
outside the borders of ecozone to this separate customs territory are deemed
exports and treated as export sales. [CIR v. Seksui Jushi Phils, Inc.]
94. What are these so-called transactions “deemed sales”?

The following transactions shall be a deemed sale:
a) Transfer, use, or consumption not in the course of business of goods originally
intended for sale or for use in the course of business;
b) Distribution or transfer to:
i. Shareholders or investors as share in the profits of VAT-registered
persons; or
ii. Creditors in payment of debt;
c) Consignment of goods if actual sale is not made within 60 days following the
date such goods were consigned; and
d) Retirement from or cessation of business, with respect to inventories of
taxable goods existing as of such retirement or cessation.
95. What will be the treatment of sale, barter, exchange or lease of goods,
properties and sale or exchange of services to a registered Freeport
Zone enterprise by sellers/contractors from the Customs Territory?
If the seller is a VAT taxpayer, such sale, barter or exchange shall be subject to
VAT at zero (0%) percent. If the seller is a non-VAT taxpayer, the transaction
shall be exempt from VAT.
96. What is the tax treatment of sale, barter or exchange of goods and
properties by Freeport Zone-registered enterprises to a buyer from the
customs territory?
The sale, barter or exchange shall be treated as a technical importation made by
the buyer in the customs territory. The buyer shall be treated as the importer
and shall be imposed the corresponding import taxes and duties prior to release
of the goods or merchandise from customs custody. Any unpaid taxes thereon,
aside from being the prime liability of the buyer importer, shall constitute a lien
on such goods or merchandise imported from the Freeport Zone.
97. What is the tax treatment of a sale of service or lease of properties

(machineries and equipment) by Freeport Zone-registered enterprises
to a customer or lessee from the Customs Territory?
The sale of service shall be exempt from VAT if the service is performed or
rendered within the Freeport Zone. The lease of properties, on the other hand,
shall likewise be exempt from VAT if the property is located within the Freeport
Zone. However, if the properties (machineries and equipment) leased by the
Freeport Zone registered enterprise is located outside of the Freeport Zone,
payments to such enterprise will be considered as royalties and subject to the
final withholding VAT of 12%.
98. What is the basis of the VAT on taxable sales of real property?
The basis of the VAT on taxable sale of real property is “Gross Selling Price"
which is either the selling price stated in the sale document or the “Zonal Value,"
whichever is higher. In the absence of zonal values, the gross selling price shall
refer to the market value as shown in the latest tax declaration or the
consideration, whichever is higher.
99. When can an appeal be filed with the CTA in case of full or partial denial
of the written claim for refund or excess input tax directly attributable
to zero-rated sales, or failure on the part of the Commissioner to act on
the application within 120 days from date of submission of complete
documents?
Within 30 days from the receipt of the decision denying the claim or after the
expiration of the 120-day period.
Failure to comply with the 12-day waiting period violates a mandatory provision
of law and renders the petition premature, thus without cause of action, with the
effect of the CTA acquiring no jurisdiction over the taxpayer's petition.
100. What is the prescriptive period for claiming unutilized or excess input
taxes?
It must be claimed within two years:
a) Reckoned from the close of the taxable quarter; or
b) Reckoning frame.
DOCUMENTARY STAMP TAX
101. What is a documentary stamp tax?

It is a tax on documents, instruments, loan agreements, and papers evidencing
the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.
102. What is the nature of DST?

It is an excise tax levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments such as leases of
lands, mortgages, pledges, and trust and conveyances of real property.
103. Who pays for the DST?

The person making, signing, issuing, accepting, or transferring the document or
facility evidencing the transaction pays for the DST.
PERCENTAGE TAX
104. What is percentage tax?

It refers specifically to the business taxes covered by Title V of the NIRC, as
amended, payable by any person or entity whose sale of goods or services is not
covered by the VAT system.
105. What is the nature of percentage tax?

It is essentially a tax on the transaction and not on the articles sold, bartered or
exchanged. It is an indirect tax which can be passed on to the buyer.
EXCISE TAX
106. What is an excise tax?

It is a tax levied on a specific article rather than one upon the performance,
carrying on, or the exercise of an activity. It refers to taxes applicable to certain
specified or selected goods or articles manufactured or produced in the
Philippines for domestic sale or consumption or any other disposition and to the
things imported into the Philippines, which tax shall be in addition to the VAT.
107. What is the nature of excise tax?

It may be considered tax on production as they are collected only from
manufacturers and producers. Basically, an indirect tax, it is directly levied upon
manufacturer or importer upon removal of the taxable goods from its place of
production or from customs custody.
108. What are the kinds of excise tax?

a) Specific tax – based on weight or volume capacity or any other physical unit
of measurement; and
b) Ad valorem – based on selling prices or other specified value of the goods.
LOCAL TAXATION
109. What are the fundamental principles governing local taxation?

