Taxation of San Beda

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
6. levied for a public purpose.
I. GENERAL PRINCIPLES REQUISITES OF A VALID TAX
1. should be for a public purpose
2. the rule of taxation shall be uniform
POWER OF TAXATION
3. that either the person or property
TAXATION – power by which the
taxed be within the jurisdiction of
sovereign through its law-making body
the taxing authority
raises revenue to defray the necessary
4. that the assessment and collection
expenses of government from among
of certain kinds of taxes guarantees
those who in some measure are
against injustice to individuals,
privileged to enjoy its benefits and must
especially by way of notice and
bear its burdens.
opportunity for hearing be provided
Two Fold Nature of the Power of 5. the tax must not impinge on the
Taxation inherent and Constitutional
1. It is an inherent attribute of limitations on the power of taxation
sovereignty
2. It is legislative in character THEORIES AND BASES OF TAXATION
1. Lifeblood Theory
Extent of Taxing Power Taxes are what we pay for civilized
Subject to constitutional and society. Without taxes, the government
inherent restrictions, the power of would be paralyzed for lack of the
taxation is regarded as comprehensive, motive power to activate and operate it.
unlimited, plenary and supreme. Hence, despite the natural reluctance to
surrender part of one's hard-earned
SCOPE OF LEGISLATIVE TAXING POWER income to the taxing authorities, every
1. Amount or rate of tax person who is able to must contribute
2. Apportionment of the tax his share in the running of the
3. Kind of tax government. (CIR v. Algue, Inc.)
4. Method of collection
5. Purpose/s of its levy, provided it is 2. Necessity Theory
for public purpose The power to tax is an attribute of
6. Subject to be taxed, provided it is sovereignty emanating from necessity. It
within its jurisdiction is a necessary burden to preserve the
7. Situs of taxation State's sovereignty and a means to give
the citizenry an army to resist an
TAXES – enforced proportional aggression, a navy to defend its shores
contributions from the persons and from invasion, a corps of civil servants to
property levied by the law-making body serve, public improvements designed for
of the State by virtue of its sovereignty the enjoyment of the citizenry and those
in support of government and for public which come within the State's territory,
needs. and facilities and protection which a
government is supposed to provide.
CHARACTERISTICS OF TAXES (Phil. Guaranty Co., Inc. v. CIR)
1. forced charge;
2. pecuniary burden payable in money; 3. Benefits-Protection / Reciprocity
3. levied by the legislature; Theory
4. assessed with some reasonable rule Taxation is described as a symbiotic
of apportionment; (see theoretical relationship whereby in exchange of the
justice) benefits and protection that the citizens
5. imposed by the State within its get from the Government, taxes are
jurisdiction; paid. (CIR v. Algue, Inc.)
Note: While taxes are intended for
general benefits, special benefits to
TAXATION LAW COMMITTEE

 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
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1
taxpayers are not required. The The court’s power in taxation is

Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State’s
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the
persons, property or other privileges to 4. Non-impairment of Contracts
be taxed.

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Contracts Contracts Contracts may

may not be may be be impaired b. The tax imposed on videogram
impaired impaired
establishments is not only regulatory but
5. Transfer of Property Rights a revenue measure because the earnings
Taxes paid No transfer Transfer is of such establishments have not been
become part but only effected in
subject to tax depriving the government
of public restraint in favor of the
funds its exercise State of an additional source of income. (Tio
v. Videogram Regulatory Board, 151
6. Scope
All persons, All persons, Only upon a
SCRA 208)
property and property, particular
excises rights and property c. The “coconut levy funds” were
privileges all raised under the state’s taxing and
police powers.
Systems of Taxation The state’s concern to make it a
Global System Schedular System strong and secure source not only in the
livelihood of the significant segment of
A system A system employed the population, but also of export
employed where where the income tax earnings, the sustained growth of which
the tax system treatment varies and is one of the imperatives of the
views is made to depend on
economic growth.” Philippine Coconut
indifferently the the kind or category
tax base and of taxable income of
Producers Federation, Inc. Cocofed v.
generally treats in the taxpayer. Presidential Commission on Good
common all Government (178 SCRA 236, 252)
categories of
taxable income of CONSTRUCTION OF TAX LAWS
the individual. 1. Public purpose is always presumed.
A system which A system which 2. If the law is clear, apply the law in
taxes all itemizes the different accordance to its plain and simple
categories of incomes and provides tenor.
income except for varied percentages
3. A statute will not be construed as
certain passive of taxes, to be
incomes and applied thereto. imposing a tax unless it does so
capital gains. It clearly, expressly and
prescribes a unambiguously.
unitary but 4. In case of doubt, it is construed most
progressive rate strongly against the Government,
for the taxable and liberally in favor of the
aggregate incomes taxpayer.
and flat rates for 5. Provisions of a taxing act are not to
certain passive
be extended by implication.
incomes derived
by individuals. 6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A to give retrospective effect is
REGULATORY PURPOSE, OR COMBINED expressly declared or may be
EXERCISE OF POLICE POWER AND THE POWER implied from the language used.
OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OF TAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
the effect that motor vehicle TAXES ARE PERSONAL TO THE TAXPAYER
registration fees are regulatory 1. A corporation’s tax delinquency
exactions and not revenue measures. cannot be enforced against its

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stockholders. (Corporate Entity 3. As to purpose:

Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
the tax falls on one person but 6. Margin Fee – exaction designed to
the burden thereof can be stabilize the currency.
shifted or passed on to another.

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7. Debt – a sum of money due upon the start of a before

contract or one which is evidenced business commencement of
by judgment. business
8. Subsidy – a legislative grant of
Taxes, being the License fee may be
money in aid of a private enterprise
lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees – duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment
10. Revenue – a broad term that not make the makes the business
includes taxes and income from business illegal but illegal
other sources as well. maybe a ground for
criminal
11. Impost – in its general sense, it
prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on
TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise.
TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special
or if revenue is, at least, one of the real
Assessment
and substantial purposes, then the
Imposed on persons, Levied only on land exaction is a tax. If the purpose is
property and excises regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment
An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit
benefit Due to the May be due to the
government in its government but in
Levied and paid Exceptional both as sovereign capacity its corporate
annually to time and locality capacity
Exemption granted Exemption does not Payable in money Payable in money,

is applicable (Art. apply. property or services
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee
Not subject to Subject to
compensation or compensation or
Based on the power Emanates from
set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory
punished by case of non-payment
revenue
imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1)
Imposed only by Can be imposed by
issuing the license,
public authority private individual
and (2) inspection
and surveillance TEST IN DETERMINING IF THE IMPOSITION IS A
TAX OR A LICENSE FEE
Normally paid after Normally paid

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If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

if revenue is, at least, one of the real FOLLOWED IN THE PHILIPPINES
and substantial purposes, then the A tax presently being assessed
exaction is a tax. If the purpose is against a taxpayer which has prescribed
regulatory in nature, it is a license. may not be recouped or set-off against
(PAL v. Edu) an overpaid tax the refund of which is
also barred by prescription. It is against
Tax Debt public policy since both parties are
guilty of negligence.
An obligation Created by contract
imposed by law Tax Toll
Due to the May be due to the Enforced A sum of money for
government in its government but in proportional the use of
sovereign capacity its corporate contributions from something, a
capacity persons and property consideration which
is paid for the use of
Payable in money Payable in money, a property which is
property or services of a public nature;
e.g. road, bridge
Does not draw Draws interest if
interest except in stipulated or A demand of A demand of
case of delinquency delayed sovereignty proprietorship
No limit as to the Amount of toll

Not assignable Assignable
amount of tax depends upon the
cost of construction
Not subject to Subject to or maintenance of
compensation or compensation or the public
set-off set-off improvement used
Non-payment is No imprisonment in Imposed only by the May be imposed by:

punished by case of non- State (1) Government
imprisonment payment (Art. III, (2) Private
except in poll tax Sec. 20 1987 individuals or
Constitution) entities
Imposed only by Can be imposed by Tax Penalty

public authority private individual
Enforced Sanction imposed as
COMPENSATION OR SET-OFF proportional a punishment for
General Rule: Taxes cannot be the contributions from violation of a law
persons and or acts deemed
subject of compensation or set-off.
property injurious; violation
Reasons: of tax laws may give
1. lifeblood theory rise to imposition of
2. taxes are not contractual penalty
obligation but arise out of duty
to the government Intended to raise Designed to regulate
3. the government and the revenue conduct
taxpayer are not mutually
creditors and debtors of each May be imposed May be imposed by:
other. (Francia v. IAC) only by the (1) Government
government (2) Private
Exception: When both obligations are
individuals or
due and demandable as well as fully entities
liquidated and all the requisites for a
valid compensation are present,
compensation takes place by operation Tax Tariff
of law. (Domingo v. Garlitos)
All embracing term A kind of tax
to include various imposed on articles

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kinds of enforced which are traded the legislature. (See Scope of

contributions upon internationally Legislative Taxing Power, supra)
persons for the - refers to tax legislation
attainment of Exceptions to Non-delegability:
public purposes
1. Flexible Tariff Clause: Authority of
the President to fix tariff rates,
TAXPAYERS’ SUIT import and export quotas, tonnage
A case where the act complained of and wharfage dues, and other duties
directly involves the illegal disbursement or imposts. (Art. VI, Sec.28(2), 1987
of public funds derive from taxation Constitution)
(Justice Melo, dissenting in Kilosbayan, 2. Power of local government units to
Inc vs Guingona, Jr.) levy taxes, fees, and charges. (Art.
X, Sec. 5, 1987 Constitution)
TAXPAYERS AND PUBLIC OFFCIALS HAVE 3. Delegation to administrative
LOCUS STANDI agencies for implementation and
REQUISITES FOR TAXPAYERS’ SUIT collection.
a. The tax money is being - merely refers to tax administration
extracted and spent in violation of or implementation
specific constitutional protections
against abuses of legislative power.
(3) SITUS OR TERRITORIALITY OF TAXATION
b. That public money is being
deflected to any improper purpose The power to tax is limited only to
(Pascual vs Secretary of Public persons, property or businesses within
Works) the jurisdiction or territory of the taxing
c. That the petitioner seeks to power.
restrain respondents from wasting
public funds through the enforcement FACTORS THAT DETERMINE THE SITUS:
of an invalid or unconstitutional law a. Kind or classification of the tax
being levied
b. Situs of the thing or property
LIMITATIONS ON THE TAXING taxed
POWER c. Citizenship of the taxpayer
d. Residence of the taxpayer
A. INHERENT LIMITATIONS (KEY: SPINE) e. Source of the income taxed
1. Territoriality or Situs of taxation f. Situs of the excise, privilege,
2. Public purpose of taxes business or occupation being taxed
3. International comity
4. Non-delegability of the taxing power APPLICATION OF SITUS OF TAXATION
5. Tax Exemption of the government Kind of Tax Situs
(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or

a. Duty Test – whether the thing to be Community tax domicile of the
furthered by the appropriation of taxpayer
public revenue is something, which
Real property tax Location of property
is the duty of the State, as a
(Lex rei sitae)
government, to provide.
Personal property -tangible: where it
b. Promotion of General Welfare Test tax is physically located
– whether the proceeds of the tax or permanently kept
will directly promote the welfare of (Lex rei sitae)
the community in equal measure. -intangible: subject
to Sec. 104 of the
(2) NON-DELEGABILITY OF THE TAXING NIRC and the
POWER principle of mobilia
sequuntur personam
General Rule: The power of taxation is
peculiarly and exclusively exercised by

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Business tax Place of business established in the Philippines.

(Sec. 104, 1997 NIRC).
Excise or Privilege Where the act is
tax performed or where (4) EXEMPTION OF THE GOVERNMENT
occupation is As a matter of public policy,
pursued
property of the State and of its
Sales tax Where the sale is municipal subdivisions devoted to
consummated government uses and purposes is
deemed to be exempt from taxation
Income Tax Consider although no express provision in the law
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income General Rule: The Government is tax
(Sec. 42, 1997 NIRC) exempt.
- However, it can also tax itself.
Transfer tax Residence or
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
a. Governmental function - tax
Franchise Tax State which granted exempt unless when the law
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function – taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax –
and donor’s taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes – exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function
bonds have acquired a business accruing to the Government of the
situs in the Philippines; and Philippines or to any political
(5) shares or rights in any subdivision thereof is not included in
partnership, business or industry

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gross income and exempt from the territory of another, there is an

taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor’s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken A license tax or fee constitutes a
in that capacity. Even where one enters curtailment of religious freedom if

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imposed as a condition for its

exercise. (American Bible Society RULES:
vs. City of Manila, GR No. L-9637, a. When the exemption is bilaterally
April 30, 1957) agreed upon between the
government and the taxpayer – it
5. Non-Impairment Of Contracts (Art. cannot be withdrawn without
III, Sec. 10, 1987 Constitution) violating the non-impairment
No law impairing the obligation clause.
of contract shall be passed. (Sec. b. When it is unilaterally granted by
10, Art. III, 1987 Constitution) law, and the same is withdrawn by
The rule, however, does not virtue of another law – no violation.
apply to public utility franchises or c. When the exemption is granted
right since they are subject to under a franchise – it may be
amendment, alteration or repeal by withdrawn at any time thus, not a
the Congress when the public violation of the non-impairment of
interest so requires. (Cagayan contracts
Electric & Light Co., Inc. v.
Commissioner, GR No. 60216,
September 25, 1985)
6. Presidential power to grant liberty or and conditions class, shall
reprieves, commutations and property both in the be taxed at
pardons and remit fines and without privileges the same
forfeitures after conviction (ART. due conferred and rate. There
process of liabilities should
VII, SEC. 19, 1987 CONSTITUTION)
law. imposed. therefore,
Due Equal Notice be no direct
Uniformity
Process Protection must, double
Taxpayer Taxpayers Taxable therefore taxation
may not shall be articles, or , be given
be treated alike kinds of in case of
deprived under like property of failure to
of life, circumstances the same pay taxes
Q: Is a tax law adopting a regressive
B. SPECIFIC OR DIRECT system of taxation valid?
CONSTITUTIONAL LIMITATIONS A: Yes. The Constitution does not
really prohibit the imposition of indirect
1. Non-Imprisonment For Debt Or Non- taxes which, like the VAT, are
Payment Of Poll Tax (Art. III, Sec. regressive. The Constitutional provision
20, 1987 Constitution) means simply that indirect taxes shall be
minimized. The mandate to Congress is
2. Rule Requiring That Appropriations, not to prescribe, but to evolve, a
Revenue And Tariff Bills Shall progressive tax system. (EVAT En Banc
Originate Exclusively From The Resolution, Tolentino, et al vs Secretary
House Of Representatives (Art. VI, of Finance, October 30, 1995)
Sec. 24, 1987 Constitution)
4. Limitations On The Congressional
3. Uniformity, Equitability And Power To Delegate To The
Progressivity Of Taxation (Art. VI, President The Authority To Fix
Sec. 28(1), 1987 Constitution) Tariff Rates, Import And Export
Uniformity – all taxable articles or Quotas, Etc. (Art. VI, Sec. 28(2),
kinds of property of the same class 1987 Constitution)
are taxed at the same rate.
Equitability – the burden falls to 5. Tax Exemption Of Properties
those who are more capable to pay. Actually, Directly And Exclusively
Progressivity – rate increases as the Used For Religious, Charitable And
tax base increases. Educational Purposes. (Art. VI,
Sec. 28(3) 7, 1987 Constitution)

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The constitutional provision 7. Non-Impairment Of The

(above cited) which grants tax Jurisdiction Of The Supreme Court
exemption applies only to property In Tax Cases (Art. VIII, Sec. 2 And
or realty taxes assessed on such 5(2)(B), 1987 Constitution)
properties used actually, directly
exclusively for religious, charitable 8. Exemption From Taxes Of The
and educational purposes. (Lladoc Revenues And Assets Of
vs. Commissioner, GR No. L-19201, Educational Institutions, Including
June 16, 1965) Grants, Endowments, Donations
The present Constitution And Contributions. (Art. XIV, Sec.
required that for the exemption of 4(3) And (4), 1987 Constitution)
“lands, buildings and
improvements”, they should not only OTHER SPECIFIC TAX PROVISIONS IN
be “exclusively” but also “actually” THE CONSTITUTION
and “directly” used for religious and 1. Power of the President to veto any
charitable purposes. (Province of particular item or items in an
Abra vs. Hernando, GR No. L-49336, appropriation, revenue, or tariff bill.
August 31, 1981) (Art VI, Sec. 27(2), 1987
The test of exemption from Constitution)
taxation is the use of the property 2. Necessity of an appropriation before
for the purposes mentioned in the money may be paid out of the public
Constitution. (Abra Valley College treasury. (Art. VI, Sec. 29 (1), 1987
Inc. vs. Aquino, GR No. L-39086, Constitution)
June 15, 1988) 3. Non-appropriation of public money
or property for the use, benefit, or
EXCLUSIVE BUT NOT ABSOLUTE USE support of any sect, church, or
The term “ exclusively used” does system of religion. (Art. VI, Sec. 29
not necessarily mean total or absolute (2), 1987 Constitution)
use for religious, charitable and 4. Treatment of taxes levied for a
educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION – taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational,
PHILIPPINES?
educational charitable
institution institutions
No. There is no constitutional
Taxes Income tax Property tax prohibition against double taxation. It is
covered Custom not favored but permissible. (Pepsi Cola
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious – double taxation in the
6. Voting Requirement In Connection objectionable or prohibited sense.
With The Legislative Grant Of Tax This constitutes a violation of
Exemption (Art. VI, Sec. 28(4), substantive due process.
1987 Constitution)

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Elements: tax, subject to certain limitations,

a. the same property or subject by citizens, including members of
matter is taxed twice when it should general professional partnerships or
be taxed only once. beneficiaries of estates or trusts
b. both taxes are levied for the (pro rata), as well as domestic
same purpose corporations.
c. imposed by the same taxing  A tax credit is granted for estate
authority taxes paid to a foreign country on
d. within the same jurisdiction the estate of citizens and resident
e. during the same taxing period aliens subject to certain limitations.
f. covering the same kind or  The donor’s tax imposed upon a
character of tax. citizen or a resident shall be
(Villanueva vs. City of Iloilo) credited with the amount of any
donor’s tax imposed by the authority
(2) Indirect Duplicate Taxation – not of a foreign country, subject to
legally objectionable. The absence certain limitations.
of one or more of the above- 4. Tax Exemptions
mentioned elements makes the 5. Principle of Reciprocity
double taxation indirect. 6. Treaties with other states
(3) Domestic- this arises when the taxes METHODS RESORTED TO BY A TAX TREATY IN
are imposed by the local or national ORDER TO ELIMINATE DOUBLE TAXATION
government (within the same state)
(4) International- refers to the FIRST METHOD: The tax treaty sets out
imposition of comparable taxes in the respective rights to tax by the state
two or more states on the same of source or situs and by the state of
taxpayer in respect of the same residence with regard to certain classes
subject matter and for identical of income or capital. In some cases, an
periods. exclusive right to tax is conferred in one
of the contracting states; however, for
REMEDIES OF DOUBLE TAXATION other items of income or capital, both
1. Tax Sparing Rule – same dividend states are given the right to tax although
earned by a NRFC within the Phil. is the amount of tax that may be imposed
reduced by imposing a lower rate of by the state of source is limited.
15% (in lieu of the 35%), on the SECOND METHOD: The state of source is
condition that the country to which given a full or limited right to tax
the NRFC is domiliced shall allow a together with the state of residence. In
credit against the tax due from the this case, the treaty makes it incumbent
NRFC, taxes deemed to have been upon the state of residence to allow
paid in the Phil. (Sec.28 B 5b) (CIR relief in order to avoid double taxation.
vs Procter & Gamble) (GR No.
66838, Dec. 2, 1991) TWO METHODS OF RELIEF ARE USED UNDER THE
2. Tax deductions SECOND METHOD:
Example: vanishing deduction under
Section 86(A)(2), NIRC 1. The exemption method- the income
3. Tax credits or capital which is taxable in the state
Instances under the NIRC: of source or situs is exempted in the
 For VAT purposes, the tax on state of residence, although in some
inputs or items that go into the instances it may be taken into account
manufacture of finished products in determining the rate of tax applicable
(which are eventually sold) may be to the tax payer’s remaining income or
credited against or deducted from capital.(This may be done using the tax
the output tax or tax on the finished deduction method which allows foreign
product. income taxes to be deducted from gross
 Foreign income taxes may be income, in effect exempting the
credited against the Phil. Income payment from being further taxed.)

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2. The credit method- although the Illustration: Value added tax. The
income or capital which is taxed in the seller is required by law to pay tax, but
state of source is still taxable in the the burden is actually shifted or passed
state of residence. The tax paid in the on to the buyer.
former is credited against the tax, levied
in the latter.(Commissioner of Internal KINDS OF SHIFTING
Revenue v. S.C Johnson and Son, Inc. et a. Forward shifting- when burden of
al., G.R No. 127105, June 25, 1999) tax is transferred from a factor of
production through the factors of
Exemption distribution until it finally settles on
Credit Method the ultimate purchaser or consumer
Method
Focus is on the Focus is on the tax b. Backward shifting- when burden is
income or capital transferred from consumer through
itself factors of distribution to the factors
of production
NOTE: Computational illustration c. Onward shifting- when the tax is
between a tax deduction and a tax shifted 2 or more times either
credit: forward or backward
Tax deduction method (2) CAPITALIZATION – a mere increase in

Gross income the value of the property is not income
Less: allowable deductions but merely an unrealized increase in
including capital. No income until after the
foreign taxes paid actual sale or other disposition of the
Income subject to tax property in excess of its original cost.
Multiplied by rate EXCEPT: if by reason of appraisal, the
Income tax due cost basis of property increased and the
resultant basis is used as the new tax
Tax credit method base for purposes of computing the
Gross income allowable depreciation expense, the net
Less: allowable deductions difference between the original cost
excluding basis and new basis is taxable under the
foreign taxes paid economic benefit principle. (BIR Ruling
Income subject to tax No. 029, March 19, 1998)
Multiplied by rate
Income tax due (3) TRANSFORMATION – the manufacturer
Less: foreign taxes paid or producer upon whom the tax has been
Net income tax due imposed, fearing the loss of his market if
he should add the tax to the price, pays
the tax and endeavors to recoup himself
FORMS OF ESCAPE by improving his process of production,
FROM TAXATION thereby turning out his units at a lower
cost.
(1) SHIFTING – the process by which the
(4) TAX AVOIDANCE – the exploitation by
tax burden is transferred from the
the taxpayer of legally permissible
statutory taxpayer (impact of taxation)
alternative tax rates or methods of
to another (incident of taxation) without
assessing taxable property or income, in
violating the law.
order to avoid or reduce tax liability.
Example: “estate planning”
IMPACT OF TAXATION – point on which tax
(conveyance of property to a family
is originally imposed.
corporation for shares) (Delpher Trades
Corp. vs. IAC, 157 SCRA 349)
INCIDENCE OF TAXATION – point on which
(5) TAX EVASION – use by the taxpayer of
the tax burden finally rests or settles
illegal or fraudulent means to defeat or
down.
lessen the payment of the tax.

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Sec. 105 Tariff and Customs

FACTORS IN TAX EVASION Code
1. the end to be achieved, i.e. payment Sec. 234 Local Government Code
of less than that known by the taxpayer Special Laws, such as the
to be legally due, or paying no tax when Omnibus Investment Code of 1987
it is shown that the tax is due; (EO 226), Philippine Overseas
2. an accompanying state of mind Shipping Act (RA 1407 as amended),
which is described as being evil, in bad Fertilizer Industry Act (RA 3050, as
faith, willful, or deliberate and not amended), Mineral Resources
coincidental; and Development Decree of 1974 (PD 463
3. a course of action which is unlawful. as amended), Cottage Industry Act
(RA 318, as amended) and
INDICIA OF FRAUD IN TAX EVASION exemptions in “Housing for Low
1. Failure to declare for taxation Income Group” (PD 1205, as
purposes true and actual income derived amended)
from business for 2 consecutive years c. Contractual- agreed to by the
(Republic vs Gonzales, L-17962) taxing authority in contracts
2. Substantial under-declaration of lawfully entered into by them
income tax returns of the taxpayer for 4 under enabling laws
consecutive years coupled with d. Treaty
intentional overstatement of deductions e. Licensing Ordinance
(CIR vs Reyes, 104 PHIL 1061) 2. As to form
(1) Express – expressly granted by
TAX TAX organic or statute law
AVOIDANCE EVASION (2) Implied – when particular
persons, property or excises are
Validity Legal and not Illegal and deemed exempt as they fall
subject to subject to outside the scope of the taxing
criminal penalty criminal provision itself.
penalty
3. As to extent
Effect Minimization of Almost (1) Total – absolute immunity
taxes always (2) Partial – one where a collection
results in of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal – granted directly in
(6) TAX EXEMPTION – a grant of favor of certain persons
immunity to particular persons or (2) Impersonal – granted directly in
corporations from the obligation to pay favor of a certain class of
taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional – immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory – those which emanate prove by convincing proof that he
from legislation is exempted.
Examples of Statutory Exemptions d. Taxation is the rule; tax exemption
Sec. 27, NIRC is the exception.

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e. Tax exemption must be strictly Constitution, its revocation may be

construed against the taxpayer and effected through Constitutional
liberally in favor of the taxing amendment only
authority. c. Where the tax exemption grant is in
f. Tax exemptions are not presumed. the form of a special law and not by
g. Constitutional grants of tax a general law even if the terms of
exemption are self-executing. the general act are broad enough to
h. Tax exemptions are personal. include the codes in the general law
unless there is manifest intent to
THE FOLLOWING PARTAKE THE NATURE OF repeal or alter the special law
TAX EXEMPTION (Province of Misamis Oriental vs
1. Deductions for income tax purposes Cagayan Electric Power and Light
2. Claims for refund Co. Inc)
3. Tax amnesty
4. Condonation of unpaid tax liabilities NATURE OF TAX AMNESTY
NOTE: must be strictly construed 1. General or intentional overlooking by
against the taxpayer the state of its authority to impose
penalties on persons otherwise guilty
WHEN EXEMPTIONS ARE CONSTRUED of evasion or violation of a revenue
LIBERALLY IN FAVOR OF GRANTEE or tax law.
1. When the law so provides for such 2. Partakes of an absolute forgiveness of
liberal construction. waiver of the government of its right
2. Exemptions from certain taxes, to collect.
granted under special circumstances 3. To give tax evaders, who wish to
to special classes of persons. relent and are willing to reform a
3. Exemptions in favor of the chance to do so.
government, its political subdivisions
or instrumentalities. RULES ON TAX AMNESTY
4. Exemptions to traditional 1. Tax amnesty
exemptees, such as those in favor of a) like tax exemption, it is never
religious and charitable institutions. favored nor presumed
5. If exemptions refer to the public b) construed strictly against the
property taxpayer (must show complete
compliance with the law)
Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.
parties based on material Reason: Relates to the circumstances
consideration of a mutual nature, of a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.
b. Adherence to form- if the tax Tax amnesty Tax exemption
exemption is granted by the

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Immunity from all Immunity from civil Local Taxes, fees, or charges shall
criminal, civil and liability only be assessed within five (5) years from
administrative the date they became due. In case of
liabilities arising fraud or intent to evade the payment of
from non payment
taxes, fees or charges the same may be
of taxes
assessed within ten (10) years from
Applies only to past Prospective discovery of the fraud or intent to
tax periods, hence application evade payment. They shall also be
retroactive collected either by administrative or
application judicial action within five (5) years
from date of assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY
As a rule, taxes are imprescriptible TAX ENFORCEMENT AND
as they are the lifeblood of the ADMINISTRATION
government. However, tax statutes may
provide for statute of limitations. SOURCES OF TAX LAWS (Key: SPEC2TRA
The rules that have been adopted BLT)
are as follows: 1. Statutes
a.) National Internal Revenue Code 2. Presidential Decrees
The statute of limitation for 3. Executive Orders
assessment of tax if a return is filed is 4. Constitution
within three (3) years from the last day 5. Court Decisions
prescribed by law for the filling of the 6. Tax Codes
return or if filed after the last day, 7. Revenue Regulations
within three years from date of actual 8. Administrative Issuances
filling. If no return is filed or the return 9. BIR Rulings
filed is false or fraudulent, the period to 10. Local Tax Ordinance
assess is within ten years from discovery 11. Tax Treaties and Conventions
of the omission, fraud or falsity.
The period to collect tax is within REQUISITES OF TAX REGULATIONS
three years from date of assessment. In 1. Reasonable
the case, however, of omission to file or 2. Within the authority conferred
if the return filed is false or fraudulent, 3. Not contrary to law
the period to collect is within ten years 4. Must be published
from discovery without need of an
assessment. NOTE: Administrative regulations must
always be in harmony with the
b.) Tariff and customs code provisions of the law. In case of
It does not express any general discrepancy between the basic law and
statute of limitation; it provided, the implementing rule or regulation, the
however, that ‘’ when articles have former prevails.
entered and passed free of duty or final
adjustment of duties made, with NON-RETROACTIVITY OF BIR RULINGS
subsequent delivery, such entry and General Rule: Rulings are not
passage free of duty or settlement of retroactive if they are prejudicial to the
duties will, after the expiration of one taxpayer. (Sec. 246, NIRC)
(1) year, from the date of the final Exceptions:
payment of duties, in the absence of 1. Where the taxpayer deliberately
fraud or protest, be final and conclusive misstates or omits material facts
upon all parties, unless the liquidation from his return or any document
of import entry was merely tentative.” required of him by the BIR.
(Sec 1603,TCC) 2. Where the facts subsequently
gathered by the BIR is materially
c.) Local Government Code different from the facts on which
the ruling is based.

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3. Where the taxpayer acted in bad Assessment and collection of all

faith. national internal revenue taxes, fees,
and charges
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,
ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of decided in its favor by the Court of
the government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision 3. Give effect to and administer the
without substantial change, such action supervisory and police powers
is to some extent confirmatory that the conferred to it by the Code or other
ruling carries out the legislative laws
purpose.
ASSESSMENT – a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
Exceptions:
fair play, as where injustice will result
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
– internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate a. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs – customs law interests,
enforcement b. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers – local and c. In the establishment of tax liens,
real property taxes and
d. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the
BUREAU OF INTERNAL REVENUE (BIR) coming year. (Mamalateo,
BIR shall be under the supervision Victorino. Reviewer on Taxation,
and control of the Dept. of Finance (Sec. 2004)
2, NIRC)
POWERS AND DUTIES OF THE BIR KINDS

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1. SELF- ASSESSMENT- one in which the 4. The authority of the Commissioner

tax is assessed by the taxpayer to assess taxes may be delegated,
himself except the power to make final
2. DEFICIENCY ASSESSMENT- made by the assessments.
tax assessor himself whereby the 5. It must be directed to the right
correct amount of the tax is party.
determined after an examination or
investigation is conducted. The Authority of a Revenue Officer -
liability is determined and assessed pursuant to a Letter of Authority issued
for the following reason: by the Regional Director
a. amount ascertained exceeds that a. To examine taxpayers within
which is shown as the tax by the the jurisdiction of the district in
taxpayer in his return order to collect the correct
b. no amount of tax is shown in the amount of tax;
return b. To recommend the assessment of
c. taxpayer did not file any return any deficiency tax due in the
at all same manner that the said acts
3. ILLEGAL AND VOID ASSESSMENT- could have been performed by the
assessment wherein tax assessor has Revenue Regional Director.
no power to assess at all General Rule: income tax returns are
4. ERRONEOUS ASSESSMENT- assessor has confidential.
power to assess but errs in the Exception: inquiry into income tax
exercise thereof returns may be authorized-
BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon

PROCEEDINGS written order of the President of the
There is a presumption of Philippines;
correctness and good faith on the part of 2. inspection is authorized under
the CIR; thus, the burden lies on the Finance Regulations No. 33 of the
taxpayer. Otherwise, the finding of the Secretary of Finance;
CIR will be conclusive and he will assess 3. production of the tax return is
the taxpayer. The same is true even if material evidence in a criminal case
the CIR is wrong, if the taxpayer does wherein the government is
not controvert. (Cagayan Robina Sugar interested in the result; or
Milling Co. vs. Court of Appeals, GR. 4. production or inspection thereof is
No. 122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
b. presumption of regularity in Networth Method- inventory method of
performance of public income tax verification.
functions
NOTE: Assessments by the BIR must have  Applies the accounting principle:
on its face the law and facts upon which assets – liabilities = networth
the presumption is made. Condition for its use:
1. taxpayer’s books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer
1. Assessments are prima facie has no books, or if he has books, he
presumed correct and made in good refuses to produce them;
faith. 2. there is evidence of possible source
2. It should be based on actual facts. or sources of income to account for
3. It is discretionary on the part of the increases in networth;
Commissioner. 3. there is a fixed starting point or
opening networth; and
4. there must be proper adjustments to
conform with the income tax laws.

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POWERS AND DUTIES OF THE COMMISSIONER -- the books of accounts,

I. SECTION 4 (power to interpret tax law -- accounting records of entries
and decide tax cases) relating to the business of the
person liable for tax or any other
1. Interpret provisions of this Code and person
other tax laws subject to review of the -- to produce such books,
Secretary of Finance papers, records, and other data
(Quasi-legislative) and to give testimony
2. Decide: (Quasi-judicial) 4. to take the Testimony of the person
a) disputed assessment concerned, under oath as may be
b) refunds of internal relevant to the inquiry
revenue taxes, fees and charges 5. to cause revenue officers and
c) penalties imposed in employees to make a Canvass of any
relation thereto revenue district or region
d) other matters arising
from this Code or other laws or Nothing in Section 5 shall be
portions thereof administered by construed as granting the Commissioner
the BIR subject to the exclusive the authority to inquire into bank
appellate jurisdiction of the CTA deposits other than as provided for
(Sec. 4) under sec. 6 (F) of the Code.
II. SECTION 5 (power to obtain III. SECTION 6 (power to make

information, summon, examine and take assessments, prescribe additional
testimony of persons) requirements for tax administration
and enforcement)
3. For the Commissioner to ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, gov’t notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, gov’t owned and representative
controlled corporations) (e.g. LTO, * Any return, statement or
Register of Deeds) declaration filed in any
3. to Summon authorized office shall not be
i. the person liable for tax or withdrawn; but within three
required to file a return or years from date of filing, the
ii. any officer or employee of such same may be modified,
person or changed or amended;
iii. any person having in his provided that no notice for
possession/custody/care audit or investigation of such

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return, has in the meantime, reflect the declarations made

been actually served upon the or required to be made in a
taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils.
information as he can obtain or
through testimony or otherwise c) to remove his property
which shall be prima facie therefrom or
correct and sufficient for all d) to hide or conceal his property
legal purposes or
e) is performing any act tending to
6.Inventory-taking, Surveillance, obstruct the proceedings for
Presumptive Gross Sales the collection of tax
A. Commissioner may, at any time
during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by (a) a decedent to determine his gross
sec.113 (Invoice requirements estate
for VAT-registered persons) (b) a taxpayer who has filed an
and Sec. 237 (Issuance of application to compromise
Receipts or Commercial payment of tax liability by reason
Invoices) or of financial incapacity
ii. When the books of accounts
or records do not correctly

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The taxpayer’s application for c) power to Compromise or Abate

compromise shall not be considered any tax liability
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents
(a) The Commissioner shall accredit provided however that the
and Register, individuals and regional evaluation board may
general professional partnerships compromise:
and their rep. who prepare and 1. assessments issued by
file tax returns and other papers regional offices involving
or who appear before the BIR deficiency taxes of P500,000
(b) The Commissioner shall create or less and
national and regional 2. minor criminal violations as
accreditation boards. may be determined by the
rules and regulations
Those who are denied 3. discovered by regional and
accreditation may appeal the same district officials
to the Sec. Of Finance who shall
rule on the appeal within 60 days Regional Evaluation Board is
from receipt of such appeal. Failure composed of:
to do so within the prescribed i. Regional Director as Chairman
period shall be deemed as approval ii. Asst. Regional Director
for accreditation. iii. Heads of the Legal, Assessment
and Collection Div.
11. Authority to Prescribe Additional iv. Revenue District Officer having
Requirements jurisdiction over the taxpayer
The Commissioner may prescribe
the manner of compliance with any d) power to Assign or reassign
documentary or procedural internal revenue officers to
Requirement for the submission or establishments where
preparation of financial statements articles subject to excise tax
accompanying tax returns. are kept.
IV. SECTION 7 (Authority to Delegate V. SECTIONS 8, 14, 15, 16, 17 (Other

Power ) Powers)
12. The Commissioner may delegate the 13. Duty to ensure the provision and
powers vested in him to distribution of forms, receipts,
- subordinate officials with rank certificates, and appliances, and
equivalent to Division Chief or the acknowledgment of payment of
higher, subject to taxes (Sec. 8)
limitations/restrictions imposed
under the rules and regulations 14. Authority to administer oaths and to
EXCEPT, (the following powers take testimony (Sec. 14)
shall NOT be delegated)
a) power to Recommend the 15. Authority to make arrests and
promulgation of rules and seizures (Sec. 15)
regulations by the Sec. of
Finance 16. Authority to employ, assign or
b) power to Issue rulings of first reassign internal revenue officers
impression or to Reverse, revoke involved in excise tax functions to
modify any existing rule of the establishments where articles
BIR subject to excise tax are produced
or kept (Sec. 16)

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17. Authority to assign or reassign INCOME – all wealth, which flows into the
internal revenue officers and taxpayer other than as a mere
employees of the BIR to other or return of capital.
special duties connected with the
enforcement or administration of CAPITAL – resource of person, which
the revenue laws (Sec. 17) can be used in producing goods
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
and services.
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT Income Capital
THE PARTICIPATION OF THE SOLICITOR
GENERAL? All wealth, which Fund or property
flows into the which can be used
NO. The institution or
taxpayer other than in producing goods
commencement before a proper court of as a mere return of or services
civil and criminal actions and capital.
proceedings arising under the Tax
Reform Act which shall be conducted by Flow of Wealth Fund or property
legal officers of the BIR is not in dispute.
An appeal from such court, however, is Source of wealth Wealth
not a matter of right. It is still the
Solicitor General who has the primary REQUISITES FOR INCOME TO BE TAXABLE
responsibility to appear for the 1. There must be a gain or profit.
government in appellate proceedings. 2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and received.
Cigarette Factory, GR No. 144942, July 3. The gain must not be excluded by
4, 2002) law or treaty from taxation.
SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

The following taxes, fees and 1. Flow of Wealth Test – The
charges are deemed to be national determining factor for the
internal revenue taxes. (Sec. 21, NIRC) imposition of income tax is
1. Income tax whether any gain was derived
2. Estate and donor's taxes from the transaction.
3. Value-added tax 1. Realization Test - unless the
4. Other percentage taxes income is deemed "realized,"
5. Excise taxes there is no taxable income.
6. Documentary stamp taxes 2. Economic-Benefit Principle
7. Such other taxes as are or hereafter Test
may be imposed and collected by -flow of wealth realized is
the Bureau of Internal Revenue. taxable only to the extent that
the taxpayer is economically
benefited.
II. NATIONAL TAXATION
CRITERIA IN IMPOSING INCOME TAX
A. INCOME TAXATION 1. Citizenship Principle – A citizen of
the Philippines is subject to Philippine
DEFINITIONS income tax (a.) on his worldwide
INCOME TAX – tax on all yearly profits income, if he resides in the Philippines,
arising from property, possessions, or (b.) only on his income from sources
trade or business, or as a tax on a within the Philippines, if he qualifies as
person’s income, emoluments, nonresident citizen.
profits and the like (61 CJS 1559) 2. Residence Principle – resident alien
– tax on income, is liable to pay income tax on his income
whether gross or net. (27 Am. Jur. from sources within the Philippines but
308) exempt from tax on his income from
sources outside the Philippines.

