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San Beda College of Law

MEMORY AID IN TAXATION LAW

TAXATION LAW
I. GENERAL PRINCIPLES
POWER OF TAXATION
TAXATION power by which the sovereign through its law-making body raises revenue to defray the necessary expenses of government from among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Two Fold Nature of the Power of Taxatio 1. It is an inherent attribute sovereignty 2. It is legislative in character ). levied for a public purpose. RE$%ISITES OF A "ALI& TAX 1. should be for a public purpose 2. the rule of taxation shall be uniform ". that either the person or property taxed be within the jurisdiction of the taxing authority $. that the assessment and collection of certain kinds of taxes guarantees against injustice to individuals especially by way of notice and opportunity for hearing be provided &. the tax must not impinge on the inherent and .onstitutional limitations on the power of taxation T#EORIES AN& 'ASES OF TAXATION 1. Life(lood Theor) /axes are what we pay for civili0ed society. 1ithout taxes the government would be paraly0ed for lack of the motive power to activate and operate it. 2ence despite the natural reluctance to surrender part of one3s hard-earned income to the taxing authorities every person who is able to must contribute his share in the running of the government. (CIR v. Algue, Inc.) 2. Ne*e++it) Theor) /he power to tax is an attribute of sovereignty emanating from necessity. It is a necessary burden to preserve the State3s sovereignty and a means to give the citi0enry an army to resist an aggression a navy to defend its shores from invasion a corps of civil servants to serve public improvements designed for the enjoyment of the citi0enry and those which come within the State3s territory and facilities and protection which a government is supposed to provide. (Phil. Guaranty Co., Inc. v. CIR) ". 'e efit+,Prote*tio - Re*i.ro*it) Theor) /axation is described as a symbiotic relationship whereby in exchange of the benefits and protection that the citi0ens get from the 4overnment taxes are paid. (CIR v. Algue, Inc.)

of

Exte t of Taxi ! Power Subject to constitutional and inherent restrictions the power of taxation is regarded as comprehensive unlimited plenary and supreme. SCOPE OF LEGISLATI"E TAXING POWER 1. !mount or rate of tax 2. !pportionment of the tax ". #ind of tax $. %ethod of collection &. 'urpose(s of its levy provided it is for public purpose ). Subject to be taxed provided it is within its jurisdiction *. Situs of taxation TAXES enforced proportional contributions from the persons and property levied by the law-making body of the State by virtue of its sovereignty in support of government and for public needs. C#ARACTERISTICS OF TAXES 1. forced charge+ 2. pecuniary burden payable in money+ ". levied by the legislature+ $. assessed with some reasonable rule of apportionment+ ,see theoretical justice&. imposed by the State within its jurisdiction+

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Note 1hile taxes are intended for general benefits special benefits to taxpayers are not re5uired. /he 4overnment renders no special or commensurate benefit to any particular person or property. IS T#E POWER TO TAX T#E POWER TO &ESTRO/0 1. 1Power to tax i+ the .ower to de+tro)2 ,!arshall "ictum) # refers to the unlimitedness and the degree or vigor with which the taxing power may be employed to raise revenue. - the financial needs of the State may outrun any human calculation so the power to meet those needs by taxation must not be limited even though taxes become burdensome or confiscatory. 2. 1Power to tax i+ ot the .ower to de+tro) while the Su.re3e Court +it+2 ($olmes "ictum) 6 the power to tax knows no limit except those expressly stated in the .onstitution. !arshall and $olmes "ictum Reconciled !lthough the power to tax is almost unlimited it must not be exercised in an arbitrary manner. If the abuse is so great so as to destroy the natural and fundamental rights of people it is the duty of the judiciary to hold such an act unconstitutional. P%RPOSES AN& O'4ECTI"ES OF TAXATION 5. Re6e ue basically the purpose of taxation is to provide funds or property with which the State promotes the general welfare and protection of its citi0ens. 2. No ,Re6e ue 78e)9 PR:EP; a. Promotion of general welfare b. Regulation c. Reduction of social ine5uality d. Encourage economic growth e. Protectionism POWER OF 4%&ICIAL RE"IEW IN TAXATION !s long as the legislature in imposing a tax does not violate applicable constitutional limitations or restrictions it is not within the province of the courts to in5uire into the wisdom or policy of the exaction the motives behind it the amount to be raised or the persons property or other privileges to be taxed. /he court7s power in taxation is limited only to the application and interpretation of the law. Note /he principle o% &udicial non' inter%erence extends to the administrative realm. ASPECTS OF TAXATION 1. 8evy or imposition of the tax ,tax legislation2. 9nforcement or tax administration ,tax administration'ASIC PRINCIPLES OF A SO%N& TAX S/STE< 78E/9 FAT; 1. Fi+*al Ade=ua*) sufficiency to meet government expenditures and other public needs. 2. Ad3i i+trati6e Fea+i(ilit)Co 6e ie *e capability of being effectively enforced. ". Theoreti*al 4u+ti*e based on the taxpayer7s ability to pay+ must be progressive. ,!bility to 'ay /heoryTAXATION
/o raise revenue

POLICE POWER

E<INENT &O<AIN

2. No limit

1. Purpose /o promote /o facilitate public the State7s purpose need of through property for regulations public use Amount of Exaction 8imited to No exaction+ the cost of but private regulation property is issuance of taken by the the license or State for surveillance public purpose

3. No special or direct benefit is received by the taxpayer+ merely general benefit of protection

Benefits Received No direct ! direct benefit is benefit results received+ a in the form of healthy just economic compensation standard of to the society is property attained owner

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


4. Non-impairment of Contracts .ontracts .ontracts .ontracts may may not be may be be impaired impaired impaired 5. ransfer of Propert! Ri"#ts /axes paid No transfer /ransfer is become part but only effected in of public restraint in favor of the funds its exercise State !ll persons property and excises $. %cope !ll persons property rights and privileges
OF

registration fees are regulatory exactions and not revenue measures. (. /he tax imposed on videogram establishments is not only regulatory but a revenue measure because the earnings of such establishments have not been subject to tax depriving the government of an additional source of income. (1io v. 2ideogram Regulatory 3oard, ,/, 4CRA 56.) *. /he <coconut levy funds= were all raised under the state7s taxing and police powers. /he state7s concern to make it a strong and secure source not only in the livelihood of the significant segment of the population but also of export earnings the sustained growth of which is one of the imperatives of the economic growth.= Philippine Coconut Producers 7ederation, Inc. Coco%ed v. Presidential Commission on Good Government (,8. 4CRA 5-9, 5/5) CONSTR%CTION OF TAX LAWS 1. 'ublic purpose is always presumed. 2. If the law is clear apply the law in accordance to its plain and simple tenor. ". ! statute will not be construed as imposing a tax un&ess it does so clearly expressly and unambiguously. $. In case of doubt it is construed most strongly against the 4overnment and li(erall) in favor of the taxpayer. &. 'rovisions of a taxing act are not to be extended by implication. ). /ax laws operate prospectively un&ess the purpose of the legislature to give retrospective effect is expressly declared or may be implied from the language used. *. /ax laws are +.e*ial law+ and prevail over a general law. TAX LAWS 1. >ot political in character 2. .ivil in nature not subject to ex post facto law prohibitions ". >ot penal in character
NATURE OF

(nly upon a particular property

S/STE<S Glo(al S)+te3


! system employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of the individual. ! system which taxes all categories of income except certain passive incomes and capital gains. It prescribes a unitary but progressive rate for the taxable aggregate incomes and flat rates for certain passive incomes derived by individuals.

TAXATION S*hedular S)+te3

! system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer.

! system which itemi0es the different incomes and provides for varied percentages of taxes to be applied thereto.

EXA<PLES OF TAXES LE"IE& WIT# A REG%LATOR/ P%RPOSE> OR CO<'INE& EXERCISE OF POLICE POWER AN& T#E POWER OF TAXATION. a. %otor vehicle registration fees are now considered revenue or tax measures.(Pal v. )du, G.R No. *'+,-.-, August ,/,,0..) /his case reversed the doctrine previously held in :epublic v. 'hilippine :abbit ;us 8ines Inc. "2 S.:! 211 to the effect that motor vehicle

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


TAXES ARE PERSONAL TO T#E TAXPA/ER 1. ! corporation7s tax delin5uency cannot be enforced against its stockholders. 7Cor.orate E tit) &o*tri e; ):ception Stockholders may be held liable for unpaid taxes of a dissolved corporation? a. if it appears that the corporate assets have passed into their hands or b. when the stockholders have unpaid subscriptions to the capital of the corporation 2. 9state taxes are obligations that must be paid by the executor or administrator out of the net assets and cannot be assessed against the heirs. ):ception If prior to the payment of the estate tax due the properties of the deceased are distributed to the heirs then the latter is subsidiary liable for the payment of such portion of the estate tax as his distributive share bears to the total value of the net estate. (4ec. 0, Rev. Regs. No. 5'566-; see CIR vs. Pineda G.R. No. *'558-+. 4eptember ,/, ,098)) CLASSIFICATION OF TAXES 1. !s to subject matter? a. Per+o al Tax taxes are of fixed amount upon all persons of a certain class within the jurisdiction without regard to property occupation or business in which they may be engaged. b. Pro.ert) Tax assessed on property of a certain class c. Ex*i+e Tax imposed on the exercise of a privilege d. Cu+to3+ &utie+ duties charged upon the commodities on their being imported into or exported from a country. 2. !s to burden? a. &ire*t Tax both the incidence of or liability for the payment of the tax as well as the impact or burden of the tax falls on the same person. b. I dire*t Tax , /he incidence of or liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another. to purpose? Ge eral Tax levied for the general or ordinary purposes of the 4overnment S.e*ial Tax levied for special purposes to manner of computation? S.e*ifi* Tax the computation of the tax or the rates of the tax is already provided for by law. Ad 'a&orem Tax tax upon the value of the article or thing subject to taxation+ the intervention of another party is needed for the computation of the tax. to taxing authority? Natio al Tax levied by the >ational 4overnment Lo*al Tax levied by the local government to rate? Pro!re++i6e Tax rate or amount of tax increases as the amount of the income or earning to be taxed increases. Re!re++i6e Tax tax rate decreases as the amount of income to be taxed increases. Pro.ortio ate Tax based on a fixed proportion of the value of the property assessed.

". !s a. b. $. !s a. b.

&. !s a. b. ). !s a.

b. c.

I<POSITIONS NOT STRICTL/ CONSI&ERE& AS TAXES 1. Toll amount charged for the cost and maintenance of the property used. 2. Pe alt) punishment for the commission of a crime. ". Co3.ro3i+e Pe alt) amount collected in lieu of criminal prosecution in cases of tax violations. $. S.e*ial A++e++3e t levied only on land based wholly on benefit accruing thereon as a result of improvements or public works undertaken by government within the vicinity. &. Li*e +e or Fee regulatory imposition in the exercise of the police power.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


). <ar!i Fee exaction designed to stabili0e the currency. *. &e(t a sum of money due upon contract or one which is evidenced by judgment. @. Su(+id) a legislative grant of money in aid of a private enterprise deemed to promote the public welfare. A. Cu+to3+ dutie+ a d fee+ duties charged upon commodities on their being transported into or exported from a country. 1B. Re6e ue a broad term that includes taxes and income from other sources as well. 11. I3.o+t in its general sense it signifies any tax tribute or duty. In its limited sense it means a duty on imported goods and merchandise. Tax
Imposed on persons property and excises 'ersonal liability attaches on the person assessed in case of non-payment >ot based on any special or direct benefit 8evied and annually paid

>ormally paid after the start of a business /axes being the lifeblood of the State cannot be surrendered except for lawful consideration >on-payment does not make the business illegal but maybe a ground for criminal prosecution

>ormally paid before commencement of business 8icense fee may be with or without consideration

>on-payment makes the business illegal

TEST

IN &ETER<INING IF T#E I<POSITION IS A TAX OR A LICENSE FEE

S.e*ial A++e++3e t
8evied only on land .annot be made a personal liability of the person assessed ;ased wholly benefit on

If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes then the exaction is a tax. If the purpose is regulatory in nature it is a license. (PA* v. )du) Tax
!n obligation imposed by law Cue to the government in its sovereign capacity 'ayable in money Coes not draw interest except in case of delin5uency Not assignable Not subject compensation set-off to or

&e(t
.reated by contract %ay be due to the government but in its corporate capacity 'ayable in money property or services Craws interest stipulated delayed !ssignable Subject compensation set-off to or if or

9xceptional both as to time and locality

9xemption granted is applicable (Art. 2I, 4ec. 5.(-) ,0.8 Constitution)

9xemption does not apply. >.;. If property is exempt from :eal 'roperty /ax it is also exempt from Special !ssessment.