Taxes:
a) Shall be uniform in each local sub-unit;
b) Shall be equitable and based as much as possible on the taxpayer’s ability to
pay;
c) Levied for public purposes;
d) Shall not be unjust, excessive, oppressive, or confiscatory;
e) Shall not be contrary to law, public policy, national economic policy, or in
restraint of trade;
f) Collection of local taxes and other impositions shall not be let to any person;
g) The revenues collected under the LGC shall inure solely to the benefit of, and
subject to disposition by the LGU levying the tax or other imposition, unless
otherwise specifically provided therein; and
h) Each LGU shall, as far as practicable, involve a progressive system of
taxation.
110. How is the power of LGUs to tax vested?

The power of taxation by LGU is no longer by valid congressional delegation, but
by direct authority conferred by the Constitution. Thus, the Congress cannot
abolish such power granted by the Constitution to the LGUs. It must be noted,
however, that the imposition of tax, fee, or charge, or the generation of revenue
under the Local Government Code may only be exercised by the Sanggunian of
the LGU through an appropriate ordinance.
111. What are the common limitations on local taxing powers?

LGUs cannot levy:
a) Income tax, except on banks and other financial institutions;
b) Documentary stamp tax;
c) Estate tax, inheritance, gifts, legacies, and other acquisitions mortis causa
except as otherwise provided;
d) Customs duties, registration fees of vessels and wharfage on wharves,
tonnage dues and all other kinds of custom fees, except wharfage on wharves
constructed and maintained by the LGU concerned;
e) Taxes, fees, charges and other impositions upon goods carried into or out of,
or passing through the territorial jurisdictions of LGUs in the guise of charges
for wharfage, tolls for bridges or otherwise;
f) Taxes, fees, or charges on agricultural and aquatic products when sold by
marginal farmers and fishermen;
g) Taxes on business enterprises certified by the Board of Investments as
pioneer or non-pioneer for a period of 6 and 4 years, respectively, from the
date of registration;
h) Excise taxes on articles enumerated under the NIRC, and taxes, fees, or
charges on petroleum products;
i) Percentage or VAT on sales, barters or exchanges or similar transactions on
goods or services, except as otherwise provided;
j) Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided under LGC;
k) Taxes on premiums paid by way of reinsurance or retrocession;
l) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycle;
m) Taxes, fees, or other charges in the Philippine products actually exported
except as otherwise provided under the LGC;
n) Taxes, fees or charges on countryside and barangay business enterprises and
duly registered cooperatives; and
o) Taxes, fees or charges of any kind on the National Government, its agencies,
instrumentalities, and LGU.
112. What are the fundamental principles governing RPT?

a) Real property shall be appraised at its current and fair market value.
b) Real property shall be classified for assessment purposes on the basis of
actual use.
c) Real property shall be assessed on the basis of uniform classification within
each LGU.
d) The appraisal, assessment, levy, or collection shall not be let to any private
person.
e) The appraisal and assessment of real property shall be equitable.
113. What are the properties exempt from real property tax under the LGC?
a) 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;
b) Charitable 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;
c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
d) All real property owned by duly registered cooperatives as provided for under
RA 6938; and
e) Machinery and equipment used for pollution control and environmental
protection.
114. The Provincial Board passed an Ordinance increasing the rate of basic
real property tax from 0.0055 to 1% of the assessed value of the
property effective February 24, 2005. Residents protested as there was
no public hearing conducted, hence, the increase is void. Is the
residents’ contention correct?
No. Public hearing is not required before the enactment of a local ordinance
levying the real property tax. [Art. 324, LGC Regulations, UP Law Complex,
2007]
115. Can a non-profit, non-stock educational institution refuse to settle the

assessment of a local government for its building permit?
No. While there is incidental revenue to the local government unit, the imposition
of a building permit partakes of a regulatory nature. The imposition of building
permit fee is an exercise of police power to ensure compliance with the standards
under the Building Code to protect the public from any danger. [Angeles
University Foundation v. City of Angeles]
116. What shall be the basis of the assessment of real property?

GENERAL RULE: Real property shall be classified, valued, and assessed on the
basis of its actual use regardless of where it is located, whoever owns it, and
whoever uses it.
EXCEPTION: In cases where there are mixed land uses, the predominant use
shall be the basis.
117. Who pays for the real property tax?

Unpaid realty taxes attached to the property are chargeable against the person
who has actual or beneficial use and possession of it regardless of whether or not
he is the owner. [Manila Electric Co. v. Barlis]
118. What is the prescriptive period for collection of RPT?

a) Basic RPT & any other tax – 5 years from the date they become due.
b) When there is fraud/intent to evade payment – 10 years from discovery
of fraud/such intent.
TARIFF AND CUSTOMS CODE
119. What is tariff?

It refers to customs duties, toll or tribute payable upon merchandise to the
Government; duties charged upon commodities on their being imported into or
exported out of a country.
120. What are the purposes of imposition of customs duties?

a) Revenue-raising;
b) Regulatory purposes; and
c) To protect local industries actually existing and producing comparable goods.
121. What are the functions of Bureau of Customs?

a) Assess and collect revenues from imported articles and all other impositions
under the tariff and customs laws;
b) Control smuggling and related frauds;
c) Supervise and control the entrance and clearance of vessels and aircraft
engaged in foreign commerce;
d) Enforce Tariff and Customs Law;
e) Supervise and control the handling of foreign mails arriving in the Philippines;
f) Supervise and control all import and export cargoes for the protection of
government revenue;
g) Exercise exclusive original jurisdiction over seizure and forfeiture cases under
the tariff and customs laws.
122. What is dutiable value?