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3. Source Principle – An alien is subject employment thereat requires

to Philippine income tax because he him to be physically present
derives income from sources within the abroad most of the time during
Philippines. Thus, a nonresident alien is the taxable year;
liable to pay Philippine income tax on d. who is previously considered as a
his income from sources within the non-resident and who arrives in
Philippines such as dividend, interest, the Philippines at anytime during
rent, or royalty, despite the fact that he the taxable year to reside
has not set foot in the Philippines. thereat permanently shall be
CLASSIFICATION OF TAXPAYERS considered non-resident for the
taxable year in which he arrives
Individuals in the Philippines with respect to
a. citizens his income derived from sources
(1) resident citizens (RC) abroad until the date of his
(2) non-resident citizens (NRC) arrival [Sec.22 (E), NIRC]
b. aliens
(1) resident aliens (RA) NOTE: An overseas contract worker
(2) non-resident aliens (NRA) (OCW) is taxable only on income
(a) engaged in trade or derived from sources within the
business within the Philippines. [Sec. 23 (B)(C)]
Phils. (NRAETB) A seaman is considered as an
(b) not engaged in trade or OCW provided the following
business within the requirements are met:
Philippines (NRANETB) 1. receives compensation for services
rendered abroad as a member of
Corporations the complement of a vessel; and
a. Domestic (DC) 2. such vessel is engaged exclusively
b. Foreign in international trade.
(1) resident foreign corporation
(RFC) Based on the above provisions,
(2) non-resident foreign there are three (3) types of
corporation (NRFC) nonresident citizens, namely: (1)
Estates immigrants; (2) employees of a foreign
Trusts entity on a permanent basis; and
Partnerships (3) overseas contract workers.
Immigrants and employees of a foreign
entity on a permanent basis are
A. INDIVIDUALS treated as nonresident citizens from
the time they depart from the
WHO ARE TAXABLE? Philippines. However, overseas
1. Resident Citizen contract workers must be physically
2. Non-resident Citizen present abroad most of the time
A non-resident citizen means, a during the calendar year to qualify as
Filipino citizen: nonresident citizens.
a. who establishes to the 3. Resident alien - means an individual
satisfaction of the Commissioner whose residence is within the
the fact of his physical presence Philippines and who is not a citizen
abroad with a definite intention thereof. [Sec.22 (F, NIRC)]
to reside therein; 4. Non-resident alien engaged in
b. who leaves the Philippines trade or business within the
during the taxable year to reside Philippines. (NRAETB)
abroad, either as an immigrant A non-resident alien means an
or for employment on a individual whose residence is not
permanent basis; within the Philippines and who is not
c. who works and derives income a citizen thereof. [Sec.22 (G)]
from abroad and whose

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The term trade or business 2. Joint venture or consortium

includes the performance of the formed for the purpose of
functions of a public office. [Sec. 22 undertaking construction projects or
(S)] engaging in petroleum, coal,
The term trade, business or geothermal and other energy
profession shall not include operations pursuant to an operating
performance of services by the or consortium agreement under a
taxpayer as an employee. [Sec. 22 service contract with the
(CC)] Government.
A non-resident alien individual
who shall come to the Philippines CORPORATIONS EXEMPT FROM INCOME
and stay therein for an aggregate TAXATION (FOR INCOME REALIZED AS SUCH)
period of more than 180 days during UNDER NIRC
any calendar year shall be deemed a 1. Those enumerated under Sec.
non-resident alien doing business in 30.
the Philippines Section 22(G) Exempt corporations are subject
notwithstanding [Sec. 25(A)(1)] to income tax on their income from
5. Non-resident alien not engaged in any of their properties, real or
trade or business within the personal, or from any other activities
Philippines. (NRANETB) conducted for profit, regardless of
the disposition made of such income.
ONLY RESIDENT CITIZENS are taxable 2. With respect to GOCCs, the
for income derived from sources within general rule is that these
and without the Philippines. All other corporations are taxable as any
individual income taxpayers are taxable other corporation except:
only for income derived from sources a. GSIS
within the Philippines. b. SSS
c. PHIC
 Tax Rates: Please refer to Annex A. d. PCSO
e. PAGCOR [Sec. 27 (C)]
B. CORPORATIONS 3. Regional or Area Headquarters
under Sec. 22 (DD) – not subject to
WHO ARE TAXABLE? income tax
1. Domestic Corporation – created or
organized in the Phils. or under its Regional operating headquarters
law [Sec. 22(C), NIRC] under Sec. 22(EE) shall pay a tax of
2. Resident Foreign Corporation – 10% of their taxable income.
engaged in trade or business within
the Philippines [Sec. 22(H), NIRC] ONLY DOMESTIC CORPORATIONS are
3. Non-resident Foreign Corporation – taxable for income derived from sources
not engaged in trade or business within and without the Philippines. All
within the Philippines [Sec. 22(I), other corporate income taxpayers are
NIRC] taxable only for income derived from
A Corporation Includes: sources within the Philippines.
1. Partnerships, no matter how
created or organized;  Tax Rates: Please refer to Annex B.
2. Joint-stock companies;
3. Joint accounts (cuentas en C. ESTATES AND TRUSTS
participacion)
4. Associations; or ESTATE – refers to the mass of properties
5. Insurance companies [Sec. 22(B), left by a deceased person.
NIRC].
RULES ON TAXABILITY OF ESTATE
Excludes: When a person who owns property
1. General professional dies, the following taxes are payable
partnerships;

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under the provisions of the income tax GR No. L-9996, October 15,
law: 1957; Oña vs. Commissioner, GR
1. Income tax for individual under Sec. No. L-19342, May 25, 1972)
24 and 25 (to cover the period 2. If the heirs, without contributing
beginning January to the time of money, property or industry to
death); improve the estate, simply
2. Estate income tax under Sec. 60 if divide the fruits thereof
the estate is under administration or between/among themselves, a
judicial settlement. co-ownership is created, and
individual income tax is imposed
on the income received by each
of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual
A. During the Pendency of the capacity. (Pascual vs.
Settlement Commissioner, GR No. L-78133,
General Rule: An estate under October 18, 1988; Obillos vs.
judicial settlement is subject to Commissioner, GR No. L-68118,
income tax in the same manner as October 29, 1985)
individuals. Its status is the same as
the status of the decedent prior to ESTATES NOT UNDER JUDICIAL SETTLEMENT
his death. Pending the extrajudicial
Exceptions: settlement, either of the following
1. The entitlement to personal situations may arise:
exemption is limited only to 1. If the heirs contribute money,
P20,000. property, or industry to the estate
2. No additional exemption is with the intention of dividing the
allowed. profits between/among themselves,
3. The distribution to the heirs an unregistered partnership is
during the taxable year of estate created and the estate becomes
income is deductible from the liable for the payment of corporate
taxable income of the estate. income tax; or
Such distributed income shall 2. If the heirs, without contributing
form part of the respective money, property or industry to the
heirs’ taxable income. estate, simply divide the fruits
Where no such thereof between/among themselves,
distribution to the heirs is made a co-ownership is created and
during the taxable year that the income tax is imposed on the income
income is earned, and such received by each of the heirs,
income is subjected to income payable in their separate and
tax payment by the estate, the individual capacity.
subsequent distribution thereof
is no longer taxable on the part TRUST – A right to the property, whether
of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY) 1. A trust, the income of which is to be
1. If the heirs contribute to the accumulated
estate money, property, or 2. A trust in which the fiduciary may, at
industry with intention to divide his discretion, either distribute or
the profits between/among accumulate the income.
themselves, an unregistered
partnership is created and the RULES ON TAXABILITY OF THE INCOME OF A
estate becomes liable for the TRUST
payment of corporate income 1. The income of the trust for the
tax. (Evangelista vs. Collector, taxable year which is to be

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distributed to the beneficiaries – 3. such contributions are made for the

filing and payment of tax lie on the purpose of distributing to such
beneficiaries. employees both the earnings and
2. The income of the trust which is to principal of the fund accumulated by
be accumulated or held for future the trust, and
distribution whether consisting of 4. that the trust instrument makes it
ordinary income or gain from the impossible for any part of the trust
sale of assets included in the corpus or income to be used for, or
"corpus" of the estate – filing of diverted to, purposes other than the
return and payment of tax become exclusive benefit of such employees.
the burden of the trustee or (Sec. 60B, NIRC)
fiduciary.
Exceptions: Tax exemption is likewise to be
a. In the case of a revocable trust, enjoyed by the income of the pension
the income of the trust will be trust; otherwise, taxation of those
returned by the grantor. earnings would result in a diminution of
b. In a trust where the income is accumulated income and reduce
held for the benefit of the whatever the trust beneficiaries would
grantor, the income of the trust receive out of the trust fund.
becomes income to the grantor. (Commissioner vs. Court of Appeals,
c. In the case of trust Court of Tax Appeals and GCL
administered in a foreign Retirement Plans, GR No. 95022, March
country, the income of the trust; 23, 1992)
undiminished by any amount
distributed to the beneficiaries D. PARTNERSHIPS
shall be taxed to the trustee.
KINDS OF PARTNERSHIP FOR TAX PURPOSES
IRREVOCABLE TRUSTS (irrevocable both as UNDER THE NIRC
to corpus and as to income) – 1. General Professional Partnerships
(GPP) - formed by persons for:
Trust itself, through the trustee or a. the sole purpose of exercising a
fiduciary, is liable for the payment of common profession and
income tax. Taxed exactly in the same b. no part of the income of which is
way as estates under judicial settlement derived from engaging in any
and its status as an individual is that of trade or business. [Sec. 22(B),
the trustor. It is entitled to the NIRC].
minimum personal exemption (P20,000) 2. Taxable or Business Partnership –
and distribution of trust income during All other partnerships except
the taxable year to the beneficiaries is general professional partnerships no
deductible from the trust’s taxable matter, how created or organized.
income. It includes unregistered joint
ventures and business partnerships.
REVOCABLE TRUSTS – the trustor, not the However, joint ventures are not
trust itself, is subject to the payment of taxables as corporations when it is;
income tax on the trust income. (a) undertaking construction projects
(b) engaged in petroleum, coal and
EXEMPTION OF EMPLOYEES’ TRUST other energy operation under a
Provided: service contract with the
1. the employee’s trust must be part of government
a pension, stock bonus or profit General co-partnerships (GCP)
sharing plan of the employer for the are partnerships, which are by law
benefit of some or all of his assimilated to be within the context
employees; of, and so legally contemplated as,
2. contributions are made to the trust corporations. The partnership itself
by such employer, or such is subject to corporate taxation. The
employees, or both; individual partners are considered

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stockholders and, therefore, profits are liable in their separate and

distributed to them by the individual capacity.
partnership are taxable as dividends.
The taxable income for a taxable b. Share of a partner in the loss
year, after deducting the corporate of a general professional
income tax imposed therein, shall be partnership may be taken by the
deemed to have been actually or individual partner in his return
constructively received by the of income.
partners in the same taxable year
and shall be taxed to them in their
individual capacity whether actually c. Each partner in a general
distributed or not. [Sec. 73(D), professional partnership shall,
NIRC] report as gross income his
distributed share in the net
LIABILITY OF A PARTNERSHIP income of the GPP, based on his
1. General Professional Partnership .- agreed ratio, whether he, avails
They are not subject to income tax, of itemized or optional standard
but are required to file returns of deduction.
their income for the purpose of
furnishing information as to the d. Payments made to a partner of
share of each partner in the net gain a GPP for services rendered shall
or profit, which each partner shall be considered as ordinary
include in his individual return. The business income subject to Sec.
partnership shall act as the 24A (Effective January 1, 1982)
withholding agent.
The net income (income for 2. Share of a partner in Taxable or
distribution) shall be computed in Business partnership
the same manner as a corporation. a. Share of a partner in the net
Date of filing of the return is April income of a taxable or business
15 of each year. partnership (dividend) shall be
2. Taxable or Business Partnership - subject to a final tax as follows.
The income tax of this type of  Resident Citizen, Non-
Partnership is computed and taxed resident Citizen and
like that of a corporation. This kind Resident Alien (2000 and
of partnership, like a regular onward) – 10% (Sec. 24B2)
corporation, is also required to file a  Non-resident Alien engaged
quarterly corporate income tax in trade or business – 20%
return. Filing and payment of (Sec. 25 A2)
quarterly return is within 60 days  Non-resident alien not
after the end of each quarter while engaged in trade or business
the annual return is on or before – 25% (Sec. 25B)
April 15 of the following year. b. Share of a partner in the loss
of a taxable or business
LIABILITY OF A PARTNER partnership maybe taken by the
Rules: individual partner in his return
1. Share of a partner in general of income.
professional Partnership c. Payments made to a partner of
a. Each partner shall report as a business or taxable partnership
gross income (business income) for services rendered shall be
his distributed share actually or considered as compensation
constructively received in the income subject to sec. 24A.
net income of the partnership.
(Sec. 26, NIRC) [The same share
shall be subject to creditable
KINDS OF INCOME TAXES
withholding tax of 10%.] They UNDER THE NIRC

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1
1. Net Income Tax Individual Taxpayer

2. Optional Corporate Income tax a. From Domestic Corporations
3. Minimum Corporate Income Tax  RC, NRC, RA – 10% (Sec.
4. Improperly Accumulated Earnings 24A)
Tax  NRAETB – 20% (Sec. 25A2)
5. Preferential Rates or Special Rates  NRANETB – 25% on gross
of Income Tax income (Sec. 25B)
6. Gross Income Tax b. From Foreign Corporations
7. Final Income Tax  RC, NRC, RA, NRAETB – 5-
8. Fringe Benefits Tax 32% (Sec. 24, 25A1)
9. Capital Gains Tax  NRANETB – 25% on gross
(1) NET INCOME TAX income (Sec. 25B)
DEFINITION: Means gross income less Corporate Taxpayer

deductions and/or personal and a. Foreign to Domestic Corp. – 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp. –
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive  Resident Foreign Corp. –
Income) Exempt (Sec. 28 [A] 7d)
Gross Income  Nonresident Foreign Corp. –
Less: Deductions (and/or additional 15% subject to the condition
exemptions, if applicable) stated in Sec. 28 [B] 5.
Net Taxable Income Otherwise, it shall be taxed
Multiply by: Tax Rate (%) at 32%. (See Commissioner
Net Income Tax Due vs. Procter and Gamble, GR
Less: Tax Credit, if any No. 66838, December 2,
Tax Still due, if any 1991)
2. Stock Dividends
GROSS INCOME General rule: Not subject to tax
because it does not constitute
DEFINITION: Means all income derived income; it represents transfer of
from whatever source, including but not surplus to capital account. (Sec.
limited to the following (Sec. 32) 73B, 1997 NIRC)
a. Compensation; Exceptions:
b. Gross income from profession, trade a. Sec. 73B, 1997 NIRC
or business; (1) there is redemption or
c. Gains form dealings in property; cancellation
d. Interests; (2) the transaction involves
e. Rents; stock dividends, and
f. Royalties; (3) the “time and manner” of
g. Dividends; the transaction makes it
h. Annuities; “essentially equivalent to a
i. Prizes and winnings; distribution of taxable
j. Pensions; dividends”. (see
k. Partner’s share in the net income of Commissioner vs. Court of
the general professional partnership Appeals, Court of Tax
Appeals & ANSCOR, GR No.
 See Annex D for detailed discussion 108576, Jan. 30, 1999)
of items. b. the recipient is other than the
shareholder (Bachrach vs.
KINDS OF DIVIDENDS Seifert, GR No. L-2659, October
1. Cash and Property Dividends 12, 1950)

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c. change in the stockholder’s assignment or otherwise, of a life

equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends – When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term “exclusions” refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioner’s capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;
2. Return of insurance premium; 6. Retirement benefits, pension,

NOTE: if such amounts (when added gratuities, etc.
to amounts already received before a. those derived under R.A. 7641
the taxable year under such (pertains to private firms
contracts) exceed the aggregate without retirement trust fund);
premiums or considerations paid b. those received by officials and
(whether or not paid during the employees of private employers
taxable year), then the excess shall in accordance with a reasonable
be included in the gross income. private benefit plan;
However, in the case of a transfer for Requisites:
a valuable consideration, by

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(1) in the service of the same educational, artistic, literary, or

employer for at least 10 civic achievement
years; Requisites:
(2) at least 50 years old; (1) recipient was selected
(3) must be availed of only once without any action on his
(4) plan approved by the BIR part; and
(R.R.2-98); (2) recipient is not required to
c. separation pay because of render substantial future
death, sickness, or other services.
physical disability or for any d. Prizes and awards granted to
cause beyond the control of the athletes in sports competitions
official or employee (e.g. and sanctioned by their national
retrenchment, redundancy or sports association ;
cessation of business); e. 13th month pay and other
“for any cause beyond the benefits up to P30,000.00;
control of said official or f. GSIS,SSS, Medicare and union
employee” – connotes dues of individuals;
involuntariness on the part of g. Gains derived from debt
the official or employee; securities with a maturity of
separation must not be asked or more than 5 years;
initiated by the official or h. Gains from redemption of shares
employee. in Mutual Fund.
d. social security benefits,
retirement gratuities, pensions EXCLUSIONS VS. DEDUCTIONS
and other similar benefits
received by citizens and aliens Exclusions Deductions
who come to reside permanently [Sec. 32(B)] [Sec. 34]
here from foreign sources
private or public; Refer to flow of Refer to the
e. benefits due to residents under wealth which are not amounts which the
the laws of the U.S. treated as part of law allows to be
administered by the U.S. gross income subtracted from
Veterans Administration because: gross income in
(1) exempted by the order to arrive at
f. SSS benefits; and
fundamental law; (2) net income
g. GSIS benefits. exempted by statute;
(3) do not come
7. Miscellaneous items within the definition
a. Passive income derived in the of income
Philippines by:
(1) Foreign governments; Pertain to the Pertain to the
(2) Financing institutions computation of gross computation of the
owned, controlled or income net income
enjoying refinancing from
Something earned or Something spent or
foreign governments received by the paid in earning of
(3) International or regional taxpayer which do gross income
financial institutions not form part of gross
established by foreign income
governments
b. Income derived from any
public utility or from the DEDUCTIONS
exercise of any governmental
function;
DEFINITION: Items or amounts which the
c. Prizes and awards made
law allows to be deducted from gross
primarily in recognition of
income in order to arrive at the taxable
religious, charitable, scientific,
income.

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1
(2) Itemized deductions

BASIC PRINCIPLES GOVERNING DEDUCTIONS (3) premium payments on health
a. The taxpayer seeking a deduction and/or hospitalization
must point to some specific insurance
provisions of the statute authorizing (4) personal additional
the deduction; and exemptions
b. He must be able to prove that he is 2. Corporations
entitled to the deduction authorized  Itemized Deductions
or allowed. (Atlas Consolidated
Mining & Dev. Corp. vs.
Commissioner, GR No. L-26911, KINDS OF DEDUCTIONS
January 21, 1981) a. Optional standard deductions (OSD)
c. Any amount paid or payable which is –10% of the gross income.
otherwise deductible from, or taken The OSD may be availed of
into account in computing gross only by individuals (except
income or for which depreciation or nonresident alien) who are not
amortization may be allowed, shall purely compensation income
be allowed as deduction only if it is earners.
shown that the tax required to be b. Personal and additional exemptions
deducted and withheld therefrom Available only to individuals
has been paid to the BIR. [Sec. (business income and compensation
34(K), NIRC] income earners).
NOTE: Deductions for income tax NRAETB may be entitled to

purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF country allows personal
DEDUCTIONS FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);
2. Non-resident aliens not engaged in The personal exemption shall be
trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
1. Individuals
a. with gross compensation income Individuals not entitled to these
from employer-employee exemptions:
relationship only a. Non-resident Alien not engaged
(1) premium payments on health in trade or business
and/or hospitalization b. Alien individual employed by
insurance Regional or Area Headquarters
(2) personal additional of Multinational Companies
exemptions c. Alien individual employed by
b. gross income from business or Offshore Banking Units
practice of profession d. Alien individual employed by
(1) Optional Standard Deduction Petroleum Service Contractor
(OSD) and Subcontractor

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“Chief support” means more

c. Itemized deductions than one-half of the
a. ordinary and necessary requirements for support.
expenses 2. Where such brother / sister or
b. interests children are not more than 21
c. taxes years of age, unmarried and not
d. losses gainfully employed, or where
e. bad debts such dependents regardless of
f. depreciation of property; age, are incapable of self –
g. depletion of oil and gas wells support because of mental or
and mines; physical defect.
h. charitable and other
contributions; Parents, brothers, sisters and senior
i. research and development; citizen with the tax payer, whether
j. pension trust contributions of relative or not, may qualify the
employees; and taxpayer, to the personal exemption of
k. premium payments on health P25,000 as head of the family but not to
and/or hospitalization insurance. the additional exemption of P8,000.
(This is the only deduction which
a compensation income earner B. Additional Exemption for
may claim as a deduction.) Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified
d. Special deductions dependent children not
a. private proprietary educational exceeding four (4) in
institutions and hospitals that number.
are non-profit (Sec. 34 A, 2) The additional exemption refers
b. insurance companies (Sec. 37) only to qualified dependent children
c. estates and trusts (Sec. 61) such as legitimate, recognized natural,
illegitimate and legally adopted.
PERSONAL EXEMPTIONS The proper claimant of the
additional exemption is the husband
A. Amounts of Personal Exemptions being the head of the family except
[Sec. 35, NIRC] under the following cases:
1. P 20,000 – Single individual or 1. Husband is unemployed
married individual judicially 2. Husband is working abroad like
decreed legally separated an OFW or a seaman
without qualified dependent 3. Husband explicitly waived his
children. right of the exemption in favor
2. P 25,000 – Head of the family or of his wife in the withholding
married individual judicially exemption certificate.
decreed legally separated
with qualified dependent A Senior Citizen is:
children. 1. any
3. P 32,000 – For each legally resident citizen of the
married individual. Philippines
2. at least
Head of the Family sixty 60 years old, including
1. Unmarried or legally separated those who have retired from
person with one or both parents, both government offices and
or one or more brothers or private enterprises, and
sisters, or one or more 3. has an
legitimate, recognized natural or income of not more than Sixty
legally adopted children living thousand pesos (60,000) per
with and dependent upon the annum subject to the review of
taxpayer for their chief support; the National Economic
and

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Development Authority (NEDA)  25 years old child became

every three years. incapacitated – cannot claim
additional exemption
Parents and dependents qualify
the taxpayer, to the personal ITEMIZED DEDUCTIONS
exemption of P25,000 as head of the
family but not to the additional A. ORDINARY AND NECESSARY
exemption of P8,000.
EXPENSES
NOTE: NRAETB may deduct personal
NECESSARY EXPENSE – appropriate and
exemption (not additional
helpful in the development of taxpayer's
exemption), but only to the extent
business and are intended to minimize
allowed by his country to Filipinos
losses or to increase profits. These are
not residing therein, and shall not
the day-to-day expenses.
exceed the aforementioned
ORDINARY EXPENSE – normal or usual in
amounts. NRANETB cannot claim
relation to the taxpayer’s business and
any personal or additional
the surrounding circumstance.
exemptions.
REQUISITES OF BUSINESS EXPENSE TO BE
C. Change of Status [Sec. 35, NIRC]
DEDUCTIBLE
1. If the taxpayer should marry or
1. ordinary and necessary;
should have additional
2. paid or incurred w/in the taxable
dependents during the taxable
year;
year, he may claim the
3. paid or incurred in carrying on a
corresponding exemptions in full
trade or business;
for such year.
4. substantiated with official receipts
2. If the taxpayer should die during
or other adequate records.
the taxable year, his estate may
5. if subject to withholding taxes proof
claim the corresponding
of payment to the Bureau of Internal
exemptions as if he died at the
Revenue must be shown.
close of such year.
6. must be reasonable (when the
3. If the spouse or any dependent
expense is not lavish, extravagant or
should die or any dependent
excessive under the circumstances)
should marry or become twenty-
7. must not be contrary to law, public
one years old during the year, or
policy or morals.
should become gainfully
employed, the taxpayer may
NOTE: While illegal income will form
claim the exemptions as if the
part of income of the taxpayer,
spouse or dependent died or as
expenses which constitute bribe,
if such dependent married,
kickback and other similar payment,
became twenty one years old or
being against law and public policy are
became gainfully employed at
not deductible from gross income.
the close of such year.
(Subsec. A, 1, c)
4. For any other event and for
which there are no specific rules
CAPITAL EXPENDITURE – An expenditure
applicable from the above-
that benefits not only the current period
mentioned, the status of the
but also future periods. It is not
taxpayer at the end of the year
deductible but depreciable, except, if
shall determine his exemptions.
the taxpayer is a non-profit proprietary
(strictly construed against the
educational institution which may elect
taxpayer)
either to deduct the capital expense or
Examples:
depreciate it.
 became legally separated –
can only claim P 20,000
 See Annex E – Business Expenses

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 See Annex F – Ceiling on Limitation - The amount of interest

“Entertainment, Amusement and expense paid incurred by a taxpayer in
Recreational Expenses” connection with his trade, business or
exercise of a profession from an existing
B. INTEREST indebtedness shall be reduced by an
amount equal the following percentages
INTEREST – shall refer to the payment for of interest income earned which had
the use or forbearance or detention of been subjected to final withholding
money, regardless of the name it is depending on the year when the interest
called or denominated. It includes the income earned, viz:
amount paid for the borrower's use of, 38% - beginning January 1, 2000 and
money during the term of the loan, as thereafter
well as for his detention of money after
the due date for its repayment. Aim of Limitation: To discourage so-
called “back-to-back” loans where a
REQUISITES FOR DEDUCTIBILITY (REV. REG. taxpayer secures a loan from a bank,
NO. 13-2000) turns around and invests the loan
1. There must be an indebtedness; proceeds in money market placements.
2. There should be an interest By imposing a limit as to the amount of
expense paid or incurred upon interest expense that can be deducted
such indebtedness; from gross income, the previous practice
3. The indebtedness must be that of of tax arbitrage was absolutely nullified.
the taxpayer;
4. The indebtedness must be connected Tax Arbitrage – is a method of
with the taxpayer's trade, business borrowing without entering into a
or exercise of profession; debtor/creditor relationship, often to
5. The interest expense must have been resolve financing and exchange control
paid or incurred during the taxable problems. In tax cases, back-to-back
year; loan is used to take advantage of the
6. The interest must have been lower of tax on interest income and a
stipulated in writing; higher rate of tax on interest expense
7. The interest must be legally due; deduction.
8. The interest arrangement must not
be between related taxpayers; Illustration:
9. The interest must not be incurred to On June 1, 2000 Company X has:
finance petroleum operations; and 1. Obtained a loan from ABC Financing
10. In case of interest incurred to Corporation in connection with the
acquire property used in trade, operation of its business and its
business or exercise of profession, interest expense on the loan
the same, was not treated as a amounted to P 120,000.
capital expenditure. 2. Deposit account in DEF Bank and
11. The interest is not expressly derived interest income thereof
disallowed by law to be deducted amounting to P200,000 on which the
from gross income of the taxpayer. final tax of P40,000 has been
withheld.
RULES ON DEDUCTIBILITY OF INTEREST Assume that Company X’s net
EXPENSE income before the deduction of
General Rule - In general, the amount of interest expense is P500,000.
interest expense paid or incurred within
a taxable year of indebtedness in The deductible expense shall be
connection with the taxpayer's trade computed as follows:
business or exercise of profession, shall
be allowed as a deduction from the Year 2000
taxpayer's gross income.
Net Income before
interest expense P500,000

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Less: Interest Expense P120,000 4. Interest on preferred stock, which

Less: 38% of interest in reality is dividend
income from deposit 5. Interest on unpaid salaries and
(38% x P200,000) 76,000 bonuses
Deductible Interest 6. Interest calculated for cost keeping
Expense 44,000 on account of capital or surplus
Taxable Income P456,000 invested in business which does not
represent charges arising under
interest-bearing obligation.
Deductible Interest Expense 7. Interest paid when there is no
1. Interest on taxes, such as those paid stipulation for the payment thereof.
for deficiency or delinquency, since
taxes are considered indebtedness OPTIONAL TREATMENT OF INTEREST EXPENSE
(provided that the tax is a At the option of the taxpayer,
deductible tax, except in the case of interest incurred to acquire property
income tax). However, fines, used in trade or business may be
penalties, and surcharges on account allowed as a deduction or treated as
of taxes are not deductible. The capital expenditure. [Sec 34 (B)(3),
interest on unpaid business tax shall NIRC]
not be subjected to the limitation
on deduction. C. TAXES
2. Interest paid by a corporation on
scrip dividends Taxes mean TAXES PROPER, and
3. Interest-on deposits paid by therefore no deductions are allowed for:
authorized banks of the Bangko 1. interest
Sentral ng Pilipinas to depositors, 2. surcharges
if it is shown that the tax on such 3. penalties or fines incident to
interest was withheld. delinquency (Sec. 80, Rev. Reg. 2)
4. Interest paid by a corporate taxpayer
who is liable on a mortgage upon real REQUISITES FOR DEDUCTIBILITY
property of which the said 1. must be in connection with
corporation is the legal or equitable taxpayer’s business;
owner, even though it is not directly 2. tax must be imposed by law on, and
liable for the indebtedness. payable by taxpayer (direct tax);
and
NON-DEDUCTIBLE INTEREST EXPENSE 3. paid or incurred during the taxable
1. An individual taxpayer reporting year.
income on the cash basis incurs an
indebtedness on which an interest is TAXES NOT DEDUCTIBLE
paid in advance through discount or 1. income tax;
otherwise: 2. estate and donor’s tax;
 allowed as a deduction in the 3. special assessments;
year the indebtedness is paid 4. excess electric consumption tax;
 if the indebtedness is payable 5. foreign income tax, war profits
periodic amortization on, the and excess profits tax, if the
amount of interest which taxpayer makes use of tax credit;
corresponds to the amount of and
the principal amortized or paid 6. final taxes, being in the nature of
during the year shall be allowed income tax.
as deduction in such taxable
year. NOTE: Taxes allowed as deductions,
2. Interest paid on indebtedness when refunded or credited, shall be
between related taxpayer included as part of gross income in the
3. If the indebtedness is incurred to year of receipt to the extent of the
finance petroleum exploration income tax benefit of said deduction.
(Tax Benefit Rule)

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Taxable income income tax Limit

For NRAETB and RFC, taxes paid or from all sources
incurred are allowed as deductions only
if and to the extent that they are 2. Over-all limitation
connected from income within the Taxable
Philippines. income from
outside sources X Phil. = Tax Credit
EXCEPTIONS to requirement that only Taxable income income tax Limit
from all sources
such persons on whom the tax is
imposed by law can claim deduction
The allowable tax credit is the “lower
thereof:
amount” between the tax credit
1. Taxes of shareholder upon his
computed under No. 1 and No. 2.
interest as such and paid by the
corporation without reimbursement
WHEN CREDIT FOR TAXES MAY BE TAKEN
from him, can be claimed by the
The credit for taxes provided by
corporation as deduction.
Section 30(C)(3) to (9) may ordinarily be
2. A corporation paying the tax for the
taken either in the return for the year in
holder its bonds or other obligation
which the taxes accrued or on which the
containing a tax-free covenant
taxes were paid, dependent upon
clause cannot claim deduction for
whether the accounts of the taxpayer
such taxes paid by it pursuant to
are kept and his returns filed upon the
such covenant.
accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer
1) The amount of credit in respect to
to deduct from income tax payable the
the taxes paid or accrued to any
foreign income tax he has paid to his
country shall not exceed the same
foreign country subject to limitation.
proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT
taxpayer’s net income from sources
1. resident citizens of the Philippines
within such country taxable under
2. resident aliens under the principle of
Title II (income Tax) bears to his
reciprocity
entire net income for the same
3. domestic corporations which include
taxable year; and
partnerships except general
2) The total amount of the credit shall
professional partnership
not exceed the same proportion of
4. beneficiaries of estates and trusts
the tax against which such credit is
5. members of beneficiaries of local
taken, which the taxpayer’s net
partnerships
income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT
(Income Tax) bears to his entire net
1. non-resident citizens
income for the same taxable year.
2. resident aliens, if without
reciprocity
3. resident aliens whose income is D. LOSSES
derived solely from sources within
the Philippines LOSSES – refer to such losses which do
4. foreign corporations (resident and not come under the category of bad
non-resident) debts, inventory losses, depreciation,
etc., and which arise in taxpayer's
FORMULA FOR COMPUTING LIMITATION profession, trade or business.
1. Per country limitation
Taxable REQUISITES FOR DEDUCTIBILITY
income from 1. Actually sustained during the taxable
foreign country X Phil. = Tax Credit year

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1
2. Connected with the trade, business ownership of the business or

or profession enterprise.
3. Evidenced by a close and completed There is no substantial
transaction change in the ownership of
4. Not compensated for by insurance or the business when:
other form of indemnity (a) not less than 75% in
5. Not claimed as a deduction for nominal value of the
estate tax purposes outstanding issued shares
6. Notice of loss must be filed with the is held by or on behalf of
Bureau of Internal Revenue within the same persons; or
45 days from the date of discovery (b) not less than 75% of the
of the casualty or robbery, theft or paid up capital is held by
embezzlement. or on behalf of the same
person.
NOTE: The taxpayer’s failure to record
in his books the alleged loss proves that NOTE: The 3 year period shall
the loss had not been suffered, hence, continue to run notwithstanding
not deductible. (City Lumber vs. that the corporation paid its taxes
Domingo and Court of Tax Appeals, GR under MCIT, or that the individual
No. L-18611, January 30, 1964) availed the 10% OSD.
CATEGORY AND TYPES OF LOSSES
See Annex S for illustration.
1. ORDINARY LOSSES
A. Incurred in trade or business, or
B. Of property connected, with the
practice of profession
trade, business or profession, if
 Net operating loss carry-over
the loss arises from fires,
(NOLCO)
 Refers to the excess of storms, shipwreck or other
allowable deductions over gross casualties, or from robbery,
income of the business for any theft, or embezzlement.
taxable year, which had not (1) Total destruction
been previously offset as The replacement cost to
deduction from gross income. restore the property to its
 Can be carried over as a normal operating condition,
deduction from gross income for but in no case shall the
the next 3 consecutive years deductible loss be more than
immediately following the year the net book value of the
of such loss. property as a whole,
 For mines, other that oil and immediately before
gas well, net operating loss casualty.
incurred in any of the first ten (2) Partial Destruction
years of operation may be The excess over the net
carried over for the next 5 book value immediately
years. before the casualty should
be capitalized, subject to
depreciation over the
 Requirements: remaining useful life of the
(1) The taxpayer was not property.
exempt from income tax in
the year of such net 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
operating loss; ONLY TO THE EXTENT OF CAPITAL
(2) The loss was not incurred in GAINS)
a taxable year during the a. Losses from sale or exchange of
taxpayer was exempt from capital assets
income tax; and b. Losses resulting from securities
(3) There has been no becoming worthless and which
substantial change in the are capital assets.