Tax
;ased on the power of taxation /o revenue generate

Li*e +e Fee
9manates police power :egulatory !mount is limited to the cost of ,1issuing the license and ,2- inspection and surveillance from

!mount is unlimited

>on-payment is punished by imprisonment e:cept in poll tax Imposed only by public authority

No imprisonment in case of non-payment (Art. III, 4ec. 56 ,0.8 Constitution) .an be imposed by private individual

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


TEST
IN &ETER<INING IF T#E I<POSITION IS A TAX OR A LICENSE FEE

compensation takes place by operation of law. ("omingo v. Garlitos) &OCTRINE OF E$%ITA'LE RECO%P<ENT NOT FOLLOWE& IN T#E P#ILIPPINES ! tax presently being assessed against a taxpayer which has prescribed may not be recouped or set-off against an overpaid tax the refund of which is also barred by prescription. It is against public policy since both parties are guilty of negligence. Tax
9nforced proportional contributions from persons and property

If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes then the exaction is a tax. If the purpose is regulatory in nature it is a license. (PA* v. )du) Tax
!n obligation imposed by law Cue to the government in its sovereign capacity 'ayable in money Coes not draw interest except in case of delin5uency Not assignable Not subject compensation set-off to or

&e(t
.reated by contract %ay be due to the government but in its corporate capacity 'ayable in money property or services Craws interest stipulated delayed !ssignable Subject compensation set-off to or if or

Toll
! sum of money for the use of something a consideration which is paid for the use of a property which is of a public nature+ e.g. road bridge ! demand proprietorship of

! demand sovereignty

of

>o limit as to the amount of tax

>on-payment is punished by imprisonment e:cept in poll tax Imposed only by public authority

No imprisonment in case of nonpayment (Art. III, 4ec. 56 ,0.8 Constitution) .an be imposed by private individual

!mount of toll depends upon the cost of construction or maintenance of the public improvement used %ay be imposed by? ,1- 4overnment ,2- 'rivate individuals or entities

Imposed only by the State

Tax
9nforced proportional contributions persons property

Pe alt)
Sanction imposed as a punishment for violation of a law or acts deemed injurious+ violation of tax laws may give rise to imposition of penalty Cesigned to regulate conduct %ay be imposed by? ,1- 4overnment ,2'rivate individuals or entities

CO<PENSATION OR SET,OFF General Rule /axes cannot be the subject of compensation or set-off. Reasons 1. lifeblood theory 2. taxes are not contractual obligation but arise out of duty to the government ". the government and the taxpayer are not mutually creditors and debtors of each other. (7rancia v. IAC) ):ception 1hen both obligations are due and demandable as well as fully li5uidated and all the re5uisites for a valid compensation are present

from and

Intended revenue

to

raise

%ay be imposed only by the government

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Tax
!ll embracing term to include various kinds of enforced contributions upon persons for the attainment of public purposes

Tariff
! kind of tax imposed on articles which are traded internationally

TAXPA/ERS? S%IT ! case where the act complained of directly involves the illegal disbursement of public funds derive from taxation (<ustice !elo, dissenting in =ilosbayan, Inc vs Guingona, <r.) TAXPA/ERS AN& P%'LIC OFFCIALS #A"E ()C*% % AN+, RE$%ISITES FOR TAXPA/ERS? S%IT a. /he tax money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power. b. /hat public money is being deflected to any improper purpose (Pascual vs 4ecretary o% Public >or?s) c. That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law

7:; NON,&ELEGA'ILIT/ OF T#E TAXING POWER -enera& Ru&e. /he power of taxation is peculiarly and exclusively exercised by the legislature. ,See Scope of 8egislative /axing 'ower supra- refers to tax legislation Exceptions to Non'delegability 1. Dlexible /ariff .lause? !uthority of the 'resident to fix tariff rates import and export 5uotas tonnage and wharfage dues and other duties or imposts. (Art. 2I, 4ec.5.(5), ,0.8 Constitution) 2. 'ower of local government units to levy taxes fees and charges. (Art. @, 4ec. /, ,0.8 Constitution) ". Celegation to administrative agencies for implementation and collection. - merely refers to tax administration or implementation 7@; SIT%S OR TERRITORIALIT/ OF TAXATION /he power to tax is limited only to persons property or businesses Aithin the jurisdiction or territory of the taxing power. FACTORS T#AT &ETER<INE T#E SIT%S9 a. #ind or classification of the tax being levied b. Situs of the thing or property taxed c. .iti0enship of the taxpayer d. :esidence of the taxpayer e. Source of the income taxed f. Situs of the excise privilege business or occupation being taxed APPLICATION OF SIT%S 8i d of Tax
'ersonal or .ommunity tax :eal property tax 'ersonal tax property
OF

LI<ITATIONS ON T#E TAXING POWER


A. 5. :. @. A. B. IN#ERENT LI<ITATIONS 78E/9 SPINE; /erritoriality or Situs of taxation Public purpose of taxes International comity Non-delegability of the taxing power /ax Exemption of the government

TAXATION Situ+
or the

75; TESTS IN &ETER<INING P%'LIC P%RPOSE a. &ut) Te+t whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide. (. Pro3otio of Ge eral Welfare Te+t whether the proceeds of the tax will directly promote the welfare of the community in e5ual measure.

:esidence domicile of taxpayer

8ocation of property (*e: rei sitae) -tangible? where it is physically located or permanently kept (*e: rei sitae) -intangible? subject to 4ec. ,6+ o% the NIRC and the

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


principle of mobilia seBuuntur personam ;usiness tax 9xcise or 'rivilege tax 'lace of business 1here the act is performed or where occupation is pursued 1here the sale is consummated .onsider ,1- citi0enship ,2- residence and ,"- source of income (4ec. +5, ,008 NIRC) :esidence or citi0enship of the taxpayer or location of property State which granted the franchise

bonds have ac5uired a business situs in the 'hilippines+ and ,&- shares or rights in any partnership business or industry established in the 'hilippines. (4ec. ,6+, ,008 NIRC). 7A; EXE<PTION OF T#E GO"ERN<ENT !s a matter of public policy property of the State and of its municipal subdivisions devoted to government uses and purposes is deemed to be exempt from taxation although no express provision in the law is made therefor. General Rule /he 4overnment is tax exe3.t. - 2owever it can also tax itself. R%LES9 1. !dministrative !gencies a. 4overnmental function - tax exe3.t unless when the law expressly provides for tax. (4ec. -5 38) b. 'roprietary function 6 taxa(le unless exempted by law. (4ec. 58C) 2. 4F..s General Rule Income is taxa(le at the rate imposed upon corporations or associations engaged in a similar business industry or activity. ):ception 4SIS SSS '2I. '.SF and '!4.F:. ,Sec. 2*,.- >I:.". 4overnment 9ducational Institutions a. 'roperty or real estate tax 6 property actually directly and exclusively used for educational purposes 6 exe3.t but income of whatever kind and character from any of their properties real or personal regardless of the disposition is taxa(le. (4ec. -6, last par., NIRC) (. Income received by them as such are exe3.t from taxes. 2owever their income from any of their activities conducted for profit regardless of the disposition is taxa(le. (4ec. -6, last par., NIRC) A. Income derived from any public utility or from the exercise of any essential governmental function

Sales tax Income /ax

/ransfer tax

Dranchise /ax

SIT%S OF TAXATION OF INTANGI'LE PERSONAL PROPERT/ -enera& Ru&e. Comicile of the owner pursuant to the principle of the mobilia seBuuntur personam or movables follow the person. Exceptions 1. 1hen the property has ac5uired a business situs in another jurisdiction+ 2. 1hen an express provision of the statute provide for another rule. Illustration Dor purposes of estate and donor7s taxes the following intangible properties are deemed with a situs in the 'hilippines? ,1- franchise which must be exercised in the 'hilippines+ ,2- shares obligations or bonds issued by any corporation organi0ed or constituted in the 'hilippines in accordance with its laws+ ,"- shares obligations or bonds by any foreign corporation eightyfive percent ,@&E- of the business of which is located in the 'hilippines+ ,$- shares obligations or bonds issued by any foreign corporation if such shares obligations or

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


accruing to the 4overnment of the 'hilippines or to any political subdivision thereof is not included in gross income and exe3.t from taxation. (4ec. -5(3)(8)(b), NIRC) &. Conations in favor of governmental institutions are considered as income on the part of the donee. 2owever it is not considered as taxable income because it is an e:clusion from the computation of gross income. (4ec.-5 (3)(-), NIRC) ). /he amount of all be5uests legacies devises or transfers to or for the use of the 4overnment or any political subdivision for exclusively public purposes is deductible from the gross estate. (4ec..9 (A)(-), NIRC) C. 4ifts made to or for the use of the >ational 4overnment or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said 4overnment are exe3.t from donor7s tax. (4ec. ,6,(A)(5), NIRC) D. 8ocal government units are ex.re++l) .rohi(ited by the 84. from levying tax upon >ational 4overnment its agencies and instrumentalities and local government units. C4ec. ,-- (o), *GCD E. Gnless otherwise provided in the 8ocal 4overnment .ode ,84.- tax exemptions granted to all persons whether natural or juridical including 4F.. except local water districts cooperatives duly registered under :! >o. )A"@ nonstock and non-profit institutions are withdraw upon effectivity of the 84.. (4ec. ,0-, *GC) 5F. :eal property ow ed by the :epublic of the 'hilippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable person shall be exe3.t from payment of real property tax. (4ec. 5-+, *GC) 7B; INTERNATIONAL CO<IT/ /hese principles limit the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities as well as on its property held and activities undertaken in that capacity. 9ven where one enters the territory of another there is an implied understanding that the former does not thereby submit itself to the authority and jurisdiction of the other. '. CONSTIT%TIONAL LI<ITATIONS A. GENERAL OR IN&IRECT CONSTIT%TIONAL LI<ITATIONS 5. &ue Pro*e++ Clau+e /Art. ,,,0 %ec. 10 1123 Constitution4 Re=ui+ite+9 a. /he interests of the public as distinguished from those of a particular class re5uire the intervention of the State. (4ubstantive limitation) b. /he means employed must be reasonably necessary to the accomplishment of the purpose and not unduly oppressive. (Procedural limitation) /he constitutionality of a legislative taxing act 5uestioned on the ground of denial of due process re5uires the existence of an actual case or controversy. :. E=ual Prote*tio Clau+e 7Art. ,,,0 %ec. 10 1123 Constitution Re=ui+ite+ of a "alid Cla++ifi*atio 9 a. based upon substantial distinctions b. germane to the purposes of the law c. not limited to existing conditions only d. apply e5ually to all members of the class @. Freedo3 Of S.ee*h A d Of The Pre++ /Art. ,,,0 %ec. 40 1123 Constitution4 /here is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right and impose a prior restraint. (1olentino vs. 4ecretary o% 7inance, GR No. ,,/+//, August 5/, ,00+)

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


A. No ,I fri !e3e t Of Reli!iou+ Freedo3 A d Wor+hi. 7Art. ,,,0 %ec. 50 1123 Constitution4 ! license tax or fee constitutes a curtailment of religious freedom if imposed as a condition for its exercise. (American 3ible 4ociety vs. City o% !anila, GR No. *'09-8, April -6, ,0/8) B. No ,I3.air3e t Of Co tra*t+ 7Art. ,,,0 %ec. 150 1123 Constitution4 >o law impairing the obligation of contract shall be passed. (4ec. ,6, Art. III, ,0.8 Constitution) /he rule however does not apply to public utility franchises or right since they are subject to amendment alteration or repeal by the .ongress when the public interest so re5uires. (Cagayan )lectric E *ight Co., Inc. v. Commissioner, GR No. 965,9, 4eptember 5/, ,0./) R%LES9 a. 1hen the exemption is bilaterally agreed upon between the government and the taxpayer 6 it cannot be withdrawn Aithout violating the non-impairment clause. b. 1hen it is unilaterally granted by law and the same is AithdraAn by virtue of another law 6 no violation. c. 1hen the exemption is granted under a franchise 6 it may be AithdraAn at any time thus not a violation of the non-impairment of contracts G. Pre+ide tial .ower to !ra t re.rie6e+> *o33utatio + a d .ardo + a d re3it fi e+ a d forfeiture+ after *o 6i*tio 7AR . ',,0 %EC. 110 1123 C)N% , * ,)N4 &ue E=ual % ifor3it) Pro*e++ Prote*tio
/axpayer may not be deprived of life liberty or property without due /axpayers shall be treated alike under like circumstances and conditions both in the privileges conferred and /axable articles or kinds of property of the same class shall be taxed at the same rate. /here process of law. >otice must therefore be given in case of failure to pay taxes liabilities imposed. should therefore be no direct double taxation