It refers to the proper valuation of imported goods upon which the appropriate
customs duty is imposed.
123. What are de minimis importations?

These are importations with the dutiable value of which does not exceed
P10,000.
124. What is the flexible tariff clause?

It provides that the President may fix tariff rates, import, and export quotas,
among others either to:
a) Increase, reduce, or remove existing protective rates of import duty;
b) To establish import quota or to ban imports of any commodity, as may be
necessary; or
c) To impose additional duty on all imports not exceeding 10% ad valorem

whenever necessary.
125. When does importation begin and end?

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 upon payment of the
customs duties or with legal permit to withdraw (dutiable goods) or until they
have legally left the BOC’s jurisdiction (duty-free goods).
126. What is a drawback?

It is a device resorted to for enabling a commodity affected by taxes to be
exported and sold in foreign markets upon the same terms as if it had not been
taxed at all. [Uy Chaco Sons v. Collector of Customs]
127. What is the nature of forfeiture proceedings under the Tariff and
Customs Law?
Forfeiture proceedings are purely civil and administrative in character, the main
purpose of which is to enforce the administrative fines or forfeiture incident to
unlawful importation of goods or their deliberate possession. The penalty in
seizure cases is distinct and separate from the criminal liability that might be
imposed against the indicted importer or possessor and both kinds of penalties
may be imposed. Underdeclaration of value is a ground for forfeiture.
128. Who are returning residents?

They are nationals who have stayed in a foreign country for a period of at least
six (6) months.
129. Distinguish formal entry from informal entry.

FORMAL ENTRY INFORMAL ENTRY
As to documentary requirements
All importations entered through this
process shall be covered by a letter of
credit or any verifiable commercial
document evidencing payment or in There is no such requirement.
cases where there is no sale for export,
by any commercial document indicating
the commercial value of the goods.
As to application
Applies only to:
a) Goods of a commercial nature with
As a rule, all goods declaration for FOB/FCA value of less than P50,000;
consumption shall be cleared through a and
formal entry process. b) Personal or household effects or goods,
not in commercial quantity, imported in
passenger’s baggage or mail.
130. What are regular customs duties?

These are taxes imposed or assessed upon merchandise from, or exported to a
foreign country for the purpose of raising revenue. They are also protective/tariff
barriers preventing the entry of merchandise that would compete with locally
manufactured items. They are classified as either:
a) Ad valorem duty – computed based on the value of the imported article.
b) Specific duty – computed based on the dutiable weight of good.
131. What are special customs duties?

These are additional import duties imposed on specific kinds of imported articles
under certain conditions. They are classified as either:
a) Anti-dumping duty;
b) Countervailing duty;
c) Marking duty;
d) Discriminatory/retaliatory duty; or
e) Safeguard measures.
132. What does countervailing duty mean?

Countervailing duty is a special duty imposed upon imported articles which are
granted subsidy by the country of origin and that such will cause a material injury
to the domestic industry or has retarded the growth or prevents the
establishment of a domestic industry. The countervailing duty to be imposed is
equivalent to the value of the specific subsidy.
133. What does dumping mean?

It occurs when foreign producers sell their products to an importer in the
domestic market at prices lower than in their own national markets or at prices
below cost of production, the sale or importation of which injures or threatens to
injure a domestic industry producing like or comparable products or retards the
establishment of a potential industry.
134. What does anti-dumping duty mean?

Anti-dumping duty is a special duty imposed on imported items being sold below
their normal value which will cause or is threatening to cause material injury to a
domestic industry, or materially retarding the establishment of a domestic
industry producing the like product. The dumping duty imposed is the difference
between the export price to the Philippines and the normal value.
135. What is the rule on marking foreign articles?

GENERAL RULE: Foreign articles should be marked in any official language of the
Philippines and in a conspicuous place as legibly, indelibly, and permanently in
such manner as to indicate to an ultimate purchaser in the Philippines the
article’s country of origin.
EXCEPTIONS: In the following cases, the immediate container or such other

container/s of the article shall be the one subject to marking:
a) The article cannot be marked prior to importation to the Philippines except at

an expense economically prohibitive of its importation.
b) The article is incapable of being marked.
c) The article cannot be marked prior to importation to the Philippines without
injury.
d) The article is of a crude substance.
e) The marking of the container of such article will reasonably indicate the origin
of such article.
f) Such article is to be processed in the Philippines by the importer for his own
account and not for the purpose of concealing the origin of such article.
g) Such article is for the use of the importer and not intended for sale in its
imported or other form.
h) The ultimate purchaser, by the character of the article, must know the
country of origin or such article.
i) Such article cannot be marked after importation except at an expense
economically prohibitive and failure to mark the article before importation was
not due to any purpose of the importer, producer, seller, or shipper to avoid
compliance.
j) Such article was produced more than 20 years prior to its importation to the
Philippines.
136. What is discriminatory duty?