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1
c. Losses from short sales of thereof, as well as the

property. undepreciated cost of equipment
d. Losses due to failure to exercise directly used therein, shall be
privilege or option to buy or sell allowed as deduction in the year
property. the well, equipment or facility is
abandoned.
3. SPECIAL KINDS OF LOSSES
a. Wagering losses - deductible only to d. Losses due to voluntary removal of
the extent of gain or winnings. [Sec. building incident to renewal or
34 (D)(6)]; deemed to apply only to replacements - deductible expense
individuals from gross income.
b. Losses on wash sales of stocks - not
deductible because these are e. Loss of useful value of capital
considered to be artificial loss. assets due to charges in business
conditions - deductible expense only
Wash sales – a sale or other to the extent of actual loss sustained
disposition of stock or securities (after adjustment for improvement,
where substantially identical depreciation and salvage value)
securities are acquired or purchased
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38]
f. Losses from sales or exchanges of
General rule: Losses from wash sales property between related
are not deductible. taxpayers -losses of this nature is not
Exception: When the sale is made by deductible but gains are taxable.
a dealer in stock or securities and
with respect to a transaction made in g. Losses of farmers - if incurred in the
the ordinary course of the business of operation of farm business, it is
such dealer, losses from such sale is deductible.
deductible.
Elements of Wash Sales: h. Loss in shrinkage in value of stock –
(1) The sale or other disposition of if the stock of the corporation becomes
stock resulted to a loss; worthless, the cost or other basis may be
(2) There was an acquisition or deducted by the owner in the taxable
contract or option for acquisition year in which the stock of its
of stock or securities within 30 worthlessness is made. Any amount
days before the sale or 30 days claimed as a loss on account of shrinkage
after the sale; and in value of the stock through fluctuation
(3) The stock or securities sold were in the market or otherwise cannot be
substantially the same as those deducted from gross income.
acquired within the 61-day
period. E. BAD DEBTS
c. Abandonment losses BAD DEBTS – shall refer to those debts

in petroleum operation and producing resulting from the worthlessness or
well. uncollectibility, in whole or in part, of
(1) In case a contract area where amounts due the taxpayer by others,
petroleum operations are arising from money lent or from
undertaken is partially or wholly uncollectible amounts of income from
abandoned, all accumulated goods sold or services rendered.
exploration and development
expenditures pertaining thereto REQUISITES FOR DEDUCTIBILITY
shall be allowed as a deduction. 1. Existing indebtedness due to the
(2) In case a producing well is taxpayer which must be valid and
abandoned, the unamortized cost legally demandable;

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2. Connected with the taxpayer's  Good faith does not require that the
trade, business or practice of taxpayer be an “incorrigible optimist”
profession; but on the other hand, he may not be
3. Must not be sustained in a unduly pessimistic.
transaction entered into between
related parties; F. DEPRECIATION
4. Actually ascertained to be worthless
and uncollectible as of the end of DEPRECIATION – the gradual diminution in
the taxable year.; and the service or useful value of tangible
5. Actually charged off in the books of property due from exhaustion, wear and
accounts of the taxpayer as of the tear and normal obsolescence.
end of the taxable year. The term also applies to
amortization of intangible assets, the
EQUITABLE DOCTRINE OF TAX BENEFIT use of which in trade or business i s of
A recovery of bad debts previously limited duration.
deducted from gross income constitutes
taxable income if in the year the REQUISITES FOR DEDUCTIBILITY
account was written off, the deduction 1. The allowance for depreciation
resulted in a tax benefit. (Tax Benefit must be reasonable.
Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used
Illustration: temporarily during the year.
Case A Case B Case C 3. The allowance must be charged off
Net within the taxable, year.
income 4. Schedule on the allowance must be
(loss)
before attached to the return.
write off
for bad P10,000 (P 9,000) P 5,000 PROPERTY HELD BY ONE PERSON FOR LIFE
debts WITH THE REMAINDER TO ANOTHER PERSON
Less:
Accounts The deduction shall be computed as
written off if the life tenant was the absolute owner
as bad of the property and, as such the expense
debts 3,000 2,000 6,000 shall accrue to him.
Final Net
Income
(Loss) P 7,000 (P11,000) (P1,000) PROPERTY HELD IN TRUST
Bad debts Allowable deduction shall be
recovery apportioned between the income
in a subse-
quent year 3,000 2, 000 6, 000 beneficiaries, and the trustees in
TAXABLE accordance with the pertinent provisions
INCOME of the instrument creating or in the
upon the absence of such provisions, on the basis
bad debt
recovery P3,000 P -0- P5,000
of the trust income allowable to each.
ASCERTAINMENT OF WORTHLESSNESS METHODS OF DEPRECIATION

 Proof of Two Facts: The term "reasonable allowance"
1. taxpayer did in fact ascertain the shall include (but not limited to) an
debt to be worthless, in the year allowance computed in accordance,
for which deduction is sought, with the regulations prescribed by the
2. that in so doing, he acted in good Department of Finance, under any of the
faith. (Collector vs. Goodrich following methods.
International Rubber, GR No. L- 1. Straight-line method
22265, Dec. 22, 1967) 2. Declining-balance method
3. Sum of the years-digit method
 Depends upon the particular facts and
4. Any other method which may be
the circumstances of the case.
prescribed by the Department of

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1
Finance upon recommendation of under straight-line (SL) or

the Commissioner of Internal declining balance (DB) method
Revenue.  May shift from DB to SL method
 Useful life: 10 years or shorter
METHODS OF DEPRECIATION life as allowed by the
Kind Formula Commissioner
1)Straight-line cost- salvage value  Useful life of property not
estimated life
directly related to production: 5
2)Declining cost – depreciation x Rate
balance estimated life years under straight line method
3)Sum of the years nth period x cost- salvage 2. Mining Operations
digits (SYD) SYD  Depreciation on all properties in
mining operations other than
Illustration: A machine is used in the petroleum operations at the
manufacturing department of normal rate if expected life is
Corporation A, compute the depreciation less than 10 years.
per annum with the following facts:  If expected life is more than 10
Cost = P15,000 Salvage years, depreciation shall be any
Value= P5,000 number of years between 5
years and the expected life.
3. Depreciation deductible by non-

1. Straight Line Method with estimated resident aliens engaged in
life = 5 years trade/business or non-resident
15,000 – 5,000 = P2,000 corporation
5 years a. Only when such property is
located in the Philippines.
2. Declining balance with rate of 200%
Year 1: 15,000 – 0 x 200% = P6,000 G. DEPLETION OF OIL AND GAS
5 WELLS AND MINES
Year 2:15,000–6,000 x 200% =P3,600
5 DEPLETION - exhaustion of natural
resources as in mines, oil, and gas
3. Sum of the years digits wells. The natural resources are called
SYD for 5 years = 5+4+3+2+1 or 15 “wasting assets”. As the physical units
Year 1: 5/15 x (15,000 – 5,000) representing such resources are
= P3,333.33 extracted and sold, such assets move
Year 2: 4/15 x (15,000 – 5,000) towards exhaustion.
= P2,666.67 Known as cost of depletion
allowance for mines, oil gas wells and
AGREEMENT AS TO USEFUL LIFE ON WHICH other natural deposits starting calendar
DEPRECIATION RATE IS BASED year 1976 and fiscal year beginning July
The Bureau of Internal Revenue and 1,1975
the taxpayer may agree in writing on the
useful life of the property to be
depreciated. The agreed rate may be TO WHOM ALLOWED
modified if justified by facts or Only mining entities owning
circumstances. The change shall not be economic interest in mineral deposits.
effective before the taxable year on Economic interest means interest in
which notice in writing by certified mail minerals in place investment therein or
or registered mail is served by the party secured by operating or contract
initiating. agreement for which income is derived,
SPECIAL TYPES OF DEPRECIATION and return of capital expected, from the
1. Petroleum Operations extraction of mineral.
 Depreciation of all properties Mere economic or pecuniary
directly related to production of advantage to be derived by production
petroleum shall be allowed

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1
by one who has no capital investment in

the mineral deposit does not amount to
economic interest.
FEATURES
1. Intangible Exploration and
development drilling cost in
petroleum exploration shall be
treated either as:
a. revenue expenditures; or
b. capital expenditures
2. The total amount deductible for
exploration and development
expenditures shall not exceed 50% of
net income from mining operation.
The excess shall be carried forward
to the succeeding year until fully
deducted.
H. CHARITABLE AND OTHER

CONTRIBUTIONS
TAX TREATMENT
A. Deductible B. Deductible
In Full Subject To
Limitation

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1
1) Recipient is: 1) Recipient is:

(a) Government of (a) Government of (a) Scientific; (a) Scientific
the the Philippines; (b) Educational; (b) Educational
Philippines; (b) Any of its (c) Cultural; ;
(b) Any of its agencies or (d) Character (c) Cultural;
agencies or political building/youth (d) Youth and
political subdivisions and sports sports
subdivisions; development development
or For a non-priority (e) Charitable (e) Charitable
(c) Any fully- activity in any of the (f) Social welfare (f) Social
owned areas mentioned in A, (g) Health welfare
government and exclusively for a (h) Research (g) Religious
corporation public purpose. (h) Rehabilitati
And satisfying the on of Veterans
For priority following
activity in: conditions: If the conditions
1. Science; 1. The donation in Table A is not
2. Education must be utilized complied with:
3. Culture not later than
4. Health the 15th day of Subject to
5. Economic the 3rd month limitation:
Development following the (a) Individual -
6. Human close of its 10% taxable
Settlement taxable year. income from
7. Youth and 2. The trade
Sports administrative business or
Development expense must not profession
exceed 30% of before
2) Recipient is a 2) Non-government total expenses. contribution
foreign or organizations 3. Upon dissolution, (b) Corporation
international assets must be - 5% taxable
organization with distributed to income from
an agreement another non- trade
with the profit domestic business or
Philippine corporation or to profession
Government on the state. before
deductibility, or contribution
in accordance
with special law.
3) Recipient is an 3) Recipient is an
accredited non- accredited domestic
government corporation or
organization, association
organized/ operated organized/operated
for (purposes): for (purposes):
REQUISITES FOR DEDUCTIBILITY 3. The net income of the institution

1. The contribution or gift must be must not inure to the benefit of any
actually paid. private stockholder or individual.
2. It must be given to the organizations
specified in the code.
I. RESEARCH AND DEVELOPMENT
VALUATION (R&D)
Charitable contribution of property
other than money shall be based on the TAX TREATMENT
acquisition cost of said property. Either as:

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1. Revenue Expenditures reasonable pensions to his

Requisites: employees;
a. Paid or incurred during 2. The pension plan is reasonable and
the taxable year actuarially sound;
b. Ordinary and necessary 3. It must be funded by the employer;
expenses in connection with 4. The amount contributed must be no
trade business or profession longer subject to the control and
c. Not chargeable to disposition of the employer;
capital account 5. The payment has not yet been
2. Deferred Expenses allowed as a deduction; and
Requisites: 6. The deduction is apportioned in
a. Paid or incurred in equal parts over a period of 10
connection with trade, business, consecutive years beginning with the
or profession year in which the transfer or
b. Not treated as expense payment is made.
c. Chargeable to capital
account but not chargeable to SUMMARY OF RULES ON RETIREMENT BENEFITS
property subject to depreciation PLAN / PENSION TRUST
or depletion. 1. Exempt from Income Tax –
employees’ trust under Sec. 60(B)
Amount deductible: 2. Exclusion from Gross Income –
Amount ratably distributed over amount received by the employee
a period of 60 months beginning with from the fund upon compliance of
the month taxpayer realized certain conditions under Sec. 32(B)
benefits from such expenditures. (6)
3. Deduction from Gross Income –
EXCLUSION FROM RESEARCH AND a. Amounts contributed by the
DEVELOPMENT EXPENDITURES employer during the taxable
1. Any expenditure for the acquisition year into the pension plan to
or improvement of land or for the cover the pension liability
improvement of property to be used accruing during the year –
in connection with research and considered as ordinary and
development subject to depreciation necessary expenses under Sec.
and depletion. 34(A)(1)
2. Any expenditure paid or incurred for b. 1/10 of the reasonable amount
the purpose of ascertaining the paid by the employer to cover
existence, location, extent or pension liability applicable to
quality of any deposit of ore or other the years prior to the taxable
mineral including oil or gas. year, or so paid to place the
trust in a sound financial basis –
J. PENSION TRUST CONTRIBUTIONS deductible under Sec. 34(J)
PENSION TRUST CONTRIBUTIONS – a K. PREMIUM PAYMENTS

deduction applicable only to the ON HEALTH AND/OR
employer on account of its contribution HOSPITALIZATION INSURANCE
to a private pension plan for the benefit
of its employee. This deduction is purely DEFINITION: It is an amount of premium
business in character. on health and/or hospitalization paid by
an individual taxpayer (head of family or
married), for himself and members of his
family during the taxable year.
REQUISITES FOR DEDUCTIBILITY
1. The employer must have established REQUISITES FOR DEDUCTIBILITY
a pension or retirement plan to 1. Insurance must have actually been
provide for the payment of taken

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1
2. The amount of premium deductible 4. In case of married individual, only

does not exceed P2,400 per family the spouse claiming additional
or P200 per month during the exemption shall be entitled to this -
taxable ear. deduction.
3. That said family has a gross income
of not more than P250,000 for the
taxable year.
WHO MAY AVAIL OF THE DEDUCTION itemized or optional standard
1. Individual taxpayers earning purely deductions during the year.
compensation income during the 3. Individual taxpayer earning both
year. compensation, and business or
2. Individual taxpayer earning business practice of profession during the
income or in practice of his year.
profession whether availing of
“Family” includes only the
NON-DEDUCTIBLE EXPENSES brothers, sisters (whether by the
whole or half blood), spouse,
REASONS FOR NON-DEDUCTIBILITY ancestors, and lineal
1. Personal expenses descendants of the taxpayer.
2. Capital expenditures 2. Except in the case of distributions in
3. Items not normally subject to liquidation:
income tax and therefore are not a. between an individual and a
deductible. corporation more than 50% in
4. Items taken advantage of by the value of the outstanding stock of
taxpayer to avoid payment of which is owned, directly or
income tax. indirectly, by or for such
individual;
SPECIFIC ITEMS (SECTION 36) b. between two corporations more
1. Personal, living or family expenses; than 50% in value of the
2. Amount paid out for new buildings or outstanding stock of each of
for permanent improvements, or which is owned, directly or
betterment made to increase the indirectly, by or for the same
value of any property or estate, individual, if either one of such
Except that intangible drilling corporations, with respect to the
and development cost incurred in taxable year of the corporation
petroleum operations are preceding the date of the sale of
deductible; exchange was a personal holding
3. Amount expended in restoring company or a foreign personal
property or in making good the holding company; or
exhaustion thereof for which an 3. Between the grantor and a fiduciary
allowance has been made; of any trust;
4. Premiums paid on any life insurance 4. Between the fiduciary of a trust and
policy covering the life of any officer the fiduciary of another trust if the
or employee, or of any person same person is a grantor with
financially interested in any trade or respect to each trust;
business carried on by the taxpayer, 5. Between a fiduciary of a trust and a
individual or corporate, when the beneficiary of such trust.
taxpayer is directly or indirectly a
beneficiary under such policy. [Sec. TAX CONSEQUENCES
36] The following are not deductible:
5. Losses from sales or exchanges of 1. Interest expense [Sec. 34 (B)(2)]
property between related 2. Bad debts [Sec. 34 (E)(1)]
taxpayers. [S ec. 36] 3. Losses from sales or exchanges of
property [Sec 36 (B)]
TRANSACTIONS BETWEEN RELATED PARTIES
1. Between members of the family; (2) OPTIONAL CORPORATE

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INCOME TAX 2. Whenever the amount of

SECTION 27 (A) MCIT is greater than the normal
income tax due from such
APPLIES TO: corporation determined under
1. Domestic corporations (DC) Section 27[A].
2. Resident foreign corporations (RFC)
LIMITATIONS
RATE OF TAX AND DATE OF EFFECTIVITY
15% of the Gross Income effective 1. The MCIT shall apply only to
January 1, 2000 domestic and resident foreign
corporations subject to the normal
CONDITIONS OR REQUIREMENTS corporate income tax (income tax
1. A tax effort ratio of 20% of Gross rates under Sec 27[A] of the CTRP).
National Product 2. In the case of a domestic
2. A ratio of 40% income tax collection corporation whose operations or
to total tax revenues activities are partly covered by the
3. A VAT tax effort of 4% of GNP regular income tax system and partly
4. A 0.9% ratio of Consolidated Public covered under a special income tax
Sector Financial Position (CPSFP) to system, the MCIT shall apply on
GNP operations covered by the regular
corporate income tax system.
OTHER FEATURES 3. In computing for the MCIT due from
1. Available only to firms whose a resident foreign corporation, only
ratio of: the gross income from sources within
the Philippines shall be considered
Cost of sales for such purpose.
<=55%
Gross sales or receipts from all WHEN DOES A CORPORATION BECOME
sources LIABLE UNDER THE MCIT?
2. The election shall be irrevocable MCIT is imposed beginning on

for three (3) consecutive years the fourth taxable year immediately
following the year in which such
MEANING OF GROSS INCOME corporation commenced its business.
General concept – The taxable year in which the business
Gross sales operations commenced shall be the year
Less: when the corporation registers with the
(1) Sales Return; BIR.
(2) Discount and allowances
(3) Cost of goods sold - means CARRY FORWARD OF THE EXCESS
all business expenses MINIMUM TAX
directly incurred to produce
the merchandise to bring  Any excess of MCIT over the normal
them to their present income tax can be carried forward
location and use. on an annual basis.
 The excess can be credited against
(3) MINIMUM CORPORATE the normal income tax due in the
INCOME TAX (MCIT) next 3 immediately succeeding
SECTION 27 (E) taxable years.
 Any amount of the excess MCIT
WHO ARE COVERED? which cannot be credited against the
MCIT is imposed on domestic and normal income tax due in the next
resident foreign corporations 3-year period shall be forfeited.
1. Whenever such corporation has zero
or negative taxable income; or
RELIEF FROM MCIT

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and allowances and 3.freight in

The Secretary of Finance is cost of goods sold transporting the
authorized to suspend the imposition of goods to the place
the MCIT on any corporation which where the goods
suffers losses because of: are actually sold;
a. prolonged labor dispute; 4.insurance while
b. force majeure; or the goods are in
c. legitimate business reverses. transit.
B. Manufacturing Cost of Sales = All
“Substantial losses from a prolonged Gross Income cost of production of
labor dispute" means losses arising from a (Same) finished goods, such
strike staged by the employees which as
lasted for more than six (6) months 1.raw materials
within a taxable period and which has used;
caused the temporary shutdown of 2.direct labor;
business operations. 3.manufacturing
“Force majeure" means a cause due overhead;
to an irresistible force as by "Act of God" 4.freight cost;
like lightning, earthquake, storm, flood 5.insurance
and the like. This term shall also premiums;
include armed conflicts like war and 6. other costs
insurgency. incurred to bring
“Legitimate business reverses" shall the raw materials
include substantial losses sustained due to the factory or
to fire, robbery, theft, or warehouse.
embezzlement, or for other economic C. Services Cost of Services = All
reason as determined by the Secretary Gross Income = direct costs and
of Finance. Gross receipts less expenses necessarily
sales returns, incurred to provide
TAX RATE: 2% of gross income or allowances, the services required
taxable base pertinent to a discounts and costs by the customers and
trading/merchandising concern or a of services clients including:
service entity a. Salaries and
employee benefits
TAX BASE: Gross Income of personnel,
MEANING OF GROSS INOME consultants and
specialists directly
General concept - gross income means: rendering the
Gross sales service;
Less: b. Cost of facilities
(1) Sales Return; directly utilized in
(2) Discount and allowances providing the
(3) Cost of goods sold - means service.
all business expenses It shall not
directly incurred to produce include interest
the merchandise to bring expense except for
them to their present banks and other
location and use. financial
institutions.
KINDS OF BUSINESS
 Gross income excludes passive
A. Trading or Merchandising Concern income subject to final tax.
Gross Income = Cost of Sales =  Other income and Extraordinary
gross sales/ 1.Invoice cost of the Income are included since RR 9-98
receipts less sales goods sold; provides that gross sales include
returns, discounts 2.import duties;

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sales contributory to income taxable Less:

under the regular corporate tax. Income tax paid/payable for the taxable
year
 See Annex T for interplay of normal Dividends actually or constructively
tax, optional corporate income tax paid/issued from the applicable year’s
and MCIT. taxable income
Amount reserved for the reasonable
needs of the business as defined in the
(4) IMPROPERLY ACCUMULATED Regulations
EARNINGS (IAE) TAX Tax base of improperly accumulated
earnings tax
SECTION 29
EXCLUSIONS
(REVENUE REGULATIONS NO. 2 – 2001)
 For corporations using the calendar
DEFINITION: “Improperly accumulated basis the accumulated earnings tax
earnings (IAE)” are the profits of a shall not apply on IAE as of Dec. 31,
corporation that are permitted to 1997.
accumulate instead of being distributed  For fiscal year basis, the tax shall
by a corporation to its shareholders for not apply to the 12-month period of
the purpose of avoiding the income tax fiscal year 1997-1998.
with respect to its shareholders or the
shareholders of another corporation. IAE as of the end of a calendar
or fiscal year period on or after Dec.
TAX RATE: 10% of the Improperly 31, 1998 shall be subject to the 10%
Accumulated Taxable Income (in tax.
addition to other taxes).
Rationale behind IAET WHO ARE COVERED?
If the earnings and profits were
distributed, the shareholders would then General Rule: The IAE tax shall apply to
be liable to income tax thereon, every corporation formed or availed
whereas if the distribution were not for the purpose of avoiding the
made to them, they would incur no tax income tax with respect to its
in respect to the undistributed earnings shareholders or the shareholders of
and profits of the corporation. Thus, a any other corporation, by permitting
tax is being imposed; earnings and profits to accumulate
a. in the nature of a penalty to the instead of being divided or
corporation for the improper distributed. These are:
accumulation of its earnings, and 1. Domestic corporations as
b. as a form of deterrent to the defined under the Tax Code;
avoidance of tax upon 2. Corporations which are classified
shareholders who are supposed as closely-held corporations.
to pay dividends tax on the • those corporations at least
earnings distributed to them by fifty percent (50%) in value
the corporation. of the outstanding capital
stock or at least fifty
“IMPROPERLY ACCUMULATED TAXABLE percent (50%) of the total
INCOME” combined voting power of all
classes of stock entitled to
Taxable income for the year vote is owned directly or
Add: indirectly by or for not more
Income exempt from tax; than twenty (20) individuals.
Income excluded from gross income;  Domestic corporations not
Income subject to final tax; falling under the aforesaid
Net operating loss carry-over (NOLCO) definition are, therefore,
Total publicly-held corporations.

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needs of the business as

Exception: The said tax shall not apply defined in these Regulations.
to:
1. Publicly held corporations (Sec. 29) 2. The fact that the earnings or profits
2. Banks and other non-banks Financial of a corporation are permitted to
intermediaries (Sec. 29) accumulate beyond the reasonable
3. Insurance companies (Sec. 29) needs of the business shall be
4. Taxable partnerships (deemed to determinative of the purpose to
have actually or constructively avoid the tax upon its shareholders
received the taxable income under or members unless the corporation,
Sec. 73D) by the clear preponderance of
5. General professional partnerships evidence, shall prove the contrary.
(exempt; taxable against the
partners) “Reasonable needs of the
6. Non- taxable joint ventures and business” includes the reasonably
7. Enterprises duly registered with the anticipated needs of the business
Philippine Economic Zone Authority such as:
(PEZA) under R.A. 7916, and a. Allowance for the increase in the
enterprises registered pursuant to accumulation of earnings up to
the Bases Conversion and 100% of the paid-up capital of
Development Act of 1992 under R.A. the corporation as of Balance
7227, as well as other enterprises Sheet date, inclusive of
duly registered under special accumulations taken from other
economic zones declared by law years;
which enjoy payment of special tax b. Earnings reserved for definite
rate on their registered operations corporate expansion projects or
or activities in lieu of other taxes, programs as approved by the
national or local. Board of Directors or equivalent
8. Foreign corporations [RR No. 02- body;
2001] c. Reserved for building, plants or
equipment acquisition as
EVIDENCE OF PURPOSE TO AVOID approved by the Board of
INCOME TAX Directors or equivalent body;
d. Reserved for compliance with
1. The fact that any corporation is a any loan covenant or pre-
mere holding company or investment existing obligation established
company shall be prima facie under a legitimate business
evidence of a purpose to avoid the agreement;
tax upon its shareholders or e. Earnings required by law or
members. applicable regulations to be
retained by the corporation or in
Instances indicative of purpose to respect of which there is legal
avoid income tax upon prohibition against its
shareholders: distribution;
1. Investment of substantial f. In the case of subsidiaries of
earnings and profits of the foreign corporations in the
corporation in unrelated Philippines, all undistributed
business or in stock or earnings intended or reserved
securities of unrelated for investments within the
business; Philippines as can be proven by
2. Investment in bonds and other corporate records and/or
long-term securities; relevant documentary evidence.
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not

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subsequently declared intentions, which

are merely the product of afterthought. 1. It is constituted as a full and final
A speculative and indefinite purpose will payment of the income tax due from
not suffice. the payee on a particular type of
Definiteness of plan/s coupled with income subject to final withholding
action/s taken towards its tax (FWT).
consummation is essential. The finality of the withholding
tax is limited only to the payee’s
PERIOD FOR PAYMENT OF DIVIDEND/ income tax liability and does not
PAYMENT OF IAET extend to other taxes that may be
Dividends must be declared and paid imposed on said income.
or issued not later than one year 2. The income subjected to final
following the close of the taxable year, income tax is no longer subject to
otherwise, the IAET, if any, should be the net income tax; otherwise, there
paid within fifteen (15) days thereafter. would be a violation of prohibited
double taxation.
3. The liability for the payment of the
(5) INCOME SUBJECT TO tax rests primarily on the payor as
withholding agent.
PREFERENTIAL OR SPECIAL
4. The payee is not required to file an
RATES income tax return for the particular
income subjected to FWT. It is the
Pertains to income derived by a withholding agent who files the
particular individual or corporation return.
belonging to a class of income taxpayer 5. The rate of the final tax is
that is subject to either a preferential or multiplied to the gross income.
special rate. Thus, deductions and/or personal
and additional exemptions are not
 Tax Rates: Please refer to Annex C. allowed.
(6) GROSS INCOME TAX (GIT) (8) FRINGE BENEFIT TAX (FBT)
GROSS INCOME TAX (GIT) FORMULA FRINGE BENEFIT TAX is a final income
tax on the employee which shall be
Entire Income withheld and paid by the employer on a
Less: Exclusions and Income subject quarterly basis.
to Final Tax (e.g. Passive
Income) FRINGE BENEFIT means any good,
Gross Income service, or other benefit furnished or
Multiply by: Tax Rates (%) granted by an employer, in cash or in
kind, in addition to basic salaries, to an
Net Income Tax Due individual employee (except rank and
file employees) such as, but not limited
GIT APPLIES TO to the following:
1. Housing
1. Non-resident alien not engaged in 2. Expense Account
trade or business (25%); and 3. Vehicle of any kind
2. Non-resident foreign corporation. 4. Household personnel, such as maid,
(32%) driver and others
5. Interest on loan at less than market
 Tax Rates: Please refer to Annex A rate to the extent of the difference
and B. between the market rate and actual
rate granted.
(7) FINAL INCOME TAX 6. Membership fees, dues and other
expenses borne by the employer for
GENERAL PRINCIPLES

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the employee in social and athletic 1998 66% 34% FWT

clubs and similar organizations 1999 67% 33% FWT
7. Expenses for foreign travel 2000
68% 32% FWT
8. Holiday and vacation expenses onwards
9. Educational assistance to the
employee or his dependents; and FRINGE BENEFITS NOT SUBJECT TO FBT
10. Life or health insurance and other
non-lire insurance premiums or 1. Fringe benefits not considered as
similar amounts on excess of what gross income –
the law allows. a. if it is required or necessary to
the business of employer
PERSONS LIABLE b. if it is for the convenience or
advantage of employer
The EMPLOYER (as a withholding 2. Fringe Benefit that is not taxable
agent), whether individual, professional under Sec. 32 (B) – Exclusions from
partnership or a corporation, regardless Gross Income
of whether the corporation is taxable or 3. Fringe benefits not taxable under
not, or the government and its Sec. 33 Fringe Benefit Tax:
instrumentalities a. Fringe Benefits which are
authorized and exempted under
TAX RATE: 32% (from January 1, 2000 special laws, such as the 13th
onwards) of the Grossed up Monetary month Pay and Other Benefits
Value (GMV) of fringe benefits. with the ceiling of P30,000.
In the case of aliens, the tax rates to b. Contributions of the employer
be applied on fringe benefit shall be as for the benefit of the employee
follows: to retirement, insurance and
1. NRANEBT 25% hospitalization benefit plans;
2. Aliens employed by regional HO c. Benefits given to the Rank and
15 % File Employees, whether granted
3. Aliens employed by OBU 15% under a collective bargaining
4. Aliens employed by Petroleum agreement or not; and
Service Contractors and d. The De minimis benefits –
Subcontractors 15% benefits which are relatively
small in value offered by the
“GMV” OF THE FRINGE BENEFIT employer as a means of
REPRESENTS promoting goodwill,
contentment, efficiency of
1. The whole amount of income Employees
realized by the employee which The term “Rank and File
includes the net amount of money or Employees” shall mean all
net monetary value of property employees who are holding
which has been received; plus neither managerial nor
2. The amount of fringe benefit tax supervisory position as defined
thereon otherwise due from the in the Labor Code
employee but paid by the employer In the case of rank and file
for and in behalf of the employee. employees, fringe benefits other
than those excluded from gross
“GMV” of the fringe benefit income under the Tax Code and
shall be determined by dividing the other special laws, are taxable
monetary value of the fringe benefit by under the individual normal tax
the Grossed up divisor. The Grossed up rate.
divisor is the difference between 100% DEDUCTIBILITY TO THE TAXABLE
and the applicable rates. INCOME OF THE EMPLOYER
GROSSED UP General Rule: The amount of taxable

YEAR RATE fringe benefit and the fringe benefits tax
DIVISOR

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1
shall constitute allowable deductions discriminate in favor paid

from gross income of the employer. employees;
Exception: 8. Gifts given during Christmas and
If the basis for computation of the major anniversary celebrations not
fringe benefits tax is the depreciation exceeding P3, 000 per employee per
value, the zonal value or the fair market annum;
value, only the actual fringe benefits tax 9. Flowers, fruits, books or similar
paid shall constitute a deductible items given to employees under
expense for the employer. The value of special circumstances
the fringe benefit shall not be 10. Daily meal allowance for overtime
deductible and shall be presumed to work not exceeding 25% of the basic
have been tacked on or actually claimed minimum wage.
as depreciation expense by the
employer. Provided, however, that if the Time for filing of quarterly remittance
aforesaid zonal value or fair market return of final income taxes withheld
value of the said property is greater The tax imposed under Sec. 33 shall
than its cost subject to depreciation, the be treated as a final income tax on the
excess amount shall be allowed as a employee that shall be withheld and
deduction from the employer's gross paid by the employer, whether a large
income as fringe benefit expense. (Sec. taxpayer or non-large taxpayer, on or
2.33[D], Rev. Reg. No. 3-98) before the 10th day of the month
following the calendar quarter in which
EXAMPLE OF DE MINIMIS BENEFITS NOT the fringe benefits were granted (RR 04-
SUBJECT TO FBT (RR NO. 8-2000 AND 2002).
10-2000)
 For Additional Rules on Fringe
1. Monetized unused vacation leave Benefits, refer to Annex H.
credits of PRIVATE employees not
exceeding (10) days during the year (9) CAPITAL GAINS TAX
and the monetized value of leave
credits paid to government officials SUMMARY OF TAX RATES
and employees
2. Medical cash allowance to 1. Individuals
dependents of employees not a. On sale of shares of stock of a
exceeding P750.00 per employee per domestic corporation not listed
semester or P125 per month; and traded thru a local stock
3. Rice subsidy of P1,000.00 or one (1) exchange, held as capital asset
sack of 50kg. rice per month On the Net Capital Gain
amounting to not more than Not over P100,000 – FT
P1,000:00, of 5%
4. Uniform and clothing allowance not Amount in excess of P100,000 – FT
exceeding P3,000 per annum; of 10%
5. Actual yearly medical benefits not b. On sale of real property in the
exceeding P10,000 per annum; Philippines held as capital asset
6. Laundry allowance not exceeding On the gross selling price, or the
current fair market value at the
P300 per month; time of sale, whichever is higher –
7. Employees achievement awards e. g. FT of 6%
for length of service or safety 2. Corporations
achievement, which must be in the a. On sale of shares of stock of a
form of a tangible personal property domestic corporation not listed
other than cash or gift certificate, and traded thru a local stock
with an annual monetary value of exchange, held as capital asset
not exceeding P10,000 received by On the Net Capital Gain –
the employee under an established Not over P100,000 – FT of
written plan which does not 5%
Amount in excess

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of P100,000 – FT of 10%
b. On sale of land/building held as The excess of the The excess of the
capital asset gains from sales/ losses from sales or
On the gross selling price, or the exchanges of capital exchanges of capital
current fair market value at the assets over the assets over the gains
time of sale, whichever is higher gains from such from such sales or
– FT of 6% sales/ exchanges. exchanges.
(Reyes, Virgilio. Income Tax Law and
Accounting – A New Approach, 2002)
 TRANSACTION RESULTING IN TAXABLE
CAPITAL GAINS AND LOSSES – GAINS BUT NON-RECOGNITION OF LOSSES
IN GENERAL a. Sale or exchange between
related parties;
CONCEPT OF CAPITAL ASSETS b. Wash sales by non-dealers of
securities and when not subject
Under the tax code, there is no to the stock transfer tax;
definition for the term "capital assets". c. Exchanges not solely in kind in
What it gives is the meaning of ordinary merger and consolidation; and
assets: d. Sales or exchanges that are not
at arms length.
a. Ordinary assets (Sec. 39, NIRC)
a. Stock in trade of the taxpayer or REQUISITES FOR RECOGNITION OF
other properties of a kind which CAPITAL GAIN/LOSS
would properly be included in
the inventory of the taxpayer; 1. The transaction must involve
property classified as capital
b. Property held by the taxpayer asset; and
primarily for sale to customers in
the ordinary course of business; 2. The transaction must be a sale
or exchange or one considered as
c. Property used in trade or equivalent to a sale or exchange.
business and subject to
depreciation; and RULES ON THE RECOGNITION OF
CAPITAL GAINS OR LOSSES
d. Real property used in trade or
business.
INDIVIDUAL CORPORATION
b. Capital Assets include all property

held by the taxpayer whether or not  Holding Capital gains and
connected in trade or business but Period losses are
not including those enumerated The percentages recognized to the
above (#1) as ordinary assets. of gain or loss to be extent of 100%.
taken into account (There is no
shall be the holding period)
CAPITAL GAIN CAPITAL LOSS following:
a.100% - if the
The gain derived The loss incurred capital assets has
from the sale or from the sale or been held for 12
exchange of capital exchange of capital mos. or less; and
assets. assets. b.50% - if the
capital asset has
been held for
more than 12
mos.
NET CAPITAL NET CAPITAL
GAIN LOSS
 Non-  Capital losses

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1
deductibility of are allowed only Sales or exchanges resulting in non-

Net Capital to extent of the recognition of gains or losses:
losses capital gains; 1. Exchange solely in kind in legitimate
 Capital losses hence, the net mergers and consolidation;
are allowed only capital loss is
includes:
to extent of the not deductible.
Exception: If any a. Between the corporations which
capital gains;
hence, the net domestic bank or are parties to the merger or
capital loss is trust company, a consolidation (property for
not deductible. substantial part of stocks);
whose business is b. Between a stockholder of a
the receipt of corporation party to a merger or
deposits, sells any consolidation and the other
bond, debenture, party corporation (stock for
note or certificate
stock);
or other evidence
of indebtedness
c. Between a security holder of a
issued by any corporation party to a merger or
corporation consolidation and the other
(including one party corporation (securities for
issued by a securities)
government or
political 2. Transfer to a controlled corporation
subdivision) – exchange of property for stocks
resulting in acquisition of corporate
 Net Capital Loss  Not allowed control by a person, alone or
Carry –Over
together with others not exceeding
 Allowed
four.
The net capital loss
(in an amount not in “Control” means ownership of
excess of the taxable stocks in a corporation amounting to
income before at least 51% of the total voting
personal exemption for power of all classes of stocks
such year) shall be entitled to vote.
treated in the
succeeding year (but SALE OR EXCHANGE OF ORDINARY ASSETS
not beyond 12 months)
as a deduction as
General rules of income taxation
short-term capital loss
(at 100%) from the net apply to both gain and loss.
capital gains.
 See Annex D (Gross Income – Gains
from dealings in property)
 See Annex U for illustration.
SUMMARY OF TAX TREATMENT OF
SALE OR EXCHANGE OF CAPITAL ASSETS GAINS/LOSSES IN THE EXCHANGE OF
PROPERTIES
The following are considered as sale
orexchange of capital assets: General Rule: Upon the sale or
1. Retirement of bonds exchange of property, the entire gain or
2. Short sales of property loss, as the case may be, shall be
3. Failure to exercise privilege or recognized. [Sec. 40 (C, 1)]
option to buy or sell property
4. Securities becoming worthless Exceptions:
5. Distribution in liquidation of 1. Transactions where gains and losses
corporations are not recognized –
6. Readjustment of interest in a a. Exchange solely in kind in
general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation

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b. Transfer to a controlled 2. Shares of stock listed through a

corporation [Sec. 40(C, 2)] local stock exchange – ½ of 1% of
1. Transactions where the gross selling price of the stock.
gain is recognized EXCEPTIONS TO THE TAX
but not the loss – 1. Gains derived by dealers in
a. Transactions between related securities.
taxpayers [Sec. 36] 2. All other gains which are specifically
b. Illegal transactions [Sec. 96, exempt from income tax under
Rev. Reg. 2] existing investment incentives and
c. Exchanges of property, not other special laws.
solely in kind, in pursuance of
corporate mergers and BASIS FOR COMPUTING GAIN OR LOSS (BIR
consolidations [Sec. 40, (C, 3)] RULING 146-98)
IMPORTANT DISTINCTION  The fair market value (FMV) of the

If it is an ordinary asset, the sale of shares not traded but listed
ordinary gains and losses are considered in the stock exchange is the highest
in determining income or loss from closing price on the day the shares
trade, business or profession. (See Secs. were sold, transferred or exchanged.
32A, 34D)  When no sale is made in the stock
If it is a capital asset, determine exchange, the FMV shall be the
further whether or not it is a real highest selling price on the day
property located in the Philippines. If it nearest to the day of sale, transfer
is, then it is subject to capital gains tax. or exchange.
(See Secs. 24D, 27D5) (See also Sec s.  For shares not listed in the
24C, 27D2) If not, the capital gains and exchange, the FMV shall be the book
losses are considered in determining the value nearest the valuation date
taxable income. (Sec. 39)
The above rules shall be used in
CAPITAL GAINS AND LOSSES – computing for the net capital gain/loss
SHARES OF STOCK for disposition of shares.
The taxation of shares of stock IMPORTANT FEATURES

whether or not listed and traded in the
stock exchange is subject to final tax. 1. Sale of shares of stock of a domestic
corporation listed and traded in a
WHO ARE LIABLE TO THE TAX local stock exchange and that of
1. Individual taxpayer, citizen or alien initial public offering shall be subject
2. Corporate taxpayer, domestic or to Percentage tax (Business Tax)
foreign 2. Capital losses sustained during the
3. Other taxpayers such as estate, year (not listed and traded in a local
trust, trust funds and pension among stock exchange) shall be allowed as
others. a capital loss deductible on the same
taxable year only (no carry-over)
RATES OF TAX 3. The entire amount of capital gain
and capital loss (not listed and
1. Shares of stock not traded through traded in a local stock exchange)
a local stock exchange – Net capital shall be considered without taking
gains derived during the taxable into account holding period
year from sale, exchange, or irrespective of who is the taxpayer
transfer shall be taxed as follows (on (all 100%)
a per transaction basis): 4. Non-deductibility of losses on wash
Not over P 100,000 - 5% sales.
Over P 100,000 - 10%
FILING AND PAYMENT OF TAX

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1. Listed and Traded in the Stock a. Sale or disposition of the old

Exchange - The stockbroker shall principal residence;
turn over the tax collected to the b. By natural persons - citizens or aliens
B.I.R. within five (5) banking days provided that they are residents
from the date of collection. taxable under Sec. 24 of the Code
(does not include an estate or a
2. Not traded through the stock exchange trust);
- It shall be paid by the seller on a per c. The proceeds of which is fully
transaction basis upon filing of the utilized in (a) acquiring or (b)
required return within 30 days constructing a new principal
following each sale or other residence within eighteen (18)
disposition of shares of stock. calendar months from date of sale or
disposition;
CAPITAL GAINS AND LOSSES d. Notify the Commissioner within
thirty (30) days from the date of sale
(REAL PROPERTY) or disposition through a prescribed
return of his intention to avail the
PERSONS LIABLE AND TRANSACTIONS tax exemption;
AFFECTED e. Can only be availed of only once
every ten (10) years;
1. Individual taxpayers, estates and f. The historical cost or adjusted basis
trusts of his old principal residence sold,
Sale or exchange or other exchanged or disposed shall be
disposition of real property carried over to the cost basis of his
considered as capital assets. new principal residence
The said sale shall include "pacto g. If there is no full utilization, the
de retro sale" and other conditional portion of the gains presumed to
sale. have been realized shall be subject
2. Domestic Corporation to capital gains tax.
Sale or exchange or disposition
of lands and/or building which are GROSS INCOME FROM DIFFERENT SOURCES
not actually used in business and are (SEC. 42)
treated as capital asset.  Please refer to Annex I.
 EXCEPTIONS TO THE TAX ACCOUNTNG PERIODS AND METHODS OF
1. Gains derived by dealers in real ACCOUNTING
estate
I. ACCOUNTING PERIODS
RATE AND BASIS OF TAX A. General rule (Sec. 43)
A final tax of 6% is based on the Taxable income is computed
gross selling price or fair market value upon the basis of taxpayer’s
or zonal value whichever is higher. annual accounting period (fiscal or
Note: Gain or loss is immaterial, calendar year) in accordance with
there being a conclusive presumption of the method of accounting
gain. employed.
 If no method of accounting
 See Annex G – Guidelines in
employed or method does not
Determining Whether a Real
clearly reflect the income,
Property is a Capital or an Ordinary
computation shall be made in
Asset.
accordance w/ such method as
the opinion of the Commissioner
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
clearly reflects the income.
CAPITAL GAINS TAX ON THE SALE OR
 Taxable income is computed
DISPOSITION OF A PRINCIPAL RESIDENCE
based on calendar year if:
1. accounting period is other
Conditions:
than a fiscal year

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2. taxpayer has no accounting - from fiscal year to calendar

period year
3. taxpayer does not keep - from calendar year to fiscal
books year
4. taxpayer is an individual - from one fiscal year to
 Fiscal year: accounting period of another
12 months ending on the last day  Effect of change: Net income,
of any month other than shall, with the approval of the
December Commissioner, be computed on
 Calendar year: accounting period the basis of the new accounting
from January 1 to December 31 period, subject to Sec. 47.
B. Periods in which items of gross E. Final or adjustment returns for a

income included (Sec. 44) period of less than 12 months
 Amount of all items of gross (1) Returns for short period
income shall be included in the resulting from change of
gross income for the taxable accounting period
year in which received by the  taxpayer is other than an
taxpayer, unless, any such individual
amounts are to be properly  with the approval of the
accounted for in a different Commissioner
period under methods of  If change is from fiscal year to
accounting permitted calendar year:
 In case of death of taxpayer: - separate final or adjustment
include for the taxable year in return be made for the
which falls the date of his death, period between the close of
all amounts which accrued up to the last fiscal year for which
the date of his death; if not return was made and the
otherwise properly includible in following December 31
respect of such period or a prior  If change is from calendar year
period to fiscal year:
- separate final or adjustment
C. Period for which deduction and return be made for the
credits taken (Sec. 45) period between the close of
 Deductions provided in this Title the last calendar for which
shall be taken for the taxable return was made and the
year in which ‘paid or incurred, date designated as the close
dependent upon the method of of the fiscal year
accounting upon the basis of  If change is from one fiscal year
which the net income is to another:
computed, unless, in order to - separate final or adjustment
reflect the income, deductions return be made for the
should be taken as of a different period between the close of
period. the former fiscal year and
 In case of death of taxpayer: the date designated as the
deductions allowed for the close of the new fiscal year
taxable period in which falls the (2) Income computed on basis of
date of his death, amounts short period
accrued up to the date of his  In what cases?
death if not otherwise properly a. Where a separate final or
allowable in respect of such adjustment return is made
period or a prior period. on account of a change in
accounting period
D. Change of accounting period b. In all other cases where a
(Sec.46) separate final or
 Kinds of changes: adjustment return is

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require or permitted by architects or engineers

R&R prescribed by Sec. of showing the percentage of
Finance. upon completion during the
recommendation of taxable year of the entire
Commissioner work performed under the
 Both shall be made for a contract
fractional part of a year.  Deductions from gross
 Then income is computed on the income: all expenditures
basis of the short period for made during the taxable
which separate final or year on account of the
adjustment return is made. contract: account being
taken of the material and
II. METHODS OF ACCOUNTING supplies on hand at the
beginning and end of the
A. Cash method taxable period for use in
Recognition of income connection with the work
and expense dependent on under the contract but not
inflow or outflow of cash. yet so applied.
 Amended return may be
1. Accrual method permitted /required by the
Method under which Commissioner: if upon
income, gains and profits are completion of contract,
included in gross income when taxable income has not been
earned whether received or not, clearly reflected for any
and expenses are allowed as year(s).
deductions when incurred:
although not yet paid. It is the 3. Installment
right to receive and not the basis
actual receipt that determines (1) Sales of dealers in personal
the inclusion of the amount in property
gross income Under rules and
 Examples regulations prescribed by
: the Sec. of Finance, a person
1. interest or rent income who regularly sells or
earned but not yet otherwise disposes of
received personal property on the
2. rent expense accrued installment plan may return
but not yet paid as income there from in any
3. wages due to workers taxable year that proportion
but remaining unpaid of the installment payments
actually received in that
2. Accounting for year, which the gross profit
long-term contracts realized or to be realized
 Long-term contracts: when payment is completed,
building, installation or bears to the contract price.
construction contracts
covering a period in excess Example: Sale in 2000
of 1 yr Contract price (CP)
 Persons whose gross income (installments
is derived in whole or in part receivable) P200, 000
from such contracts shall Cost 150,000
report such income upon the Gross profit (GP) 50,000
basis of percentage of
completion Installments payable in 2
 The return is accompanied equal annual installments
by a return certificate of GP/CP ratio

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= 50,000/200,000 = 25%
Collections in 2000=P100,000  taxpayer must be
Income for 2000 entitled to benefits
= P100,000 x 25% = P25,000 under (1) hereof sales of
dealers in personal
(2) Sales of realty and casual property
sales of Personalty  in computing income for
 In cases of: the year of change or
a. casual sale or other any subsequent year:
casual disposition of amounts actually
personal property received during any such
(other than year on account of sales
inventory on hand of or other dispositions of
the taxpayer at the property made in any
close of the taxable prior year shall not be
year) for a price > excluded.
P1,000, or
b. sale or other 4. Allocation of
disposition of real income and deductions
property, if in either  Applicable to: cases of 2 or
case the initial more organizations, trades
payments do not or businesses (incorporated
exceed 25% of the and organized within the
selling price Philippines) owned or
 How may income be controlled directly
returned: same as in /indirectly by the same
sales of dealer in interest
personal property above  Commissioner is authorized
 Initial payments: to distribute, apportion or
payments received in allocate gross income or
cash or property other deductions between or
than evidences of among such organization,
indebtedness of the trade or business, if he
purchaser during the determines that such
taxable period in which distribution, apportionment
the sale or other or allocation is necessary in
disposition is made. order to prevent evasion of
taxes or to clearly reflect
(3) Sales of real the income of any such
property considered as organization, trade or
capital asset by individuals business.
 Individual who sells of
disposes of real ****FILING OF TAX RETURN AND PAYMENT OF
property, considered as TAX
capital asset and is
otherwise qualified to TAX RETURN – This is a report made by
report the gain under (2) the taxpayer to the BIR of all gross
above may pay the income received during the taxable
capital gains tax in year, the allowable deductions including
installments under rules exemptions, the net taxable income, the
and regulations to be income tax rate, the income tax due,
promulgated by the Sec. the income tax withheld, if any, and the
of Finance. income tax still to be paid or
refundable.
(4) Change from accrual to
installment basis

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same information contained in the

PERSONS REQUIRED TO FILE INCOME TAX employer’s annual return.
RETURN
HOW IS “SUBSTITUTED FILING” DIFFERENT
a. Individual FROM “NON-FILING”?
1. Resident citizen;
2. Non-resident citizen on income  Substituted Filing – an individual
from within the Phil.; taxpayer although required
3. Resident alien on income from under the law to file his income
within the Phil.; tax return, will no longer have
4. NRAETB on income from within to personally file his own income
the Phil. tax return.
5. An individual (citizens / aliens) – but instead the
engaged in business or practice employer’s annual information
of a profession within the Phil. return filed is the considered
regardless of the amount of “substitute” income tax return
gross income; of the employee inasmuch as the
6. Individual deriving compensation information in the employer’s
income concurrently from two or return is exactly the same
more employers at any time information contained in the
during the taxable year; employee’s return.
7. Individual whose pure
compensation income derived  Non-filing – applicable to certain
from sources within the Phil. types of individual taxpayers
exceeds P60,000. who are not required under the
b. Taxable Estate and Trust law to file an income tax return.
c. General Professional Partnership Example: employee whose
d. Corporation pure compensation income does
1. Not exempt from income tax; not exceed P60,000 and has only
2. Exempt from income tax under one employer for the taxable
Sec. 30 of NIRC but has not year and whose tax withheld is
shown proof of exemption. equivalent to his tax due.
INDIVIDUALS EXEMPT FROM FILING INCOME TAX SUBSTITUTED FILING OF INCOME TAX RETURNS
RETURN BY EMPLOYEES RECEIVING PURELY
COMPENSATION INCOME. [SECTION 4, RR 3-
1. Individual whose gross income does 2002; RMC 01-03]
not exceed total personal and
additional exemptions; Requisites:
2. Individual with respect to pure 1. The employee receives purely
compensation income derived from compensation income (regardless of
sources within the Philippines, the amount) during the taxable year.
income tax on which has been 2. The employee receives the income
correctly withheld; only from one employer during the
3. Individual whose sole income has taxable year.
been subjected to final withholding 3. The amount of tax due from the
income tax; employee at the end of the year
4. Individual who is exempt from equals the amount of tax withheld
income tax. by the employer.
4. The employee's spouse also complies
SUBSTITUTED FILING – is when the with all three (3) conditions stated
employer’s annual return may be above.
considered as the “substitute” Income 5. The employer files the annual
Tax Return (ITR) of employee inasmuch information return (BIR Form No.
as the information provided in his 1604-CF)
income tax return would exactly be the

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6. The employer issues BIR Form 2316 REQUIREMENT OF BANKS FOR SUBMISSION OF
(Oct 2002 ENCS) version to each AN ITR FOR LOAN O R CREDIT CARD
employee APPLICATIONS
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED Banks may require the submission of
FILING (STILL REQUIRED TO FILE) BIR Form No. 1700 (for employees not
entitled to substituted filing of ITR).
1. Individuals deriving compensation However, for employees entitled to
from two or more employers substituted filing of ITR, the submission
concurrently or successively during of the Joint Certification will suffice.
the taxable year.
2. Employees deriving compensation JOINT CERTIFICATION - It is a sworn
income, regardless of the amount, statement made by the employer and
whether from a single or several employee, which serve the following
employers during the calendar year, purposes:
the income tax of which has not 1. It contains the employee's consent
been withheld correctly (i.e. tax due that BIR Form No. 1604CF may be
is not equal to the tax withheld) considered his substituted return, in
resulting to collectible or refundable lieu of BIR Form No. 1700, which the
return. employee no longer filed.
3. Employees whose monthly gross 2. It contains the employer's
compensation income does not certification that he has reported
exceed P5,000 or the statutory the employee's income to the BIR
minimum wage, whichever is higher, and that he has remitted the taxes
and opted for non-withholding of tax on the employee's income, as
on said income. indicated in BIR Form No. 1604-CF.
4. Individuals deriving other non- 3. It serves as proof of financial
business, non-profession-related capacity in case the employee
income in addition to compensation decides to apply for a bank loan or a
income not otherwise subject to credit-card, or for any other
final tax. purpose, as if he had in fact filed a
5. Individuals receiving purely BIR Form No. 1700.
compensation income from a single
employer although the income tax of INDIVIDUALS REQUIRED TO FILE AN
which has been correctly withheld, INFORMATION RETURN
but whose spouse falls under 1 to 4
above. Individuals not required to file an
6. Non-resident aliens engaged in trade income tax return may nevertheless be
or business in the Philippines required to file an information return
deriving purely compensation pursuant to rules and, regulations
income, or compensation income prescribed by the Secretary of Finance
and other non-business, non- upon recommendation of the
profession-related income. Commissioner.
NOTE: Non-filing of ITR, for employees PLACE OF FILING

who are qualified for the substituted
filing shall be OPTIONAL for the taxable 1. Legal residence - authorized agent
year 2001, the returns for which shall be bank; Revenue District Officer;
filed on or before April 15, 2002. Collection agent or duly authorized
Thereafter, substituted filing where treasurer
applicable shall be MANDATORY. [Sec 5 2. Principal place of business
RR 3-2002) 3. With the Office of the Commissioner

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Time For Filing (Pay as you file system) parent shall be included in the
return of the parent, except:
April 15 – for those earning sole a. when donor’s tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donor’s tax
RETURN AND PAYMENT OF ESTIMATED INCOME PERSONS UNDER DISABILITY

TAX BY INDIVIDUAL (SELF-EMPLOYED OR
PRACTICE OF PROFESSION) If a taxpayer is unable to make his
own return, it may be made by his
1. First quarter - April 15 of current year 1. duly authorized agents;
2. Second quarter -August 15 of current 2. representative;
year 3. by guardian;
3. Third quarter – November 15 of current 4. other person charged with the care
year of his person or property;
4. Final quarter - April 15 of the following  who will assume the responsibility of
year. making the return and incurring
penalties provided for erroneous,
Note: When the tax due is in excess of P2, false or fraudulent return.
000 - the taxpayer may elect to pay in two
(2) equal installments: RETURN OF ESTATE, TRUST AND PARTNESHIP
1st installment - April 15
2nd installment - on or before July 15 Estate and Trust with gross income
of P20,000 or more and partnership
EXTENSION OF TIME TO FILE RETURN (whether professional or business) shall
file their income tax return on or before
The Commissioner may on April 15.
meritorious cases grant a reasonable
extension of time for filing income tax TAX RETURNS OF GENERAL PROFESSIONAL
return and may subject the imposition of PARTNERSHIPS (GPP)
twenty (20) percent interest per annum  Each GPP shall file in duplicate, a
from the original due date. return of its income (except those
income exempt)
Return Of Husband And Wife  Shall set forth:
a. items of gross income and
 File one (1) return for the taxpayer deductions allowed
year if following requisites b. names of partners
complied; c. TIN
a. Married individuals (citizens, d. address and share of each
resident or nonresident aliens) partner
b. Do not derived income purely
from compensation. Tax Return of a Corporation
 If impracticable to file one return: Those required to file:
each spouse file a separate return of 1. Corporation subject to tax having
income but the return so filed shall existed during the taxable year,
be consolidated by the Bureau for whether with income or not.
the purposes of verification for the 2. Corporation in the process of
year. liquidation or receivership.
3. Insurance company doing business in
UNMARRIED MINOR the Philippines or deriving income
therein
 Income of unmarried minors derived 4. Foreign corporation having income
from property received by the living from within the Philippines
Filing of return (Pay as you file system)

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Quarterly returns for the first three

(3) quarters on a strictly sixty (60) day - arises at the time an income is paid
basis and the final or adjusted return on or payable, whichever comes first. The
the 15th day of the fourth (4th) month term “payable” refers to the date the
following the close of either a-fiscal on obligation becomes due, demandable or
calendar year. legally enforceable. (Sec. 2.54.4 Rev.
Regs. 2.98)
 See Annex V for Illustration.
Nature of Withholding Agent’s Liability
Who shall file? The withholding agent is directly
The return shall be filed by the and independently liable for the correct
president, vice-president, or other amount of the tax that should be
principal officer, and shall be sworn to by withheld from the dividend remittance.
such officer and by the treasurer or (Commissioner vs. Procter and Gamble,
assistant treasurer. GR No. 66838, December 2, 1991)
WITHHOLDING TAXES CONSEQUENCES FOR FAILURE TO WITHHOLD:

1. liable for surcharges and
Withholding Taxes penalties;
Kinds: 2. liable upon conviction to a penalty
1. Withholding Tax at Source: equal to the total amount of the
a. Final Withholding Tax tax not withheld, or not accounted
b. Creditable Withholding Tax for and remitted. (Sec. 251, 1997
(Expanded withholding tax) NIRC)
2. Withholding Tax on Compensation 3. any income payment which is
(Wages) otherwise deductible from the
3. Withholding Tax on Creditable payor’s gross income will not be
Value-Added Tax allowed as a deduction if it is
4. Withholding of Percentage Tax shown that the income tax
required to be withheld is not paid
FINAL CREDITABLE to the BIR. (Sec. 2.58.5, Rev. Reg.
WITHHOLDING WITHHOLDING 2-98)
TAX SYSTEM TAX SYSTEM
Withholding Tax On Compensation
The amount of Taxes withheld on Every employer must withhold
income tax withheld certain income from compensation paid, an amount
by the withholding payments are computed in accordance with the
agent is constituted intended to equal or regulations.
as a full and final at least approximate
payment of the the tax due from the Exception:
income due from the payee on the said
Where such compensation
payee on the said income.
income. [Sec. 2.57 income of an individual:
(a), Rev. Reg. 2-98] 1. Does not exceed the statutory
minimum wages; or
The liability for The income 2. Five thousand (P5,000) monthly
payment of the tax recipient is still (P60,000 a year)
rests primarily on required to file an  whichever is higher.
the payor or the income tax return
withholding agent. and/or pay the ELEMENTS OF WITHHOLDING ON
The payee is not difference between
COMPENSATION
required to file an the tax withheld and
income tax return the tax due on the 1. There must be an employer-
for the particular income. [Sec. employee relationship
income. 2.57(B), Rev. Regs. 2. There must be payment of
2-98] compensation or wages for services
rendered
Time to Withhold Tax at Source 3. There must be a payroll period.

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COMPENSATION EXEMPTED Income of Recipient [Sec. 58 (d)]
1. Remunerations received as an  Income which any creditable tax is

incident of employment required to be withheld at source
2. Remunerations paid for agriculture shall be included in the return of its
labor recipient.
3. Remunerations paid for domestic  The excess of the amount of tax
services withheld over the tax due on his
4. Remunerations for casual not in the return shall be refunded to him,
course of an employer's trade or subject to Section 204 (abatement,
business. refund/credit taxes).
5. Compensation for services of a  If amount withheld at source is less
citizen, resident of the Philippines, than the tax due on his return, the
for a foreign government or an difference is paid in accordance with
international organization Section 56 (payment and assessment
6. Damages of income tax).
7. Life insurance  All taxes withheld shall be
8. Amount received by the insured as considered as trust funds and
return of premium maintained in a separate account
9. Compensation for injuries and and not commingled with any other
sickness funds of the withholding agent.
10. Income exempt under treaty
11. Thirteenth (13th) month pay and
other benefits
B. TRANSFER TAXES
12. GSIS; SSS; Philhealth and other
contributions,
TRANSFER TAX INCOME TAX
Tax-Free Covenant BOND [Sec. 57(C)]
Tax on transfer of Tax on income
property.
COVENANT BONDS – bonds, mortgages,
deeds of trust and other similar Rates are lower Rates are higher
obligations of domestic/resident foreign --5% to 20% - -- 5% to 32%
corporation, which contain a estate tax
contract/provision by which the obligor -- 2% to 15 % or
agrees; 30% - donor’s
1. to pay any portion of the tax tax
imposed upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the (1) ESTATE TAXES
obligor may be required/permitted
to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
transmitting property at the time of
 Obligor shall deduct and withhold a death and on the privilege that a person
tax = 30% of the interest and other is given in controlling to a certain extent
payments whether interest or other the disposition of his property to take
payments are payable annually or at effect upon death.
a shorter period; whether bonds,
securities, obligations had been/will Estate Tax Formula
be issued/ marketed and the
interest and other payments paid Gross Estate (Sec. 85)
within and without the Philippines if Less: (1) Deductions (Sec. 86)
the interest or other payment is (2)Net share of the SS in the CPP
payable to a non-resident alien or a
citizen or resident of the Philippines Net Taxable Estate

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Multiply by: Tax rate (Sec. 84) 3. Shares, obligations or bonds issued
Estate Tax due by any foreign corporation eighty-
Less: Tax Credit [if any] (Sec. 86[E] or five per centum (85%) of the
110[B] business of which is located in the
Philippines;
Estate Tax Due, if any
4. Shares, obligations or bonds issued
by any foreign corporation, if such
shares, obligations or bonds have
GROSS ESTATE acquired a business situs in the
Philippines;
A decedent’s gross estate includes 5. Shares or rights in any partnership,
(Sec. 85) business or industry established in
the Philippines.
RESIDENT & NON-
RESIDENT CITIZEN, NON-RESIDENT
RESIDENT ALIEN ALIEN DECEDENT Intangible personal property, with a
DECEDENT situs in the Philippines, of a decedent
who is a non-resident alien shall not
1. Real property 1. Real property
wherever situated situated in the form part of the gross estate if
Philippines. (reciprocity clause) (Sec. 104)
2. Personal property 2. Personal 1. the decedent at the time of his

wherever situated property death was a citizen and resident of a
a) Tangible, and a) Tangible foreign country which at the time of
b) Intangible property his death
situated in a. did not impose a transfer tax or
the
death tax of any character
Philippines
b) Intangible 1. in respect of intangible personal
personal property of citizens of the
property Philippines not residing in that
with a situs foreign country; or
in the 2. the laws of the foreign country of
Philippines which the decedent was a citizen
unless and resident at the time of his death
exempted
on the basis
a. allow a similar exemption from
of transfer taxes or death taxes of
reciprocity. every character
b. in respect of intangible personal
The law that governs the imposition of property owned by citizens of
estate tax the Philippines not residing in
that foreign country
The statute in force at the time of (Reciprocity).
death of the decedent shall govern
estate taxation. Valuation of the gross estate
Intangible personal properties with a The properties comprising the gross

situs in the Phil. (Sec. 104, 1997 estate shall be valued based on their fair
NIRC) market value as of the time of death.
1. Franchise which must be exercised PROPERTY VALUATION

in the Philippines;
2. Shares, obligations or bonds issued 1) Real Property - fair market value
a) as determined by the
by any corporation or sociedad
Commissioner or
anonima organized or constituted in b) as shown in the
the Philippines in accordance with schedule of values
its laws;

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fixed by the possess or enjoy the property or

provincial and city the income therefrom.
assessors
WHICHEVER IS HIGHER Exception: bona fide sale for an
adequate and full consideration in
2) Shares of Stock
money or money’s worth.
Unlisted
Common Shares -book value
Preferred -par value 3. REVOCABLE TRANSFER
Shares -arithmetic mean A transfer whereby the terms of
between the highest and enjoyment of the property may be
Listed lowest quotation at a altered, amended, revoked or
date nearest the date of terminated by the decedent alone or in
death, if none is conjunction with any other person, or
available on the date of where any such power is relinquished in
death itself.
contemplation of the decedent’s death.
It is enough that the decedent had the
3)Right to - shall be taken into
usufruct, use or account the probable power to alter, amend or revoke though
habitation, as life of the beneficiary in he did not exercise such power.
well as that of accordance with the
annuity latest basic standard Exception: bona fide sale for an
mortality table, to be adequate and full consideration in
approved by the money or money’s worth.
Secretary of Finance,
upon recommendation of 4. TRANSFER UNDER GENERAL POWER
the Insurance
OF APPOINTMENT
Commissioner.
A power of appointment is the right
4) Personal - whether tangible or to designate the person or persons who
property intangible, appraised at will succeed to the property of the prior
FMV. “Sentimental decedent.
value” is practically The general power of appointment
disregarded. may be exercised by the decedent:
1. by will; or
2. by deed executed in contemplation
Inclusions in the Gross Estate (Sec. 85) of his death; or
3. by deed under which he has retained
1. DECEDENT’S INTEREST for his life or for any period not
To the extent of the interest in ascertainable without reference to
property of the decedent at the time of his death or for any period which
his death. does not in fact end before his
death:
2. TRANSFER IN CONTEMPLATION OF a. the possession or enjoyment of,
DEATH or the right to the income from
1. A transfer motivated by the thought the property; or
of impending death although death b. the right, either alone or in
may not be imminent; or conjunction with any person, to
designate the persons who shall
2. A transfer by which the decedent possess or enjoy the property or
retained for his life or for any period the income therefrom.
which does not in fact end before his
death: Exception: bona fide sale for an
a. the possession or enjoyment of, adequate and full consideration in
or the right to the income from money or money’s worth.
the property, or
b. the right, either alone or in 5. PROCEEDS OF LIFE INSURANCE
conjunction with any person, to Proceeds of life insurance taken by
designate the person who shall the decedent on his own life shall be

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included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross DEDUCTIONS ON GROSS ESTATE
estate is the excess of the fair market APPLICABLE TO
value of the property at the time of the RESIDENT ALIENS AND CITIZENS
decedent’s death over the consideration (REVENUE REGULATIONS 2-2003)
received. This is applicable in cases of
transfer in contemplation of death,
The following are deductible from
revocable transfer and transfer under
the gross estate of citizens and resident
general power of appointment made for
aliens:
a consideration but is not a bona fide
1. Expenses, losses, indebtedness,
sale for an adequate and full
taxes, etc. (ordinary deductions)
consideration in money or money’s
2. Transfer for public use
worth.
3. Vanishing deduction
4. Family home
7. PRIOR INTERESTS
5. Standard deduction equivalent to
All transfers, trusts, estates,
one million pesos (P1,000,000)
interests, rights, powers and
6. Medical expenses
relinquishment of powers made,
7. Amounts received by heirs under RA
created, arising, existing, exercised or
4917 (Retirement Benefits)
relinquished before or after the
8. Net share of the surviving spouse in
effectivity of the NIRC.
the conjugal or community property
Property relations between Husband
and Wife 1. ORDINARY DEDUCTIONS
The property relations between the
spouses shall be governed by contract A. Funeral Expenses
(marriage settlement) executed before The amount deductible is the lowest
the marriage. among the following:
1. actual funeral expenses
In the absence of such contract, or if 2. 5% of the gross estate
the contract is void: 3. P200,000.
On marriages contracted before August
3, 1988, the system of conjugal It includes the following:
partnership of gains shall govern; 1. Mourning apparel of the surviving
On marriages contracted on or after spouse and unmarried minor children
August 3, 1988 (effectivity of the of the deceased, bought and used in
Family Code of the Philippines), the the occasion of the burial.
system of absolute community of 2. Expenses of the wake preceding the
property shall govern. burial including food and drinks.
3. Publication charges for death
Exempt Transmissions (Sec. 87) notices.
1. The merger of usufruct in the owner 4. Telecommunication expenses in
of the naked title; informing relatives of the deceased.
2. Fideicommisary substitution;

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5. Cost of burial plot. Tombstone Requisites:

monument or mausoleum but not 1. The liability represents a
their upkeep. In case deceased personal obligation of the
owns a family estate or several deceased existing at the time of
burial lots, only the value his death except unpaid
corresponding to the plot where he obligations incurred incident to
is buried is deductible. his death such as unpaid funeral
6. Interment fees and charges. expenses (i.e., expenses
7. All other expenses incurred for the incurred up to the time of
performance of the ritual and interment) and unpaid medical
ceremonies incident to the expenses which are classified
interment. under a different category of
Expenses incurred after the deductions;
interment, such as for prayers, masses, 2. The liability was contracted in
entertainment, or the like are not good faith and for adequate and
deductible. full consideration in money or
Any portion of the funeral and burial money's worth;
expenses borne or defrayed by relatives 3. The claim must be a debt or
and friends of the deceased are not claim which is valid in law and
deductible. enforceable in court;
4. The indebtedness must not have
B. JUDICIAL EXPENSES OF THE been condoned by the creditor
TESTAMENTARY OR INTESTATE or the action to collect from the
PROCEEDINGS decedent must not have
Expenses allowed as deduction under prescribed.
this category are those:
1. incurred in the inventory-taking D. CLAIMS AGAINST INSOLVENT PERSONS
of assets comprising the gross
estate, Requisites:
2. administration, 1. The amount thereof has been
3. payment of debts of the estate, initially included as part of his gross
as well as the distribution of the estate (for otherwise they would
estate among the heirs. constitute double deductions if they
In short, these deductible items are were to be deducted)
expenses incurred during the settlement 2. The incapacity of the debtors to pay
of the estate but not beyond the last day their obligation is proven.
prescribed by law, or the extension
thereof, for the filing of the estate tax C. UNPAID MORTGAGE
return.  In case unpaid mortgage payable is
being claimed by the estate,
C. CLAIMS AGAINST THE ESTATE verification must be made as to who
The word "claims" is generally was the beneficiary of the loan
construed to mean debts or demands of proceeds.
a pecuniary nature which could have  If the loan is found to be merely an
been enforced against the deceased in accommodation loan where the loan
his lifetime and could have been proceeds went to another person,
reduced to simple money judgments. the value of the unpaid loan must be
included as a receivable of the
Claims against the estate or estate.
indebtedness in respect of property may  If there is a legal impediment to
arise out of: recognize the same as receivable of
1. Contract; the estate, said unpaid obligation/
2. Tort; or mortgage payable shall not be
3. Operation of Law. allowed as a deduction from the
gross estate.