'. SPECIFIC OR &IRECT CONSTIT%TIONAL LI<ITATIONS 5. No ,I3.ri+o 3e t For &e(t Or No , Pa)3e t Of Poll Tax 7Art. ,,,0 %ec. 250 1123 Constitution4 :. Rule Re=uiri ! That A..ro.riatio +> Re6e ue A d Tariff 'ill+ Shall Ori!i ate Ex*lu+i6el) Fro3 The #ou+e Of Re.re+e tati6e+ 7Art. ',0 %ec. 240 1123 Constitution4 @. % ifor3it)> E=uita(ilit) A d Pro!re++i6it) Of Taxatio /Art. ',0 %ec. 22/140 1123 Constitution4 % ifor3it) all taxable articles or kinds of property of the same class are taxed at the same rate. E=uita(ilit) the burden falls to those who are more capable to pay. Pro!re++i6it) rate increases as the tax base increases. $9 Is a tax law adopting a regressive system of taxation validH A9 Ies. /he .onstitution does not really prohibit the imposition of indirect taxes which like the J!/ are regressive. /he .onstitutional provision means simply that indirect taxes shall be minimi0ed. /he mandate to .ongress is not to prescribe but to evolve a progressive tax system. ()2A1 )n 3anc Resolution, 1olentino, et al vs 4ecretary o% 7inance, (ctober -6, ,00/) A. Li3itatio + O The Co !re++io al Power To &ele!ate To The Pre+ide t The Authorit) To Fix Tariff Rate+> I3.ort A d Ex.ort $uota+> Et*. /Art. ',0 %ec. 22/240 1123 Constitution4 B. Tax Exe3.tio Of Pro.ertie+ A*tuall)> &ire*tl) A d Ex*lu+i6el) %+ed For Reli!iou+> Charita(le A d

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Edu*atio al Pur.o+e+. /Art. ',0 %ec. 22/34 30 1123 Constitution4 /he constitutional provision ,above cited- which grants tax exemption applies only to property or realty taxes assessed on such properties used actually directly exclusively for religious charitable and educational purposes. (*ladoc vs. Commissioner, GR No. *',056,, <une ,9, ,09/) /he present .onstitution re5uired that for the exemption of <lands buildings and improvements= they should not only be <exclusively= but also <actually= and <directly= used for religious and charitable purposes. (Province o% Abra vs. $ernando, GR No. *'+0--9, August -,, ,0.,) /he test of exemption from taxation is the use of the property for the purposes mentioned in the .onstitution. (Abra 2alley College Inc. vs. ABuino, GR No. *'-06.9, <une ,/, ,0..) EXCL%SI"E '%T NOT A'SOL%TE %SE /he term < exclusively used= does not necessarily mean total or absolute use for religious charitable and educational purposes. If the property is incidentally used for said purposes the tax exemption may still subsist. (Abra 2alley College Inc. vs. ABuino, Gr No. *' -06.9, <une ,/, ,0..) .orollarily if a property although actually owned by a religious charitable and educational institution is used for a non- exempt purpose the exemption from tax shall not attach ART. XI"> SEC A7@;
4rantee >on- stock non profit educational institution Income tax .ustom Cuties 'roperty tax (")C4 (rder No. ,-8',.8)

Exe3.tio /Art. ',0 %ec. 22/440 1123 Constitution4 C. No ,I3.air3e t Of The 4uri+di*tio Of The Su.re3e Court I Tax Ca+e+ /Art. ',,,0 %ec. 2 And 5/24/B40 1123 Constitution4 D. Exe3.tio Fro3 Taxe+ Of The Re6e ue+ A d A++et+ Of Edu*atio al I +titutio +> I *ludi ! Gra t+> E dow3e t+> &o atio + A d Co tri(utio +. /Art. 6,'0 %ec. 4/34 And /440 1123 Constitution4 OT#ER SPECIFIC TAX PRO"ISIONS IN T#E CONSTIT%TION 1. 'ower of the 'resident to veto any particular item or items in an appropriation revenue or tariff bill. (Art 2I, 4ec. 58(5), ,0.8 Constitution) 2. >ecessity of an appropriation before money may be paid out of the public treasury. (Art. 2I, 4ec. 50 (,), ,0.8 Constitution) ". >on-appropriation of public money or property for the use benefit or support of any sect church or system of religion. (Art. 2I, 4ec. 50 (5), ,0.8 Constitution) $. /reatment of taxes levied for a special purpose. (Art. 2I, 4ec. 50 (-), ,0.8 Constitution) &. Internal revenue allotments to local government units. (Art. @, 4ec. 9, ,0.8 Constitution)

&O%'LE TAXATION
&O%'LE TAXATION taxing the same property twice when it should be taxed but once. IS &O%'LE TAXATION PRO#I'ITE& IN T#E P#ILIPPINES0 No. /here is no constitutional prohibition against double taxation. It is not favored but permissible. (Pepsi Cola 3ottling Co. v. City o% 3utuan, ,09.). 8IN&S OF &O%'LE TAXATION 75; &ire*t &u.li*ate Taxatio O( oxiou+ double taxation in the objectionable or prohibited sense.

ART. "I> SEC :D7@;


:eligious educational charitable institutions 'roperty tax

/axes covered

G. "oti ! Re=uire3e t I Co e*tio With The Le!i+lati6e Gra t Of Tax

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


/his constitutes a violation substantive due process. of the output tax or tax on the finished product. 7oreign income ta:es may be credited against the 'hil. Income tax subject to certain limitations by citi0ens including members of general professional partnerships or beneficiaries of estates or trusts ,pro rata- as well as domestic corporations. ! tax credit is granted for estate ta:es paid to a foreign country on the estate of citi0ens and resident aliens subject to certain limitations. /he donorFs ta: imposed upon a citi0en or a resident shall be credited with the amount of any donor7s tax imposed by the authority of a foreign country subject to certain limitations. $. Tax Exe3.tio + &. Pri *i.le of Re*i.ro*it) ). Treatie+ with other +tate+ <ET#O&S RESORTE& TO '/ A TAX TREAT/ IN OR&ER TO ELI<INATE &O%'LE TAXATION FIRST <ET#O&9 /he tax treaty sets out the respective rights to tax by the state of source or situs and by the state of residence with regard to certain classes of income or capital. In some cases an exclusive right to tax is conferred in one of the contracting states+ however for other items of income or capital both states are given the right to tax although the amount of tax that may be imposed by the state of source is limited. SECON& <ET#O&9 /he state of source is given a full or limited right to tax together with the state of residence. In this case the treaty makes it incumbent upon the state of residence to allow relief in order to avoid double taxation. TWO
<ET#O&S OF RELIEF ARE %SE& %N&ER T#E SECON& <ET#O&9

Ele3e t+9 a. the same property or subject matter is taxed twice when it should be taxed only once. b. both taxes are levied for the same purpose c. imposed by the same taxing authority d. within the same jurisdiction e. during the same taxing period f. covering the same kind or character of tax. (2illanueva vs. City o% Iloilo) 7:; I dire*t &u.li*ate Taxatio not legally objectionable. /he absence of one or more of the abovementioned elements makes the double taxation indirect. 7@; &o3e+ti*, this arises when the taxes are imposed by the local or national government ,within the same state7A; I ter atio al, refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. RE<E&IES OF &O%'LE TAXATION 1. Tax S.ari ! Rule 6 same dividend earned by a >:D. within the 'hil. is reduced by imposing a lower rate of 1&E ,in lieu of the "&E- on the condition that the country to which the >:D. is domiliced shall allow a credit against the tax due from the >:D. taxes deemed to have been paid in the 'hil. ,Sec.2@ ; &b- ,.I: vs 'rocter K 4amble- (GR No. 99.-., "ec. 5, ,00,2. Tax dedu*tio + ):ample? vanishing deduction under Section @),!-,2- >I:. ". Tax *redit+ Instances under the NIRC Dor 2A1 purposes the tax on inputs or items that go into the manufacture of finished products ,which are eventually sold- may be credited against or deducted from

1. The exe3.tio 3ethod- the income or capital which is taxable in the state of source or situs is exempted in the state of residence although in some instances it may be taken into account in determining the rate of tax applicable to the tax payer7s remaining income or

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


capital.,/his may be done using the tax deduction method which allows foreign income taxes to be deducted from gross income in effect exempting the payment from being further taxed.2. The *redit 3ethod, although the income or capital which is taxed in the state of source is still taxable in the state of residence. /he tax paid in the former is credited against the tax levied in the latter.(Commissioner o% Internal Revenue v. 4.C <ohnson and 4on, Inc. et al., G.R No. ,58,6/, <une 5/, ,000) Exe3.tio <ethod
Docus is on the income or capital itself

INCI&ENCE OF TAXATION 6 point on which the tax burden finally rests or settles down. Illustration Jalue added tax. /he seller is re5uired by law to pay tax but the burden is actually shifted or passed on to the buyer.
8IN&S OF S#IFTING

Credit <ethod
Docus is on the tax

N(1)? .omputational illustration between a tax deduction and a tax credit? Tax dedu*tio 3ethod 4ross income 8ess? allowable deductions i *ludi ! foreign taxes paid Income subject to tax %ultiplied by rate Income tax due Tax *redit 3ethod 4ross income 8ess? allowable deductions ex*ludi ! foreign taxes paid Income subject to tax %ultiplied by rate Income tax due 8ess? foreign taxes paid >et income tax due

a. Forward +hifti !, when burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer (. 'a*Hward +hifti !, when burden is transferred from consumer through factors of distribution to the factors of production *. O ward +hifti !, when the tax is shifted 2 or more times either forward or backward 7:; CAPITALIIATION a mere increase in the value of the property is not income but merely an unreali0ed increase in capital. >o income until after the actual sale or other disposition of the property in excess of its original cost. EXCEPT9 if by reason of appraisal the cost basis of property increased and the resultant basis is used as the new tax base for purposes of computing the allowable depreciation expense the net difference between the original cost basis and new basis is taxable under the economic bene%it principle. (3IR Ruling No. 650, !arch ,0, ,00.) 7@; TRANSFOR<ATION the manufacturer or producer upon whom the tax has been imposed fearing the loss of his market if he should add the tax to the price pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units at a lower cost. 7A; TAX A"OI&ANCE the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. 9xample? <estate planning= ,conveyance of property to a family

FOR<S OF ESCAPE FRO< TAXATION


75; S#IFTING the process by which the tax burden is transferred from the statutory taxpayer (impact o% ta:ation) to another (incident o% ta:ation) without violating the law. I<PACT OF TAXATION 6 point on which tax is originally imposed.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


corporation for shares- ("elpher 1rades Corp. vs. IAC, ,/8 4CRA -+0) 7B; TAX E"ASION use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of the tax. FACTORS IN TAX E"ASION 1. the end to be achieved i.e. payment of less than that known by the taxpayer to be legally due or paying no tax when it is shown that the tax is due+ 2. an accompanying state of mind which is described as being evil in bad faith willful or deliberate and not coincidental+ and ". a course of action which is unlawful. IN&ICIA OF FRA%& IN TAX E"ASION 1. Dailure to declare for taxation purposes true and actual income derived from business for 2 consecutive years (Republic vs GonGales, *',8095) 2. Substantial under-declaration of income tax returns of the taxpayer for $ consecutive years coupled with intentional overstatement of deductions (CIR vs Reyes, ,6+ P$I* ,69,) TAX A"OI&ANCE
Jalidity 8egal and not subject to criminal penalty %inimi0ation of taxes

TAX E"ASION
Illegal and subject to criminal penalty !lmost always results in absence of tax payments

9ffect

7G; TAX EXE<PTION a grant of immunity to particular persons or corporations from the obligation to pay taxes. >o law granting any tax exemption shall be passed without the concurrence of a majority of all the members of .ongress 7AR1 2I. 4)C 5.(+) (7 1$) ,0.8 C(N41I1H1I(N)
LEGAL 'ASIS9

a. Co +titutio al immunities from taxation that originate from the constitution. (. Statutor) those which emanate from legislation Exa3.le+ of Statutor) Exe3.tio + Sec. 2* >I:. Sec. 1B& /ariff and .ustoms .ode Sec. 2"$ 8ocal 4overnment .ode Special 8aws such as the Fmnibus Investment .ode of 1A@* ,9F 22)'hilippine Fverseas Shipping !ct ,:! 1$B* as amendedDertili0er Industry !ct ,:! "B&B as amended%ineral :esources Cevelopment Cecree of 1A*$ ,'C $)" as amended- .ottage Industry !ct ,:! "1@ as amendedand exemptions in <2ousing for 8ow Income 4roup= ,'C 12B& as amended*. Co tra*tual, agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws d. Treat) e. Li*e +i ! Ordi a *e 2. !s to form 75; Ex.re++ expressly granted by organic or statute law 7:; I3.lied when particular persons property or excises are deemed exempt as they fall outside the scope of the taxing provision itself. ". !s to extent 75; Total absolute immunity 7:; Partial one where a collection of a part of the tax is dispensed with $. !s to object 75; Per+o al granted directly in favor of certain persons 7:; I3.er+o al granted directly in favor of a certain class of property PRINCIPLES GO"ERNING TAX EXE<PTION a. 9xemptions from taxation are hi!hl) di+fa6ored in law and are not .re+u3ed. (. 2e who claims as exemption must be able to justify his claim by the *leare+t !ra t of organic or statute law by word+ too .lai to be

8IN&S OF TAX EXE<PTION 1. !s to source

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


mistaken. If ambiguous there is no exemption. 2e who claims exemption should prove by *o 6i *i ! .roof that he is exempted. /axation is the rule+ tax exemption is the e:ception. /ax exemption must be +tri*tl) *o +trued against the taxpayer and liberally in favor of the taxing authority. /ax exemptions are not presumed. .onstitutional grants of tax exemption are +elf,exe*uti !. /ax exemptions are .er+o al. parties based on material consideration of a mutual nature which then becomes contractual and is covered by the non-impairment clause of the .onstitution. b. Adhere *e to for3, if the tax exemption is granted by the .onstitution its revocation may be effected through .onstitutional amendment only c. 1here the tax exemption grant is in the form of a special law and not by a general law even if the terms of the general act are broad enough to include the codes in the general law unless there is manifest intent to repeal or alter the special law (Province o% !isamis (riental vs Cagayan )lectric PoAer and *ight Co. Inc) NAT%RE OF TAX A<NEST/ 1. 4eneral or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. 2. 'artakes of an absolute forgiveness of waiver of the government of its right to collect. ". /o give tax evaders who wish to relent and are willing to reform a chance to do so.
R%LES ON TAX A<NEST/

*. d. e.

f. !. h.