It is a duty imposed upon articles of a foreign country which discriminates against
Philippine commerce in such a manner as to place it at a disadvantage compared
with the commerce of another foreign country.
NOTE: There is discrimination when the country imposes, directly or indirectly,

upon any Philippine product unreasonable charge, exaction, regulation, or
limitation which is not equally enforced upon like articles of other foreign
countries.
137. What are safeguard measures?

These are trade remedy measures adopted by the government to provide
affected domestic industries relief against imports. These are imposed to give the
affected domestic industry time to prepare itself for and adjust to increased
import competition resulting from the reduction of tariffs or the lifting of
quantitative restrictions agreed upon in multilateral trade.
138. When does abandonment of imported articles occur?

a) Through the express intent of the owner, importer, or consignee to abandon
the imported articles signified in writing to the Customs Collector;
b) Failure to file by the owner, importer, consignee or interested party after due
notice of an entry within 30 days (not extendible), from the date of discharge
of the last package from the vessel or aircraft; or
c) Failure to claim the imported articles within 15 days (not extendible) from the
date of posting of the notice to claim such imported articles.
139. What are the effects of abandonment?

a) Abandoned articles shall ipso facto be deemed the property of the
Government and shall be disposed of in accordance with the provisions of the
TCCP; and
b) Owner or importer is not relieved from any criminal liability which may arise
from any violation of law committed in connection with the importation of the
abandoned articles.
140. Distinguish smuggling (outright) from technical smuggling.

Smuggling is an act of any person who shall fraudulently import or bring into
the Philippines, or assist in so doing, any article, contrary to law or shall receive,
conceal, buy, sell or in any manner facilitate the transportation, concealment, or
sale of such article after importation, knowing the same to have been imported
contrary to law. It also includes the exportation of articles in a manner contrary
to law.
Technical smuggling is an act of importing goods through fraudulent, falsified

or erroneous declarations, for the purpose of reducing or, if not, totally avoid the
payment of the prescribed taxes, duties and other government charges.
141. What are the types of technical smuggling?

a) Misdeclaration – committed when the discrepancy pertains to quantity,
quality, description, weight, or measurement of the imported goods.
b) Misclassification – exists when insufficient or wrong description of the goods
or use of wrong tariff heading was declared resulting in a discrepancy.
c) Undervaluation – committed when:
i. The declared value fails to disclose in full the price actually paid or
payable or any dutiable adjustment to the price; or
ii. An incorrect valuation method is used; or
iii. The valuation rules are not properly observed.
142. What is the evidence for conviction in smuggling cases?

Mere possession of the article in question is sufficient, unless defendant could
explain that his possession is lawful to the court’s satisfaction.
143. What are the degrees of culpability for failure to pay correct duties and
taxes on imported goods?
a) Negligence – when a deficiency results from an offender’s failure to exercise
reasonable care and competence to ensure that a statement made is correct.
b) Fraud – when the material false statement or act in connection with the
transaction was committed or omitted knowingly, voluntarily and
intentionally, as established by clear and convincing evidence.
TAX REMEDIES
144. What is the jurisdiction of the Court of Tax Appeals?

The CTA has jurisdiction over the following cases:
a) Exclusive appellate jurisdiction over decisions of the CIR in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under
the NIRC or other law or part of law administered by the BIR;
b) Exclusive appellate jurisdiction on the decisions of the Commissioner of
Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected; fines, forfeitures
or other penalties imposed in relation thereto; or other matters arising under
the Customs Law or other law or part of law administered by the Bureau of
Customs;
c) In automatic review cases where such decisions of the Commission of
Customs favorable to the taxpayer is elevated to the Secretary of Finance;
d) Exclusive appellate jurisdiction in decisions made by the Secretary of Trade
and Industry, in the case of non-agricultural product, commodity or article, or
the Secretary of Agriculture, in the case of agricultural product, commodity or
article, in connection with the imposition of the Anti-Dumping Duty,
Countervailing and Safeguard Duty;
e) Original appellate jurisdiction for criminal cases involving violations of the
National Internal Revenue Code and the Tariff and Customs Code;
f) Original appellate jurisdiction over decisions of the RTC in local tax cases;
g) Original appellate jurisdiction on decisions of the Central Board of Assessment
Appeals (CBAA) in cases involving the assessment and taxation of real
property; and
h) Original appellate jurisdiction over collection of internal revenue taxes and
customs duties the assessment of which have already become final.
145. What are the powers of the CIR?

a) Power to accept an offer of compromise if a reasonable doubt as to the
validity of the claim against the taxpayer exists; or the financial position of
the taxpayer demonstrates a clear inability to pay the tax. Such is only
possible if it is accompanied by a waiver of the secrecy of bank deposits;
b) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority;
c) Refund the value of internal revenue stamps when they are returned in good
condition by the purchaser;
d) In his discretion redeem or change unused stamps that had been rendered
unfit for use and refund their value upon proof of destruction;
e) The power to interpret the provisions of NIRC, subject to review of Secretary
of Finance;
f) The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto;
g) Make assessments and prescribe additional requirements for tax

administration and enforcement;
h) Authority to inquire into bank deposit accounts and other related information
held by financial institutions;
i) Authority to accredit and register tax agents; and
j) Prescribe the manner of compliance with any documentary or procedural
requirement in connection with the submission or preparation of financial
statements accompanying the tax returns.
146. What are the various remedies available to taxpayers?