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 In all instances, the mortgaged deduction allowed diminishes over a

property, to the extent of the period of five years. The rate of
decedent's interest therein, should deduction depends on the period from
always form part of the gross the date of transfer to the death of the
taxable estate. decedent, as follows:
F. TAXES PERIOD DEDUCTION

Taxes which have accrued as of the  1 year or less 100%
death of the decedent which were  1 year – 2 years 80%
unpaid as of the time of death.  2 years – 3 years 60%
 3 years – 4 years 40%
The following are not deductible:
 4 years – 5 years 20%
1. income tax on income received
after death
2. property taxes not accrued Requisites:
before death 1. the present decedent died within 5
3. estate tax years from transfer of the property
from a prior decedent or donor.
G. LOSSES 2. The property must be located in the
Requisites: Phils.
1. It should arise from fire, storm, 3. The property formed part of the
shipwreck, or other casualty, taxable estate of the prior decedent,
robbery, theft or embezzlement; or of the taxable gift of the donor.
2. Not compensated by insurance 4. The estate tax or donor’s tax on the
or otherwise; gift must have been finally
3. Not claimed as deduction in an determined and paid.
income tax return of the taxable 5. The property must be identified as
estate; the one received from the prior
4. Occurring during the settlement decedent, or something acquired in
of the estate; and exchange therefor.
5. Occurring before the last day for 6. No vanishing deduction on the
the payment of the estate tax property was allowable to the estate
(last day to pay: six months after of the prior decedent.
the decedent’s death).
4. FAMILY HOME
2. TRANSFER FOR PUBLIC USE
Conditions:
Requisites: 1. The family home must be the actual
1. The disposition is in a last will and residential home of the decedent
testament and his family at the time of his
2. To take effect after death death, as certified by the Barangay
3. In favor of the government of the Captain of the locality where the
Phil., or any political subdivision family home is situated;
thereof 2. The total value of the family home
4. For exclusive public purposes. must be included as part of the gross
estate of the decedent; and
Note: This should also include bequests, 3. Allowable deduction must be in an
devices, or transfers to social welfare, amount equivalent to
cultural and charitable institutions. 1. the current fair market value of
the family home as declared or
3. VANISHING DEDUCTION included in the gross estate, or
2. the extent of the decedent's
DEFINITION: The deduction allowed from interest (whether
the gross estate for properties that were conjugal/community or exclusive
subject to donor’s or estate taxes. It is property), whichever is lower,
called vanishing deduction because the but not exceeding P1,000,000

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5. STANDARD DEDUCTION DEDUCTIONS ON GROSS

ESTATE APPLICABLE TO
A deduction in the amount of One
NON-RESIDENT ALIENS
Million Pesos (P1,000,000) shall be
allowed as an additional deduction
The following are deductible from the gross
without need of substantiation. estate of non-resident aliens:
The full amount of P1,000,000 shall
be allowed as deduction for the benefit 1. Expenses, losses, indebtedness and
of the decedent. taxes (ELIT) (ordinary deductions)
6. MEDICAL EXPENSES Formula:

Tax = Phil. Gross
Credit Estate X World
 Any amount of medical expenses
Limit World Gross ELIT
incurred within one year from death
Estate
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be
2. Transfer for public use
allowed as a deduction under this
subsection.
3. Vanishing deduction on property in
 Neither can any unpaid amount the Philippines.
thereof in excess of the P500,000
threshold nor any unpaid amount for 4. Conjugal share of the surviving
medical expenses incurred prior to spouse
the one-year period from date of
death be allowed to be deducted
ESTATE TAX CREDIT
from the gross estate as claim
against the estate.
A tax credit is granted for estate
taxes paid to a foreign country on the
7. AMOUNT RECEIVED BY HEIRS
estate of citizens and resident aliens
UNDER REPUBLIC ACT NO. subject to the following limitations
4917
1. One foreign country only
Any amount received by the heirs The tax credit is whichever is
from the decedent's employer as a lower between:
consequence of the death of the 4. Estate tax paid to the foreign
decedent-employee in accordance with country
Republic Act No. 4917 is allowed as a 5. Tax Credit Limit =
deduction provided that the amount of NTE, foreign country X Phil. estate
the separation benefit is included as NTE, world Tax
part of the gross estate of the decedent.
(NTE - Net Taxable Estate)
8. NET SHARE OF THE
SURVIVING SPOUSE IN THE 2. More than one foreign country
CONJUGAL PARTNERSHIP OR The credit shall be that which is
COMMUNITY PROPERTY the lower amount between Limit A
and Limit B.
After deducting the allowable
Limit A. Whichever is lower
deductions (only the ordinary
between:
deductions) appertaining to the conjugal
or community properties included in the  Estate tax paid to a foreign
gross estate, the share of the surviving country
spouse must be removed to ensure that  Tax Credit Limit =
only the decedent's interest in the NTE, foreign country X Phil. estate
estate is taxed. NTE, world Tax

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Limit B. Whichever is lower When The Gross Estate Exceeds

between: P2,000,000, The Estate Tax Return
 Total of estate taxes paid to all Shall Be Accompanied By A Statement
foreign countries Which Is Certified By An Independent
 Tax Credit Limit = Certified Public Accountant Stating
NTE outside Phil. X Phil. estate 1. the itemized assets of the decedent
NTE, world Tax with its corresponding gross value at
the time of his death, or in the case
of a non-resident, not citizen of the
SETTLEMENT OF THE Philippines, that part of his gross
estate situated in the Philippines;
ESTATE TAX
2. the itemized deductions from the
gross estate;
A. FILING 3. the amount of tax due, whether paid
or still due and outstanding.
Notice Of Death To Be Filed
In all cases of transfers subject to Place Where to File the Estate Tax
tax, or where, though exempt from tax, Return
the gross value of the estate exceeds
P20,000, the executor, administrator or 1. Resident Citizen
any of the legal heirs, within two - with the Accredited Agent Bank
months after the decedent’s death, or (AAB), Revenue District Officer,
within a like period after qualifying as Collection Officer or duly authorized
such executor or administrator, shall Treasurer of the city or municipality
give a written notice thereof to the where the decedent was domiciled at
Commissioner. (Sec. 89) the time of his death.
An Estate Tax Return Is Required To Be 2. Non-resident (citizen or alien)

Filed a. has registered executor or
1. when the estate is subject to estate administrator
tax; or - with the Revenue District
2. when the estate is not subject to Office where such executor or
estate tax but the gross estate administrator is registered
exceeds P 200,000; or b. executor or administrator is not
3. regardless of the amount of the registered
gross estate, where the gross estate - with the Revenue District
consists of registered or registrable Office having jurisdiction over
property such as motor vehicle or the executor’ or administrator’s
shares of stock or other similar residence
property for which clearance from c. no executor or administrator
the BIR is required as a condition - with the Office of the
precedent for the transfer of Commissioner (Sec. 9C, Rev. Reg.
ownership thereof in the name of 2-2003)
the transferee.
B. PAYMENT
Time for Filing of the estate tax return
The estate tax return shall be filed Payment of the estate tax due
within six (6) months after the death of The estate tax due shall paid at the
the decedent. time when the estate tax return is filed.
When the Commissioner finds that
Extension: The BIR may, in meritorious the payment of the estate tax on the
cases, grant an extension of not due date would impose undue hardships
exceeding thirty (30) days for the filing upon the estate or any heir:
of the estate tax return. a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if

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there is a judicial settlement of There is nothing in the Tax Code and

the estate; or in the pertinent remedial law that
b. the payment of the estate tax implies the necessity of the probate
may be extended for a period court or estate settlement of court’s
not to exceed two (2) years if approval of the State’s claim for estate
there is an extra-judicial taxes before the same can be enforced
settlement of the estate. and collected by the BIR. On the
NOTE: In case the available cash is not contrary, under Section 94, it is the
sufficient to pay its total estate tax probate or settlement court which is
liability, the estate may be allowed to bidden not to authorize the delivery of
pay tax by installment. (Sec. 9F, Rev. the distributive share to any interested
Reg. 2-2003) party without a certification from the
CIR showing the payment of the estate
Liability for Payment tax. (Marcos II vs. Court of Appeals, GR
The estate tax shall be paid by the No. 120880, June 5, 1997)
executor or administrator before delivery
to any beneficiary of his distributive share COLLECTION OF TAX FROM THE HEIRS
of the estate. An estate or inheritance tax,
Such beneficiary to the extent of his whether assessed before or after the
distributive share of the estate shall be death of the deceased, can be collected
subsidiarily liable for the payment of from the heirs even after the
such portion of the estate tax as his distribution of the properties of the
distributive share bears to the value of decedent. (Palanca vs. Commissioner of
the total net estate. (Sec. 9G, Rev. Reg. Internal Revenue, GR No. 16661,
2-2003) January 31, 1962)
No judge shall authorize the
distribution of the estate unless a The Government has two ways of
certification from the Commissioner that collecting taxes due from the estate.
tax has been paid is shown. (Sec. 94) a. By going after all the heirs and
No shares or other forms of securities collecting from each one of
shall be transferred in the books of any them the amount of the tax
corporation, partnership, business or proportionate to the inheritance
industry organized in the Philippines, received, or
unless a similar certification by the b. Pursuant to the lien created by
Commissioner is shown. (Sec. 97) Section 219 of the Tax Code
When a bank has knowledge of the upon all property and rights to
death of a person who maintained a property belonging to the
joint account, it shall not allow any taxpayer for unpaid income tax,
withdrawal by the surviving depositor is by subjecting said property of
without the above certification. (Sec. the estate which is in the hands
97) of an heir or transferee to the
Provided: that the administrator of payment of the tax due the
the estate or any one (1) of the heirs of estate. (Commissioner of
the decedent may, upon authorization Internal Revenue vs. Pineda, GR
by the Commissioner, withdraw an No. L –22734, September 15,
amount not exceeding twenty thousand 1967)
pesos (P20,000) without the said
certification.

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(2) DONOR’S TAXES A gift that is incomplete because of

reserved powers, becomes complete
DEFINITION: A tax on the privilege of when either:
transmitting one’s property or property 1. the donor renounces the power; or
rights to another or others without 2. his right to exercise the reserved
adequate and full valuable power ceases because of the
consideration. happening of some event or
contingency or the fulfillment of
Coverage Of The Tax (SEC. 104) some condition, other than because
of the donor's death.
RESIDENT & NON-  Renunciation by the surviving
RESIDENT CITIZEN, NON-RESIDENT spouse of his/her share in the
RESIDENT ALIEN ALIEN DONOR conjugal partnership or absolute
DONOR community after the dissolution
of the marriage in favor of the
1. Real property 1. Real property heirs of the deceased spouse or
wherever situated situated in the any other person/s is subject to
Philippines. donor's tax.
 Whereas general renunciation
2. Personal property 2. Personal property by an heir, including the
wherever situated a. Tangible property surviving spouse, of his/her
a. Tangible, and situated in the share in the hereditary estate
Intangible Philippines
left by the decedent is not
b. Intangible
personal property subject to donor's tax, unless
with a situs in the specifically and categorically
Philippines unless done in favor of identified heir/s
exempted on the to the exclusion or disadvantage
basis of of the other co-heirs in the
reciprocity. hereditary estate. (Sec. 11, Rev.
Reg. 2-2003)
Requisites
STRANGER - a person who is not a
1. Capacity of the donor brother, sister, spouse, ancestor and
2. Donative Intent lineal descendant, or of a relative by
3. Delivery, whether actual or consanguinity in the collateral within the
constructive, of the subject gift 4th civil degree.
4. Acceptance by the donee  A legally adopted child is entitled to
all the rights and obligations
Law that governs the imposition of provided by law to legitimate
Donor’s Tax children, and therefore, donation to
him shall not be considered as
The donor’s tax shall not apply donation made to stranger.
unless and until there is a completed  Donation made between business
gift. The transfer is perfected from the organizations and those made
moment the donor knows of the between an individual and a business
acceptance by the donee; it is organization shall be considered as
completed by the deliver, either donation made to a stranger.
actually or constructively, of the
donated property to the donee. Thus, Valuation of gifts of property
the law in force at the time of the The fair market value of the
perfection/completion of the donation property given at the time of the gift
shall govern the imposition of the shall be the value of the gift.
donor’s tax.

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Intangible personal properties with a or philanthropic organization,

situs in the Phil. (same as in estate tax research institution or
subject to the reciprocity rule) (Sec. organization, accredited non-
104) government organization (NGO).
Provided, that no more than 30%
Formula: (On a cumulative basis over a of said gifts shall be used by
period of one calendar year) such donee for administration
purposes.
1. On the 1st donation of a year 2. Gifts made by a non-resident not
a citizen of the Phil.
Gross gifts xxx a. same as (b)
Less: Deductions from gross xxx b. same as (c) except accredited
gifts non-government organization
Net gifts xxx (NGO)
Multiply by: Tax Rate xxx
Donor’s tax on the net gifts xxx A non-profit educational and/or
charitable corporation, institution,
accredited non-government
2. On donation of a subsequent
organization, trust or philantrophic
date during the year
organization, research institution or
organization is
Gross gifts made on this date XX
Less: Deductions from gross gifts XX
1. one incorporated as a non-stock
Net gifts XX
entity
Add: All prior net gifts within the XX
2. paying no dividends
year
3. governed by trustees who receive no
Aggregate net gifts XX
compensation, and
Multiply by: Tax Rate XX
4. devoting all its income whether
Donor’s tax on aggregate net gifts XX students’ fees or gifts, donations,
Less: Donor’s tax on all prior net XX subsidies or other forms of
gifts philantrophy to the accomplishment
Donor’s tax on the net gifts on this XX and promotion of the purposes
date enumerated in its Articles of
Incorporation.
Exemption of certain gifts
Tax credit for donor’s taxes paid to a
1. Gifts made by a resident foreign country
a. Dowries or gifts made on
account of marriage and before 1. Donor was a Filipino citizen or
its celebration or within one resident alien
year thereafter by parents to 2. At time of foreign donation
each of their legitimate, 3. Donor’s taxes of any character and
illegitimate or adopted children description
to the extent of the first P10, 4. Are imposed and paid by the
000. authority of a foreign country.
b. Gifts made to or for the use of
the National Government or any Limitations on tax credit
entity created by any of its
agencies which is not conducted 1. The amount of the credit in respect
for profit, or to any political to the tax paid to any country shall
subdivision of the said not exceed the same proportion of
government. the tax against which such credit is
c. Gifts in favor of educational, taken, which the decedent’s net
charitable, religious, cultural or gifts situated within such country
social welfare corporation, taxable under the NIRC bears to his
institutions, foundations, trust entire net gift; and

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2. The total amount of the credit shall NOTE: The filing of a notice of donation
not exceed the same proportion of is not required, unlike in estate tax
the tax against which such credit is where notice of death is required.
taken, which the decedent’s net gift
situated outside the Philippines Place for Filing of Return and payment
taxable under the NIRC bears to his of the Donor’s Tax
entire net gift.
1. Resident
Formula of Tax Credit Limit  With an authorized agent bank, the
Revenue District Officer, Revenue
1. For donor’s taxes paid to one Collection Officer or duly
foreign country authorized Treasurer of the city or
municipality where the donor was
NG situated Tax domiciled at the time of the
in a foreign country X PDT = Credit transfer, or if there be no legal
Entire net gift Limit residence in the Philippines, with
the Office of the Commissioner.
(NG - Net Gifts; PDT - Phil. Donor's Tax) 2. Non-resident
 Filed with the Philippine Embassy
2. For donor’s taxes paid to two or or Consulate in the country where
more foreign country he is domiciled at the time of the
transfer, or directly with the
NG outside the Phil. X PDT = Tax Office of the Commissioner.
Entire net gifts Credit
Limit Tax rate
The allowable tax credit is the If the donee is a stranger, the rate of
lower amount between the tax credit tax shall be 30% of the net gifts.
limit under (a) and (b). If the donee is not a stranger,
the rate shall be from 2% to 15% of the
net gifts.
SETTLEMENT OF THE DONOR’S TAX
 See Annex W - Donor’s Tax
Time for Filing of Return and payment
of the Donor’s Tax
The donor’s tax return is filed and C. TAX REMEDIES
the donor’s tax due is paid within thirty UNDER THE NIRC
(30) days after the date the gift is made.
The return shall be under oath in
duplicate setting forth: I. TAX REMEDIES OF THE
1. Each gift made during the calendar GOVERNMENT
year which is to be included in
computing net gifts;
Importance
2. The deductions claimed and
allowable;
1. They enhance and support the
3. Any previous net gifts made during
government’s tax collection.
the same calendar year;
2. They are safeguards of taxpayer’s
4. The name of the donee;
rights against arbitrary action.
5. Relationship of the donor to the
donee; and
Tax collection cannot be restrained by
6. Such further information as may be
court injunction (Sec. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law.
Justification: Lifeblood Theory

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Exception: Injunction may be issued by 7. Forfeiture of Property (Sec.

the CTA in aid of its appellate 224-225)
jurisdiction under RA 1125 (as amended 8. Suspension of business
by RA 9282). operations in violation of VAT
(Sec. 115)
Conditions for the Issuance of an 9. Enforcement of Administrative
Injunction by the Court of Tax Appeals Fine
The CTA may enjoin collection of
taxes: The remedies of distraint and levy as
a. If in its opinion the same may well as collection by civil and criminal
jeopardize the interest of the actions may, in the discretion of the
government and/or the taxpayer. Commissioner, be pursued singly or
b. In this instance, the court may independently of each other, or all of
require the taxpayer either to deposit them simultaneously.
the amount claimed or file a surety bond
for not more than double the amount
with the court. (1) COMPROMISE
* Before enforcement of remedies, DEFINITION: A contract whereby the

assessment is necessary to trigger the parties, by reciprocal concessions, avoid
process. If no return is filed, the litigation or put an end to one already
Commissioner is empowered to obtain commenced (Art. 2028, New Civil Code).
information, and to summon/examine,
and take testimony of persons to Requisites
determine the amount of tax due. (Sec. 1. The taxpayer must have a tax
5, 1997 NIRC) liability.
2. There must be an offer (by the
TAX REMEDIES UNDER THE 1997 TAX CODE: taxpayer of an amount to be paid by
the taxpayer)
1. Summary – remedies at the 3. There must be an acceptance (by
administrative level or regulation that the Commissioner or taxpayer as the
are executed without ceremony or case may be) of the offer in the
delay; short or concise settlement of the original claim.
2. Substantive – remedies provided for
by law or regulation; an essential part or Officers authorized to compromise
constituent or relating to what is
essential 1. The Commissioner of Internal
3. Procedural – remedies involving law of Revenue (CIR) with respect to
pleading, evidence, jurisdiction, etc. criminal and civil cases arising from
4. Administrative – remedies available at violations of the Tax Code [Secs.
the administration (BIR) level 7(C) and 204, 1997 NIRC]. This
5. Judicial – remedies that are power of the CIR is discretionary and
enforced through judicial action, once exercised by him cannot be
which may be civil or criminal reviewed or interfered with by the
Courts. (Koppel, Philippines vs.
tax remedies of the government to Commissioner, GR No. L-1977,
effect collection of taxes September 21, 1950)
2. By the Regional Evaluation Board
1. Compromise (Sec. 204) composed of:
2. Distraint (Actual and a. the Regional Director as
Constructive) (Secs. 205-208) Chairman,
3. Levy (Sec. 207B) b. Assistant Regional Director,
4. Tax Lien (Sec. 219) the heads of the Legal,
5. Civil Action (Sec. 221) Assessment and Collection
6. Criminal Action (Secs. 221, and Divisions, and
222)

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c. the Revenue District Officer 1. A reasonable doubt as to the

having jurisdiction over the validity of the claim against the
taxpayer, as members; taxpayer exists; or
 on assessments issued by the a. The delinquent account or
regional offices involving basic disputed assessment is one
taxes of P500,000 or less, and resulting from a jeopardy
minor criminal violations. assessment.
b. The assessment seems to be
Cases which may be compromised arbitrary in nature, appearing
to be based on presumptions,
1. Delinquent accounts and there is reason to believe
2. Cases under administrative protests that its is lacking in legal
3. Civil tax cases being disputed before and/or factual basis; or
the courts c. The taxpayer failed to file an
4. Collection cases filed in courts administrative protest on
5. Criminal violations, other than those account of the alleged failure
already filed in court or those to receive notice of assessment
involving criminal tax fraud; and, or preliminary assessment and
6. Cases covered by pre-assessment there is reason to believe that
notices but taxpayer is not agreeable its is lacking in legal and/or
to the findings of the audit office as factual basis; or
confirmed by the review office. d. The taxpayer failed to file a
(Sec.2, Rev. Reg. 7-2001) request for
reinvestigation/reconsideration
Exceptions within 30 days from receipt of
final assessment notice and
1. Withholding tax cases; there is reason to believe that
2. Criminal tax fraud cases; its is lacking in legal and/or
3. Criminal violations already filed in factual basis; or
court; e. The taxpayer failed to elevate
4. Delinquent accounts with duly to the CTA an adverse decision
approved schedule of installment of the Commissioner, or his
payments; authorized representative, in
5. Cases where final reports of some cases, within 30 days from
reinvestigation or reconsideration receipt thereof and there is
have been issued resulting to reason to believe that its is
reduction in the original assessment lacking in legal and/or factual
and the taxpayer is agreeable to basis; or
such decision. f. The assessment were issued on
6. Cases which become final and or after Jan. 1, 1998, where the
executory after final judgment of a demand notice allegedly failed
court, where compromise is to comply with the formalities
requested on the ground of doubtful prescribed under Sec. 228 of
validity of the assessment (RR. 30– the 1997 NIRC; or
2002); g. Assessments made based on the
7. Estate tax cases where compromise “Best Evidence Obtainable
is requested on the ground of Rule” and there is reason to
financial incapacity of the taxpayer. believe that the same can be
(RR. 30–2002) disputed by sufficient and
competent evidence.
Commissioner may compromise the h. The assessment was issued
payment of any internal revenue tax within the prescriptive period
when for assessment as extended by
the taxpayer's execution of
Waiver of the Statute of
Limitations the validity or

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authenticity of which is being

questioned or at issue and there
is strong reason to believe and
evidence to prove that it is not c. The taxpayer is suffering from a
authentic. (RR. 30– 2002) networth deficit (total liabilities
i. The assessment is based on an exceed total assets) computed by
issue where a court of deducting total liabilities (net of
competent jurisdiction made an deferred credits and amounts
adverse decision against the payable to stockholders/owners
Bureau, but for which the reflected as liabilities, except
Supreme Court has not decided business-related transactions)
upon with finality. (RR. 08- from total assets (net of prepaid
2004). expenses, deferred charges, pre-
operating expenses, as well as
2. The financial position of the appraisal increases in fixed
taxpayer demonstrates a clear assets), taken from the latest
inability to pay the assessed tax audited financial statements,
[Sec. 204(A), 1997 NIRC). In such provided that in the case of an
case, the taxpayer should waive the individual taxpayer, he has no
confidentiality privilege on bank other leviable properties under
deposits under RA No. 1405 [Sec. the law other than his family
6(F)(2), NIRC]. home; (Sec. 3, RR. 30–2002).
Financial Incapacity. — The offer
to compromise based on financial c. The taxpayer is a compensation
incapacity may be accepted upon earner with no other source of
showing that: income and the family’s gross
a. The corporation ceased operation monthly compensation does not
or is already dissolved. Provided, exceed (P10,500/month if single;
that tax liabilities corresponding P21,000/month if married), and
to the Subscription Receivable or that it appears that the taxpayer
Assets distributed/distributable to possesses no other leviable/
the stockholders representing distrainable assets, other than his
return of capital at the time of family home; or
cessation of operation or
dissolution of business shall not be d. The taxpayer has been granted by
considered for compromise; or the SEC or by any competent
tribunal a moratorium or
b. The taxpayer, as reflected in its suspension of payments to
latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all
which are properly includible in pertinent information, including
the regular "accounts payable" are but not limited to industry
by fiction of law considered as audits, collection performance
part of capital and not liability, data, status reports on criminal
and provided further that the actions initiated against
taxpayer has no sufficient liquid persons; and
asset to satisfy the tax liability; or 2. The submission of taxpayer
returns.

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This is more so, when the court

has rendered a final judgment. As a
Minimum Compromise Rates (MCR) of mere agent of the Government, the
any tax liability Commissioner is not authorized to
a. In case of financial incapacity: accept anything less than what is
MCR = 10% of the basic assessed tax adjudicated in favor of the
b. Other cases: Government. By virtue of such final
MCR = 40% of the basic assessed tax judgment, the Government has
[Sec. 204(A), 1997 NIRC] already acquired a vested right.
Approval of the compromise by the Nature of a Compromise in

Evaluation Board is required when Extrajudicial Settlement of the
a. the basic tax involved exceeds Taxpayer’s Criminal Liability for his
P1,000,000.00, or Violation
b. the settlement offered is less than
the MCR. It is consensual in character, hence,
may not be imposed on the taxpayer
NOTE: The MCR may be less than the without his consent. The BIR may only
prescribed rates of 10% or 40%, as the suggest settlement of his tax liability
case may be, provided it is approved by through a compromise. The extra-
the Evaluation Board (composed of the judicial settlement and the amount of
BIR Commissioner and the four BIR the suggested compromise penalty
Deputy Commissioners). should conform with the schedule of
compromise penalties provided under
Compromise of Criminal Violations the relevant BIR regulations or orders.
General Rule: All criminal violations
under the CTRP may be compromised. Remedy in case the taxpayer refuses
or fails to abide the tax compromise
Exceptions:
1. Those already filed in court 1. Enforce the compromise
2. Those involving fraud [Sec. 204(B), a. If it is a judicial compromise, it
1997 NIRC]. can be enforced by mere
execution. A judicial compromise
Extent of the Commissioner’s is one where a decision based on
Discretion to Compromise Criminal the compromise agreement is
Violations rendered by the court on request
of the parties.
1. Before the complaint is filed with b. Any other compromise is
the Prosecutor’s Office: The CIR extrajudicial and like any other
has full discretion to compromise contract can only be enforced by
except those involving fraud. court action.
2. Regard it as rescinded and insist
2. After the complaint is filed with upon original demand (Art. 2041,
the Prosecutor’s Office but before Civil Code).
the information is filed with the
court: The CIR can still compromise Compromise Penalty
provided the prosecutor must give
consent. It is an amount of money that the
taxpayer pays to compromise a tax
3. After information is filed with the violation. This is paid in lieu of criminal
court: The CIR is no longer prosecution. A taxpayer cannot be
permitted to compromise with or compelled to pay a compromise penalty.
without the consent of the If he does not want to pay, the CIR must
Prosecutor. (People vs. Magdaluyo, institute a criminal action.
GR No. L-16235, April 20, 1961)
COMPROMISE VS. ABATEMENT

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a. Abatement of penalties on
Compromise involves a reduction of assessment confirmed by the
the taxpayer’s liability, while lower court but appealed by the
abatement means that the entire tax taxpayer to a higher court
liability of the taxpayer is cancelled. b. Abatement of penalties on
ABATEMENT withholding tax assessment under
meritorious circumstances
The Commissioner may abate or cancel c. Abatement of penalties on
a tax liability when delayed installment payment
under meritorious circumstances
1. The tax or any portion thereof d. Abatement of penalties on
appears to be unjustly or assessment reduced after
excessively assessed; [Sec. 204(B), reinvestigation but taxpayer is
1997 NIRC]. still contesting reduced
a. When the filing of the assessment; and
return/payment is made at the e. Such other circumstances which
wrong venue; the Commissioner may deem
b. When the taxpayer’s mistake in analogous to the enumeration
payment of his tax is due to above. (Sec. 3, Rev. Reg. 13-2001)
erroneous written official advice
of a revenue officer; 3. The Commissioner may also, even
c. When the taxpayer fails to file the without a claim therefor, refund or
return and pay the tax on time credit any tax where on the face of
due to substantial losses from the return upon which payment was
prolonged labor dispute, force made such payment appears clearly
majeure, legitimate business to have been erroneously paid
reverses, provided, however, the (Sec. 229, 1997 NIRC)).
abatement shall only cover the
surcharge and the compromise
penalty and not the interest (2) DISTRAINT
imposed under Sec. 249 of the
Code; DEFINITION: It is the seizure by the
d. When the assessment is brought government of personal property,
about or the result of taxpayer’s tangible or intangible, to enforce the
non-compliance with the law due payment of taxes. The property may be
to a difficult interpretation of said offered in a public sale, if taxes are not
law. voluntarily paid. It is a summary remedy.
e. When the taxpayer fails to file the
return and pay the correct tax on Nature of the Warrant of Distraint or
time due to circumstances beyond Levy
his control, provided, however,
the abatement shall only cover The warrant is a summary procedure
the surcharge and the compromise “forcing” the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001)  Duties of the officer serving the
warrant of distraint:
2. The administration and collection 1. Make an account of the personal
costs involved do not justify the properties distrained;
collection of the amount due [Sec. 2. Sign the list of personal
204(B), 1997 NIRC]. properties distrained to which

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shall be added, a statement of ACTUAL CONSTRUCTIVE

the sum demanded and note of DISTRAINT DISTRAINT
the time and place of sale;
3. Leave either with the owner or Both
person from whose possession Are summary remedies for the collection of
such personal properties were taxes;
NOTE: Refer only to personal property; and
taken, or at the dwelling or
cannot be availed of where the amount of
place of business of such person the tax involved is not more than P100
with someone of suitable age
and discretion (Sec. 208, CTRP)
Requisites for the exercise of the
Two types of Distraint
remedy of distraint
1. Actual: there is taking of
1. The taxpayer must be delinquent
possession of the personal
(except in constructive distraint) in
property from the taxpayer by
the payment of tax;
the government. Physical
2. There must be a subsequent demand
transfer of possession is not
for its payment (assessment);
always required. This is true in
3. The taxpayer must fail to pay the tax
the case of intangible property
at the time required; and
such as stocks and credits.
4. The period within which to assess or
2. Constructive: the owner is
collect the tax has not yet
merely prohibited from disposing
prescribed.
of his property.
Persons who shall seize and distraint
Actual vs. Constructive Distraint
personal property (actual distraint)
ACTUAL CONSTRUCTIVE 1. Amount of delinquent tax is more
DISTRAINT DISTRAINT than P1,000,000 – Commissioner or
his duly authorized representatives.
Made only on the Made on the property
2. Amount of delinquent tax is
property of a of any taxpayer,
delinquent taxpayer whether delinquent P1,000,000 or less – Revenue District
or not Officer. (Sec. 207(A), 1997 NIRC)
There is taking of The taxpayer is AUTHORITY OF THE COMMISSIONER TO

possession merely prohibited INQUIRE INTO BANK DEPOSIT ACCOUNTS
from disposing of his
property Distraint includes garnishment of
money even in bank deposits because RA
Effected by leaving a Effected by requiring 1405 (Bank Secrecy Law) covers only
list of distrained the taxpayer to sign
divulging of information of deposits. No
property or by a receipt of the
service of a warrant property or by the inquiry is made on garnishment for it
of distraint or revenue officer only earmarks a portion of the deposits.
garnishment preparing and leaving Notwithstanding any contrary
a list of such provision of RA 1405, the Commissioner
property is authorized to inquire into the bank
deposits of:
An immediate step Not necessarily so 1. a decedent to determine his gross
for collection of estate
taxes 2. a taxpayer who waives his right by
reason of financial incapacity to pay his
tax liability (Sec.5, NIRC)
Procedures for the Actual Distraint or

Garnishment

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to the taxpayer to pay to the

I Commissioner the amount of such debts
Commencement of distraint or credits.
proceedings
Either by the CIR or his duly authorized

representative; or by the Revenue Taxpayer must sign
District Officer receipt
II
Service of Warrant of Distraint
(Sec. 208) III
Posting of Notice
(Sec. 209, NIRC)
With respect to:
1. Personal property – Notice specifying the time and place
(a) upon the owner of the goods, of sale and the articles distrained. The
chattels, or other personal posting shall be made in not less than
property; or two (2) public places in the city or muni-
(b) upon the person from whose cipality where the distraint is made.
possession such properties are One place for posting of such notice is at
taken. the Office of the Mayor of such city or
2. Stocks and other securities municipality.
(a) upon the taxpayer; and
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which IV
issued the said stock and Sale of Property Distrained
securities.
3. Bank accounts shall be garnished by
serving a warrant of distraint –
(a) upon the taxpayer; and The taxpayer’s property may be placed
(b) upon the president, manager, under constructive distraint when he
treasurer, or other responsible
officer of the bank. 1. is retiring from any business subject
Note: Upon receipt of the warrant of to tax;
distraint, the bank shall turn over to the 2. is intending to –
Commissioner so much of the bank a. leave the Philippines,
accounts as may be sufficient to satisfy b. remove his property therefrom,
the claim of the government. c. hide or conceal his property,
4. Debts and credits – 3. is performing any act tending to
(a) persons owing or having in his obstruct the proceeding for
possession the debts; collecting the tax due or which may
(b) or under his control such credits; be due from him (Sec. 223, 1997
or NIRC).
(c) upon his agent.
Note: The warrant of distraint shall be Procedure for the Constructive

sufficient authority to the person owing Distraint of Personal Property
the debts or having in his possession or
under his control any credits belonging

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Taxpayer’s obligation to preserve Real property may be levied upon

before, simultaneously, or after the
distraint of personal property belonging
to the delinquent [Sec. 207(B), 1997 NIRC];
CIR shall require the taxpayer or any
and the remedy by distraint and levy
person having possession or control of
may be repeated if necessary until the
such property to
full amount, including all expenses, is
(a) sign a receipt covering the property
collected (Sec. 217, 1997 NIRC).
distrained and
(b) obligate himself to
Procedure of Levy on Real Property
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any I
manner whatsoever without the Prepare Certificate of Levy
express authority of the I
Commissioner of Internal Preparation of a duly authen-ticated
Revenue. certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due
from him. This certificate shall
Remedy when taxpayer didn’t sign operate with the force of a legal
receipt execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
If the taxpayer or person in possession of

the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall II
(a) proceed to prepare a list of such Service of Notice
property and
(b) in the presence of two (2) witnesses
leave a copy thereof in the premises Service of written notice to:
where the property distrained is located, (a) the delinquent taxpayer; or
after which the said property shall be (b) if he is absent from the Philippines,
deemed to have been placed under to his agent or manager of the business
constructive distraint. in respect to which the liability arose; or
c. to the occupant of the property.
(3) LEVY d. the proper Register of Deeds shall
also be notified of the levy (Sec. 207B,
DEFINITION: It refers to the act of seizure 1997 NIRC).
of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid.
III
REQUISITES FOR THE EXERCISE OF THE REMEDY Advertisement of the Time and
OF LEVY Place of Sale
Same as in the remedy of distraint. The advertisement shall contain:

1. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;
When may Levy be Effected? 3. short description the property to be
sold.

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The advertisement shall be made at 15% per annum from the date of sale
within 20 days after the levy, and the to the date of redemption. (Sec. 214,
same shall be for a period of at least 30 NIRC).
days. It shall be effectuated by:
a. posting a notice at the main entrance Forfeiture to the Government
of the municipal building or city hall
and in a public and conspicuous If there is no bidder in the public
place in the barrio or district in which sale or if the amount of the highest bid
the real property lies; and is insufficient to pay the taxes, penalties
b. by publication once a week for 3 and costs, the real property shall be
weeks in a newspaper of general forfeited to the Government.
circulation in the municipality or city
where the property is located (Sec. Further Distraint and Levy
213, CTRP).
The remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from
IV the taxpayer. Otherwise, a clever
Sale taxpayer who is able to conceal most of
the valuable part of his property would
escape payment of his tax liability by
sacrificing an insignificant portion of his
Distraint vs. Levy holdings.
DISTRAINT LEVY (4) TAX LIEN

Refers to personal Refers to real
DEFINITION: It is a legal claim or charge
property property
on property, either real or personal,
Forfeiture by the Forfeiture is established by law as a security in
government is not authorized default of the payment of taxes (51
provided AmJur 881). Generally, it attaches to
the property irrespective of ownership
The taxpayer is not The right of or transfer thereof.
given the right of redemption is
redemption with granted in case of Extent and nature
respect to distrained real property levied
personal property. upon and sold, or
The tax, together with interests,
forfeited to the
government.
penalties, and costs that may accrue in
addition thereto is a lien upon all
Both property and rights to property
 Are summary remedies for the collection of belonging to the taxpayer.
taxes; and
 Cannot be availed of where the amount of The lien shall not be valid against
the tax involved is not more than P100 any mortgagee, purchaser, or judgment
creditor until notice of such lien shall be
Redemption of Property Sold filed by the Commissioner of Internal
Revenue in the Office of the Register of
Within 1 year from the date of sale, Deeds of the province or city where the
the property may be redeemed by the property of the taxpayer is situated or
delinquent taxpayer or anyone from him, located (Sec. 219, 1997 NIRC).
upon payment of the taxes, penalties
and interest thereon from the date of
delinquency to the date of sale, When does it Attach?
together with interest on purchase price

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Not only from the service of the Where to file

warrant of distraint but from the time
tax became due and payable. 1. Court of Tax Appeals – where the
principal amount of taxes and fees,
Lien vs. Distraint exclusive of charges and penalties
claimed is One million pesos and
LIEN DISTRAINT above.
2. Regional Trial Court, Municipal
Directed against Need not be Trial Court, Metropolitan Trial
the property directed against the Court – where the principal amount
subject to the tax property subject to of taxes and fees, exclusive of
tax charges and penalties claimed is less
than One million pesos. (Sec. 7, RA
Regardless of the Property seized
No. 9282)
owner of the must be owned by
property the taxpayer
THE APPROVAL OF THECIR IS ESSENTIAL IN
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate
(5) CIVIL ACTIONS such power to a Regional Director.
DEFINITION: For tax remedy purposes, Defenses which are precluded by final
these are actions instituted by the and executory assessments
government to collect internal revenue
taxes. It includes filing by the 1. Invalidity or illegality of the
government with the probate court assessment; and
claims against the deceased taxpayer. 2. Prescription of the government’s
right to assess.
When resorted to?
(6) CRIMINAL ACTIONS
1. When a tax is assessed but the
assessment becomes final and The judgment in the criminal case
unappealable because the taxpayer shall not only impose the penalty but
fails to file an administrative shall also order the payment of taxes
protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
rendered but the said decision Where to file
becomes final, executory, and
demandable for failure of the 1. Court of Tax Appeals – on criminal
taxpayer to appeal the decision to offenses arising from violations of
the CTA within 30 days from the NIRC or TCC and other laws
receipt of the decision. administered by the BIR and the
BOC, where the principal amount of
NOTE: Judicial action may be resorted taxes and fees, exclusive of charges
to even before assessment although and penalties claimed is One million
impractical, as stated in Sec. 203, 1997 pesos and above.
NIRC, “… and no proceeding in court 2. Regional Trial Court, Municipal
without assessment for the collection of Trial Court, Metropolitan Trial
such taxes shall be begun after the Court – on criminal offenses arising
expiration of such (3year) period.” from violations of the NIRC or TCC
It should be noted that no civil and other laws administered by the
or criminal action for the recovery of BIR and the BOC, where the principal
taxes shall be filed in court without the amount of taxes and fees, exclusive
approval of the Commissioner. of charges and penalties claimed is
less than One million pesos or where

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there is no specified amount It is not a requirement for the

claimed. (Sec. 7, RA No. 9282) filing thereof that there be a precise
computation and assessment of the tax,
IMPORTANT CONSIDERATIONS since what is involved in the criminal
action is not the collection of tax but a
1. No criminal action shall be criminal prosecution for the violation
begun without the approval of the of the NIRC. Provided, however, that
Commissioner. (Sec. 220, 1997 NIRC) there is a prima facie showing of a
2. It shall be brought in the willful attempt to evade taxes. (See
name of the Government and shall Ungab vs. Cusi, GR Nos. L-41919-24, May
be conducted by the legal officers of 30, 1980 in relation to Commissioner vs.
the BIR. Court of Appeals, GR No. 119322, June
4, 1996)
EFFECT OF ACQUITTAL OF THE
TAXPAYER IN A CRIMINAL ACTION (7) FORFEITURE
It does not necessarily result in the DEFINITION: divestiture of property

exoneration of said taxpayer from his without compensation, in consequence
civil liability to pay taxes. of a default or offense.
Rationale: The duty to pay tax is
imposed by statute prior to and ENFORCEMENT OF THE REMEDY OF
independent of any attempt on the part FORFEITURE
of the taxpayer to evade payment. It is
not a mere consequence of the felonious a. In case of personal property – The
acts charged, nor is it a mere civil forfeiture of chattels and removable
liability derived from a crime. (Republic fixtures of any sort is enforced by
vs. Patanao, GR No. L-14142, May 30, seizure and sale or destruction of
1961) the specific forfeited property.
b. In case of real property – The
EFFECT OF SUBSEQUENT SATISFACTION forfeiture of real property is
OF CIVIL LIABILITY enforced by a judgment of
condemnation and sale in a legal
The subsequent satisfaction of civil action or proceeding, civil or
liability by payment or prescription does criminal, as the case may require.
not extinguish the taxpayer’s criminal c. In case of distilled spirits, liquors,
liability. cigars, cigarettes manufactured,
products of tobacco and apparatus
NO SUBSIDIARY IMPRISONMENT used for their production – Upon
forfeiture, may be destroyed by
In case of insolvency on the part of order of the Commissioner where the
the taxpayer, subsidiary imprisonment sale may be injurious to public
cannot be imposed as regards the tax health or prejudicial to law
which he is sentenced to pay. enforcement.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED

DURING THE PENDENCY OF AN d. Other articles subject to excise tax
ADMINISTRATIVE PROTEST IN THE BIR which have been manufactured or
removed in violation of the Code,
dies for printing or making fake

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1
revenue stamps and labels – Upon

forfeiture may be sold or destroyed * This does not apply to all public
at the discretion of the officials whether incumbent or retired,
Commissioner. Forfeited property who acquired the information in the
shall not be destroyed until at least course of performance of their duties
20 days from seizure. during their incumbency.
EFFECT OF THE FORFEITURE OF

PROPERTY PRESCRIPTIVE PERIODS FOR
The effect is to transfer the title to
THE ASSESSMENT AND
the specific thing from the owner to the COLLECTION OF TAXES
government. All the proceeds in case of
a sale go to the coffers of the
government (U.S. vs. Surla, GR No. RATIONALE OF PRESCRIPTIVE PERIODS
6536, September 2, 1911). In seizure for
the enforcement of a tax lien, the Such periods are designated to
residue, after deducting the tax liability secure the taxpayers against
and expenses will go to the taxpayer unreasonable investigation after the
(Bank of the Phil. Island vs. Trinidad, lapse of the period prescribed. They are
GR No. 16014, October 4, 1941). also beneficial to the government
because tax officers will be obliged to
INFORMER’S REWARD (Sec 282) act promptly.
A. For violations of the NIRC, a reward
of 10% of the revenues, surcharges, RULES ON PRESCRIPTION
or fees recovered and/or fine or
penalty imposed and collected or P 1 1. When the tax law itself is silent
M per case, whichever is lower shall on prescription, the tax is
be given to: imprescriptible;
1. any person who voluntarily gives 2. When no return is required, tax
definite and sworn information is imprescriptible;
not yet in the possession of the Note: Remedy of taxpayer is to file a
BIR leading to the discovery of return.
fraud upon the Internal Revenue 3. Defense of prescription is
Laws and/or any violations thereof waivable;
2. an informer where the offender
has offered to compromise the WHAT CONSTITUTES ASSESSMENT?
violation of law comiited by him
and his offer has been accepted An assessment contains not only
and collected by the CIR . This a computation of tax liabilities but also
excludes an Internal Revenue a demand for payment within a
Officer/employee or other public prescribed period.
official/employee, or his relative
within the sixth degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods.