T#E FOLLOWING PARTA8E T#E NAT%RE OF TAX EXE<PTION 1. Ceductions for income tax purposes 2. .laims for refund ". /ax amnesty $. .ondonation of unpaid tax liabilities N(1) must be +tri*tl) *o +trued against the taxpayer W#EN EXE<PTIONS ARE CONSTR%E& LI'ERALL/ IN FA"OR OF GRANTEE 1. 1hen the law so provides for such liberal construction. 2. 9xemptions from certain taxes granted under special circumstances to special classes of persons. ". 9xemptions in favor of the government its political subdivisions or instrumentalities. $. 9xemptions to traditional exemptees such as those in favor of religious and charitable institutions. &. If exemptions refer to the public property $9 %ay a tax exemption be revokedH A9 Ies. It is an act of liberality which could be taken back by the government unless there are restrictions. Since taxation is the rule and exemption therefrom is the exception the exemption may be withdrawn by the taxing authority. (!actan Cebu International Airport Authority vs. !arcos, 59, 4CRA 998) RESTRICTIONS ON RE"OCATION OF TAX EXE<PTIONS a. No i3.air3e t *lau+e. 1here the exemption was granted to private

1. /ax amnesty a- like tax exemption it is never favored nor presumed b- construed strictly against the taxpayer ,must show complete compliance with the law2.4overnment not estopped from 5uestioning the tax liability even if amnesty tax payments were already received. Reason? 9rroneous application and enforcement of the law by public officers do not block subse5uent correct application of the statute. /he government is never estopped by mistakes or errors of its agents. 3asis? 8ifeblood /heory ".Cefense of tax amnesty like insanity is a personal defense.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Reason? :elates to the circumstances of a particular accused and not the character of the acts charged in the information. Tax a3 e+t)
Immunity from all criminal civil and administrative liabilities arising from non payment of taxes !pplies only to past tax periods hence retroactive application

%raud or protest, be %inal and conclusive upon all parties, unless the liBuidation o% import entry Aas merely tentative.I (4ec ,96-,1CC) c.- (oca& -overnment Code *ocal 1a:es, %ees, or charges shall be assessed Aithin five /54 !ears %rom the date they became due. In case o% %raud or intent to evade the payment o% ta:es, %ees or charges the same may be assessed Aithin ten /154 !ears %rom discovery o% the %raud or intent to evade payment. 1hey shall also be collected either by administrative or &udicial action Aithin five /54 !ears %rom date o% assessment (4ec. ,0+. *GC)

Tax exe3.tio
Immunity from civil liability only

'rospective application

&OCTRINE OF I<PRESCRIPTI'ILT/ !s a rule taxes are imprescriptible as they are the lifeblood of the government. 2owever tax statutes may provide for statute of limitations. /he rules that have been adopted are as follows? a.4 Nationa& ,nterna& Revenue Code /he statute of limitation for assessment of tax if a return is filed is within three 7@; )ear+ from the last day prescribed by law for the filling of the return or if filed after the last day within three years from date of actual filling. If no return is filed or the return filed is false or fraudulent the period to assess is within te )ear+ from discovery of the omission fraud or falsity. /he period to collect tax is within three )ear+ from date of assessment. In the case however of omission to file or if the return filed is false or fraudulent the period to collect is within te )ear+ from discovery without need of an assessment. 7.4 ariff and customs code It does not express any general statute of limitation+ it provided however that L7 Ahen articles have entered and passed %ree o% duty or %inal ad&ustment o% duties made, Aith subseBuent delivery, such entry and passage %ree o% duty or settlement o% duties Aill, a%ter the e:piration o% one /14 !ear, %rom the date o% the %inal payment o% duties, in the absence o%

TAX ENFORCE<ENT AN& A&<INISTRATION


SO%RCES OF TAX LAWS 78e)9 SPEC:TRA 'LT; 5. Statutes :. Presidential Cecrees @. Executive Frders A. Constitution B. Court Cecisions G. Tax .odes C. Revenue :egulations D. Administrative Issuances E. 'I: :ulings 5F. Local /ax Frdinance 55. Tax /reaties and .onventions RE$%ISITES OF TAX REG%LATIONS 1. :easonable 2. 1ithin the authority conferred ". Not contrary to law $. %ust be published N(1) !dministrative regulations must always be in harmony with the provisions of the law. In case of discrepancy between the basic law and the implementing rule or regulation the former prevails. NON,RETROACTI"IT/ OF 'IR R%LINGS General Rule? :ulings are not retroactive if they are prejudicial to the taxpayer. (4ec. 5+9, NIRC) ):ceptions 1. 1here the taxpayer deliberately misstates or omits material facts

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


from his return or any document re5uired of him by the ;I:. 2. 1here the facts subse5uently gathered by the ;I: is materially different from the facts on which the ruling is based. ". 1here the taxpayer acted in bad faith. PRINCIPLE OF LEGISLATI"E APPRO"AL OF AN A&<INISTRATI"E INTERPRETATION T#RO%G# REENACT<ENT 1here a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its enforcement and the legislature thereafter reenacts the provision without substantial change such action is to some extent confirmatory that the ruling carries out the legislative purpose. R%LE OF NO ESTOPPEL AGAINST T#E GO"ERN<ENT General Rule /he 4overnment is not estopped by the mistakes or errors of its agents+ erroneous application and enforcement of law by public officers do not bar the subse5uent correct application of statutes. (). RodrigueG, Inc. vs. Collector, *'5-6+,, <uly -,, ,090) ):ception In the interest of justice and fair play as where injustice will result to the taxpayer. (see CIR vs. CA, GR No. ,,80.5, 7eb. 9, ,008; CIR vs. CA, GR No. ,68,-/, 7eb. -, ,000) AGENCIES IN"OL"E& IN TAX A&<INISTRATION 1. ;ureau of Internal :evenue 6 internal revenue taxes Agents o% the CIR a. .ommissioner of .ustoms with respect to taxes on imported goods b. head of the appropriate government office with respect to energy tax c. banks duly accredited by the .I: (4ec. ,5, ,008 NIRC) 2. ;ureau of .ustoms 6 customs law enforcement ". 'rovincial city and municipal assessors and treasurers 6 local and real property taxes

'%REA% OF INTERNAL RE"EN%E 7'IR;

;I: shall be under the supervision and control of the Cept. of Dinance (4ec. 5, NIRC) POWERS AN& &%TIES OF T#E 'IR A++e++3e t and *olle*tio of all national internal revenue taxes fees and charges 1. E for*e3e t of all forfeitures penalties and fines connected therewith 2. Exe*utio of judgments in all cases decided in its favor by the .ourt of /ax !ppeals ,./!- and the ordinary courts ". 4ive effect to and ad3i i+ter the supervisory and police powers conferred to it by the .ode or other laws ASSESS<ENT a finding by the taxing authority that the taxpayer has not paid the correct taxes. It is also a written notice to a taxpayer to the effect that the amount stated therein is due as a tax and containing a demand for the payment thereof. Ge eral rule9 /axes are self-assessing and thus do not re5uire the issuance of an assessment notice in order to establish the tax liability of a taxpayer. Ex*e.tio +9 1. /ax period of a taxpayer is terminated C4ec. 9("), NIRCD 2. Ceficiency tax liability arising from a tax audit conducted by the ;I: C4ec. /9(3), NIRCD ". /ax lien C4ec. 5,0, NIRCD $. Cissolving corporation C4ec. /5(c), NIRCD SIGNIFICANCE OF ASSESS<ENT a. In the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it such as the imposition of surcharges and interests b. In the application of statute of limitations c. In the establishment of tax liens and d. In estimating the revenues that may be collected by government in the

ORGANIIATION AN& F%NCTION OF T#E

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


coming year. (!amalateo, 2ictorino. RevieAer on 1a:ation, 566+) 8IN&S 5. SELF, ASSESS<ENT, one in which the tax is assessed by the taxpayer himself :. &EFICIENC/ ASSESS<ENT, made by the tax assessor himself whereby the correct amount of the tax is determined after an examination or investigation is conducted. /he liability is determined and assessed for the following reason? a. amount ascertained exceeds that which is shown as the tax by the taxpayer in his return b. no amount of tax is shown in the return c. taxpayer did not file any return at all ". It is discretionary on the part of the .ommissioner.

$. /he authority of the .ommissioner to assess taxes may be delegated except the power to make final assessments. &. It must be directed to the right party. Authorit) of a Re6e ue Offi*er pursuant to a 8etter of !uthority issued by the :egional Cirector a. /o examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax+ b. /o recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the :evenue :egional Cirector. General Rule income tax returns are confidential. ):ception in5uiry into income tax returns may be authori0ed1. inspection is authori0ed upon written order of the 'resident of the 'hilippines+ 2. inspection is authori0ed under Dinance :egulations >o. "" of the Secretary of Dinance+ ". production of the tax return is material evidence in a criminal case wherein the government is interested in the result+ or $. production or inspection thereof is authori0ed by the taxpayer himself. Networth <ethod, inventory method of income tax verification. !pplies the accounting principle? assets 6 liabilities M networth .ondition for its use? 1. taxpayer7s books do not clearly reflect his income or the taxpayer has no books or if he has books he refuses to produce them+ 2. there is evidence of possible source or sources of income to account for increases in networth+

@. A.

ILLEGAL AN& "OI& ASSESS<ENT,

assessment wherein tax assessor has no power to assess at all ERRONEO%S ASSESS<ENT, assessor has power to assess but errs in the exercise thereof

'%R&EN OF PROOF IN PRE,ASSESS<ENT PROCEE&INGS /here is a presumption of correctness and good faith on the part of the .I:+ thus the burden lies on the taxpayer. Ftherwise the finding of the .I: will be conclusive and he will assess the taxpayer. /he same is true even if the .I: is wrong if the taxpayer does not controvert. (Cagayan Robina 4ugar !illing Co. vs. Court o% Appeals, GR. No. ,55+/,, (ctober ,5, 5666) Reasons9 a. lifeblood theory b. presumption of regularity in performance of public functions N(1) !ssessments by the ;I: must have on its face the law and facts upon which the presumption is made. PRINCIPLES GO"ERNING TAX ASSESS<ENTS 1. !ssessments are prima facie presumed correct and made in good faith. 2. It should be based on actual facts.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


". there is a fixed starting point or opening networth+ and $. there must be proper adjustments to conform with the income tax laws. POWERS AN& &%TIES OF T#E CO<<ISSIONER I. SECTION A ,power to interpret tax law and decide tax cases5. I ter.ret .ro6i+io + of thi+ Code a d other tax law+ +u(Je*t to re6iew of the Se*retar) of Fi a *e 7$ua+i,le!i+lati6e; :. &e*ide9 7$ua+i,Judi*ial;

ab-

disputed assessment refunds of internal revenue taxes fees and charges cpenalties imposed in relation thereto dother matters arising from this .ode or other laws or portions thereof administered by the ;I: subject to the exclusive appellate jurisdiction of the ./! (4ec. +)

i. the person liable for tax or re5uired to file a return or ii. any officer or employee of such person or iii. any person having in his possession(custody(care -- the books of accounts -- accounting records of entries relating to the business of the person liable for tax or any other person -- to produce such books papers records and other data and to give testimony $. to take the /estimony of the person concerned under oath as may be relevant to the in5uiry &. to cause revenue officers and employees to make a .anvass of any revenue district or region >othing in Section & shall be construed as granting the .ommissioner the authority to in5uire into bank deposits other than as provided for under sec. ) ,D- of the .ode. III. SECTION G ,power to make assessments prescribe additional re5uirements for tax administration and enforcementA. Exa3i atio of retur + deter3i atio of tax due a d

II. SECTION B ,power to obtain information summon examine and take testimony of persons@. For the Co33i++io er to a+*ertai 9

,a- correctness of any return or in making a return where none has been made ,b- liability of any person for any internal revenue tax or in correcting such liability ,c- tax compliance /he .ommissioner is authori0ed? 1. to 9xamine any relevant ;ook paper record or other data 2. to Fbtain any information ,costs volume of production receipts sales gross income etc- on a regular basis from? i. any person other than the person under investigation or ii. any office or officer of the national(local government gov7t agencies and instrumentalities ,;angko Sentral gov7t owned and controlled corporations- ,e.g. 8/F :egister of Ceeds". to Summon

!. !fter a return has been filed the .ommissioner or his representative may authori0e i. the 9xamination of any taxpayer and ii. the !ssessment of the correct amount of tax+ ;. D ailure to file a return shall not prevent the commissioner from authori0ing the examination of any taxpayer+ N !ny tax or deficiency tax so assessed shall be paid upon notice and demand from the .ommissioner or his representative N !ny return statement or declaration %iled in any authori0ed office shall not be

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


withdrawn+ but within three years from date of filing the same may be modified changed or amended+ provided that no notice for audit or investigation of such return has in the meantime been actually served upon the taxpayer.
B.Failure to +u(3it re=uired retur + a d other do*u3e t+ C.