Remedies before Payment:
a) Administrative: Protest against assessment and enter into a compromise.
b) Judicial: Civil action including appeal to the CTA up to the SC.
c) Substantive: Questioning the constitutionality or validity of tax statutes or
regulations via petition for declaratory relief; annulment of assessment notice
for failure to inform the taxpayer in writing of the legal and factual bases of
assessment.
Remedies after Payment:

a) Tax refund (actual reimbursement of tax)
b) Tax Credit
147. What are the grounds for filing a claim for tax refund or tax credit?
The grounds are as follows:
a) Tax is collected erroneously or illegally;
b) Penalty is collected without authority; and
c) Sum collected is excessive or in any manner wrongfully collected.
148. What are the remedies of the BIR and the Bureau of Customs in
collecting taxes due to the government?
Administrative
a) Compromise;
b) Distraint;
c) Levy;
d) Tax lien;
e) Forfeiture of property;
f) Suspension of business operation in violation of VAT;
g) Giving of reward to informers who give information as to tax violations; and
h) Enforcement of administrative fines, surcharges and penalties.
Judicial
a) Civil action; and
b) Criminal action.
Substantive
a) Imposition of withholding tax on certain income payments;
b) Issuance of revenue regulations by administrative agency;
c) Failure to obey summons; and
d) Declaration under penalties of perjury.
149. When can the CIR accept an offer of compromise?

The CIR has the power to accept an offer of compromise in the following cases:
a) A reasonable doubt as to the validity of the claim against the taxpayer exists;
or
b) The financial position of the taxpayer demonstrates a clear inability to pay the
tax. Such is only possible if it is accompanied by a waiver of the secrecy of
bank deposits.
NOTE: The prescribed amount must be within that prescribed by law, that is,
10% of the tax assessed.
150. What are the prescriptive periods for assessment and collection of
taxes?
For Assessment:
GENERAL RULE: Within 3 years from due date of filing of return if return is filed
on or before due date, or 3 years from date of actual filing if filed beyond due
date.
EXCEPTIONS:
a) Failure to file a return: 10 years from the date of the discovery of the
omission to file the return.
b) False or fraudulent return with intention to evade tax: 10 years from the date
of discovery of the falsity or fraud.
c) Agreement in writing to the extension of the period to assess between the
CIR and the taxpayer before the expiration of the 3-year period.
For Collection:
a) 5 years from the date of assessment by administrative or judicial action.
b) In case of non-filing, false or fraudulent return:
i. 10 years from discovery if proceeding for collection is made without
assessment; or
ii. 5 years from date of assessment if BIR chooses to make assessment
after discovery of the non-filing, false, or fraudulent return.
c) Agreed period pursuant to agreement in writing: before the expiration of the
5-year period.
151. What is the prescriptive period for the taxpayer’s administrative claim?
The administrative claim must be filed within 2-year period, regardless of any
supervening cause. The 2-year prescriptive period will commence from the
following:
a) In overpaid quarterly income taxes, from the date the final adjustment return
is filed after the end of taxable year;
b) When the final adjustment return was actually filed before the last day
prescribed by law for filing, from the date of actual filing;
c) For taxes sought to be refunded is illegally and erroneously collected, from
the date the tax was paid;
d) When tax is paid on installments, from the date of last installment;
e) When taxpayer merely made a deposit, from the time the deposit was
converted to payment;
f) For taxes withheld from source, from the date it falls due at the end of
taxable year; and
g) In corporate dissolution, 30 days from the approval by the SEC for such
dissolution.
152. What is an assessment notice?

An assessment notice is a computation done by the BIR summarizing a
taxpayer’s alleged unpaid taxes. This includes the interest, penalties and other
charges. To be valid, it must be accompanied by a demand letter from the BIR.
153. What is a pre-assessment notice?

It is a notice served to the taxpayer when the taxpayer fails to file a return where
a return is required; files a return but fails to pay the tax; or files a return, pays
the tax but payment is insufficient because certain deductions claimed are
disallowed by BIR.
154. What is meant by best evidence obtainable?

It includes any data, records, papers, documents, or any evidence gathered by
internal revenue officers from government offices/agencies, corporations,
employees, clients, patients, tenants, lessees, vendees and from all other sources
with whom the taxpayer had previous transactions or from whom he received any
income.
155. What is the procedure in the issuance of a deficiency tax assessment?

a) Issuance of letter of authority;
b) Audit/tax investigation;
c) Determination of taxpayer’s liability for deficiency tax;
d) (In case the taxpayer is liable) Notice for informal conference;
e) Informal conference or endorsement to the Assessment Division of the
Revenue Regional Office to the CIR or duly authorized representative for
review and issuance of the assessment;
f) Issuance of preliminary assessment notice (PAN); and
g) Formal letter of demand and assessment notice.
156. Does the satisfaction of civil liability extinguish the taxpayer’s criminal
liability under the Tax Code?
No. The satisfaction of the civil liability is not one of the grounds for the
extinction of criminal action instituted against a taxpayer for violation of the Tax
Code. The payment of the tax due after apprehension shall also not constitute a
valid defense in any prosecution for violation of any provision of the Tax Code. If
items were seized from the taxpayer, such may be returned to him if he has
settled the taxes assessed against him.
157. What is Jeopardy Assessment?