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1
discovery of the omission to file b. Sale of a real property for a price

the return (Sec.222[A]); less than its fair market value is
2. False or fraudulent return with not necessarily a false return
intention to evade the tax: ten (Commissioner vs. Ayala
(10) years from the date of the Securities)
discovery of the falsity or fraud c. Fraud is a question of fact and the
(Sec.222 [A]); circumstances constituting fraud
Note: Nothing in Section 222(A) must be alleged and proved in the
shall be construed to authorize the trial court (Commissioner vs.
examination and investigation or Ayala Securities)
inquiry into any tax return filed in d. Fraud is never imputed and the
accordance with the provisions of courts never sustain findings of
any tax amnesty law or decree. fraud upon circumstances that
only create suspicion
 Fraud must be alleged and (Commissioner vs. Javier)
proved as a fact. It must be the e. Mistakes of revenue officers on
product of a deliberate intent to three different occasions remove
evade taxes. It may be element of fraud (Aznar vs. CTA
established by the: and Collector)
a. Intentional and substantial
understatement of tax 3. Agreement in writing to the
liability by the taxpayer; extension of the period to assess
b. Intentional and substantial between the CIR and the
overstatement of deductions taxpayer before the expiration
of exemptions; and/or of the 3-year period. NB: The
c. Recurrence of the above extended period agreed upon
circumstances can further be extended by a
 Falsity constitutes a deviation subsequent written agreement
from the truth due to mistake, made before the expiration of
carelessness or ignorance. the extended period previously
agreed upon (Sec. 222[b]).
There is fraud in the following decided 4. Written waiver of renunciation
cases: of the original three (3) year
1. Fraud must be the product of a limitation, signed by the
deliberate intent to evade taxes taxpayer (Sambrano vs. Court of
(Jalandoni vs. Republic) Tax Appeals, GR No. L-8652,
2. Simple statement that return filed March 30, 1957).
was not fraudulent does not disprove
existence of fraud (Tayengco vs. Note: Notice of the assessment is
Collector) released, mailed or sent to the taxpayer
3. Substantial under-declarations of also within the 3 year period. It is not
income for six consecutive five years required that the notice be received by
demonstrate fraudulence of return the taxpayer within the prescribed
(Perez vs. CTA) period. But the sending of the notice
4. Presence of fictitious expenses, with must clearly be proven. (Basilan Estate,
no evidence presented, proves Inc. vs. Commissioner, GR No. L-22492,
existence of fraud (Tan Guan vs. September 5, 1967)
Commissioner)
AMENDMENT OF RETURN
However, the courts did not consider
the tax returns filed as false or If the amended return is
fraudulent with intent to evade payment substantially different from the original
of tax in the following cases: return, the prescriptive period shall be
a. Mere understatement in the tax counted from the filing of the amended
return will not necessarily imply return. But the said period shall run
fraud (Jalandoni vs. Republic) from the filing of the original return if

Cabrera, Jhundee
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1
the same is sufficiently complete to him in the return, unless he

enable the Commissioner to make a informs the CIR of any change in
proper assessment. (Commissioner vs. his address.
Phoenix Assurance Co., GR No. L-19727, d. When the warrant of distraint or
May 20, 1965) levy is duly served, and no
When Substantive: property is located; and
a. substantial under declaration e. When the taxpayer is out of the
(exceeding 30% of that Philippines (Sec. 223, 1997
declared) of taxable sales, NIRC).
receipts or income,
b. or a substantial overstatement A TAX RETURN IS CONSIDERED FILED
(exceeding 30% of deductions) FOR PURPOSES OF STARTING THE
(Sec. 248) RUNNING OF THE PERIOD OF
LIMITATIONS IF
PRESCRIPTIVE PERIOD FOR THE
COLLECTION OF TAXES a. The return is valid – it has complied
substantially with the requirements
General Periods: of the law; and
Five (5) years – from assessment
or within period for collection agreed b. The return is appropriate – it is a
upon in writing before expiration of the return for the particular tax required
5-year period (Sec. 222, 1997 NIRC). by law.
Ten (10) years – without
assessment in case of false or fraudulent Note: A defective tax return is the
return with intent to evade or failure to same as if no return was filed at all.
file return (Sec. 222, 1997 NIRC).
WHAT IS THE PRESCRIPTIVE PERIOD PRESCRIPTIVE PERIOD FOR THE

WHERE THE GOVERNMENT’S ACTION IS VIOLATION OF ANY PROVISION OF THE
ON A BOND WHICH THE TAXPAYER TAX CODE (SEC. 281, 1997 NIRC)
EXECUTES IN ORDER TO SECURE THE
PAYMENT OF HIS TAX OBLIGATION? 1. Should be filed within five (5) years
from the (a) day of the commission
Ten (10) years under Art. of the violation of the law, and if
1144(1) of the Civil Code and not three the same be not known, from the (b)
(3) years under the NIRC. In this case, discovery thereof and the
the Government proceeds by court institution of the judicial
action to forfeit a bond. The action is proceedings for its investigation and
for the enforcement of a contractual punishment.
obligation. (Republic vs. Araneta, GR
No. L-14142, May 30, 1961) 2. Illustrative case: (Lim vs. Court of
Appeals GR Nos. 48134-37, Ocober
GROUNDS FOR SUSPENSION OF THE 18 , 1990)
RUNNING OF THE STATUTE OF a. charge is failure or refusal to
LIMITATIONS pay deficiency income tax –
committed only after the finality
a. When the CIR is prohibited from of the assessment coupled with
making the assessment or the taxpayer’s willful refusal to
beginning the distraint or levy or pay the taxes within the allotted
a proceeding in court, and for period. (i.e. cannot be
sixty (60) days thereafter; committed upon filing the
b. When the taxpayer requests for return)
a reconsideration which is b. charge is filing of false or
granted by the CIR; fraudulent return with intent
c. When the taxpayer cannot be to evade the assessment – in
located in the address given by addition to the fact of discovery,

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Guillermo
1
there must be a judicial It can be used in court in

proceeding for the investigation case administrative remedies
and punishment of the tax have been exhausted. It is
offense before the 5 year also the formal act of the
prescriptive period begins to taxpayer questioning the
run. official actuation of the CIR.
This is equivalent to a
pleading.
II. TAX REMEDIES OF THE b. Entering into a compromise
(Sec. 204, 1997 NIRC).
TAXPAYER After Payment
Filing of claim for refund
or tax credit within 2 years from
General Remedies date of payment regardless of
any supervening cause (Sec. 229,
A. ADMINISTRATIVE 1997 NIRC).
Before Payment
a. Protest – filing a petition for B. JUDICIAL
reconsideration or Civil Action
reinvestigation within 30 a. Appeal to the Court of Tax
days from receipt of Appeals – within 30 days from
assessment Within 60 days receipt of decision on the protest
from filing of protest, all or from the lapse of 180 days due
relevant supporting to inaction of the Commissioner
documents should have been (Sec. 228, 1997 NIRC).
submitted, otherwise, the b. Action to contest forfeiture of
assessment shall become chattel, at any time before the
final – cannot be appealed sale or destruction thereof, to
(Sec. 228, 1997 NIRC). recover the same, and upon giving
proper bond, enjoin the sale; or
Note: Submission of documents after the sale and within 6
within the 60 day period is months, an action to recover the
optional to the taxpayer. net proceeds realized at the sale
(Sec. 231, 1997 NIRC); and
"That the relevant c. Action for damages against a
supporting documents revenue officer by reason of any
mentioned in the law refers act done in the performance of
to such documents which the official duty (Sec. 227, 1997
taxpayer feels would be NIRC).
necessary to support his Criminal Action
protest and not what the a. Filing of criminal complaint
Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction – when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations

Cabrera, Jhundee
Guillermo
1
2. Non-retroactivity of rulings (Sec.246, b. Referral by the Commissioner of

NIRC) request for reinvestigation to
3. Failure to inform the taxpayer in the Solicitor General (Republic
writing of the legal and factual bases vs Lim Tian Teng Sons)
of assessment makes it void (Sec. c. Reiterating the demand for
228, NIRC) immediate payment of the
4. Preservation of books of accounts and deficiency tax due to taxpayer’s
once a year examination (Sec. 235, continued refusal to execute
NIRC) waiver (Commissioner vs. Ayala
Securities Corp.)
ASSESSMENT AND PROTEST d. Preliminary collection letter may
 Assessment serve as assessment notice
General rule: Taxes are self assessing (United International Pictures
and thus, do not require the issuance of vs. Commissioner)
an assessment notice in order to
establish the tax liability of a taxpayer. ACTS OF BIR COMMISSIONER
Exceptions: CONSIDERED AS DENIAL OF PROTEST
1. Tax period of a taxpayer is WHICH SERVE AS A BASIS FOR APPEAL
terminated (Sec. 6(D), NIRC) TO THE COURT OF TAX APPEALS
2. Deficiency tax liability arising
from a tax audit conducted by 1. filing by the BIR of a civil suit for
the BIR (Sec. 56(B), NIRC) collection of the deficiency tax
3. Tax lien (Sec. 219, NIRC) (Commissioner vs. Union Shipping
4. Dissolving Corporation (Sec. Corporation, GR No. 66160, May 21,
52(c), NIRC) 1990)
2. indication to the taxpayer by the
 Protest Commissioner “in clear and
1. Direct denial of protest unequivocal language” of his final
Admnistrative decision on a disputed denial. (Commissioner vs. Union
assessment - The decision of the Shipping Corporation, GR No. 66160,
Commissioner or his duly authorized May 21, 1990)
representative shall (a) state the facts, 3. BIR demand letter reiterating his
the applicable law, rules and regulation previous demand to pay, sent to the
or jurisprudence on which such decision taxpayer after his protest of the
is based otherwise, the decision shall be assessment. (Surigao Electric Co.,
void, in which case the same shall not be Inc. vs. CTA, GR No. L-25289, June
considered a decision a disputed 28, 1974; Commissioner vs. Ayala
assessment and (b) that the same is his Securities Corporation, GR No. L-
final decision (Sec. 3.1.5, Rev. Regs. No. 29485, March 31, 1976)
12-99) 4. The actual issuance of a warrant of
distraint and levy in certain cases
2. Indirect denial of protest cannot be considered a final decision
a. Commissioner did not rule on the on a disputed settlement.
taxpayer’s motion for (Commissioner vs. Union Shipping
reconsideration of the Corporation, GR No. 66160, May 21,
assessment – it was only when 1990)
respondent received the
summons on
the civil action for the

collection of deficiency income FILING OF CLAIM FOR
tax that the period to appeal TAX REFUND OR TAX CREDIT
commenced to run
(Commissioner vs. Union GROUNDS FOR FILING A CLAIM FOR TAX
Shipping Corp.) REFUND OR TAX CREDIT

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1
1. Tax is collected erroneously or Garment vs. Collector, CTA Case No.

illegally. 416, November 17, 1958)
2. Penalty is collected without - Merely making a deposit is not
authority. equivalent to payment until the
3. Sum collected is excessive. amount is actually applied to the
specific purpose for which it was
TAX REFUND VS. TAX CREDIT deposited.
4. Tax has been withheld from source
TAX REFUND TAX CREDIT (through the withholding tax
system)
The taxpayer asks for The taxpayer asks - counted from the date it falls due
restitution of the that the money so at the end of the taxable year
money paid as tax paid be applied to his - A taxpayer who contributes to the
existing tax liability withholding tax system does not
really deposit an amount to the
Two-year period to Two-year period
file claim with the starts from the date government, but in truth, performs
CIR starts after the such credit was and extinguishes his tax obligation
payment of the tax allowed (in case for the year concerned. (Gibbs vs.
or penalty credit is wrongly Commissioner, GR No. L-17406,
made). November 29, 1965)
5. End of taxable year vs. date of the
REQUISITES OF TAX REFUND OR TAX filing of the final adjusted return
CREDIT - from the date when the final
adjusted return was filed.
1. Claim must be in writing; - the rationale in computing this
2. It must be filed with the period is the fact that it is only then
Commissioner within two (2) years the corporation can ascertain
after the payment of the tax or whether it made profits or incurred
penalty. losses in its business operations.
Note: No suit or proceeding shall be (ACCRA Investments vs. Court of
begun after the expiration of the Appeals, GR No. 96322, December
said two (2) years regardless of any 20, 1991)
supervening cause that may arise 6. Date when quarterly income tax
after payment. was paid vs. date when final
3. Show proof of payment. adjusted return was filed
- from the date when final adjusted
COMMENCEMENT OF THE TWO (2) YEAR return was filed
PERIOD (JURISPRUDENCE) - The filing of the quarterly income
tax return (Sec. 68) and payment of
1. Tax sought to be refunded is quarterly income tax should only be
illegally or erroneously collected considered mere installments of the
- from the date the tax was paid. annual tax due. (Commissioner vs.
(Commissioner vs. Victorias Milling, TMX Sales, GR No. 83736, January
GR No. L-24108, January 31, 1968) 15, 1992)
2. Tax is paid only in installments or 7. Date when the final adjustment
only in part return was actually filed (ex. Apr.
- from the date the last or final 2) vs. Last day when the
installment or payment because for adjustment return could still be
tax purposes, there is no payment filed (ex. Apr. 15)
until the whole or entire tax liability - from the date the final adjustment
is fully paid. (Collector vs. Prieto, return was actually filed.
GR No. L-11976, August 29, 1961) (Commissioner vs. Court of Appeals,
3. Taxpayer merely made a deposit GR No 117254, January 21, 1999)
- counted from the conversion of 8. Tax was not erroneously or illegally
the deposit to payment (Union paid but the taxpayer became

Cabrera, Jhundee
Guillermo
1
entitled to refund because of (Commissioner vs. Victorias Milling,

supervening circumstances GR No. L-19667, Nov. 29, 1966)
- from the date the taxpayer 2. Under Sec. 79(C)(2) with respect to
becomes entitled to refund and not income taxes withheld on the wages
from the date of payment. of the employees.
(Commissioner vs. Don Pedro
Central Azucarera, GR No. L-28467, TAX CREDIT CERTIFICATE
Feb. 28, 1973)
PAYMENT UNDER PROTEST IS NOT 1. May be applied against any internal
NECESSARY UNDER NIRC revenue tax except withholding
taxes,
A suit or proceeding for tax refund 2. Original copy is surrendered to the
may be maintained “whether or not such revenue office,
tax, penalty or sum has been paid under 3. No tax refund will be given resulting
protest or duress” (Sec. 229, NIRC). from availment of incentives granted
by law where no actual payment was
Note: Similarly, payment under protest made (Sec. 204C, 1997 NIRC).
is not necessary in refund for local
taxes. (See Sec. 196, LGC). FORFEITURE OF CASH REFUND/TAX
CREDIT
However, payment under protest is
necessary in claim for refund for real 1. Forfeiture of refund in favor of the
property taxes (Sec. 252, LGC) and for government when a refund check or
customs duties (Sec. 2308, TCC). warrant remains unclaimed or
uncashed within five (5) years from
SUSPENSION OF THE TWO-YEAR date of mailing or delivery.
PRESCRIPTIVE PERIOD 2. Forfeiture of Tax Credit – a tax
credit certificate which remains
1. There is a pending litigation unutilized after five (5) years from
between the Government and the date of issue, shall be invalid, unless
taxpayer; and revalidated (Sec. 230, 1997 NIRC).
2. CIR in that litigated case agreed to
abide by the decision of the SC as to
the collection of taxes relative REGLEMENTARY PERIODS
thereto (Panay Electric Co. vs. IN INCOME TAX IMPOSED
Collector, GR No. L-10574, May 28,
1958). BY LAW UPON THE TAXPAYER
(PURSUANT TO REV. REG. NO. 12-99,
INTEREST ON TAX REFUNDS SEC. 228 OF THE 1997 NIRC, AND RA
NO. 1125 AS AMENDED BY RA NO.
General Rule: 9282)
Government cannot be required
to pay interest on taxes refunded to the BIR makes a tax assessment
taxpayer in the absence of a statutory 
provision clearly or expressly directing If taxpayer is not satisfied with the
or authorizing such payment. assessment file a protest within 30 days
(Commissioner vs. Sweeney, GR No. L- from receipt thereof
12178, August 29, 1959) 
Submit supporting documents within
60 days from date of the filing of the
Exceptions: protest
1. When the CIR acted with patent
arbitrariness. Arbitrariness 
presupposes inexcusable or obstinate If protest is denied, elevate the matter
disregard of legal provisions. to the Commissioner of Internal Revenue
(CIR) within 30 days from receipt of the

Cabrera, Jhundee
Guillermo
1
decision of the CIR’s duly authorized of the succeeding taxable year;

representative officer or
 4. When the excise tax due on
Appeal to the Division of the Court of excisable articles has not been
Tax Appeals (CTA) within 30 days from paid;
receipt of final decision of CIR or his 5. When an article locally
duly authorized representative (the purchased or imported by an
taxpayer has the option to appeal exempt person, such as, but not
straight to the CTA upon receipt of the limited to, vehicles, capital
decision of the CIR’s duly authorized equipment, machineries and
representative) spare parts, has been sold,
traded or transferred to non-
 exempt persons.
If the CIR or his duly authorized
representative fails to act on the Notes:
protest within 180 days from date of  As a general rule, payment
submission by taxpayer, the latter may under protest is not required
appeal within 30 days from lapse of the under the NIRC, except when
180-day period with the CTA Division partial payment of
 uncontroverted taxes is
The Party adversely affected by the CTA required under RR 12-99.
Division’s decision may file one motion The Commissioner may, even
for reconsideration/new trial within 15 without a written claim
days from receipt of decision. If the MR therefor, refund or credit
is denied file a petition for review with any tax, where on the face
the CTA en banc of the return upon which
 payment was made, such
Appeal to the Supreme Court within 15 payment appears clearly to
days from receipt of the CTA en banc have been erroneously paid.
decision under Rule 45 of the Rules of  In case of the CIR’s final
Court denial of the claim for
refund, the 30-day period to
Pre-Assessment Notice, When Not appeal with the CTA must be
Required (Sec. 228, NIRC) within the 2-year peremptory
period for instituting judicial
1. When the finding for any action.
deficiency tax is the result of
mathematical error in the  See Annex N – Assessment
computation of the tax as Process and Appeal
appearing on the face of the
return; or
2. When a discrepancy has been ADDITIONS TO THE TAX
determined between the tax (SECS. 247-252 NIRC)
withheld and the amount
actually remitted by the DEFINITION: increments to the basic tax
withholding agent; or incident due to the taxpayer’s non-
3. When a taxpayer who opted to compliance with certain legal
claim a refund or tax credit of requirements.
excess creditable withholding 1. CIVIL PENALTY / SURCHARGE
tax for a taxable period was 1. 25% surcharge
determined to have carried over a. Failure to file any return and
and automatically applied the pay the tax due thereon as
same amount claimed against required under the
the estimated tax liabilities for provisions of this Code or
the taxable quarter or quarters

Cabrera, Jhundee
Guillermo
1
rules and regulations on the  or a substantial

date prescribed; or overstatement (exceeding
b. Unless otherwise authorized 30% of actual deductions) of
by the Commissioner, filing a deductions (Sec. 248)
return with an internal
revenue officer other than 2. INTEREST
those with whom the return - 20% per annum or such higher rate
is required to be filed; or as may be prescribed by the rules
c. Failure to pay the deficiency and regulations
tax within the time
prescribed for its payment in a. Deficiency interest (Sec. 249B)
the notice of assessment; or b. Delinquency interest (Sec. 249C)
d. Failure to pay the full or c. Interest on Extended Payment
part of the amount of tax (Sec. 249D)
shown on any return
required to be filed under 3. OTHER CIVIL PENALTIES OR
the provisions of this Code ADMINISTRATIVE FINES
or rules and regulations, or
the full amount of tax due a. Failure to file certain
for which no return is information returns (Sec. 250)
required to be filed, on or b. Failure of a withholding agent to
before the date prescribed collect and remit tax (Sec. 251)
for its payment. (Sec. 248) c. Failure of a withholding agent of
2. 50% surcharge refund excess withholding tax
a. in case of willful neglect to (Sec. 252)
file the return within the
period prescribed by the
Code, or
 will not apply in case a
III. LOCAL TAXATION
taxpayer, without notice
from the Commissioner, POWERS AND LIMITATIONS
or his duly authorized
representative, NATURE AND SOURCE OF LOCAL
voluntarily files the said TAXING POWER (SEE. SEC 5, ART. X,
return (only 25% shall be 1987 CONSTITUTION AND SEC. 129,
imposed) LGC)
 50% surcharge shall be
The Local Government Unit has the
imposed in case the
power:
taxpayer files the return
a. to create its own sources of
only after prior notice in
revenue and
writing from the
b. to levy taxes, fees and charges.
Commissioner or his duly
authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
Congress cannot enact laws

b. in case a false or fraudulent
depriving LGU from exercising such
return is willfully made
power to tax but it may set guidelines
Prima Facie evidence
and limitations for the exercise.
 substantial underdeclaration
Such taxes, fees, and charges
(exceeding 30% of that
shall accrue exclusively to the local
declared) of taxable sales,
government units.
receipts or income,

Cabrera, Jhundee
Guillermo
1
Shall be exercised by the Sanggunian

Nature of the Taxing Power of the LGU concerned through an
a. Not inherent; appropriate ordinance.
b. Exercised only if delegated to
them by law or Constitution; Power to prescribe Penalties for Tax
c. Not absolute; subject to Violations and Limitations thereon
limitations provided for by law. (Sec. 516, lgc)
1. The Sanggunian is authorized to
Under the present constitutional prescribe fines or other penalties
rule, “where there is neither a grant nor for violations of tax ordinances.
a prohibition by statute, the tax power a. in no case shall fines be less
must be deemed to exist although than P1,000 nor more than
Congress may provide statutory P5,000
limitations and guidelines. The basic b. nor shall the imprisonment be
rationale for the current rule is to less than one (1) month nor
safeguard the viability and self- more than six (6) month.
sufficiency of local government units by 2. Such fine or other penalty shall be
directly granting them general and broad imposed at the discretion of the
tax powers.” (Manila Electric Co. vs. court.
Province of Laguna, G.R. No. 131359) 3. The Sangguniang Barangay may
prescribe a fine of not less than
Aspects of Local Taxing Power P100 nor more than P1,000.
a. local taxation
b. real property taxation Power to Adjust Local Tax Rate (Sec.
191, lgc)
Fundamental Principles governing Adjustment of the tax rates as
Local Taxation (Sec. 130, lgc) prescribed herein should not be oftener
a. Shall be uniform in each local than once every five (5) years, and in no
sub-unit case shall such adjustment exceed ten
b. Shall be equitable and based as percent (10%) of the rates fixed under
much as possible on the the LGC.
taxpayer’s ability to pay
c. Levied for public purposes Power to Grant Local Tax Exemptions
d. Shall not be unjust, excessive, (Sec. 192, lgc)
oppressive, or confiscatory Local government units may,
e. Shall not be contrary to law, through ordinances duly approved,
public policy, national grant tax exemptions, incentives or
economic policy, or in restraint reliefs under such terms and conditions,
of trade as they may deem necessary.
f. Collection of local taxes and
other impositions shall not be Tax Exemptions Existing Before the
let to any person Effectivity of the LGC has been
g. The revenues collected under Abolished (Sec. 193, lgc)
the Code shall inure solely to Unless otherwise provided in this
the benefit of, and subject to Code, tax exemptions or incentives
disposition by, the LGU levying granted to, or presently enjoyed by all
the tax or other imposition persons, whether natural or juridical,
unless otherwise specifically including government-owned or
provided therein controlled corporations are hereby
h. Each LGU shall, as far as withdrawn upon the effectively of the
practicable, evolve a LGC
progressive system of taxation. except the following:
8. local water districts,
Local Taxing Authority (Sec. 132, lgc) 9. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
profit hospitals and

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1
10. educational institutions. LEVYING OF LOCAL TAXES (LOCAL TAX

ORDINANCE)
The power to grant tax exemptions, Requisites:
tax incentives and tax reliefs shall not 1. The procedure applicable to local
apply to regulatory fees which are government ordinances in general
levied under the police power of the should be observed (Sec. 187, LGC)
LGU. 2. Procedural details (Secs. 54, 55, and
Tax exemptions shall be conferred 59, LGC):
through the issuance of a non- a. necessity of a quorum
transferable tax exemption certificate. b. submission for approval by the
local chief executive
Guidelines for the Granting of Tax c. he matter of veto and overriding
Exemptions, Tax Incentives and Tax the same
Reliefs (Art. 282[b], Rules and d. the publication and affectivity
Regulations Implementing the Lgc) 3. Public hearings are required before
any local tax ordinance is enacted
1. On the grant of tax exemptions or (Sec.187, LGC)
tax reliefs: 4. Within 10 days after their approval,
a. the same may be granted in publication in full for 3 consecutive
cases of natural calamities, civil days in a newspaper of general
disturbance, general failure of circulation. In absence of such
crops, or adverse economic newspaper in the province, city or
conditions such as substantial municipality, then the ordinances
decrease in prices of agricultural may be posted in at least 2
or agri-based products. conspicuous and publicly accessible
b. The grant shall be through an places (Sec. 189, LGC)
ordinance.
c. Any exemption or relief granted Residual Taxing Powers of the Local
to a type or kind of business shall government units (Sec. 186, lgc)
apply to all business similarly To levy taxes, fees or charges on any
situated. base or subject NOT:
d. The same shall take effect only 1. Specifically enumerated in LGC
during the next calendar year for 2. Taxed under the provisions of
a period not exceeding 12 the NIRC, as amended, and
months as may be provided in 3. Other applicable laws
the ordinance.
e. In the case of shared revenues, Conditions:
the exemption or relief shall only 1. That the taxes, fees, or charges shall
extend to the LGU granting such not be unjust, excessive, oppressive,
exemption or relief. confiscatory or contrary to declared
2. On the grant of tax incentives: national policy
a. The same shall be granted only
to new investments in the 2. The ordinance levying such taxes,
locality and the ordinance shall fees or charges shall not be enacted
prescribe the terms and without any prior public hearing
conditions therefore. conducted for the purpose.
b. The grant shall be for a definite
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance LIMITATIONS OF THE RESIDUAL POWER
passed prior to the 1 st day of 1. Constitutional limitations on
January of any year. taxing power
d. Any grant to a type or kind of 2. Common limitations prescribed
business shall apply to all in Sec. 133 of the LGC
businesses similarly situated. 3. Fundamental principles
governing the exercise of the

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taxing power of the LGUs into or out of, or passing

prescribed under Sec. 130 of through, the territorial
the LGC jurisdictions of local government
4. The ordinance levying such units in the guise of charges for
residual taxes shall not be wharfage, tolls for bridges or
enacted without any prior otherwise.
public hearing conducted for 6. Taxes, fees or charges on
the purpose and agricultural and aquatic products
5. The principle of preemption. when sold by marginal farmers
or fishermen;
Principle of Preemption or 7. Taxes on business enterprises
Exclusionary doctrine certified by the Board of
Where the National Government Investments as pioneer or
elects to tax a particular area, it non-pioneer for a period of 6
impliedly withholds from the local and 4 years, respectively, from
government the delegated power to tax the date of registration;
the same field. This doctrine principally 8. Excise taxes on articles
rests on the intention of the Congress. enumerated under the NIRC, as
amended, and taxes, fees or
Excluded impositions (pursuant to the charges on petroleum products;
doctrine of preemption): 9. Percentage or value-added tax
a. Taxes which are levied under the (VAT) on sales, barters or
NIRC, unless otherwise provided exchanges or similar transactions
by LGC of 1991; on goods or services except as
b. Taxes, fees, etc. which are otherwise provided herein;
imposed under the Tariffs and 10. Taxes on the gross receipts of
Customs Code; transportation contractors and
c. Taxes, fees, etc., the imposition persons engaged in the
of which contravenes existing transportation of passengers or
governmental policies or which freight by hire and common
violates the fundamental carriers by air, land or water,
principles of taxation; except as provided in the Code;
d. Taxes, fees and other charges 11. Taxes on premiums paid by way
imposed under special law. of Reinsurance or retrocession;
12. Taxes, fees or charges for the
COMMON LIMITATIONS ON LOCAL registration of motor vehicles
TAXING POWER (SEC. 133, LGC) and for the issuance of all kinds
Local government units cannot levy: of licenses or permits for the
1. Income tax, except on banks and driving thereof, except tricycle;
other financial institutions; 13. Taxes, fees or other charges on
2. Documentary stamp tax; Philippine products actually
3. Estate tax, inheritance, gifts, exported, except as otherwise
legacies and other acquisitions provided in the Code;
mortis causa except as 14. Taxes, fees or charges on
otherwise provided Countryside and barangay
4. Customs duties, registration fees business enterprises and
of vessels and wharfage on cooperatives duly registered
wharves, tonnage dues and all under R.A. 6810 and R.A. 6938,
other kinds of customs fees, (Cooperatives Code of the
charges and dues except Philippines) ; and
wharfage on wharves 15. Taxes, fees or charges of any
constructed and maintained by kind on the National
the local government unit Government, its agencies and
concerned; instrumentalities, and local
5. Taxes, fees, charges and other government units.
impositions upon goods carried

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CLASSIFICATION OF COMMON spirits, and wines or

LIMITATIONS manufacturers of any article of
1. Taxes which are levied under the commerce of whatever kind or
NIRC unless otherwise provided by b. On wholesalers, distributors, or
the LGC dealers in any article of
 Numbers 1, 2, 3, 8, 9, 10 commerce of whatever kind or
2. Taxes, fees, etc. which are imposed c. On exporters, and on
under the Tariffs and Customs Code manufacturers, millers,
 Number 4 producers, wholesalers,
3. Taxes, fees and charges where the distributors, dealers or retailers
imposition of which contravenes of essential commodities
existing governmental policies or d. On retailers
which are violative of the e. On contractors and other
fundamental principles of taxation independent
 Numbers 5, 6, 7, 11, 13, 14, 15 f. On banks and other financial
4. Taxes, fees, and charges imposed g. On peddlers engaged in the sale
under special laws. of any merchandise or article of
 Number 12 commerce
h. On any business, not otherwise
TAXES AND OTHER IMPOSITIONS THAT specified in the preceding
THE LOCAL GOVERNMENT MAY LEVY paragraphs, which the
sanggunian concerned may deem
(A) PROVINCES proper to tax.
(SECS. 134-141, LGC)
1. Tax on Transfer of Real Property 2. Municipal non-revenue fees and
2. Tax on Business of Printing and charges
Publication The municipality may impose
3. Franchise Tax and collect such reasonable fees and
4. Tax on Sand, Gravel and other charges on business and occupation
Quarry Resources extracted from except professional taxes reserved for
Public Land provinces. (Sec. 147. LGC)
5. Professional Tax
6. Amusement Tax Rates of Tax within the Metropolitan
7. Annual Fixed Tax for every Manila Area (sec. 144, lgc)
Delivery Truck or Van of
Manufacturers or Producers, - Not to exceed by 50% the
Wholesalers of, Dealers, or maximum rates prescribed in the
Retailers in, certain products preceding Section.
 See Annex J for the rates and

details.
(B) MUNICIPALITIES Payment of Business Taxes

(SEC. 143, LGC) a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the establishment or place where
businesses of the following: business subject to the tax is
a. On manufacturers, assemblers, conducted and one line of
repackers, processors, brewers, business does not become
distillers, rectifiers, and exempt by being conducted with
compounders of liquors, distilled

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1
some other business for which c. Service Fees or Charges – For

such tax has been paid. services rendered in connection
b. The tax on a business must be with the regulation or the use of
paid by the person conducting barangay-owned properties or
the same. service facilities such as palay,
c. In cases where a person copra or tobacco dryers
conducts or operates 2 or more d. Barangay Clearance – No city or
of the businesses mentioned in municipality may issue any
Section 143 of LGC license or permit fee for any
- which are subject to the business or activity unless a
same rate of tax, the tax shall be clearance is first obtained from
computed on the combined total the barangay where such
gross sales or receipts of the said 2 business or activity is located or
or more related businesses. conducted.
- which are subject to e. Other Fees and Charges – The
different rates of tax, the gross barangay may levy reasonable
sales or receipts of each business fees and charges:
shall be separately reported for the 1. On Commercial breeding of
purpose of computing the tax due fighting cocks, cockfights
from each business. and cockpits;
2. On places of Recreation
 See Annex K for the rates and which charge admission fees;
details. and
3. On Billboards, signboards,
(C) CITIES neon signs and outdoor
(SEC. 151, LGC) advertisements.
 The city may levy the taxes, fees, SITUS OF LOCAL TAXATION
and charges which the province or
municipality may impose. A. Situs According to the Cases
 The tax rates that the city may levy With respect to excise tax, the
may exceed the maximum rates tax is upon the performance of an act,
allowed for the province or enjoyment of a privilege or the engaging
municipality by not more than 50% in an occupation. The power to levy such
except the rates of professional and tax is not dependent on the domicile of
amusement taxes. the taxpayer, but on the place in which
the act is performed or the occupation is
(D) BARANGAYS engaged in; not upon the location of the
(SEC. 152, LGC) office, but the place where the sale is
perfected. (Allied Thread Co., Inc. v.
Barangays may levy the following taxes, City Mayor of Manila, L-40296)
fees, and charges which shall accrue
exclusively to them: With respect to sale, it is the
place of the consummation of the sale,
associated with the delivery of the
a. Taxes – On stores or retailers things which are the subject matter of
with fixed business the contract that determines the situs of
establishments with the gross the contract for purposes of taxation,
sales or receipts for the and not merely the place of the
preceding calendar year of perfection of the contract. (Shell Co.,
P50,000 or less (for barangays in Inc. v. Municipality of Sipocot,
the cities) and P30,000 or less Camarines Sur 105 Phil 1263)
(for barangays in municipalities)
b. Rate = not exceeding 1% of such B. Situs According to Sec. 150, LGC
gross sales or receipts.