If a person i. fails to file a re5uired return or report at the time prescribed or ii. willfully or otherwise files a false or fraudulent return /he .ommissioner shall %ake or !mend the return from i. his own knowledge or ii. from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes
G.I 6e tor),taHi !> Sur6eilla *e> Pre+u3.ti6e Gro++ Sale+

Ter3i ate taxa(le .eriod

for J!/-registered personsand Sec. 2"* ,Issuance of :eceipts or .ommercial Invoices- or ii. 1hen the books of accounts or records do not correctly reflect the declarations made or re5uired to be made in a return Such minimum amount shall be considered correct.

!. .ommissioner may at any time during the taxable year ,a- order the inventory taking of goods of any taxpayer or ,b- may place the business operations of any person ,natural(juridicalunder observation or Surveillance if there is reason to believe that such is not declaring his correct income sales or receipts for tax purposes. /he findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. ;. .ommissioner may prescribe a %inimum amount of gross receipts sales and taxable base ,taking into account the sales and income of other persons engaged in similar business-? i. 1hen a person has failed to issue receipts as re5uired by sec.11" ,Invoice re5uirements

.ommissioner shall declare the tax period of a taxpayer /erminated and send notice to the taxpayer of such decision with a re5uest for immediate payment of the tax when it has come to the knowledge of the .ommissioner? a- that a taxpayer is retiring from business subject to tax or b- is intending to leave the 'hils. or c- to remove his property therefrom or d- to hide or conceal his property or e- is performing any act tending to obstruct the proceedings for the collection of tax
D. Pre+*ri(e Real Pro.ert) "alue+

/he .ommissioner is authori0ed to? a. Civide the 'hils. into different 0ones or areas and b. Cetermine the fair market value of real properties located in each 0one or area 7or ta: purposes, the value o% the property shall be Ahichever is higher o% a) 7air mar?et value as determined by the Commissioner; or b) 7air mar?et value as shoAn in the schedule o% values o% the provincial and city assessors.
E. Authorit) &e.o+it to I =uire i to 'a H

>otwithstanding :.!. 1$B& ,;ank Secrecy 8aw- the .ommissioner is authori0ed to in5uire into the ;ank deposits of? ,a- a decedent to determine his gross estate

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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,b- a taxpayer who has filed an application to compromise payment of tax liability by reason of financial incapacity 1he ta:payerFs application %or compromise shall not be considered unless he Aaives in Ariting his privilege under RA ,+6/ and other general or special laAs. 4uch Aaiver shall authoriGe the Commissioner to inBuire into his ban? deposits. ,a- /he .ommissioner shall accredit and :egister individuals and general professional partnerships and their rep. who prepare and file tax returns and other papers or who appear before the ;I: ,b- /he .ommissioner shall create national and regional accreditation boards. 1hose Aho are denied accreditation may appeal the same to the 4ec. (% 7inance Aho shall rule on the appeal Aithin 96 days %rom receipt o% such appeal. 7ailure to do so Aithin the prescribed period shall be deemed as approval %or accreditation.
55. Authorit) to Pre+*ri(e Additio al Re=uire3e t+

b-

c-

power to Issue rulings of first impression or to :everse revoke modify any existing rule of the ;I: power to .ompromise or !bate any tax liability

5F. Authorit) to Re!i+ter tax a!e t+

provided hoAever that the regional evaluation board may compromise? 1. assessments issued by regional offices involving deficiency taxes of '&BB BBB or less and 2. minor criminal violations as may be determined by the rules and regulations ". discovered by regional and district officials Regional )valuation 3oard is composed o%? i. :egional Cirector as .hairman ii. !sst. :egional Cirector iii. 2eads of the 8egal !ssessment and .ollection Civ. iv. :evenue Cistrict Ffficer having jurisdiction over the taxpayer d- power to !ssign or reassign internal revenue officers to establishments where articles subject to excise tax are kept. ". SECTIONS D> 5A> 5B> 5G> 5C ,Fther 'owers5@. Cuty to ensure the provision and distribution of forms receipts certificates and appliances and the acknowledgment of payment of taxes (4ec. .) 5A. !uthority to administer oaths and to take testimony (4ec. ,+) 5B. !uthority to make sei0ures (4ec. ,/) arrests and

/he .ommissioner may prescribe the manner of compliance with any documentary or procedural :e5uirement for the submission or preparation of financial statements accompanying tax returns.
I". SECTION C ,!uthority to Celegate 5:. The Co33i++io er 3a) dele!ate the .ower+ 6e+ted i hi3 to

'ower -

- subordinate officials with rank e5uivalent to Civision .hief or higher subject to limitations(restrictions imposed under the rules and regulations 9O.9'/ ,the following powers shall >F/ be delegateda- power to :ecommend the promulgation of rules and regulations by the Sec. of Dinance

5G. !uthority to employ assign or reassign internal revenue officers

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


involved in excise tax functions to establishments where articles subject to excise tax are produced or kept (4ec. ,9) 5C. !uthority to assign or reassign internal revenue officers and employees of the ;I: to other or special duties connected with the enforcement or administration of the revenue laws (4ec. ,8) ARE LEGAL OFFICERS OF T#E 'IR A%T#ORIIE& TO INSTIT%TE APPEAL PROCEE&INGS WIT#O%T T#E PARTICIPATION OF T#E SOLICITOR GENERAL0 >F. /he institution or commencement before a proper court of civil and criminal actions and proceedings arising under the /ax :eform !ct which shall be conducted by legal officers of the ;I: is not in dispute. !n appeal from such court however is not a matter of right. It is still the Solicitor 4eneral who has the primary responsibility to appear for the government in appellate proceedings. (Commissioner vs. *a 4uerte Cigar and Cigarette 7actory, GR No. ,++0+5, <uly +, 5665) SO%RCES OF RE"EN%E /he following taxes fees and charges are deemed to be national internal revenue taxes. (4ec. 5,, NIRC) 1. Income tax 2. 9state and donor3s taxes ". Jalue-added tax $. Fther percentage taxes &. 9xcise taxes ). Cocumentary stamp taxes *. Such other taxes as are or hereafter may be imposed and collected by the ;ureau of Internal :evenue. person7s income emoluments profits and the like (9, C<4 ,//0) 6 tax on income whether gross or net. (58 Am. <ur. -6.) INCO<E 6 all wealth which flows into the taxpayer other than as a mere return of capital. CAPITAL 6 resource of person which can be used in producing goods and services. I *o3e Ca.ital
!ll wealth which flows into the taxpayer other than as a mere return of capital. Dlow of 1ealth Source of wealth Dund or property which can be used in producing goods or services Dund or property 1ealth

RE$%ISITES FOR INCO<E TO 'E TAXA'LE 1. /here must be a gain or profit. 2. /he gain must be reali0ed or received. ". /he gain must not be excluded by law or treaty from taxation. TESTS ON TAXA'ILIT/ OF INCO<E 1. Flow of Wealth Te+t 6 /he determining factor for the imposition of income tax is whether any gain was derived from the transaction. 1. RealiKatio Te+t - unless the income is deemed Preali0ed P there is no taxable income. 2. E*o o3i*,'e efit Pri *i.le Te+t -flow of wealth reali0ed is taxable only to the extent that the taxpayer is economically benefited. CRITERIA IN I<POSING INCO<E TAX 1. CitiKe +hi. Pri *i.le 6 ! citi0en of the 'hilippines is subject to 'hilippine income tax ,a.- on his worldwide income if he resides in the 'hilippines or ,b.- only on his income from sources within the 'hilippines if he 5ualifies as nonresident citi0en.

II.

NATIONAL TAXATION
A. INCO<E TAXATION

&EFINITIONS INCO<E TAX 6 tax on all yearly profits arising from property possessions trade or business or as a tax on a

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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2. Re+ide *e Pri *i.le 6 resident alien is liable to pay income tax on his income from sources within the 'hilippines but exempt from tax on his income from sources outside the 'hilippines. ". Sour*e Pri *i.le 6 !n alien is subject to 'hilippine income tax because he derives income from sources within the 'hilippines. /hus a nonresident alien is liable to pay 'hilippine income tax on his income from sources within the 'hilippines such as dividend interest rent or royalty despite the fact that he has not set foot in the 'hilippines. or for employment on a permanent basis+ c. who works and derives income from abroad and whose employment thereat re5uires him to be physically present abroad most of the time during the taxable year+ d. who is previously considered as a non-resident and who arrives in the 'hilippines at anytime during the taxable year to reside thereat permanently shall be considered non-resident for the taxable year in which he arrives in the 'hilippines with respect to his income derived from sources abroad until the date of his arrival C4ec.55 ()), NIRCD N(1) !n o6er+ea+ *o tra*t worHer 7OCW; is taxable only on income derived from sources within the 'hilippines. QSec. 2" ,;-,.-R ! +ea3a is considered as an F.1 provided the following re5uirements are met? 1. receives compensation for services rendered abroad as a member of the complement of a vessel+ and 2. such vessel is engaged exclusively in international trade. ;ased on the above provisions there are three ,"- types of nonresident citi0ens namely? ,1immigrants+ ,2- employees of a foreign entity on a permanent basis+ and ,"overseas contract workers. Immigrants and employees of a foreign entity on a permanent basis are treated as nonresident citi0ens from the time they depart from the 'hilippines. 2owever overseas contract workers must be physically present abroad most of the time during the calendar year to 5ualify as nonresident citi0ens. ". Re+ide t alie ' means an individual whose residence is within the 'hilippines and who is not a citi0en thereof. C4ec.55 (7, NIRC)D $. No ,re+ide t alie e !a!ed i trade or (u+i e++ withi the Phili..i e+. 7NRAET';

CLASSIFICATION OF TAXPA/ERS
I di6idual+ a. citi0ens ,1- resident citi0ens 7RC; ,2- non-resident citi0ens 7NRC; b. aliens ,1- resident aliens 7RA; ,2- non-resident aliens 7NRA; (a) engaged in trade or business within the 'hils. 7NRAET'; (b) not engaged in trade or business within the 'hilippines 7NRANET'; Cor.oratio + a. Comestic 7&C; b. Doreign ,1- resident foreign corporation 7RFC; ,2- non-resident foreign corporation 7NRFC; E+tate+ Tru+t+ Part er+hi.+

A. IN&I"I&%ALS
W#O ARE TAXA'LE0 1. Re+ide t CitiKe 2. No ,re+ide t CitiKe ! non-resident citi8en means a Dilipino citi0en? a. who establishes to the satisfaction of the .ommissioner the fact of his physical presence abroad with a definite intention to reside therein+ b. who leaves the 'hilippines during the taxable year to reside abroad either as an immigrant

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


! non-resident a&ien means an individual whose residence is not within the 'hilippines and who is not a citi0en thereof. C4ec.55 (G)D /he term trade or 7usiness includes the performance of the functions of a public office. C4ec. 55 (4)D /he term trade0 7usiness or profession shall not include performance of services by the taxpayer as an employee. C4ec. 55 (CC)D ! non-resident alien individual who shall come to the 'hilippines and stay therein for an aggregate period of more than 1@B days during any calendar year shall be deemed a non'resident alien doing business in the Philippines 4ection 55(G) notAithstanding C4ec. 5/(A)(,)D &. No ,re+ide t alie ot e !a!ed i trade or (u+i e++ withi the Phili..i e+. 7NRANET'; ONL/ RESI&ENT CITIIENS are taxable for income derived from sources Aithin and Aithout the Philippines. !ll other individual income taxpayers are taxable only for income derived from sources Aithin the Philippines. Tax Rate+9 'lease refer to A ex A. Ex*lude+9 1. 4eneral professional partnerships+ 2. Soint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum coal geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the 4overnment. CORPORATIONS EXE<PT FRO< INCO<E TAXATION 7FOR INCO<E REALIIE& AS S%C#; %N&ER NIRC 5. Tho+e e u3erated u der %ec. 35. 9xempt corporations are subject to income tax on their income from any of their properties real or personal or from any other activities conducted for profit regardless o% the disposition made o% such income. 2. With re+.e*t to GOCC+> the general rule is that these corporations are taxable as any other corporation except? a. 4SIS b. SSS c. '2I. d. '.SF e. '!4.F: C4ec. 58 (C)D ". Re!io al or Area #ead=uarter+ u der %ec. 22 /++4 6 not subject to income tax :egional operating head5uarters under 4ec. 55())) shall pay a tax of 1BE of their taxable income. ONL/ &O<ESTIC CORPORATIONS are taxable for income derived from sources Aithin and Aithout the 'hilippines. !ll other corporate income taxpayers are taxable only for income derived from sources Aithin the 'hilippines. Tax Rates: Please refer to Annex B.