It is the tax assessment made by an authorized Revenue Officer without the
benefit of complete or partial audit, in light of the Revenue Officer’s belief that
the assessment and collection of a deficiency tax will be jeopardized by delay
caused by the taxpayer’s failure to: a) comply with audit and investigation
requirements to present his books of accounts and/or pertinent records; or b)
substantiate all or any of the deduction, exemptions, or credits claimed in his
return.
158. What tax liability cases may be compromised?

a) Delinquent accounts;
b) Cases under administrative protests;
c) Civil tax cases being disputed before the courts;
d) Collection cases filed in courts;
e) Criminal violations, other than those already filed in court or those involving
criminal tax fraud; and
f) Cases covered by pre-assessment notices but taxpayer is not agreeable to the
findings of the audit office as confirmed by the review office.
159. What tax liability cases may NOT be compromised?

a) Withholding tax cases, unless the taxpayer invokes provisions of law that cast
doubt on his obligation to withhold;
b) Criminal tax fraud cases;
c) Criminal violations already filed in court;
d) Delinquent accounts with duly approved schedule of installment payments;
e) Cases where final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer is
agreeable to such decision;
f) Cases which become final and executory after judgment of a court, where
compromise is requested on the ground of doubtful validity of the
assessment; and
g) Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
160. What is abatement?

It is when the entire tax liability of the taxpayer is cancelled based on the
following grounds:
a) The tax or any portion thereof appears to be unjustly or excessively assessed;
or
b) The administration and collection costs involved do no justify the collection of
the amount due.
161. What is the difference between deficiency tax and delinquency tax?
DEFICIENCY TAX DELINQUENCY TAX
Exists when the amount by which the

tax imposed by the CIR exceeds the Exists when the self-assessed tax per
amount shown as the tax by the return filed by the taxpayer on the
taxpayer upon his return; or when the prescribed date was not paid at all or
amount by which the tax exceeds the was only partially paid at all or was only
amounts previously assessed as a partially paid; or when the deficiency tax
deficiency, if no amount is shown as tax assessed by BIR became final and
by the taxpayer upon his return or if no executory.
return is made by the taxpayer.
162. What is the difference between fraudulent return and false return?
FRAUDULENT RETURN FALSE RETURN

Constitutes a deviation from the truth
It must be the product of a deliberate
due to mistake, carelessness, or
intent to evade taxes.
ignorance.
Established by the:
a) Intentional and substantial
understatement of tax liability by
the taxpayer; There must appear a design to mislead
b) Intentional and substantial or deceive on the part of the taxpayer,
overstatement of deductions of or at least culpable negligence.
exemptions; and/or
c) Recurrence of the above
circumstances.
163. What are the requisites of a valid protest?

a) Must be in writing;
b) Addressed to the CIR;
c) Must be accompanied by a waiver of the statute of limitations in favor of the
government;
d) Must state the facts, applicable law, rules, and regulations or jurisprudence on
which his protest is based.
NIRC REMEDIES
Assessment Process and Taxpayer’s Remedies from Tax Assessment – NIRC
Issuance of a Letter of Authority
Audit or tax investigation by the

Revenue Officer
If the Revenue Officer finds sufficient

basis to assess deficiency tax, a PAN
shall be issued, except as those
provided under Sec. 228 of the NIRC.
Taxpayer may submit a Reply to the

PAN within 15 days from the date of
receipt of PAN.
If the taxpayer’s response is If the taxpayer was not able to refute

meritorious, the assessment shall be the findings in PAN or if he is in
dismissed. default, FLD/FAN shall be issued.
Protest of FAN must be made within

30 days from the receipt of
assessment. Submission of supporting
If the decision is adverse to the documents within 60 days from filing
taxpayer or in case of inaction, he may of protest.
appeal to the CTA within 30 days from
the receipt of decision or lapse of the If the decision made within 180 days
180-day period. Should the taxpayer from the filing of the protest or
opt to wait for the final decision on the submission of documents is in favor of
disputed assessment beyond the 180- taxpayer, the assessment is
day period, the taxpayer may appeal dismissed.
such final decision to the CTA within
30 days from the receipt of decision. The taxpayer may opt to file a motion
for reconsideration of an unfavorable
judgment and appeal the decision to
the CTA later on, subject to the 30-day
period rule to appeal.
CTA Division decides the appeal within 30 days
Appeal to the CTA En Banc, subject to compliance with prior requirements
Appeal to Supreme Court within 15 days from the receipt of the decision of CTA En
Banc or a petition for certiorari, prohibition or mandamus in cases of grave abuse of
discretion, lack or excess of jurisdiction
PROCEDURE FOR DISTRAINT AND LEVY UNDER NIRC