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Branch or sales office – a fixed place in and constructed by the local

the locality which conducts the government unit concerned
operation of the business as an extension Exceptions:
of the principal office a. Officers and enlisted men of the
AFP and PNP;
Principal office- the head or the main b. Post office personnel delivering
office of the business; the city or the mail; and
municipality specifically mentioned in c. Physically handicapped and
the Articles of Incorporation or official disabled citizens who are
registration papers as being the official sixty-five (65) years or older.
address of said principal office shall be (Sec. 152, LGC)
considered the situs thereof.
When public safety and welfare so
1. Place of sale (with branch or sales requires, the sanggunian concerned may
outlet therein): discontinue the collection of the tolls,
 Municipality or city where the and thereafter the said facility shall be
branch or outlet is located. free and open for public use.
2. Place of sale (no branch or sales
outlet): COMMUNITY TAX
 Municipality or city of principal Cities or municipalities may levy a
office (not in the place of sale) community tax.
3. If manufacturer, assembler,
contractor, producer, or exporter A. Individuals Liable (Sec. 157)
(MACPE) with factory, project office, a. every inhabitant of the
plant or plantation (FPPP) Philippines;
4. 30% of recorded sales in the principal b. eighteen (18) years of age or
office: city or municipality where over;
the principal office is located c. under any of the following
5. 70% of recorded sales in the instances:
principal office: city or municipality d. who has been regularly
where the FPPP is located employed on a wage or salary
 pro rata if FPPP are located in basis for at least thirty (30)
different municipalities or cities consecutive working days
in proportion to their respective during any calendar year; or
volumes of production. e. who is engaged in business or
6. If plantation is located in some other occupation; or
place than where the factory is f. who owns real property with
located, the foregoing 70% shall be an aggregate assessed value
subdivided as follows: of P1,000 or more; or
 60% to the city or municipality g. who is required by law to file
where the factory is located an income tax return
 40% to the city or municipality
where the plantation is located. Tax Rate = P5.00 and an annual
additional tax of P1.00 for every
COMMON REVENUE-RAISING POWERS P1,000 of income regardless of
OF LGUs (SEC. 153 TO 155) whether from business, exercise of
1. Service fees and charges for services profession or from property which in
rendered no case shall exceed P5,000.
2. Public Utility Charges for the In case of husband and wife,
operation of public utilities owned, the additional tax herein imposed
operated and maintained by LGUs shall be based upon the total
within their jurisdiction. property owned by them and the
3. Toll fees or charges for the use of total gross receipts or earnings
any public road, pier or wharf, derived by them.
waterway, bridge, ferry or
telecommunication system funded B. Juridical Persons (Sec. 158)

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Every corporation no matter how community tax upon payment of P1.00

created or organized, whether (Sec. 162, LGC).
domestic or resident foreign,
engaged in or doing business in the Presentation of Community Tax
Philippines shall pay an annual Certificate on Certain Occasions – (Sec.
community tax. 163)
A. Individual
Tax Rate = P500 and an annual 1. When an individual subject to
additional tax which in no case shall the community tax
exceed P10,000 in accordance with the acknowledges any document
following schedule: before a notary public;
1. For every P5,000 worth of real 2. takes the oath of office upon
property owned by it during the election or appointment to
preceding year based on the any position in the
valuation used for the payment government service;
of the real property tax - P2.00; 3. receives any license,
and certificate or permit from any
2. For every P5,000 of gross public authority; pays any tax
receipts or earnings derived by or fee;
it from its business in the 4. receives any money from any
Philippines during the preceding public fund;
year - P2.00. 5. transacts other official
business; or
The dividends received by a 6. receives any salary or wage
corporation shall, for the purpose of the from any person or
additional tax, be considered as part of corporation.
the gross receipts or earnings of said The presentation of the community tax
corporation. certificate shall not be required in
connection with the registration of a
THE FOLLOWING ARE EXEMPT FROM voter.
THE COMMUNITY TAX (SEC. 159)
1. Diplomatic and consular B. Corporation
representatives; and 1. receives any license, certificate
2. Transient visitors when their stay in or permit from any public
the Philippines does not exceed authority;
three (3) months. 2. pays any tax or fee;
3. receives money from public
PLACE OF PAYMENT: place of residence funds; or
of the individual, or in the place where 4. transacts other official business.
the principal office of the juridical The city of municipal treasurer
entity is located. deputizes the barangay treasurer to
collect the community tax in their
TIME OF PAYMENT: accrues on the 1st respective jurisdictions. (Sec. 164, LCG)
day of January of each year which shall
be paid not later than the last day of The proceeds of the community tax
February of each year. actually and directly collected by the
city or municipal treasurer shall accrue
PENALTIES FOR DELINQUENCY: an entirely to the general fund of the city or
interest of 24% per annum from the due municipality concerned.
date until it is paid shall be added to the
Proceeds of the community tax
amount due.
collected through the barangay
treasurers shall be apportioned as
A community tax certificate may
follows:
also be issued to any person or
corporation not subject to the

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 50% accrues to the general fund date it is due until it is paid, but in no
of the city or municipality case shall the total interest on the
concerned; and unpaid amount or portion thereof
 50% accrues to the barangay exceed thirty-six (36) months.
where the tax is collected.
Collection of Local Revenues by the
Collection Of Local Taxes Treasurer – (Sec. 170 LGC)
All local taxes, fees and charges
Tax Period and Manner of Payment – shall be collected by the provincial, city,
(Sec. 165, LGC) municipal or barangay treasurer, or their
Unless otherwise provided, the duly authorized deputies.
tax period shall be the calendar The provincial, city or municipal
year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or
Accrual of Tax – (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first LOCAL TAX REMEDIES
day of the quarter next following
UNDER THE LGC
the effectivity of the ordinance
imposing such new levies or rates.
Time of Payment – (Sec. 167, LGC) 1. TAX REMEDIES OF THE

Unless otherwise provided shall LOCAL GOVERNMENT UNITS (LGUs)
be paid within the first twenty (20)
days of January or of each Civil Remedies Of The Local
subsequent quarter as the case may Government Units (LGU) To Effect
be. Collection Of Taxes
May, for a justifiable reason or (1) Local Government’s Lien – Local
cause, be extended without taxes, fees, charges and other
surcharges or penalties, but only for revenues constitute a lien, superior
a period not exceeding six (6) to all liens, charges or
months. encumbrances in favor of any
person, enforceable by any
Surcharges and Penalties on Unpaid appropriate administrative or
Taxes, Fees or Charges – (Sec. 168, judicial action.
LGC)
Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues – Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.

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a. The treasurer is legally

JURISDICTION OF COURTS OVER LOCAL prevented from the assessment
TAXATION CASES or collection of the tax;
b. The taxpayer requests for a
a. With the amendment brought by reinvestigation and executes a
RA No. 9282, the Court of Tax waiver in writing before the
Appeals now has appellate expiration of the period within
jurisdiction over local taxation which to assess or collect; and
cases decided by the Regional c. The taxpayer is out of the
Trial Court in the exercise of its country or otherwise cannot be
appellate or original jurisdiction. located (Sec. 194, LGC).
b. Regular judicial courts are not
prohibited from enjoining the 2. TAX REMEDIES OF
collection of local taxes, subject THE TAXPAYER
to Rule 58 (Preliminary
Injunction) of the Rules of Court. Remedies Of The Taxpayer In Local
Taxation
Note: Unlike the NIRC, the Local Tax
Code does not contain any specific A. ADMINISTRATIVE
provision prohibiting courts from Before assessment
enjoining the collection of local taxes. a. Appeal – any question on
Such statutory lapse or intent may have constitutionality or legality of tax
allowed preliminary injunction where ordinance within 30 days from
local taxes are involved. But it cannot effectivity thereof to Secretary of
negate the procedural rules and Justice (Sec. 187 LGC)
requirements under Rule 58 of the Rules b. Declaratory relief whenever
of Courts. (Valley Trading Co. vs. CFI of applicable.
Isabela, GR No. 49529, March 31, 1989)
After assessment
a. Protest – within 60 days from receipt
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT of assessment (Sec. 195 LGC).
AND COLLECTION Payment under protest is not
OF LOCAL TAXES necessary.
PRESCRIPTIVE PERIODS OF ASSESSMENT
1. Local taxes, fees, or charges – five b. Payment & subsequent refund or
(5) years from the date they became tax credit – within 2 years from
due. (Sec. 194, LGC). payment of tax to local treasurer
2. When there is fraud or intent to (Sec. 196 LGC). It is to be noted
evade the payment of taxes, fees that, unlike in internal revenue
or charges – ten (10) years from taxes, the supervening cause applies
discovery of the fraud or intent to in local taxation because the period
evade the payment (Sec. 194, LGC). for the filing of claims for refund or
credit of local taxes is counted not
PRESCRIPTIVE PERIOD OF COLLECTION necessarily from the date of
Local taxes, fees, or charges payment but from the date the
may be collected within five (5) years taxpayer is entitled to a refund or
from the date of assessment by credit.
administrative or judicial action. No
such action shall be instituted after the c. Right of redemption – 1 year from
expiration of such period (Sec. 194, the date of sale or from the date of
LGC). forfeiture (Sec. 179, LGC).
GROUNDS FOR THE SUSPENSION OF
THE RUNNING OF THE PRESCRIPTIVE B. JUDICIAL
PERIODS 1. Court action
 within 30 days after receipt of
decision or lapse of 60 days of

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Secretary of Justice’s inaction 1. Direct tax on the Ownership of

(Sec. 187 LGC) real property
 within 30 days from receipt 2. Ad valorem tax. The value is
when protest of assessment is based on the tax base.
denied (Sec. 195 LGC) 3. Proportionate – the tax is
 if no action is taken by the calculated on the basis of a
treasurer in refund cases and the certain percentage of the value
two year period is about to lapse assessed.
(Sec. 195 LGC) 4. Indivisible single obligation
 if remedies available does not 5. Local tax
provide plain, speedy and
adequate remedy. TAXING AUTHORITIES (SEC. 233, LGC)
2. Action for declaratory relief
3. Injunction – if irreparable damage Rate of Basic Real
LGU
would be caused to the taxpayer and Property Tax
no adequate remedy is available.
1. Province not exceeding 1% of
assessed value
IV. REAL PROPERTY 2. City not exceeding 2%

TAXATION
3. Municipality not exceeding 2%.
within Metro
Manila
Definitions:
REAL PROPERTY TAXATION – A direct
tax on ownership of lands and
FUNDAMENTAL PRINCIPLES GOVERNING
buildings or other improvements
REAL PROPERTY TAXATION (SEC. 198,
thereon payable regardless of
LGC)
whether the property is used or
1. Real property shall be appraised at
not, although the value may vary
its current and Fair market value;
in accordance with such factor.
2. Real property shall be classified for
Under the LGC, it covers
assessment purposes on the basis of
the administration, appraisal,
actual Use.
assessment, levy and collection
3. Real property shall be assessed on
of Real Property Tax, i.e. tax on
the basis of Uniform classification
land and building and other
within each LGU
structures and improvements on
4. The appraisal, assessment, levy and
it, including machineries.
collection of RP Tax shall not be let
to any Private person
REAL PROPERTY – subject to the
5. The appraisal and assessment of real
definition given by Art. 415 of
property shall be Equitable.
the Civil Code.
EXTENT OF THE POWER TO LEVY
IMPROVEMENT – valuable addition made
 Basic real property tax;
to a property or amelioration in
 1% additional real estate tax to
its condition amounting to more
finance the Special Education
than a mere replacement of
Fund; (Sec. 236)
parts involving capital
expenditures and labor.  5% additional ad valorem tax on
Idle lands; (Sec. 236, LGC) and
 Special levy or special
assessments (may be imposed
even by municipalities outside
NATURE AND CLASSES
Metro Manila) on lands comprised
within its territorial jurisdiction
CHARACTERISTICS OF REAL PROPERTY specially benefited by public
TAX

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works, projects or improvements

funded by the local government CLASSIFICATION OF LANDS FOR PURPOSES
unit concerned. OF ASSESSMENT SEC. 218 (A)
Provided:
 Special levy shall not exceed a. Commercial
60% of the actual cost of b. Agricultural
such projects and c. Residential
improvements, including the d. Mineral
costs of acquiring land and e. Industrial
such other real property in f. Timberland
connection therewith g. Special
 not apply to lands exempt
from basic real property tax SPECIAL CLASSES OF REAL PROPERTY
and the remainder of the (SEC. 216, LGC)
land have been donated to
the local government unit 1. Hospitals
concerned for the 2. Cultural and Scientific purposes
construction of said 3. owned and used by Local water
projects. (Sec. 240, LGC). districts
4. GOCCs rendering essential public
FOR PURPOSES OF REAL PROPERTY services in the supply and
TAXATION IDLE LANDS SHALL INCLUDE: distribution of water and/or
(SEC. 237, LGC) generation or transmission of
1. Agricultural lands more than one electric power.
hectare in area one-half of which
remain uncultivated or unimproved by PROPERTIES EXEMPT FROM REAL
the owner of the property or person PROPERTY TAX (SEC. 234, LGC)
having legal interest therein. Exemption is limited only to the
Agricultural lands planted to following:
permanent or perennial crops with 1. Real property owned by the
at least 50 trees to a hectare shall government except when the
not be considered idle lands. beneficial use thereof has been
Lands actually used for grazing granted to a taxable person;
purposes shall likewise not be 2. Charitable institutions,
considered idle lands; and churches, personages or
2. Lands other than agricultural convents appurtenant thereto,
located in a city or municipality mosques, non-profit or religious
more than one thousand square meters cemeteries and all lands,
in area one-half of which remain buildings and improvements
unutilized or unimproved by the actually, directly and
owner of the property or person exclusively used for religious,
having legal interest therein. charitable or educational
purposes (Art. VI, Sec. 28,
IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC) 3. Machineries and equipment that
are actually, directly and
By reason of: exclusively used by local water
1. force majeure utilities and GOCC’s engaged in
1. civil disturbance the supply and distribution of
2. natural calamity water and/or electric power;
3. or any cause which physically or
legally prevents the owner of
the property or person having
legal interest therein from
improving, utilizing or
cultivating the same.

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1
4. Real property owned by duly DECLARATION BY PROVINCIAL / CITY /

registered cooperatives as MUNICIPAL ASSESSOR (SEC. 204)
provided for in RA 6938; and
5. Machinery and equipment used WHEN: Only when the person under Sec.
for pollution control and 202 refuses or fails to make a
environmental protection. declaration within the prescribed time.
ACTUAL USE OF PROPERTY AS BASIS No oath by the assessor is required.

FOR ASSESSMENT (SEC. 217 LGC)
Notes: Proof of Exemption of Real
Real property shall be classified, Property from Taxation - (Sec. 206)
valued and assessed on the basis of
actual use regardless of where located, WHO: By any person or for whom real
whoever owns it, and whoever uses it. property is declared.
Unpaid realty taxes attach to the  Claim for exemption must be filed
property and is chargeable against the with the assessor together with
person who had actual or beneficial use sufficient documentary evidence to
and possession of it regardless of support claim
whether or not he is the owner. To
impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST
would not only be contrary to law but TIME – (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
date of initial assessment
PROCEDURE Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR PROPERTY IN THE ASSESSMENT
(SEC. 202-203) ROLLS (SECS. 205, 207)
 File a sworn declaration with the
assessor
 All declarations shall be kept and
- once every 3 years during
filed under a uniform
the period from January 1
classification system to be
to June 30.
established by the provincial, city
 For newly acquired property –
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
 For improvement on property
WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the  Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions

Cabrera, Jhundee
Guillermo
1
concerning the property, its 2. provided in no case shall the

ownership, amount, nature and total interest exceed thirty-six
value (Sec. 213, LGC) (36) months.
 Assessor prepares a schedule of
FMV for different classes of (d) For Advance and Prompt Payment
properties. 1. Advance payment – discount not
 Sanggunian enacts an ordinance exceeding 20% of annual tax (Sec.
 The schedule of FMV is 251, LCG)
published in a newspaper of 2. Prompt payment – discount not
exceeding 10% of annual tax due
general circulation in the (Art 342 IRR)
province, city or municipality
concerned or in the absence Collection of Tax (Sec. 247)
thereof, shall be posted in the It shall be the responsibility of the
provincial capitol, city or city or municipal treasurer concerned.
municipal hall and in two other The city or municipal treasurer may
conspicuous public places deputize the barangay treasurer to
therein (Sec. 212, LGC) collect all taxes on real property located
in the barangay; provided, the barangay
For machinery treasurer is properly bonded.
1. For Brand new machinery: FMV is the
acquisition cost Period to Collect (Sec. 270)
2. In all other cases: FMV 1. within five (5) years from the
= Remaining eco. life X Replacement
date they become due
Estimated Eco.Life Cost
2. within ten (10) years from
discovery of fraud, in case there
STEP 4: DETERMINE ASSESSED is fraud or intent to evade
VALUE (SEC. 218)
Suspension of Prescriptive Period (Sec.
Determine Assessed Value 270)
Procedure 1. local treasurer is legally
1. Take the schedule of FMV prevented to collect tax.
2. Assessed Value = FMV x 2. the owner or property requests
Assessment level for reinvestigation and writes a
3. Tax = Assessed value x Tax rate waiver before expiration of
period to collect.
STEP 5: PAYMENT AND COLLECTION 3. the owner of property is out of
OF TAX the country or cannot be
located.
(a) Accrual of Tax: January of every
year and such will constitute as REAL PROPERTY TAX
a superior lien. (Sec. 246) REMEDIES UNDER THE LGC
(b) Time and Manner of Payment: 1. TAX REMEDIES OF THE LOCAL
(Sec. 250) GOVERNMENT TO EFFECT
1. basic real property tax in 4 equal COLLECTION OF TAXES
installments (March 31, June 30,
September 30, December 30)
A. ADMINISTRATIVE
2. special levy – governed by
1. Real Property tax lien (Secs. 257,
ordinance
LGC) – superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255)
2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month
3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the
4. Purchase of property by local
delinquent amount is paid
treasurer for want of bidder (Sec.
263, LGC).

Cabrera, Jhundee
Guillermo
1
B. JUDICIAL b) in case of denial of refund or

Civil Action ( Sec. 266, 270 LGC) credit, appeal to LBAA as in
protest case.
PRESCRIPTIVE PERIODS FOR THE
COLLECTION OF REAL Redemption of real property (Sec. 261
PROPERTY TAXES LGC)
Remedy against the Assessment/Appeal

1. Basic real property tax and any
1st: within 60 days from notice of
other tax levied under the title on
assessment of provincial, city or
Real Property Taxation– five (5)
municipal assessor to LBAA (Sec. 226
years from the date they became
LGC)
due. (Sec. 270, LGC).
2nd: within 30 days from receipt of
2. When there is fraud or intent to decision of LBAA to CBAA (Sec. 230
evade the payment of taxes – ten LGC)
(10) years from discovery of the 3rd: within 30 days from receipt of
fraud or intent to evade the decision of CBAA to Court of Tax
payment (Sec. 270, LGC). Appeals en banc
4th: within 15 days from receipt of
GROUNDS FOR THE SUSPENSION OF decision of Court of Tax Appeals en
THE RUNNING OF THE PRESCRIPTIVE banc to the Supreme Court
PERIODS
APPEALS IN REAL PROPERTY
1. The treasurer is legally prevented TAXATION
from the assessment or collection of
the tax;
2. The taxpayer requests for a PROVINCIAL, CITY OR MUNICIPAL
reinvestigation and executes a ASSESSOR
waiver in writing before the
expiration of the period within within 60 days
which to assess or collect; and Owner/Person with legal interest
3. The taxpayer is out of the country or must file:
otherwise cannot be located (Sec. 1) Written Petition under Oath
270, LGC). 2) With Supporting Documents
2. TAX REMEDIES OF THE LOCAL BOARD OF ASSESSMENT APPEALS

TAXPAYER (LBAA should decide within 120 days
from receipt of petition)
A. ADMINISTRATIVE
within 30 days
Protest – payment under protest is
required within 30 days to provincial,
city, or municipal treasurer. No protest CENTRAL BOARD OF ASSESSMENT
shall be entertained unless the tax is APPEALS
first paid. (Sec. 252 LGC)
within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written COURT OF TAX APPEALS (EN BANC)
claim for refund or credit with
the provincial or city treasurer
within two years from the date within 15 days
the taxpayer is entitled to such
reduction or adjustment.
SUPREME COURT

Cabrera, Jhundee
Guillermo
1
B. JUDICIAL 3. Berthing fee

1. Court Action – appeal of CBAA’s 4. Harbor fee
decision to Court of Tax Appeals en 5. Tonnage due
banc.
2. Suit assailing validity of tax; Meaning and Scope of the Tariff and
recovery of refund of taxes paid Customs Laws
(Sec. 64 PD 464). Include not only the provisions of the
3. Suit to declare invalidity of tax due Tariff and Customs Code (TCC) and
to irregularity in assessment and regulations pursuant thereto, but all
collection (Sec. 64 PD 464) other laws and regulations that are
4. Suit assailing the validity of tax sale subject to the Bureau of Customs (BOC)
(Sec. 83 PD 464) (Sec. 267 LGC) or otherwise within its jurisdiction.
As to its scope, therefore, tariff and
Condonation of Real Property Taxes customs laws extend not only to the
1. By the Sanggunian provisions of the TCC but to all other
Real property taxes may be laws as well, the enforcement of which
condoned wholly or partially in a is entrusted to the BOC.
given local government unit when:
a. There is general failure of crops; THE BUREAU OF CUSTOMS
b. There is substantial decrease in
the price of agricultural or agri- FUNCTIONS OF THE BUREAU OF
based products; or CUSTOMS
c. There is calamity.
2. By the President of the Philippines 1. Assessment and collection of
 when public interest so requires. revenues from imported articles and
all other impositions under the tariff
and customs laws;
V. TARIFF AND 2. Control smuggling and related
CUSTOMS CODE frauds;
3. Supervision and control over the
entrance and clearance of vessels
and aircraft engaged in foreign
DEFINITIONS
commerce;
TARIFF: Customs duties, toll or tribute
4. Enforcement of TCC and related
payable upon merchandise to the
laws;
Government.
5. Supervision and control over the
handling of foreign mails arriving in
CUSTOM DUTIES: Tax assessed upon
the Philippines;
merchandise from or exported to, a
6. Supervise and control all import and
foreign country. (Garcia v. Executive
export cargoes for the protection of
Sec., GR No. 101273, July3, 1992))
government revenue;
7. Exclusive original jurisdiction over
Note: Customs and tariffs are
seizure and forfeiture cases under
synonymous with one another. They
the tariff and customs laws.
both refer to the taxes imposed on
imported or exported wares, articles, or
JURISDICTION OF COLLECTOR OF
merchandise.
CUSTOMS OVER IMPORTATION OF
ARTICLES
Other Types of Fees Charged by the
1. Cause all articles for importation to
Bureau of Customs
be entered in the customhouse,
2. Cause all such articles to be
1. Arrastre charge
appraised and classified,
2. Wharfage due – counterpart of
3. Assess and collect the duties, taxes
license, charged not for the use of
and other charges thereon, and
any wharf but for a special fund
4. Hold possession of all imported
known as the Port Works Fund.
articles until the duties, taxes and

Cabrera, Jhundee
Guillermo
1
other charges are paid thereon. d. Prepared foodstuffs; beverages,

(Sec. 1206, TCC) spirits and vinegar; tobacco and
manufactured tobacco
TERRITORIAL JURISDICTION OF THE substitutes;
BOC e. Mineral products;
1. All seas within the jurisdiction of the f. Products of chemical or allied
Philippines industries;
2. All coasts, ports, airports, harbors, g. Plastics and articles thereof;
bays, rivers and inland waters rubber and articles thereof;
whether navigable or not from the h. Raw hides and skins; leather,
sea. (1st par, Sec. 603, TCC) etc.;
i. Wood and articles of wood, etc.;
CUSTOMS DUTIES j. Pulp of wood, etc.;
k. Textiles and textile articles;
l. Articles of stone; plaster,
WHEN TARIFF AND CUSTOMS APPLIED cement, etc.;
Only after importation has begun but m. Footwear, headgear, etc.;
before importation is terminated. n. Natural or cultured pearls
precious/semi-precious stones;
Importation begins: o. Base metals and articles of base
1) when the conveying vessel or metals;
aircraft p. Machinery and mechanical
2) enters the jurisdiction of the appliances; electric equipment;
Phil. sound recorders, etc;
3) with intention to unload therein q. Vehicles, aircraft, vessels and
associated transport equipment;
Importation is deemed terminated: r. Optical, photographic, medical,
surgical instruments, etc.;
(a) upon payment of the duties, taxes s. Arms, ammunition, parts and
and other charges due upon the articles. accessories;
t. Miscellaneous manufactured
(b) and legal permit for withdrawal articles; and
shall have been granted. u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1,
 In case the articles are free of TCC).
duties, taxes and other charges, until
they have legally left the jurisdiction of 2. Prohibited from being imported
the customs (Sec. 1202, TCC) (Prohibited importation)
a. Absolutely prohibited such as:
INTENTION TO UNLOAD weapons of war; gambling
Even if not yet unloaded, and there is devices; narcotics or prohibited
unmanifested cargo, forfeiture may take drugs; immoral, obscene or
place because importation has already insidious articles; and those
begun. prohibited under special laws
(Sec.102, TCC).
ARTICLES UNDER TCC b. Qualifiedly prohibited
May either be: Where such conditions as to
1. Subject to duty – warrant a lawful importation do
a. Live animals and animal not exist, the legal effects of the
products; importation of qualifiedly
b. Vegetable products; prohibited articles are the same
c. Animal or vegetable fats; oils as those of absolutely prohibited
and their cleavage products; articles. (Auyong Hian vs. CTA,
prepared edible fats; animal or GR No. L-28782, September 12,
vegetable waxes; 1974)

Cabrera, Jhundee
Guillermo
1
3. Conditionally-free from tariff and  A personal debt which can be

customs duties (conditionally-free discharged only by payment in
importation) full thereof;
 Those provided in Sec. 105, TCC;  A lien upon the imported articles
 Those granted to government while they are in custody or
agencies, GOCCs with subject to the control of the
agreements with foreign government. (Sec. 1204, TCC).
countries;
 Those given to international Extent Of Importer’s Liability
institutions entitled to The liability of an importer is
exemption by agreement or limited to the value of the imported
special laws; and merchandise. In case of forfeiture of
 Those that may be granted by the seized material, the maximum civil
the President upon NEDA’s penalty is the forfeiture itself.
recommendation. (Mendoza vs. David, GR No. L-9452,
March 27, 1961)
4. Free from TC duties (duty-free)
Imported goods must be Drawback
entered in a customhouse at their A device resorted to for enabling a
port of entry otherwise they shall be commodity affected by taxes to be
considered as contraband and the exported and sold in foreign markets
importer is liable for smuggling (See upon the same terms as if it had not
Sec. 101, TCC). been taxed at all. (Uy Chaco Sons vs.
All articles when imported from Collector of Customs, GR No. 7618,
any country into the Philippines shall March 27, 1913)
be subject to duty upon each
importation, even though previously Import Entry
exported from the Philippines, It is a declaration to the BOC
except as otherwise specifically showing particulars of the imported
provided for in the TCC or other article that will enable the customs
laws. authorities to determine the correct
duties. An importer is required to file an
Liability for Customs Duties import entry. It must be accomplished
General Rule: All importations / from disembarking of last cargo from
exportations of goods are subject to vessel.
customs duties (Sec. 105, TCC).
Transaction value under RA NO. 8181
Exceptions: It is the invoice value of the
(1) Exemptions under the TCC; goods plus freight, insurance, costs,
(2) Exemptions granted to expenses and other necessary expenses.
government agencies, This replaces the Home Consumption
instrumentalities or GOCCs with Value as basis of valuation of goods.
existing contracts,
commitments, agreements, or CLASSIFICATION OF CUSTOM DUTIES
obligations with foreign A. Regular Duties – those which are
countries; imposed and collected merely as a
(3) Exemptions of international source of revenue.
organizations pursuant to 1. Ad valorem duty: This is a duty
agreements or special laws; and based on the value of the
(4) Exemptions granted by the Pres. imported article.
of the Phil. upon 2. Specific duty: This is a duty
recommendation of NEDA (Sec. based on the dutiable weight of
105, TCC). goods (either the gross weight,
LIABILITY OF IMPORTER FOR CUSTOM DUTIES legal weight, or net weight).

Cabrera, Jhundee
Guillermo
1
3. Alternating duties: This is a 3. Marking duty

duty which alternates ad 4. Discriminatory duty
valorem and specific.
4. Compound Duty: This is a duty NATURE OF SPECIAL CUSTOMS DUTIES
consisting of ad valorem and Special customs duties are
specific duties. additional import duties imposed on
specific kinds of imported articles under
B. Special duties – those which are certain conditions.
imposed and collected in addition to
the ordinary customs duties usually PURPOSE OF SPECIAL CUSTOMS DUTIES
to protect local industries against The special customs duties are
foreign competition. imposed for the protection of consumers
and manufacturers, as well as Phil.
1. Dumping duty products from undue competition posed
2. Countervailing duty by foreign-made products.
DUMPING COUNTERVAILING MARKING DISCRIMINATORY
SPECIAL DUTIES COMPARED DUTY DUTY DUTY DUTY
DUMPING COUNTERVAILING MARKING DISCRIMINATORY

Imposing Secretary of Commissioner President of the
DUTY DUTY DUTY Authority
DUTY Finance of Customs Philippines
Special
1. Nature Imposed upon Imposed committee
Imposed upon
Imposed foreign goods upon those ongoodsAnti- coming
upon enjoying not properly Dumping
from countries
foreign subsidy thus marked as to (composed
that discriminate
products allowing them place of of againstthePhilippine
with value to sell at lower origin of the Secretary
products.
lower than prices to the goods. of Finance
their fair detriment of
market local products Chairman;
value to similarly Members:
the situated.
detriment Secretary
of local of DTI, and
products. either the
Secretary
2. Equivalent to 5% ad Any amount not
Amount/Rate the bounty, valorem of Agriculture
exceeding 100%
Difference subsidy, or articles if ad
article in of the
valorem
between subvention. question
subject is
articles
the actual agricultural
price and product or
the normal
value of Secretary
the of labor if
article.
agricultural
product