'. CORPORATIONS
W#O ARE TAXA'LE0 1. &o3e+ti* Cor.oratio 6 created or organi0ed in the 'hils. or under its law C4ec. 55(C), NIRCD 2. Re+ide t Forei! Cor.oratio 6 engaged in trade or business within the 'hilippines C4ec. 55($), NIRCD 3. No ,re+ide t Forei! Cor.oratio 6 not engaged in trade or business within the 'hilippines C4ec. 55(I), NIRCD A Cor.oratio I *lude+9 1. 'artnerships no matter how created or organi0ed+ 2. Soint-stock companies+ ". Soint accounts ,cuentas en participacion$. !ssociations+ or &. Insurance companies C4ec. 55(3), NIRCD.

C. ESTATES AN& TR%STS


ESTATE 6 refers to the mass of properties left by a deceased person. R%LES ON TAXA'ILIT/ OF ESTATE

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


1hen a person who owns property dies the following taxes are payable under the provisions of the income ta: laA? 1. Income tax for individual under Sec. 2$ and 2& ,to cover the period beginning Sanuary to the time of death-+ 2. 9state income tax under Sec. )B if the estate is under administration or judicial settlement. payment of corporate income tax. ()vangelista vs. Collector, GR No. *'0009, (ctober ,/, ,0/8; (Ja vs. Commissioner, GR No. *',0-+5, !ay 5/, ,085) 2. If the heirs without contributing money property or industry to improve the estate simply divide the fruits thereof between(among themselves a co-ownership is created and individual income tax is imposed on the income received by each of the heirs payable in their separate and individual capacity. (Pascual vs. Commissioner, GR No. *'8.,--, (ctober ,., ,0..; (billos vs. Commissioner, GR No. *'9.,,., (ctober 50, ,0./) ESTATES N) %N&ER 4%&ICIAL SETTLE<ENT 'ending the extrajudicial settlement either of the following situations may arise? 1. If the heirs contribute money property or industry to the estate with the intention of dividing the profits between(among themselves an unregistered partnership is created and the estate becomes liable for the payment of corporate income tax+ or 2. If the heirs without contributing money property or industry to the estate simply divide the fruits thereof between(among themselves a co-ownership is created and income tax is imposed on the income received by each of the heirs payable in their separate and individual capacity. TR%ST 6 ! right to the property whether real or personal held by one person for the benefit of another. W#EN TR%STS ARE TAXA'LE ENTITIES 1. ! trust the income of which is to be accumulated 2. ! trust in which the fiduciary may at his discretion either distribute or accumulate the income. R%LES ON TAXA'ILIT/ OF T#E INCO<E OF A TR%ST

ESTATES %N&ER 4%&ICIAL SETTLE<ENT A. &uri ! the Pe de *) of the Settle3e t Ge eral Rule9 !n estate under judicial settlement is subject to income tax in the same manner as individuals. Its status is the same as the status of the decedent prior to his death. Ex*e.tio +9 1. /he entitlement to personal exemption is limited only to '2B BBB. 2. >o additional exemption is allowed. ". /he distribution to the heirs during the taxable year of estate income is deductible from the taxable income of the estate. Such distributed income shall form part of the respective heirs7 taxable income. 1here no such distribution to the heirs is made during the taxable year that the income is earned and such income is subjected to income tax payment by the estate the subse5uent distribution thereof is no longer taxable on the part of the recipient. '. TER<INATION OF T#E 4%&ICIAL SETTLE<ENT 7W#ERE T#E #EIRS STILL &O NOT &I"I&E T#E PROPERT/; 1. If the heirs contribute to the estate money property or industry with intention to divide the profits between(among themselves an unregistered partnership is created and the estate becomes liable for the

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


1. /he income of the trust for the taxable year which is to be distributed to the beneficiaries # %iling and payment o% ta: lie on the bene%iciaries. 2. /he income of the trust which is to be accumulated or held for future distribution whether consisting of ordinary income or gain from the sale of assets included in the PcorpusP of the estate 6 %iling o% return and payment o% ta: become the burden o% the trustee or %iduciary. ):ceptions? a. In the case of a revocable trust the income of the trust will be returned by the grantor. b. In a trust where the income is held for the benefit of the grantor the income of the trust becomes income to the grantor. c. In the case of trust administered in a foreign country the income of the trust+ undiminished by any amount distributed to the beneficiaries shall be taxed to the trustee. IRRE"OCA'LE TR%STS ,irrevocable both as to corpus and as to income- 6 /rust itself through the trustee or fiduciary is liable for the payment of income tax. /axed exactly in the same way as estates under judicial settlement and its status as an individual is that of the trustor. It is entitled to the minimum personal exemption ,'2B BBBand distribution of trust income during the taxable year to the beneficiaries is deductible from the trust7s taxable income. RE"OCA'LE TR%STS 6 the trustor not the trust itself is subject to the payment of income tax on the trust income. EXE<PTION OF E<PLO/EES? TR%ST 'rovided? 1. the employee7s trust must be part of a pension stock bonus or profit sharing plan of the employer for the benefit of some or all of his employees+ 2. contributions are made to the trust by such employer or such employees or both+ ". such contributions are made for the purpose of distributing to such employees both the earnings and principal of the fund accumulated by the trust and $. that the trust instrument makes it impossible for any part of the trust corpus or income to be used for or diverted to purposes other than the exclusive benefit of such employees. (4ec. 963, NIRC) /ax exemption is likewise to be enjoyed by the i *o3e of the .e +io tru+t+ otherwise taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. (Commissioner vs. Court o% Appeals, Court o% 1a: Appeals and GC* Retirement Plans, GR No. 0/655, !arch 5-, ,005)

&. PARTNERS#IPS
8IN&S OF PARTNERS#IP FOR TAX P%RPOSES %N&ER T#E NIRC 1. Ge eral Profe++io al Part er+hi.+ 7GPP; - formed by persons for? a. the sole purpose of exercising a common profession and b. no part of the income of which is derived from engaging in any trade or business. C4ec. 55(3), NIRCD. 2. Taxa(le or 'u+i e++ Part er+hi. 6 !ll other partnerships except general professional partnerships no matter how created or organi0ed. It includes unregistered joint ventures and business partnerships. 2owever joint ventures are not taxables as corporations when it is+ ,a- undertaking construction projects ,b- engaged in petroleum coal and other energy operation under a service contract with the government -enera& co-partners#ips /-CP4 are partnerships which are by law assimilated to be within the context of and so legally contemplated as

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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1

MEMORY AID IN TAXATION LAW


corporations. /he partnership itself is subject to corporate taxation. /he individual partners are considered stockholders and therefore profits distributed to them by the partnership are taxable as dividends. /he taxable income for a taxable year after deducting the corporate income tax imposed therein shall be deemed to have been actually or constructively received by the partners in the same taxable year and shall be taxed to them in their individual capacity Ahether actually distributed or not. C4ec. 8-("), NIRCD LIA'ILIT/ OF A PARTNERS#IP 1. Ge eral Profe++io al Part er+hi. ./hey are not sub&ect to income ta: but are re5uired to file returns of their income for the purpose of furnishing information as to the share of each partner in the net gain or profit which each partner shall include in his individual return. /he partnership shall act as the withholding agent. /he net income ,income for distribution- shall be computed in the same manner as a corporation. Cate of filing of the return is !pril 1& of each year. 2. Taxa(le or 'u+i e++ Part er+hi. /he income tax of this type of 'artnership is computed and ta:ed li?e that o% a corporation. /his kind of partnership like a regular corporation is also re5uired to file a 5uarterly corporate income tax return. Diling and payment of 5uarterly return is within )B days after the end of each 5uarter while the annual return is on or before !pril 1& of the following year. LIA'ILIT/ OF A PARTNER Rule+9 5. Share of a .art er i !e eral .rofe++io al Part er+hi. a. 9ach partner shall report as gross income ,business incomehis distributed share actually or constructively received in the net income of the partnership. (4ec. 59, NIRC) Q/he same share shall be subject to creditable withholding tax of 1BE.R /hey are liable in their separate and individual capacity. b. Share of a partner in the loss of a general professional partnership may be taken by the individual partner in his return of income. 9ach partner in a general professional partnership shall report as gross income his distributed share in the net income of the 4'' based on his agreed ratio whether he avails of itemi0ed or optional standard deduction. 'ayments made to a partner of a 4'' for services rendered shall be considered as ordinary business income subject to Sec. 2$! ,9ffective Sanuary 1 1A@2-

c.

d.

:. Share of a .art er i Taxa(le or 'u+i e++ .art er+hi. a. Share of a partner in the net income of a taxable or business partnership ,dividend- shall be subject to a final tax as follows. :esident .iti0en >onresident .iti0en and :esident !lien ,2BBB and onward- 6 1BE (4ec. 5+35) >on-resident !lien engaged in trade or business 6 2BE (4ec. 5/ A5) >on-resident alien not engaged in trade or business 6 2&E (4ec. 5/3) b. Share of a partner in the loss of a taxable or business partnership maybe taken by the individual partner in his return of income. c. 'ayments made to a partner of a business or taxable partnership for services rendered shall be considered as compensation income subject to sec. 2$!.

8IN&S OF INCO<E TAXES

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW %N&ER T#E NIRC


1. 2. ". $. &. ). *. @. A. >et Income /ax Fptional .orporate Income tax %inimum .orporate Income /ax Improperly !ccumulated 9arnings /ax 'referential :ates or Special :ates of Income /ax 4ross Income /ax Dinal Income /ax Dringe ;enefits /ax .apital 4ains /ax 8IN&S OF &I"I&EN&S 5. Ca+h a d Pro.ert) &i6ide d+ Individual /axpayer a. Drom Comestic .orporations :. >:. :! 6 5FL (4ec. 5+A) >:!9/; 6 :FL (4ec. 5/A5) >:!>9/; 6 :BL on gross income (4ec. 5/3) b. Drom Doreign .orporations :. >:. :! >:!9/; 6 B, @:L (4ec. 5+, 5/A,) >:!>9/; 6 :BL on gross income (4ec. 5/3) .orporate /axpayer a. Doreign to Comestic .orp. 6 @:L (4ec. -5A) b. Comestic to Comestic .orp. 6 Exe3.t+ intercorporate dividends (4ec. 58") c. Comestic to Doreign .orp. :esident Doreign .orp. 6 Exe3.t (4ec. 5. CAD 8d) >onresident Doreign .orp. 6 5BL subject to the condition stated in 4ec. 5. C3D /. Ftherwise it shall be taxed at @:L. (4ee Commissioner vs. Procter and Gamble, GR No. 99.-., "ecember 5, ,00,) :. Sto*H &i6ide d+ 4eneral rule? Not subject to tax because it does not constitute income+ it represents transfer of surplus to capital account. (4ec. 8-3, ,008 NIRC) 9xceptions? a. Sec. *"; 1AA* >I:. ,1- there is redemption or cancellation ,2- the transaction involves stock dividends and ,"- the <time and manner= of the transaction makes it <essentially e5uivalent to a distribution of taxable dividends=. ,see Commissioner vs. Court o% Appeals, Court o% 1a: Appeals E AN4C(R, GR No. ,6./89, <an. -6, ,000)