Delinquent taxpayer fails to pay tax on time
If the delinquent tax is more than P1M, CIR seizes sufficient personal property to satisfy the tax, charge and
expenses of seizure. (NIRC, Sec. 207[A])
If the delinquent tax is not more than P1M, Revenue District Officer seizes sufficient personal property to satisfy
the tax, charge and expenses of seizure. (NIRC, Sec. 207[A])
The distraining officer accounts for the goods distrained. (NIRC, Sec. 208)
RDO posts notice in atleast 2 public places in the municipality/ city where the distraint is made. One place of
posting must be at the mayor’s office. Time of sale shall not be less than 20 days after the notice. (NIRC, Sec.
209)
If the bid is not equal to the amount of tax or very much less than the FMV of the goods distrained, the CIR may
purchase property in favor of the National Government. The property may be resold and the net proceeds shall
be remitted to the National Treasury as internal revenue. (NIRC, Sec. 212)
If the bid is just right, the officer sells the goods to the highest bidder for cash or with the CIR’s approval,
through commodity/ stock exchanges. (NIRC, Sec. 209)
Excess proceeds over the entire claim shall be returned to the owner. No charge shall be imposed for the
services of the officer. (NIRC, Sec. 209)
Within 2 days after sale, officer shall report to CIR (NIRC, Sec. 211). Within 5 days after the sale, distraining
officer shall enter return of proceedings in the record of Revenue, Collection Officer, RDO, and the Revenue
Regional Director. (NIRC, Sec. 213)
Real property may be levied on, before, simultaneously, or after the distraint of personal property. (NIRC,
Sec. 207[B])
Internal revenue officer, designated by the CIR, shall prepare a certificate with the force of a nationwide legal
execution. (NIRC, Sec. 207[B])
Levy shall be effected by writing upon said certificate a description of the property. Notice of the levy shall be
served upon the Register of Deeds of LGU where the property is located and upon the owner. (NIRC, Sec.
207[B])
Within 10 days after the receipt of the warrant, levying officer shall report to the CIR who shall have the authority
to lift the warrant of levy. (NIRC, Sec. 207[B])
Within 20 days after the levy, officer shall post notice at the main entrance of the municipality/ city hall and in a
public place in the barrio/ district where the real estate for at least 30 days and publish it once a week for 3
weeks. Owner may prevent sale by paying all charge. (NIRC, Sec. 213)
If there is no bidder or the highest bid is insufficient, the If there is a bidder and the highest bid is
officer conducting the sale shall forfeit the property to sufficient, excess of the proceeds of sale over
the government. Within 2 days, he shall make a return claim and cost of sale shall be turned over to the
of the forfeiture. The Registrar of Deeds shall transfer owner. Within 5 days after sale, levying officer
title to the government without need of a court order, shall enter return of the proceedings upon the
upon registration or forfeiture. Within 1 year from records of the RCO, RDO, RRD. (NIRC, Sec.
forfeiture, taxpayer may redeem said property by 213)
paying full amount of the taxes and charges (NIRC, Within 1 year from sale, owner may redeem by
Sec. 215). CIR may, after 20 day-notice, sell property paying to RDO amount of the taxes, penalties
at public auction or at a private sale with approval of and interest from date of delinquency to the date
SOF. Proceeds shall be deposited with the National of sale, and 15% per annum interest on the
Treasury. (NIRC, Sec. 216) purchase price from date of purchase to date of
redemption. Owner shall not be deprived of
possession and shall be entitled to the fruits until
1 year expires. (NIRC, Sec. 214)
Levy and distraint may be repeated until the full
amount due and all expenses are collected.
(NIRC, Sec. 217)
SUMMARY OF DISTRAINT PROCEEDINGS
Commencement of Distraint Proceedings (NIRC,

Sec. 207)
Service of Warrant of Distraint (NIRC, Sec. 208)
Taxpayer must sign receipt
Posting of Notice (NIRC, Sec. 209)
Sale of Property Distrained (NIRC, Sec. 209)
SUMMARY OF LEVY PROCEEDINGS
Prepare a Certificate of Levy (NIRC, Sec. 207[B])
Service of Notice (NIRC, Sec. 207[B])
Advertisement of the time and place of sale

(NIRC, Sec. 213)
Sale of Real Property (NIRC, Sec. 213)

LGC REMEDIES
Taxpayer’s Remedies Against Collection
NIRC REMEDIESof Real Property Taxes (LGC)
Assessment NIRC REMEDIES
ES ES
LT issues notice of deadline for payment:
a) Posting at a conspicuous place at the LGU
Assessor submits assessment roll to the Local hall; OR
Treasurer (LT) b) Publication in a newspaper of general
circulation in the LGU once a week for 2
consecutive weeks.
Owner pays the tax. Written protest must be filed