Cabrera, Jhundee
Guillermo
FLEXIBLE necessary; The FUNCTIONS OF
TARIFF CLAUSE and NEDA THE TARIFF
The 3. to impose thereafter COMMISSION
President may an submits its 1. Investigativ
fix tariff rates, additional recommend e Powers
import and duty on all ation to the (Sec. 505,
export quotas, imports not President. TCC)
etc. under TCC exceeding 1. The power a. the
(See Sec. 28, ten (10%) of the administ
Art. VI, per cent ad President to ration of
Constitution valorem increase or and the
and Sec. 401, whenever decrease fiscal
TCC) necessary: the rates of and
1. to increase, import duty industri
reduce or LIMITATIONS within the al
remove IMPOSED abovementi effects
existing REGARDING oned limits of the
protective THE FLEXIBLE fixed in the tariff
rates of TARIFF CLAUSE Code shall and
import duty include the customs
(including a. Conduct by modificatio laws of
any the Tariff n in the this
necessary Commission form of country
change in of an duty. now in
classificatio investigation In such force or
n). in a public a case the which
The hearing. correspondi may
existing The ng ad hereafte
rates may Commission valorem or r be
be shall also specific enacted
increased or hear the equivalents ;
decreased views and of the duty b. the
to any recommend with respect relation
level, on ations of to the s
one or any imports between
several government from the the
stages but office, principal rates of
in no case agency or competing duty on
shall the instrumenta foreign raw
increased lity country for material
rate of concerned. the most s and
import duty The recent the
be higher Commission representati finished
than a shall submit ve period or partly
maximum of their shall be finished
one hundred findings and used as products
(100%) per recommend bases (Sec. ;
cent ad ations to 401, TCC). c. the
valorem the NEDA effects
2. to establish within thirty of ad
import (30) days valorem
quota or to after the
THE TARIFF and
ban imports termination COMMISSI specific
of any of the ON (TC) duties
commodity, public and of
as may be hearings. com-
pound f. the upon regar
specific volume the dless
and ad of industri of
valorem importa es and owner
duties; tions, labor of ship,
d. all compare the while
question d with country still in
s domesti and to the
relative c pro- submit custo
to the duction reports dy or
arrange and of its contr
ment of consum investig ol of
schedul ption; ation as the
es and g. conditio pro- Gover
classific ns, vided. nmen
ation of causes, t
articles and 2. Administrat  availe
in the effects ive d of
several relating Assistance when
schedul to to the the
es of competi President impor
the tion of and tation
tariff foreign Congress is
law; industri (Sec. 506, neith
e. the es with TCC) er
tariff those of prohi
relation the bited
s Philippi nor
between nes, impro
the includ- perly
Philippi ing TAX made
nes and dumping REMEDIES 2. Adminis
foreign and cost UNDER THE trative
countrie of TARIFF AND Fines
s, producti CUSTOMS and
commer on; and Forfeitu
cial h. in CODE (TCC) res
treaties, general,  appl
preferen to TAX REMEDIES ied
tial investig OF THE whe
provisio ate the GOVERNMENT n
ns, operatio the
economi n of A. imp
c customs ADMINISTRATIV orta
alliance and E tion
s, the tariff 1. Tax is
effect laws, Lien unla
of includin (Sec. wful
export g their 1204 ,
bounties relation TCC)  and
and to the  attac it
pref- national hes may
erential rev- on be
transpor enues, the exer
tation their goods cise
rates; effect , d
eve or in raba 09,
n the nd. May
whe han The 16,
re ds com 198
the of a ple 3)
artic pers men 3. Reducti
les on tary on of
are who if customs
not is coll duties /
or awa ater compro
no re al mise
long ther use  subj
er in eof of ect
Cust (Sec the to
om’ . Cess appr
s 253 na oval
cust 1 & plan of
ody 253 e Sec.
- 0, for of
unle TCC smu Fina
ss ) ggli nce
the  und ng (Sec
imp er oper .
orta Sec. atio 709,
tion 253 n is 231
is 0(a) suffi 6
mer of cien TCC
ely the t for )
atte TCC it to
mpt , in be 4. Seizure,
ed orde dee Search,
in r to med Arrest
whic warr to (Sec.
h ant hav 2205,
case forf e 2210,
it eitu bee 2211
may re, n TCC)
be it is used
effe not in B. JUDICIAL
cted nec smu 1. this
only essa ggli rem
whil ry ng. edy
e that (Lla is
the the mad nor
goo vess o mall
ds el or vs. y
are aircr Com avai
still aft miss led
with mus ione of
in t r of whe
the itsel Cust n
Cust f oms the
oms carr , GR tax
juris y No. lien
dicti the L- is
on cont 288 lost
by A. neo nd
the ADMINISTRATIV us may
rele E or be
ase 1. Protest illeg sub
of a. Any al mitt
the imp by ed
goo orte eve by
ds r or nts the
 C inte occu imp
i rest rrin orte
v ed g r in
i part afte abat
l y if r eme
A diss the nt
c atisf pay case
t ied men s on
i with t. miss
o publ b. Tax ing
n ishe pay pack
d er – ages
( valu with ,
S e in defi
e with 15 cien
c in days cies
. 15 fro in
days m the
1 fro asse cont
2 m ssm ents
0 date ent. of
4 of Pay pack
, publ men ages
icati t or
T on, und shor
C or er tage
C with prot s
) in 5 est befo
 C days is re
r fro nec arriv
i m essa al of
m the ry. the
i date (Sec goo
n the . ds in
a imp 230 the
l orte 8, Phili
A r is 221 ppin
c enti 0 es,
t tled TCC artic
i to ) les
o refu 2. Refund lost
n nd if a. A or
pay writ dest
TAX REMEDIES men ten roye
OF THE t is clai d
TAXPAYER rend m afte
ered for r
erro refu such
arriv allo Com 240
al, wed miss 3
dea in ione TCC
d or any r ,
inju case afte Sec.
red whe r 7
ani re noti RA
mals imp ficat 112
, orta ion 5,
and tion by as
for is Coll ame
man abso ecto nde
ifest lutel r of d by
cleri y his Sec.
cal proh deci 9
erro ibite sion RA
rs; d, (Sec 928
and or . 2)
b. Dra the 231  Sinc
wba rele 3 e
ck ase TCC Sec.
case wou ). 11
s ld of
whe be B. JUDICIAL RA
re cont 1. Appeal 1125
the rary  With as
goo to in ame
ds law, 30 nde
are or days d by
re- whe fro RA
exp n m 9282
orte ther rece emp
d e is ipt owe
(Sec an of rs
. actu deci the
170 al sion Tax
1- and of Cour
170 inte the t to
8 ntio Com issu
TCC nal miss e
). frau ione inju
3. Settlem d r or ncti
ent of (Sec Secr ons,
any . etar it
seizure 230 y of wou
by 7 Fina ld
paymen TCC nce app
t of fine ). to ear
or the that
redemp 4. Appeal divis an
tion  With ion imp
 But in of orte
this 15 the r
shall days CTA may
not to (Sec app
be the . eal
with l f 1
out e 5
first g
payi a o d
ng n o a
the d y
duti i s s
es, m
such p o b
as in o r u
seiz r d. h t
ure, t a
but v i
not i
e t
in n
n
prot g
t s
est
r h
case
y f a
s.
i l
2. Action
w l l
to
i e n
questio
t d o
n the
legality h t
of i a
seizure n n b
3. Abando e
nment 3 e
(Sec. 0 n s
1801 t o
TCC) d r
a. expr a y e
essl y f
y s f f
(Sec a e
. f i c
180 r l t
1 o s i
TCC m v
) t e
b. impl o
t
iedl
h u
y–
e c n
c. f
l t
a
d a i
i
i i l
l
s m s
u
c o
r
e h w
a i d
r t e
t
g h c
o
e i l
n a
f r
o
i
e 1 happening of protest
d ) supervening when
events such as required.
b TWO KINDS OF when the raw
y PROCEEDINGS material PROCEDURE IN
IN THE imported is CUSTOMS
t BUREAU OF utilized in the PROTEST CASES
h production of
CUSTOMS
e finished The Collector
(BOC) products acting within his
subsequently jurisdiction shall
c A. CUSTOMS exported and a cause the
o PROTEST CASES duty drawback imported goods
l is claimed. to be entered at
l DEFINITION: the
e These are cases Requirements customhouse
c which deal for making a 
t solely with protest The Collector
o liability for
r customs duties, shall assess,
1. Must be in liquidate, and
. fees, and other writing collect the
charges. 2. Must point
( duties thereon,
out the or detain the
S Note: Before particular
e filing a protest, said goods if the
decision or party liable
c there must first ruling of the
. be a payment does not pay the
Collector of same
under protest. Customs to
1 which 
8 When customs exception is The party
0 protest taken or adversely
1 applicable objection affected (the
, made; protestant) may
The customs 3. Must state file a written
protest is the grounds protest on his
a
required to be relied upon foregoing
s
filed only in for relief; liability with the
case the liability 4. Must be Collector within
a of the taxpayer 15 days after
m limited to
for duties, the subject paying the
e taxes, fees and liquidated
n matter of a
other charges is single amount (the
d determined and payment under
e adjustment;
the taxpayer 5. Must be protest rule
d disputes said applies)
filed when
b
liability. the amount 
claimed is Hearing within
y When Customs paid or 15 days from
protest NOT within 15 receipt of the
R required days after duly presented
A the protest. Upon
Where there payment; termination of
7 is no dispute, 6. Protestant the hearing, the
6 but the claim must furnish Collector shall
5 for refund arises samples of decide on the
by reason of the goods under
same within 30 Collecto (Commissioner
days r will of Customs vs. 2. The
not Manila Star Philippines
 appeal Ferry, Inc., GR is divided
his own Nos. 31776-78, into various
If decision is adverse to If decision is adverse to
decision October 21, ports of
the protestant
. 1993) entry –
 3. Lifebloo entry other
Appeal with the d SMUGGLING than port of
Commissioner within Theory 1. An act of entry, will
15 days from notice any be
B. SEIZURE AND person SMUGGLING
 FORFEITURE who .
Appeal with the Court CASES shall:
of Tax Appeals Division a. Fraudul PORT OF ENTRY
within 30 days from DEFINITION: ently A
notice These refer to import domestic port
matters any open to both
 involving article foreign and
Appeal with the smuggling. It isis contrar coastwise trade
CTA en banc Secretary of Finance
administrative y to including
 and civil in law, or “airport of
Appeal by certiorari nature and
appeal to the CTA and is b. Assist in entry”. (Sec.
with the Supreme directed against so 3514, TCC)
Court within 15 days the on
procedure resthe left.
or doing, ALL
from notice imported or articles
articles and c. Receive imported into
entails a , the Philippines
determination conceal whether subject
of the legality , buy, to duty or not
Reasons for the of their sell, shall be entered
automatic importation. facilitat through a
review of These are e, customshouse at
decisions actions in rem. transpor a port of entry.
adverse to the Thus, It t, ENTRY:
Government is of no defense conceal in
that the owner or sell Customs
1. To of the vessel such law
protect sought to be article means-
the forfeited had no knowing 1.
interest actual its the
of the knowledge that illegal doc
Govern his property was importa um
ment used illegally. tion ents
2. A The absence or (Sec. file
favorabl lack of actual 3601, d at
e knowledge of TCC) the
decision such use is a d. Export Cus
will not defense contrar tom
be personal to the y to s
appeale owner himself, law. hou
d by the which cannot in (Sec. se
taxpaye any way absolve 3514, 2.
r and the vessel from TCC) the
certainl the liability of sub
y a forfeiture. mis
sion (Sec. 3514, chartered and was a
and TCC) cannot be consenting
acc confiscated. party, it
ept may also be
anc RIGHT OF forfeited.
e of EVIDENCE FOR CUSTOMS 2. If a motor
the CONVICTION IN OFFICERS TO vehicle is
doc SMUGGLING EFFECT hired to
um CASES SEIZURE & carry
ent Mere ARREST (SEC. smuggled
s possession of 2205) goods but it
3. the article in 1. May seize has no
the question - any vessel, Certificate
pro unless aircraft, of Public
ced defendant could cargo, Convenience
ure explain that his article, (CPC), it is
of possession is animal or not a
pas lawful to the other common
sing satisfaction of movable carrier. It is
goo the court (Sec. property thus subject
ds 3601, TCC). when the to
thro Payment of the same is forfeiture,
ugh tax due after subject to and lack of
the apprehension is forfeiture or personal
cust not a valid liable for knowledge
oms defense any time as of the
hou (Rodriguez vs. imposed owner or
se Court of under tariff the carrier
(Ro Appeals, GR No. and customs is not a
drig 115218, laws, rules defense to
uez September 18, & forfeiture.
vs. 1995) regulations
Cou 2. May PROPERTIES
rt THINGS exercise NOT SUBJECT
of SUBJECT TO such powers TO FORFEITURE
App CONFISCATION only in IN THE
eals IN SMUGGLING conformity ABSENCE OF
, CASES with the PRIMA FACIE
GR laws and EVIDENCE
No. Anything that provisions of The
115 was used for the TCC forfeiture of the
218 smuggling is vehicle, vessel
, subject to COMMON or aircraft shall
Sep confiscation, CARRIERS; not be effected
tem like the vessel, FORFEITURE if it is
ber plane, etc. 1. Common established that
18, (Llamado vs. carriers are the owner
199 Commissioner generally thereof or his
5) of Customs, GR not subject agent in charge
No. L-28809, to forfeiture of the means of
CONTRABAND: May 16, 1983). although if conveyance
Articles of the owner used as
prohibited Exception: has aforesaid has no
importations or Common knowledge knowledge of
exportations. carriers that are of its use in or
not privately smuggling participation
in the unlawful which b. As a dutiable
act: constitu consequ goods.
Provided, tes a ence  No petitions
however, that a violation they for
prima facie of the may be certiorari,
presumption tariff pursued prohibition
shall exist and in the or
against the customs Phil. mandamus
vessel, vehicle laws c. With filed with
or aircraft under b. a jurisdict the RTC will
any of the pursuit ion over lie because
following of such them at these are in
circumstances: vessel any reality
1. If the began place attempts to
conveya within therein review the
nce has the for the Commission
been jurisdict enforce er's
used for ional ment of actuations.
smuggli waters the law. Neither
ng at which (2nd par. replevin
least (i) may Sec. filed with
twice cont 603, the RTC will
before; inue TCC) issue.
2. If the bey Rationale:
owner is ond Doctrine of
not in the REGIONAL Primary
the mari TRIAL COURTS Jurisdiction
business time (RTC) .
for zone VS.  Even if a
which , BUREAU OF Customs
the and CUSTOMS (BOC) seizure is
conveya (ii) the illegal,
nce is vess  The RTCs do exclusive
generall el not have jurisdiction
y used; may jurisdiction (to the
and be over seizure exclusion of
3. If the seiz and regular
owner is ed forfeiture courts) still
financial on proceedings belongs to
ly not in the conducted the Bureau
a high by the BOC of Customs
position seas and to (Jao v.
to own . interfere Court of
such with these Appeals, GR
conveya 2. Over proceedings No. 104604,
nce. Imported . The October 6,
Articles Collector of 1995).
DOCTRINE OF a. There is Customs has
HOT PURSUIT a exclusive GOODS IN
Requisites: violation jurisdiction CUSTOM’S
1. Over of the over all CUSTODY
Vessels tariff questions BEYOND REACH
a. An act is and touching on OF
done in customs the seizure ATTACHMENT
Phil. laws and Goods in
Waters forfeiture of the custom’s
custody pending Comm. on and other the
payment of Audit members of the importation
customs duties  AFP and or
are beyond the Issuance by national law exportation
reach of the enforcement of
attachment. As Collector of agencies when merchandis
long as the a warrant of authorized by e.; and
importation has detention the 2. That such
not been Commissioner of declaration,
terminated, the  Customs affidavit,
imported goods Notification 3) officials of invoice,
remain under to owner or the BIR on all letter or
the jurisdiction importer cases falling paper is
of the Bureau of  within the false.
Customs. Formal regular (Farolan,
(Viduya vs. hearing performances of Jr. vs.
Berdiago, GR  their duties, Court of
No. L-29218, District when the Tax
October 29, collector payment of Appeals, GR
1976) renders his internal taxes No. 42204,
decisions are involved; January 21,
ADMINISTRATIV 4) officers 1993)
E AND JUDICIAL generally
PROCEDURES  empowered by PLACES WHERE
RELATIVE TO If decision is not law to effect SEARCHES &
CUSTOMS favorable to the arrests and SEIZURES MAY
SEIZURES AND aggrieved owner or execute BE CONDUCTED
FORFEITURES importer processes of (a) enclosur
 courts, when es
Determinati Appeal by the acting under the (b) dwelling
on of aggrieved owner or direction of the house
probable importer Collector. (there
cause and must be
issuance of REQUIREMENTS search
warrant PERSONS FOR CUSTOMS warrant
 HAVING POLICE FORFEITURE issued
Actual AUTHORITY TO 1. The by a
seizure of ENFORCE THE wrongful judge)
the articles TARIFF & making by (c) vessels
CUSTOMS LAWS the owner, or
 AND EFFECT importer, aircrafts
Listing of SEARCHES, exporter or and
description, SEIZURES AND consignee of persons
appraisal ARRESTS (SEC. any or
and 2203, TCC) declaration articles
classificatio 1) officials of or affidavit, conveye
n of seized the BOC, or the d
property district wrongful therein
 collectors, making or (d) vehicles,
Report of police officers, delivery by beasts
seizure to agents, the same and
the Comm. inspectors, and persons of persons
of Customs guests of the any invoice, (e) persons
and the BOC; letter or arriving
Chairman, 2) officers of paper - all from
the Phil. Navy touching on foreign
countrie to law, payment of the
s. UNMANIFESTED or corresponding
CARGO IS 3. when duties and taxes
Note: Burden SUBJECT TO there is and compliance
of proof in FORFEITURE fraud. with all other
seizure or whether the act (Sec. legal
forfeiture is on of smuggling is 2307, requirements
the claimant. established or TCC) (Sec. 1508,
(Sec. 2535, not under the TCC)
TCC) principle of res
ipsa loquitur. It ABATEMENT
REQUIREMENTS is enough that The
FOR MANIFEST the cargo was ACQUITTAL IN reduction or
A unmanifested CRIMINAL non-imposition
manifest in and that there CHARGE NOT of customs
coastwise trade was no showing RES JUDICATA duties on
for cargo and that payment of IN SEIZURE OR certain
passengers duties thereon FORFEITURE imported
transported had been made PROCEEDINGS materials as a
from one place for it to be Reasons: result of:
or port in the subject to 1) Criminal 1) Damage
Philippines to forfeiture. proceedings incurred
another is are actions during
required when SETTLEMENT in personam voyage;
one or both of OF FORFEITURE while 2) Deficien
such places is a CASES seizure or cy in
port of entry General Rule: forfeiture contents
(Sec. 906, TCC). Settlement of proceedings package
Manifests are cases by are actions s
also required of payment of fine in rem. 3) Loss or
vessel from a or redemption 2) Customs destruct
foreign port of forfeited compromise ion of
(Sec. 1005, property is does not articles
TCC). allowed. extinguish after
criminal arrival
IS MANIFEST Exceptions: liability. 4) Death or
REQUIRED 1. the (People vs. injury of
ONLY FOR importa Desiderio, animals
IMPORTED tion is GR No. L-
GOODS? absolute 208005, FRAUDULENT
NO. ly November PRACTICES
Articles subject prohibit 26, 1965) CONSIDERED AS
to seizure do ed or CRIMINAL
not have to be 2. the Note: At any OFFENSES
imported goods. surrend time prior to AGAINST
Manifests are er of the sale, the CUSTOMS
also required for the delinquent REVENUE LAWS
articles found property importer may 1) Unlawful
on vessels or to the settle his importation;
aircraft engaged person obligations with 2) Entry of
in coastwise offering the Bureau of imported or
trade. (Rigor to Customs, in exported
vs. Rosales, GR redeem which case the article by
No. L-33756, would aforesaid means of
October 23, be articles may be any false or
1982) contrary delivered upon fraudulent
practices, consisting of 3. to
invoice, VI. COUR three (3) summon
declaration, Justices. witnesse
affidavit, or T OF The s by
other TAX Presiding subpoen
documents; Justice and a;
3) Entry of
APPEALS the most 4. to
goods at less (RA 1125 Senior require
than their as Associate producti
true weights Justice shall on or
or measures amended serve as papers
or upon a by RA chairmen of or
classificatio the two docume
n as to
9282) divisions nts by
quality or subpoen
value;  See ANNEX QUORUM a duces
4) Payment of O for  Four (4) tecum;
less than the comparison Justices 5. to
amount due; of CTA as shall punish
5) Filing any created by constitute a contem
false or RA No. 1125 quorum for pt;
fraudulent and the sessions EN 6. to
claim for amendment BANC. promulg
the payment s made by  Two (2) ate
of drawback RA No. Justices for rules
or refund of 9282. sessions of a and
duties upon DIVISION. regulati
the PROVIDED: in ons for
exportation NATURE AND case the the
of POWERS required conduct
merchandise quorum cannot of its
; or ELEVATION OF be had due to business
6) Filing any RANK any vacancy, ;
affidavit, shall be of disqualification 7. to
certificate the same level , inhibition, assess
or other as the Court of disability, or damage
document to Appeals, any other against
secure to possessing all lawful cause, appellan
himself or the inherent the Presiding t if
others the powers of a Justice shall appeal
payment of Court of Justice designate any to CTA
any Justice of other is found
drawback, COMPOSITION Divisions of the to be
allowance or Court to sit frivolous
 Consists of a
refund of temporarily or
Presiding
duties on therein. dilatory;
Justice and
the 8. to
five (5)
exportation POWERS suspend
Associate
of mdse. 1. to the
Justices
greater than administ collectio
 May sit en
that legally er n of the
banc or in
due oaths; tax
two (2)
thereon. 2. to pending
Divisions,
(Sec. 3602, receive appeal;
each
TCC) evidenc and
Division
e;
9. to to personal uted 1. in
render property asse case
decision and/or ssm s
s on 2. levy the ents invo
cases real , lvin
brought property of refu g
before such nds disp
it persons in of uted
10. to issue sufficient inte asse
order quantity to rnal ssm
authoriz satisfy the reve ents
ing tax or nue ,
distraint charge taxe refu
of together s, nds
personal with any fees of
property increment or inte
and levy thereto othe rnal
of real incident to r reve
property delinquency char nue
. ges, taxe
DISTRAINT OF pen s,
PERSONAL This remedy altie fees
PROPERTY AND shall not be s in or
LEVY OF REAL exclusive and rela othe
PROPERTY shall not tion r
Upon the preclude the ther char
issuance of any Court from eto, ges,
ruling, order or availing of other 2. or pen
decision by the means under othe altie
CTA favorable the Rules of r s in
to the national Court. mat rela
government, the ters tion
CTA shall issue JURISDICTIO arisi ther
an order N ng eto,
authorizing the und 2. or
BIR, through the I. EXCLUSIVE er othe
Commissioner: APPELLATE the r
JURISDICTION NIRC mat
1. to seize and TO REVIEW or ters
distraint BY APPEAL othe arisi
any goods, r ng
chattels, or (a) Decision laws und
effects and s of the adm er
the personal Commis inist the
property, sioner ered NIRC
including of by or
stocks and Internal the othe
other Revenu BIR; r
securities, e (b) Inaction laws
debts, 1. in by the adm
credits, case Commis inist
bank s sioner ered
accounts, invo of by
and lvin Internal the
interests in g Revenu BIR,
and rights disp e whe
re Custom 2. or decided
the s oth by the
NIRC 1. in er provinci
prov cas mat al or
ides es ters city
a invo arisi board of
spec lvin ng assessm
ific g und ent
peri liab er appeals;
od ility the (f) Decision
for for Cus s of the
acti cust tom Secreta
on, oms s ry of
in duti Law Finance
whic es, or – on
h fees oth customs
case or er cases
the oth law elevated
inac er s to him
tion mo ad automat
shall ney min ically
be cha iste for
dee rges red review
med , by from
a seiz the decision
deni ure, Bur s of the
al; det eau Commiss
(c) Decision enti of ioner of
s, orders on Cus Customs
or or tom which
resoluti rele s; are
ons of ase (e) Decision adverse
the RTC of s of the to the
– in pro Central Govern
local tax pert Board ment
cases y of under
originall affe Assess Section
y cte ment 2315 of
decided d, Appeals the
or fine – in the Tariff
resolved s, exercise and
by them forf of its Customs
in the eitu appellat Code;
exercise res e (g) Decision
of their or jurisdict s of the
original oth ion over Secreta
or er cases ry of
appellat pen involvin Trade
e alti g the and
jurisdict es assessm Industr
ion; in ent and y in the
(d) Decision rela taxation case of
s of the tion of real nonagric
Commis ther property ultural
sioner eto, originall product,
of y commod
ity or 000, times
article, II. 000. 00) be
and the or simulta
Secretar JURISDICTI where neously
y of ON OVER there is institut
Agricult CASES no ed with,
ure in INVOLVING specifie and
the case CRIMINAL d jointly
of CASES amount determi
agricult claimed ned in
ural (a) Exclusive - the the
product, original offenses same
commod jurisdicti or proceed
ity or on over penaltie ing by
article, all s shall the
– criminal be tried CTA,
cases by the the
involvin arising regular filing of
g from courts the
dumping violations and the criminal
and of the jurisdict action
counter NIRC or ion of being
vailing Tariff and the CTA deemed
duties Customs shall be to
under Code and appellat necessa
Secs. other laws e. rily
301and administe  Any carry
302, red by the provisio with it
respecti BIR or the n of law the
vely, of Bureau of or the filing of
the Customs Rules of the civil
Tariff  Provide Court to action,
and d the and no
Customs howeve contrar right to
Code, r, y reserve
and where notwith the
safeguar the standin filing of
d principa g, the such
measure l criminal civil
s under amount action action
RA No, of taxes and the separat
8800, and corresp ely from
where fees, onding the
either exclusiv civil criminal
party e of action action
may charges for the will be
appeal and recover recogni
the penaltie y of zed.
decision s civil
to claimed liability (b) Exclusive
impose is less for appellate
or not than taxes jurisdiction
to one and in criminal
impose million penaltie offenses
said pesos s shall  Over
duties. (P1, at all appeals
from Municip penaltie respecti
the al s, ve
judgme Circuit claimed territori
nts, Trial is less al
resoluti Courts than jurisdict
ons or in their one ion.
orders respecti million  Over
of the ve pesos (P petition
RTC in jurisdict 1, 000, s for
tax ion. 000. 00) review
cases – shall of the
originall III. be tried judgem
y by the ents,
decided JURISDICTI proper resoluti
by ON OVER Municip ons or
them, TAX al Trial orders
in their COLLECTIO Court, of the
respecti N CASES Metrop RTC in
ve (a) olitan the
territori Exclusi Trial exercise
al ve Court, of their
jurisdict origina and appellat
ion. l Regiona e
 Over jurisdic l Trial jurisdict
petition tion in Court. ion over
s for tax tax
review collecti (b) collecti
of the on cases Exclusi on cases
judgme involvin ve originall
nts, g final appella y
resoluti and te decided
ons, or executo jurisdic by the
orders ry tion in Metropo
of the assessm tax litan
RTC in ents for collecti Trial
the taxes, on Courts,
exercise fees, cases Municip
of their charges  Over al Trial
appellat and appeals Courts
e penaltie from and
jurisdict s. the Municip
ion over  In judgme al
tax collecti nts, Circuit
cases on cases resoluti Trial
originall where ons or Courts,
y the orders in their
decided principa of RTC respecti
by the l in tax ve
Metropo amount collecti jurisdict
litan of taxes on cases ion.
Trial and originall
Courts, fees, y  In criminal
Municip exclusiv decided and
al Trial e of by collection
Courts, charges them, cases, the
and and in their Government
may directly Modes of of the ion or new
file the said Appeal CTA trial before
cases with (1) By filing a (2) By filing a the same
the CTA petition for petition for Division
covering review review within 15
amounts under a under a days from
within its procedure procedure notice
exclusive analogous to analogous
and original that to that
jurisdiction. provided for provided
under Rule for under
 See ANNEX 42 of 1997 Rule 43 of B. Any party
P – Rules on 1997 Rules adversely
Comparativ Civil on Civil affected by
e Diagrams Procedure Procedure a resolution
on CTA  decision  decision of a Division
jurisdiction. , ruling, s or of the CTA
or rulings on a motion
inaction of the for
of the Central reconsiderat
Commis Board ion or new
“Other sioner of trial may
Matters” of Assessm file a
Those Internal ents petition for
controversies Revenue Appeals review with
which can be , and the the CTA en
considered Commis Regiona banc.
within the scope sioner l Trial
of the function of Courts C. Any party
of the BIR / BOC Customs in the adversely
under ejusdem , the exercise affected by
generis rule Secretar of its a decision
(e.g. action for y of appellat or ruling of
the nullity of Finance, e the CTA en
distraint and the jurisdict banc may
levy; Secretar ion file with the
questioning the y of  this Supreme
propriety of the Trade appeal Court a
assessment; and shall be verified
collection of Industry heard petition for
compromise or the by the review on
penalties). Secretar CTA en certiorari
y of banc. pursuant to
APPEAL Agricult Rule 45 of
ure or Procedure the 1997
When the A. Any party Rules on
Within 30 Regiona adversely Civil
days after the l Trial affected by Procedure.
receipt of such Courts a ruling,
decision or  this order or Thirty (30) day
ruling or after appeal decision of a Prescriptive
the expiration shall be Division of Period for
of the period heard the CTA may Appeal
fixed by law for by a file a motion Starts to run
action. Division for from the date
reconsiderat the taxpayer
receives the assessment reconsiderat procedure which
appealable notices are ion. bind private
decision. If the not GENERAL RULE: parties.”
taxpayer’s appealable, New issues (Commissioner
request for because cannot be raised vs. Procter and
reconsideration they are not for the first Gamble, GR No.
(i.e., the the final time on appeal. 66838,
protest is decision of December 2,
denied or the the EXCEPTIONS: 1991,
original Commission a. Defense of Resolution)
assessment is er. prescription
maintained, the  An Reason: This Tax collection
appealable assessment is a Not Suspended
decision is the can be statutory during Appeal
decision denying appealed if right.
the request for taxpayer (Visayan General Rule:
reconsideration. does not Land No
The said seek a Transportat appeal taken to
period is reconsiderat ion vs. the CTA shall
jurisdictional ion. Collector) suspend the
and non-  At times b. Errors of payment, levy
extendible. there is an administrati or distraint,
Requests or exchange of ve officials and/or sale of
motions for communicati Reason: any property of
reconsideration, ons between State can the taxpayer.
however, taxpayer never be in
operate to and estoppel Exception: The
suspend the Commission and CTA is
running of the er states lifeblood empowered to
period to that his theory. suspend the
appeal. A pro action is (Commissio collection of
forma request final, then, ner vs. internal revenue
for period for Procter and taxes and
reconsideration appeal Gamble custom duties
or one which is begins to Phils. Mfg. only when there
directed to the run. Corp, GR was a –
Secretary of  Commission No. 66838, c) showing
Finance does er must April 15, that
not suspend the state that 1988) collection
running of the his decision of the tax
30-day is final, for NOTE: However, may
reglementary period of this was jeopardiz
period. appeal to reversed in e the
run. Supreme Court’s interest
Only A Final  Final subsequent of the
Decision Is decision resolution governme
Appealable To cannot be wherein it was nt and /
The Court Of implied from held that “in or the
Tax Appeals issuance of the absence of taxpayer;
warrant of explicit d) deposit of
 Preliminary distraint and statutory the
collection levy, unless provisions to the amount
letters, post it is issued contrary, the claimed
reporting after a Government or file a
notices and request for must follow the surety
pre- same rules of bond for
not more charge the approval of Court will
than imposed by the application not set
double Tax Code. for credit. aside
the  The conclusions
amount of provision in Observation: If reached by
tax with Tax Code we are not Tax Court
the Court refers to going to allow which by
when courts other the taxpayer to the very
required; than the file a refund nature of its
and CTA. before the CTA function, is
e) showing (Blaquera and let him wait dedicated
by vs. for the CIR’s exclusively
taxpayer Rodriguez, decision, and to the
that GR No. L- the latter failed consideratio
appeal is 11295, to render a n of tax
not March 29, decision within problems
frivolous 1958) the 2-year and has
nor  Appeal to period, the said developed
dilatory. the CTA taxpayer can no an expertise
does not longer file a on the
Can The CTA automatical refund before subject,
Enjoin ly suspend the CTA because unless there
Collection of collection his right to has been an
Taxes? unless CTA appeal has abuse or an
issues prescribed. improvident
 Sec. 11 of suspension exercise of
RA No. 1125 order at any Weight of authority on
as amended stage of Decision of CTA its part.
by Sec. 9 of proceedings (Commissio
RA No. 9282 .  Decisions of ner vs.
grants CTA Tax Court Court of
power to Simultaneous have Appeals &
suspend filing of an persuasive Atlas
collection application for effect and Consolidate
of tax if refund or may serve d, GR No.
such credit and as judicial 86785,
collection institution of a guides. November
works to case before the They have 21, 1991)
serious CTA allowed more
prejudice of persuasive VII.VALU
either The law value than
taxpayer or fixes the same BIR Rulings. E–ADDED
government period of two  CTA’s TAX
. (2) years for findings of
 However, filing a claim for fact are
(VAT)
Sec. 218 of refund with the entitled to TITLE IV
the Tax Commissioner the highest OF NIRC
Code and for filing a respect.
provides no case with the (Raymundo DEFINITION: The
court may CTA. The two- vs. de Joya, value-added tax
grant year period for GR No. L- is an indirect
injunction both starts from 27733, tax and the
to restrain the date after December amount of tax
collection the payment of 3, 1980) may be shifted
of any tax, the tax or  The or passed on to
fee or penalty, or from Supreme the buyer,
transferee or 2. Sale of The regular being course of
lessee of the Services conduct or trade or
goods, (in the pursuit of a business.
properties or course commercial or Importation is
services. This of trade an economic subject to VAT
rule shall or activity, regardless of
likewise apply business including whether or not
to existing only) transactions it is in the
contracts of sale 3. Exportat incidental course of trade
or lease of ion (in thereto, by any or business
goods, the person
properties or course regardless of The reason
services at the of trade whether or not for the rule is to
time of the or the person protect our
effectivity of business engaged therein local or
Republic Act No. only) is a non-stock, domestic goods
7716. 4. Importa nonprofit or articles and
tion private to regulate the
VAT replaced (whethe organization entry or
Sales Tax as r or not (irrespective of introduction of
imposed by in the the disposition foreign articles
previous Tax course of its net to our local
Laws. of trade income and market.
or whether or not Regulation is
HISTORY: business it sells one of the
a. Executiv ) exclusively to purposes of
e Order members or Taxation.
No. 273 PERSONS LIABLE their guests), or
b. Republic FOR VAT government Tax Rates:
Act No. Any person entity. 1. 10% - the
7716 who, in the rate used in
Therefore if
c. Republic course of trade sale of
the disposition
Act No. or business, commodities
of goods or
8241 sells barters, and goods,
services is NOT
d. Republic exchanges, sale of
in the course of
Act No. leases goods or services,
trade or
8424 properties, and
business then it
(took renders importation.
is not subject to
effect services, and 2. Zero-rated
VAT; with the
on 1 any person who (0%) - the
exception of
January imports goods rate used in
importation of
1998) shall be subject exportation.
course.
to the value-
TRANSACTIONS added tax (VAT) The rule of
COVERED BY imposed in regularity, to MANNER OF
VAT: Sections 106 to the contrary COMPUTING
1. Sale of 108 of the notwithstanding THE VAT:
Commod National , services as A. 10% rate of
ities or Internal defined in this Tax
Goods Revenue Code. Code rendered
(in the in the 1. In sale of
course “IN THE Philippines by commodities
of trade COURSE OF non-resident and goods,
or TRADE OR foreign persons 10% is
business BUSINESS” shall be multiplied
only) considered as with the
Gross Selling taxes, If temporary for the
Price. any. closure of the market such
2. In sale of customs establishment as freezing,
services, duties. for 5 days as drying,
10% is provided in salting,
multiplied B. Zero-rated Section 115(b). broiling,
with the (0%) rate of roasting,
Gross tax Exception: It smoking, or
Receipts. does not apply stripping
3. In 1. Export Sales to an exporter does not
importation, as provided who fails to remove the
10% is in Section register. The product
multiplied 106(A)(2)(a) effect is, from its
with the 2. Foreign instead of category of
rates used Currency treating the being in its
by the Denominate transaction as original
Bureau of d Sale as zero-rated (0%), state.
Customs in provided in it is treated as  However,
imposing Section 106 an exempt even if the
tariff and (A)(2)(b) transaction. products
customs 3. Sale to were no
duties plus persons or What is the longer in its
customs entities difference? In original
duties, which is VAT zero-rated (0%) state, it can
excise exempt transactions, still be VAT-
taxes, if under tax credit is exempt
any, and special laws available. under
other or However, in Section
charges, internationa exempt 109(r), if
such tax to l transactions, sold by
be paid by agreements tax credit is not agricultural
the to which the available. cooperative
importer Philippines s duly
prior to the is a registered
release of signatory as EXEMPT by
such goods provided in TRANSACTIONS Cooperative
from Section 106 (SECTION 109): Developmen
customs (A)(2)(c) 1. In Section t Authority.
custody: 4. Transactions 109(a) and 2. Under
Provided, subject to (c), food Section
That where zero-rated and non- 109(m),
the customs (0%) as food private
duties are provided in products educational
determined Section are VAT- institutions
on the basis 108(B) exempt as are exempt
of the long as from VAT if
quantity or REGISTRATION these duly
volume of UNDER THE VAT products accredited
the goods, SYSTEM are in its by the DECS
the value- (SECTION 236 original or by the
added tax OF THE NIRC) state. The CHED. In
shall be simple case of
based on General Rule: process of government
the landed Failure to preparation educational
cost plus register is or institution,
excise subject to preservation no
accreditatio s Section in the recipients
n is 106(A)(1)(a) preceding shall be
required. where it paragraphs considered
states that are VAT the
3. in order for exempt if importers
the sale or the Gross thereof,
Transaction lease of real Annual who shall be
s in the property to Receipts do liable for
field of Arts be covered not exceed any internal
are VAT- by VAT, it P550,000.00 revenue tax
exempt must be . However, on such
only, as made in the the importation
provided in ordinary limitation of . The tax
Section course of P550,000.00 due on such
109(n), if trade or does apply importation
the seller is business. for those shall
the artist transactions constitute a
himself or 6. Revenue from lien on the
the artist’s Regulations Section goods
services No. 6-97 109(a) to superior to
performed adds a (y), except all charges
for the requirement (x) because or liens on
production in order for Revenue the goods,
of such the lease of Regulations irrespective
works. residential No. 6-97 of the
units with a imposes a possessor
4. Section monthly P550,000.00 thereof.
109(p) rental of limitation.
makes not more TRANSACTIONS
Regional or than  In cases of DEEMED SALE:
Area P8,000.00, tax-free
Headquarte as provided importation The
rs exempt in Section of goods following
from VAT. 109(x), to into the transactions
be VAT Philippines shall be deemed
5. Under exempt, by persons, sale therefore
Section that the entities or making them
109(w) in annual gross agencies covered by VAT:
order for receipts exempt
the sale or must not from tax (1) Transfer,
lease of real exceed where such use or
property to P550,000.00 goods are consumption not
be . subsequentl in the course of
exempted y sold, business of
from VAT, 7. Section transferred goods or
the 109(z) or properties
transaction provides exchanged originally
must NOT that the in the intended for
be sale or lease Philippines sale or for use
conducted of goods or to non- in the course of
in the performanc exempt business;
ordinary es of persons or (2) Distribution
course of services entities, the or transfer to:
trade or other than purchasers, (a) Shar
business. It those transferees eholders or
complement mentioned or investors as
share in the output tax The claim,
profits of the  If Input exceeds the which must be
VAT-registered is greater input tax, in writing, for
persons; or than the excess both cases,
(b) Cred Output, Tax shall be must be filed
itors in payment Credit is paid by the within 2 years
of debt; available. VAT- after the close
(3) Consignment registered of the taxable
of goods if person. If quarter when
actual sale is "INPUT TAX" the input the sales were
not made within means the tax exceeds made for: a) the
sixty (60) days value-added tax the output issuance of a
following the due from or tax, the tax credit
date such goods paid by a VAT- excess shall certificate; b)
were consigned; registered be carried refund of
and person in the over to the creditable input
(4) Retirement course of his succeeding tax due or paid
from or trade or quarter or attributable to
cessation of business on quarters. such sales.
business, with importation of Any input
respect to goods or local tax HOW TO
inventories of purchase of attributable DETERMINE
taxable goods goods or to the CREDITABLE
existing as of services, purchase of INPUT TAX
such retirement including lease capital The sum of
or cessation. or use of goods or to the excess input
property, from a zero-rated tax carried over
How to VAT-registered sales by a from the
determine the person. It shall VAT- preceding
VAT: The tax also include the registered month or
shall be transitional person may quarter and the
computed by input tax at his option input tax
multiplying the determined in be refunded creditable to a
total amount accordance with or credited VAT-registered
indicated in the Section 111 of against person during
invoice by one- the NIRC. other the taxable
eleventh (1/11). internal month or
"OUTPUT TAX" revenue quarter shall be
Example: the means the taxes, reduced
total amount value-added tax subject to
indicated in the due on the sale the
invoice is P110. or lease of provisions reduced by the
P110/11 = P10. taxable goods or of Section amount of claim
P10 is the properties or 112. for refund or tax
amount of VAT. services by any credit for value-
person added tax and
TAX CREDIT registered or OPTIONS OF A other
AND REFUND required to TAXPAYER AS adjustments,
register under PROVIDED IN such as
Formula for Section 236 of SECTION 112: purchase
Tax Credit: the NIRC. 1. to claim for returns or
Output tax credit; allowances and
Less:  If at the end or input tax
Input of any 2. to claim for attributable to
VAT taxable refund exempt sale.
due. quarter the
The claim hundred twenty principal place
for tax credit day-period, of business or
referred to in appeal the head office and
the foregoing decision or the all branches.
paragraph shall unacted claim
include not only with the Court
those filed with of Tax Appeals.
the Bureau of
Internal RETURN AND
Revenue but PAYMENT OF
also those filed VAT
with other
government Every
agencies, such person liable to
as the Board of pay the value-
Investments or added tax shall
the Bureau of file a quarterly
Customs. return of the
amount of his
The gross sales or
Commissioner receipts within
within 120 days, 25 days
in proper cases, following the
from the date of close of each
submission of taxable quarter
complete prescribed for
documents in each taxpayer:
support of the Provided,
application shall however, That
grant a refund VAT-registered
or issue the tax persons shall
credit pay the value-
certificate for added tax on a
creditable input monthly basis.
taxes.
Any person,
Remedy in whose
case of full, or registration has
partial denial, been cancelled
or failure on the in accordance
part of the with Section
Commissioner to 236, shall file a
act upon the return and pay
application for the tax due
tax credit or thereon within
refund: the 25 days from
taxpayer the date of
affected may, cancellation of
within thirty registration:
(30) days from Provided, That
the receipt of only one
the decision consolidated
denying the return shall be
claim or after filed by the
the expiration taxpayer for his
of the one

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San Beda College of Law

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

taxpayers are not required. The The court’s power in taxation is

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Contracts Contracts Contracts may

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

stockholders. (Corporate Entity 3. As to purpose:

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

7. Debt – a sum of money due upon the start of a before

Exemption granted Exemption does not Payable in money Payable in money,

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

No limit as to the Amount of toll

Non-payment is No imprisonment in Imposed only by the May be imposed by:

Imposed only by Can be imposed by Tax Penalty

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

kinds of enforced which are traded the legislature. (See Scope of

(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Business tax Place of business established in the Philippines.

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

gross income and exempt from the territory of another, there is an

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

imposed as a condition for its

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

The constitutional provision 7. Non-Impairment Of The

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Elements: tax, subject to certain limitations,

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Tax deduction method (2) CAPITALIZATION – a mere increase in

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Sec. 105 Tariff and Customs

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

e. Tax exemption must be strictly Constitution, its revocation may be

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

3. Where the taxpayer acted in bad Assessment and collection of all

POWERS AND DUTIES OF THE BIR KINDS

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

1. SELF- ASSESSMENT- one in which the 4. The authority of the Commissioner

BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

POWERS AND DUTIES OF THE COMMISSIONER -- the books of accounts,

II. SECTION 5 (power to obtain III. SECTION 6 (power to make