75; NET INCO<E TAX

&EFINITION9 %eans gross income less deductions and(or personal and additional exemptions (4ec. -,, NIRC) NET INCO<E TAX FOR<%LA 9ntire Income *ess 9xclusions and Income subject to Dinal /ax ,e.g. 'assive Income4ross Income *ess Ceductions ,and(or additional exemptions if applicable>et /axable Income !ultiply by /ax :ate ,E>et Income /ax Cue *ess /ax .redit if any Tax Still due> if a )

GROSS INCO<E
&EFINITION9 %eans all income derived from whatever source including but not limited to the following /%ec. 324 a. .ompensation+ b. 4ross income from profession trade or business+ c. 4ains form dealings in property+ d. Interests+ e. :ents+ f. :oyalties+ g. Cividends+ h. !nnuities+ i. 'ri0es and winnings+ j. 'ensions+ k. 'artner7s share in the net income of the general professional partnership See A ex & for detailed discussion of items.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


b. the recipient is other than the shareholder (3achrach vs. 4ei%ert, GR No. *'59/0, (ctober ,5, ,0/6) c. change in the stockholder7s e5uity results by virtue of the stock dividend issuance. ". Li=uidati ! &i6ide d+ 1hen a corporation distributes all of its assets in complete li5uidation or dissolution the gain reali0ed or loss sustained by the stockholder whether individual or corporation is taxable income or deductible loss as the case may be. (4ec. 8-A) ! li5uidating dividend is not a dividend income. /he transaction is considered a sale or exchange of property between the corporation and the stockholder. EXCL%SIONS FRO< GROSS INCO<E N(1) Gnder the 1AA* /ax .ode the term <exclusions= refers to items that are not included in the determination of gross income either because? ,a- they represent return of capital or are not income gain or profit+ or ,b- they are subject to another kind of internal revenue tax+ or ,c- they are income gain or profit that are expressly exempt form income tax under the constitution tax treaty /ax .ode or a general or special law. taxable year- then the excess shall be included in the gross income. 2owever in the case of a transfer for a valuable consideration by assignment or otherwise of a life insurance endowment or annuity contract or any interest therein only the actual value of such consideration and the amount of the premiums and other sums subse5uently paid by the transferee are exempt from taxation. >o loss is reali0ed on surrender of a life insurance policy for its surrender value.

3. Gift> (e=ue+t or de6i+e


4ifts be5uests and devises ,which are subject to estate or gift taxes- are excluded but not the income from such property. If the amount received is on account of services rendered whether constituting a demandable debt or not or the use of the opportunity to use of capital the receipt is income (Pirovano vs. Commissioner, ,+ 4CRA .-5)

. Co3.e +atio for .er+o al i Jurie+

1. Pro*eed+ of life i +ura *e paid by


reason of the death of the insured to his estate or to any beneficiary ,individual partnership or corporation but not a transferee for a valuable consideration- directly or in trust. N(1)? if the proceeds are retained by the insurer the interest thereon is taxable+

or +i*H e++> whether () +uit or a!ree3e t N(1)? /he phrase <personal injuries= should be given a restrictive meaning to refer only to physical injuries. /he theory for this is that recoupment on account of such losses is not income since it is not derived from capital from labor or from both combined. !nd the fact that the payment of compensation for such loss was voluntary does not change its exempt status. It was in fact compensation for a loss which impaired petitioner7s capital.

!. I *o3e exe3.t u der Treat)M ". Retire3e t


(e efit+> .e +io > !ratuitie+> et*. a. those derived under :.!. *)$1 ,pertains to private firms without retirement trust fund-+ b. those received by officials and employees of private employers

2. Retur of i +ura *e .re3iu3M

N(1)? if such amounts ,when added to amounts already received before the taxable year under such contracts- exceed the aggregate premiums or considerations paid ,whether or not paid during the

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


in accordance with a reasonable private benefit plan+ ReBuisites? ,1- in the service of the same employer for at least 1B years+ ,2- at least &B years old+ ,"- must be availed of only once ,$- plan approved by the ;I: ,R.R.5'0.-+ separation pay because of death sickness or other physical disability or for any cause beyond the control of the official or employee ,e.g. retrenchment redundancy or cessation of business-+ K%or any cause beyond the control o% said o%%icial or employeeI 6 connotes involuntariness on the part of the official or employee+ separation must not be asked or initiated by the official or employee. social security benefits retirement gratuities pensions and other similar benefits received by citi0ens and aliens who come to reside permanently here from foreign sources private or public+ benefits due to residents under the laws of the G.S. administered by the G.S. Jeterans !dministration SSS benefits+ and 4SIS benefits. c. 'ri0es and awards made primarily in recognition of religious charitable scientific educational artistic literary or civic achievement ReBuisites? ,1- recipient was selected without any action on his part+ and ,2- recipient is not re5uired to render substantial future services. 'ri0es and awards granted to athletes in sports competitions and sanctioned by their national sports association + 1"th month pay and other benefits up to '"B BBB.BB+ 4SIS SSS %edicare and union dues of individuals+ 4ains derived from debt securities with a maturity of more than & years+ 4ains from redemption of shares in %utual Dund. EXCLUSIONS VS. DEDUCTIONS Ex*lu+io + NSe*. @:7';O
:efer to flow of wealth which are not treated as part of gross income because? ,1- exempted by the fundamental law+ ,2exempted by statute+ ,"- do not come within the definition of income 'ertain to the computation of gross income Something earned or received by the taxpayer which do not form part of gross income

c.

d.

e. f. g. h.

d.

&edu*tio + NSe*. @AO


:efer to the amounts which the law allows to be subtracted from gross income in order to arrive at net income

e.

f. g.

#. <i+*ella eou+ ite3+


a. 'assive income derived in the 'hilippines by? ,1- Doreign governments+ ,2- Dinancing institutions owned controlled or enjoying refinancing from foreign governments ,"- International or regional financial institutions established by foreign governments b. Income derived from any public utility or from the exercise of any governmental function+

'ertain to the computation of the net income Something spent or paid in earning of gross income

&E&%CTIONS
&EFINITION? Items or amounts which the law allows to be deducted from gross

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


income in order to arrive at the taxable income. 'ASIC PRINCIPLES GO"ERNING &E&%CTIONS a. /he taxpayer seeking a deduction must point to some specific provisions of the statute authori0ing the deduction+ and b. 2e must be able to prove that he is entitled to the deduction authori0ed or allowed. (Atlas Consolidated !ining E "ev. Corp. vs. Commissioner, GR No. *'590,,, <anuary 5,, ,0.,) c. !ny amount paid or payable which is otherwise deductible from or taken into account in computing gross income or for which depreciation or amorti0ation may be allowed shall be allowed as deduction only if it is shown that the tax re5uired to be deducted and withheld therefrom has been paid to the ;I:. C4ec. -+(=), NIRCD N(1) Ceductions for income tax purposes partake of the nature of tax exemptions+ hence if tax exemptions are to be strictly construed then it follows that deductions must also be strictly construed. TAXPA/ERS W#O CANNOT A"AIL OF &E&%CTIONS FRO< GROSS INCO<E 1. .iti0ens and resident aliens whose income is purely compensation income ,except for premium payments on health and(or hospitali0ation insurance-+ 2. >on-resident aliens not engaged in trade or business in the 'hilippines+ and ". >on-resident foreign corporation CLASSES OF &E&%CTIONS 5. I di6idual+ a. with gross compensation income from employer-employee relationship only ,1- premium payments on health and(or hospitali0ation insurance ,2- personal additional exemptions b. gross income from business or practice of profession ,1- Fptional Standard Ceduction ,FSC,2- Itemi0ed deductions ,"- premium payments on health and(or hospitali0ation insurance ,$- personal additional exemptions :. Cor.oratio + Itemi0ed Ceductions 8IN&S OF &E&%CTIONS a. O.tio al +ta dard dedu*tio + 7OS&; 1BE of the gross income. /he FSC may be availed of only by individuals ,except nonresident alien- who are not purely compensation income earners. b. Per+o al a d additio al exe3.tio + !vailable only to individuals ,business income and compensation income earners-. >:!9/; may be entitled to personal exemptions ,only- subject to reciprocity i.e. a. the country of which he is a subject or citi0en has an income tax law+ and b. the income tax law of his country allows personal exemption to citi0ens of the 'hilippines not residing therein but deriving income therefrom and not to exceed the amount allowed in >I:.. /he personal exemption shall be e5ual to that allowed by the income tax law of his country to a citi0en of the 'hilippines not residing therein or the amount provided in the >I:. whichever is lower. I di6idual+ not e titled to the+e exe3.tio +9 a. >on-resident !lien not engaged in trade or business b. !lien individual employed by :egional or !rea 2ead5uarters of %ultinational .ompanies c. !lien individual employed by Fffshore ;anking Gnits

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


d. !lien individual employed by 'etroleum Service .ontractor and Subcontractor c. Ite3iKed dedu*tio + a. ordinary and necessary expenses b. interests c. taxes d. losses e. bad debts f. depreciation of property+ g. depletion of oil and gas wells and mines+ h. charitable and other contributions+ i. research and development+ j. pension trust contributions of employees+ and k. premium payments on health and(or hospitali0ation insurance. ,/his is the only deduction which a compensation income earner may claim as a deduction.d. S.e*ial dedu*tio + a. private proprietary educational institutions and hospitals that are non-profit (4ec. -+ A, 5) b. insurance companies (4ec. -8) c. estates and trusts (4ec. 9,) with and dependent upon the taxpayer for their chief support+ and KChie% supportI means more than one-half of the re5uirements for support. 2. 1here such brother ( sister or children are not more than 21 years of age unmarried and not gainfully employed or where such dependents regardless of age are incapable of self 6 support because of mental or physical defect. 'arents brothers sisters and senior citi0en with the tax payer whether relative or not may 5ualify the taxpayer to the personal exemption of '2& BBB as head of the family but not to the additional e:emption o% P.,666 . '. Additio al Exe3.tio for &e.e de t+ 9%ec. 350 N,RC: ' @ BBB 6 Dor each of the 5ualified dependent children not exceeding four ,$- in number. /he additional exemption refers only to 5ualified dependent children such as legitimate recogni0ed natural illegitimate and legally adopted. /he proper claimant of the additional exemption is the husband being the head of the family except under the following cases? 1. 2usband is unemployed 2. 2usband is working abroad like an FD1 or a seaman ". 2usband explicitly waived his right of the exemption in favor of his wife in the withholding exemption certificate. ! Se ior CitiKe is? 1. any resident citi0en of the 'hilippines 2. at least sixty )B years old including those who have retired from both government offices and private enterprises and ". has an income of not more than Sixty thousand pesos ,)B BBB- per

PERSONAL EXE<PTIONS
A. A3ou t+ of Per+o al Exe3.tio + 9%ec. 350 N,RC: 1. P :F>FFF 6 Single individual or married individual judicially decreed legally separated without 5ualified dependent children. 2. P :B>FFF 6 2ead of the family or married individual judicially decreed legally separated with 5ualified dependent children. ". P @:>FFF 6 Dor eac# legally married individual. #ead of the Fa3il) 1. Gnmarried or legally separated person with one or both parents or one or more brothers or sisters or one or more legitimate recogni0ed natural or legally adopted children living

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


annum subject to the review of the >ational 9conomic Cevelopment !uthority ,>9C!every three years. 'arents and dependents 5ualify the taxpayer to the personal exemption of '2& BBB as head of the family but not to the additional e:emption o% P.,666. N(1) >:!9/; may deduct personal exemption ,not additional exemption- but only to the extent allowed by his country to Dilipinos not residing therein and shall not exceed the aforementioned amounts. >:!>9/; cannot claim any personal or additional exemptions. C. Cha !e of Statu+ 9%ec. 350 N,RC: 1. If the taxpayer should marry or should have additional dependents during the taxable year he may claim the corresponding exemptions in full for such year. 2. If the taxpayer should die during the taxable year his estate may claim the corresponding exemptions as if he died at the close of such year. ". If the spouse or any dependent should die or any dependent should marry or become twentyone years old during the year or should become gainfully employed the taxpayer may claim the exemptions as if the spouse or dependent died or as if such dependent married became twenty one years old or became gainfully employed at the close of such year. $. Dor any other event and for which there are no specific rules applicable from the abovementioned the status of the taxpayer at the end of the year shall determine his exemptions. (strictly construed against the ta:payer) 9xamples? became legally separated 6 can only claim ' 2B BBB 2& years old child became incapacitated 6 cannot claim additional exemption