Collection of tax by LT
before the LT within 30 days from payment.
Within 60 days from receipt of protest, LT decides Does LT grant the protest?
YES NO
Taxpayer may
appeal within 60
days from receipt of
Amount of tax notice (or expiration
Refund or tax credit must be claimed within 2 of 60 days) to the
protested shall be
years from the date of entitlement. Local Board of
refunded or applied
as tax credit. Assessment Appeals
(LBAA).
* same procedure if
Within 60 days LT acts on claim for refund or tax LT did not act upon
credit. protest
Does LT grant the claim? LBAA decides within 120 days from
receipt of appeal.
YES NO
Taxpayer may appeal within 60 days from receipt If LBAA rejects protest OR claim
of notice (or expiration of 60 days) to the Local for refund or tax credit, owner may
Board of Assessment Appeals. appeal to the CBAA w/in 30 days
from receipt of notice.
If Central Board of Assessment

Appeals (CBAA) rejects
protest/refund, owner may appeal
to the CTA en banc within 30 days
from receipt of decision.
Appeal to the Supreme Court

within 15 days
END
Real Property Tax Levy for Satisfying Real Property Taxes (LCC)
Delinquency
Written notice of levy is

Mailing or serving of mailed/served upon the
LT issues warrant of levy warrant to the Assessor and the
delinquent owner Registrar of Deeds of the
LGU.
Within 30 days from

service of warrant, LT
advertises the sale of
property:
Venue of sale: a) posting of notice at
Before the date of the
a) at the LGU main the main entrance of
sale, the owner may
entrance/building; OR LGU hall/building & in
stay the proceedings
b) on the property to be a conspicuous place
through payment of the
sold; OR in the barangay
delinquent tax, interest,
c) at any other place where the property is
and expenses of sale.
specified in the notice. located; OR
b) publication once a
week for two
LT purchases the
Is there a bidder? consecutive weeks (3
property in LGU’s behalf
weeks in case of levy
for other unpaid local
RD transfers the title of taxes).
YES NONE the forfeited property to
LGU.
Within 1 year from If no redemption was

forfeiture, the owner made, the ownership
Bidder pays
may redeem the shall be vested on the
property. LGU.
Sanggunian may, by
The price paid and the
LT reports the sale to the ordinance, sell and
2% interest per month
Sanggunian 30 days dispose of the real
are returned to the
after the sale. property acquired
buyer.
through public auction.
If no redemption was Levy may be repeated

LT delivers the certificate made, LT executes a until the full amount
of sale to the buyer. deed of conveyance to due, including all
the buyer. expenses, is collected.
The proceeds of the sale

in excess of the
delinquent tax, interest,
END
and expenses of the sale
are remitted to the
owner.
TCC REMEDIES
NIRC REMEDIES
ES

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Lyceum of the Philippines University College of Law 85

PRE-WEEK NOTES ON TAXATION LAW

1. What are taxes?

3. What is the nature of the power of taxation?

4. What are the characteristics of taxation?

5. What are the theory and basis of taxation?

6. What is the Doctrine of Symbiotic Relationship?

b) Theoretical Justice– the burden should be in proportion of the taxpayer's

c) Administrative Feasibility – tax laws must be capable of being effectively

8. What are the inherent limitations of the power of taxation?

9. What are the constitutional limitations of power of taxation?

n) Appropriation of public money;

10. What are the stages or aspects of taxation?

11. What are the requisites of a valid tax?

12. What are the kinds of taxes?

As to Scope / Authority to Impose

13. What is the rule on situs of taxation on intangible personal properties?

TAX EXEMPTION TAX AMNESTY

Immunity from all criminal, civil and

Prospective application Retroactive application

16. What is the nature of tax refunds?

17. What is the Doctrine of Imprescriptibility?

18. What is the rule on Non-retroactivity of Repeal?

19. Is double taxation forbidden?

TAX EVASION TAX AVOIDANCE

The use of legally permissible

23. Can taxes be subject to compensation or set-off?

24. What is the Doctrine of Equitable Recoupment?

25. What are the forms of escape from taxation?

26. What is the Willful Blindness Doctrine?

27. Distinguish direct taxes from indirect taxes.

DIRECT TAX INDIRECT TAX

28. May an injunction be issued against the collection of taxes?

29. What is a BIR ruling?

EXCEPTIONS: [Section 246 of the NIRC]

31. May the bank deposits of an individual taxpayer be disclosed by a

33. What is income tax?

34. What is taxable income?

35. What is the scope of taxable income in the Philippines?

Resident citizen Within and Without Net income

Non-resident alien engaged in

37. Differentiate global tax system from schedular tax system.

GLOBAL TAX SYSTEM SCHEDULAR TAX SYSTEM

All items of deductions and

Separate return is filed for the

As to tax Either gross income or net

CLASSIFICATION TAX RATE/TAX BASE

Ordinary Income (Gross Income less 5%-32%

39. How are individuals classified for tax purposes?

evidenced by certificates in such

In case of pre-termination of 4 to less Same as Same as

made by estates and trusts)

Cinematographic films and N.A. N.A. 25% 25%

assets. Price or Fair

46. What is Improperly Accumulated Earnings Tax?

benefits exclusively to the members of such society, order, or association, or

48. What is gross income?

51. What are the exclusions from gross income?

52. When are returns filed?

53. Is withholding tax a type of tax?

54. What is a fringe benefit?

55. What is the tax treatment of de minimis benefits?

56. What is the tax treatment of 13th month pay?