ITE<IIE& &E&%CTIONS
A. OR&INAR/ AN& NECESSAR/ EXPENSES
NECESSAR/ EXPENSE 6 appropriate and helpful in the development of taxpayer3s business and are intended to minimi0e losses or to increase profits. /hese are the day-to-day expenses. OR&INAR/ EXPENSE 6 normal or usual in relation to the taxpayer7s business and the surrounding circumstance. RE$%ISITES OF '%SINESS EXPENSE TO 'E &E&%CTI'LE 1. ordinary and necessary+ 2. paid or incurred w(in the taxable year+ ". paid or incurred in carrying on a trade or business+ $. substantiated with official receipts or other ade5uate records. &. if subject to withholding taxes proof of payment to the ;ureau of Internal :evenue must be shown. ). must be reasonable ,when the expense is not lavish extravagant or excessive under the circumstances*. must not be contrary to law public policy or morals. N(1) 1hile illegal income will form part of income of the taxpayer expenses which constitute bribe kickback and other similar payment being against law and public policy are not deductible from gross income. (4ubsec. A, ,, c) CAPITAL EXPEN&IT%RE 6 !n expenditure that benefits not only the current period but also future periods. It is not deductible but depreciable e:cept if the taxpayer is a non-profit proprietary educational institution which may elect either to deduct the capital expense or depreciate it. See A ex E 6 ;usiness 9xpenses

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


See A ex F 6 .eiling on <9ntertainment !musement and :ecreational 9xpenses= Li3itatio - /he amount of interest expense paid incurred by a taxpayer in connection with his trade business or exercise of a profession from an existing indebtedness shall be reduced by an amount e5ual the following percentages of interest income earned which had been subjected to final withholding depending on the year when the interest income earned vi0? "@E - beginning Sanuary 1 2BBB and thereafter Ai3 of Li3itatio 9 /o discourage socalled <back-to-back= loans where a taxpayer secures a loan from a bank turns around and invests the loan proceeds in money market placements. ;y imposing a limit as to the amount of interest expense that can be deducted from gross income the previous practice of tax arbitrage was absolutely nullified. Tax Ar(itra!e 6 is a method of borrowing without entering into a debtor(creditor relationship often to resolve financing and exchange control problems. In tax cases back-to-back loan is used to take advantage of the lower of tax on interest income and a higher rate of tax on interest expense deduction. Illu+tratio 9 Fn Sune 1 2BBB .ompany O has? 1. Fbtained a loan from !;. Dinancing .orporation in connection with the operation of its business and its interest expense on the loan amounted to ' 12B BBB. 2. Ceposit account in C9D ;ank and derived interest income thereof amounting to '2BB BBB on which the final tax of '$B BBB has been withheld. !ssume that .ompany O7s net income before the deduction of interest expense is '&BB BBB. /he deductible expense shall be computed as follows? /ear :FFF >et Income before interest expense '&BB BBB

'. INTEREST
INTEREST $ shall refer to the payment for the use or forbearance or detention of money regardless of the name it is called or denominated. It includes the amount paid for the borrower3s use of money during the term of the loan as well as for his detention of money after the due date for its repayment. RE$%ISITES FOR &E&%CTI'ILIT/ 7RE". REG. NO. 5@,:FFF; 1. /here must be an indebtedness+ 2. /here should be an interest expense paid or incurred upon such indebtedness+ ". /he indebtedness must be that of the taxpayer+ $. /he indebtedness must be connected with the taxpayer3s trade business or exercise of profession+ &. /he interest expense must have been paid or incurred during the taxable year+ ). /he interest must have been stipulated in writing+ *. /he interest must be legally due+ @. /he interest arrangement must not be between related taxpayers+ A. /he interest must not be incurred to finance petroleum operations+ and 1B. In case of interest incurred to ac5uire property used in trade business or exercise of profession the same was not treated as a capital expenditure. 11. /he interest is not expressly disallowed by law to be deducted from gross income of the taxpayer. R%LES ON &E&%CTI'ILIT/ OF INTEREST EXPENSE Ge eral Rule - In general the amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer3s trade business or exercise of profession shall be allowed as a deduction from the taxpayer3s gross income.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


*ess Interest 9xpense '12B BBB *ess "@E of interest income from deposit ,"@E x '2BB BBB- *) BBB &edu*ti(le I tere+t Ex.e +e AA>FFF /axable Income '$&) BBB Deductible Inte est Ex!ense 1. Interest on taxes such as those paid for deficiency or delin5uency since taxes are considered indebtedness ,provided that the tax is a deductible tax except in the case of income tax-. 2owever fines penalties and surcharges on account of taxes are not deductible. 1he interest on unpaid business ta: shall not be sub&ected to the limitation on deduction. 2. Interest paid by a corporation on scrip dividends ". Interest-on deposits paid by authori0ed banks of the 3ang?o 4entral ng Pilipinas to depositors if it is shown that the tax on such interest was withheld. $. Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the said corporation is the legal or e5uitable owner even though it is not directly liable for the indebtedness. N)N,&E&%CTI'LE INTEREST EXPENSE 1. !n individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance through discount or otherwise? allowed as a deduction in the year the indebtedness is paid if the indebtedness is payable periodic amortiGation on the amount of interest which corresponds to the amount of the principal amorti0ed or paid during the year shall be allowed as deduction in such taxable year. 2. Interest paid on indebtedness between related taxpayer ". If the indebtedness is incurred to finance petroleum exploration $. &. ). Interest on preferred stock which in reality is dividend Interest on unpaid salaries and bonuses Interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interest-bearing obligation. Interest paid when there is no stipulation for the payment thereof.

*.

OPTIONAL TREAT<ENT OF INTEREST EXPENSE !t the option of the taxpayer interest incurred to acBuire property used in trade or business may be allowed as a deduction or treated as capital e:penditure. C4ec -+ (3)(-), NIRCD

C. TAXES
/axes mean TAXES PROPER> and therefore no deductions are allowed for? 1. interest 2. surcharges ". penalties or fines incident to delin5uency (4ec. .6, Rev. Reg. 5) RE$%ISITES FOR &E&%CTI'ILIT/ 1. must be in connection with taxpayer7s business+ 2. tax must be imposed by law on and payable by taxpayer ,direct tax-+ and ". paid or incurred during the taxable year. TAXES N) &E&%CTI'LE 1. income tax+ 2. estate and donor7s tax+ ". special assessments+ $. excess electric consumption tax+ &. foreign income tax war profits and excess profits tax if the taxpayer makes use of tax credit+ and ). final taxes being in the nature of income tax. N(1) /axes allowed as deductions when refunded or credited shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. ,1a: 3ene%it Rule-

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Dor >:!9/; and :D. taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the 'hilippines. EXCEPTIONS to re5uirement that only such persons on whom the tax is imposed by law can claim deduction thereof? 1. /axes of shareholder upon his interest as such and paid by the corporation without reimbursement from him can be claimed by the corporation as deduction. 2. ! corporation paying the tax for the holder its bonds or other obligation containing a tax-free covenant clause cannot claim deduction for such taxes paid by it pursuant to such covenant. TAX CRE&IT &EFINITION9 right of an income taxpayer to deduct from income tax payable the foreign income tax he has paid to his foreign country subject to limitation. W#O CAN CLAI< TAX CRE&IT 1. resident citi0ens of the 'hilippines 2. resident aliens under the principle of reciprocity ". domestic corporations which include partnerships except general professional partnership $. beneficiaries of estates and trusts &. members of beneficiaries of local partnerships W#O ARE N) ENTITLE& TO TAX CRE&IT 1. non-resident citi0ens 2. resident aliens if without reciprocity ". resident aliens whose income is derived solely from sources within the 'hilippines $. foreign corporations ,resident and non-residentFOR<%LA FOR CO<P%TING LI<ITATION 5. Per *ou tr) li3itatio
/axable income from foreign country O 'hil. M /ax .redit

from all sources :. O6er,all li3itatio


/axable income from outside sources O 'hil. M /ax .redit /axable income income tax 8imit from all sources

1he alloAable ta: credit is the KloAer amountI betAeen the ta: credit computed under No. , and No. 5. W#EN CRE&IT FOR TAXES <A/ 'E TA8EN /he credit for taxes provided by Section "B,.-,"- to ,A- may ordinarily be taken either in the return for the year in which the taxes accrued or on which the taxes were paid dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements basis. LI<ITATIONS ON CRE&IT FOR FOREIGN TAXES 1- /he amount of credit in respect to the taxes paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer7s net income from sources within such country taxable under /itle II ,income /ax- bears to his entire net income for the same taxable year+ and 2- /he total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer7s net income from sources without the 'hilippines taxable under /itle II ,Income /ax- bears to his entire net income for the same taxable year.

&. LOSSES
LOSSES refer to such losses which do not come under the category of bad debts inventory losses depreciation etc. and which arise in taxpayer3s profession trade or business. RE$%ISITES FOR &E&%CTI'ILIT/ 1. !ctually sustained during the taxable year

/axable income income tax

8imit

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2. .onnected with the trade business or profession ". 9videnced by a close and completed transaction $. >ot compensated for by insurance or other form of indemnity &. >ot claimed as a deduction for estate tax purposes ). >otice of loss must be filed with the ;ureau of Internal :evenue Aithin +/ days %rom the date o% discovery of the casualty or robbery theft or embe00lement. N(1) /he taxpayer7s failure to record in his books the alleged loss proves that the loss had not been suffered hence not deductible. (City *umber vs. "omingo and Court o% 1a: Appeals, GR No. *',.9,,, <anuary -6, ,09+) CATEGOR/ AN& T/PES OF LOSSES 5. OR&INAR/ LOSSES a. Incurred in trade or business or practice of profession Net operatin" &oss carr!-over
/N)(C)4

,"- /here has been no substantial change in the ownership of the business or enterprise. /here is no substantial change in the ownership of the business when? (a) not less than *&E in nominal value of the outstanding issued shares is held by or on behalf of the same persons+ or (b) not less than *&E of the paid up capital is held by or on behalf of the same person. N(1) /he " year period shall continue to run notwithstanding that the corporation paid its taxes under %.I/ or that the individual availed the 1BE FSC. See A ex S for illustration.

:efers to the excess of allowable deductions over gross income of the business for any taxable year which had not been previously offset as deduction from gross income. .an be carried over as a deduction from gross income for the next " consecutive years immediately following the year of such loss. Dor mines other that oil and gas well net operating loss incurred in any of the first ten years of operation may be carried over for the next & years. ReBuirements ,1- /he taxpayer was not exempt from income tax in the year of such net operating loss+ ,2- /he loss was not incurred in a taxable year during the taxpayer was exempt from income tax+ and

b. Ff property connected with the trade business or profession if the loss arises from fires storms shipwreck or other casualties or from robbery theft or embe00lement. 75; Total de+tru*tio /he replacement cost to restore the property to its normal operating condition but in no case shall the deductible loss be more than the net book value of the property as a whole immediately before casualty. 7:; Partial &e+tru*tio /he excess over the net book value immediately before the casualty should be capitali0ed subject to depreciation over the remaining useful life of the property. :. CAPITAL LOSSES 7LOSSES ARE &E&%CTI'LE ONL/ TO T#E EXTENT OF CAPITAL GAINS; a. 8osses from sale or exchange of capital assets

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b. 8osses resulting from securities becoming worthless and which are capital assets. c. 8osses from short sales of property. d. 8osses due to failure to exercise privilege or option to buy or sell property. @. SPECIAL 8IN&S OF LOSSES a. ;a"erin" &osses - deductible only to the extent of gain or winnings. C4ec. -+ (")(9)D; deemed to apply only to individuals b. (osses on <as# sa&es of stoc=s - not deductible because these are considered to be artificial loss. ;as# sa&es 6 a sale or other disposition of stock or securities where substantially identical securities are ac5uired or purchased within )1-day period beginning "B days before the sale and ending "B days after the sale. C4ec. -.D Ge eral rule9 8osses from wash sales are not deductible. Ex*e.tio 9 1hen the sale is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer losses from such sale is deductible. Ele3e t+ of Wa+h Sale+9 ,1- /he sale or other disposition of stock resulted to a loss+ ,2- /here was an ac5uisition or contract or option for ac5uisition of stock or securities within "B days before the sale or "B days after the sale+ and ,"- /he stock or securities sold were substantially the same as those ac5uired within the )1-day period. c. A7andonment &osses in petroleum operation and producing well. ,1- In case a contract area where petroleum operations are undertaken is partially or wholly abandoned all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction. ,2- In case a producing well is abandoned the unamorti0ed cost thereof as well as the undepreciated cost of e5uipment directly used therein shall be allowed as deduction in the year the well e5uipment or facility is abandoned. d. (osses due to vo&untar! remova& of 7ui&din" incident to renewal or replacements - deductible expense from gross income. e. (oss of usefu& va&ue of capita& assets due to charges in business conditions - deductible expense only to the extent of actual loss sustained ,after adjustment for improvement depreciation and salvage value-

f. (osses from sa&es or exc#an"es of propert! 7et<een re&ated taxpa!ers -losses of this nature is not deductible but gains are taxable. g. (osses of farmers - if incurred in the operation of farm business it is deductible. #. (oss in s#rin=a"e in va&ue of stoc= 6 if the stock of the corporation becomes worthless the cost or other basis may be deducted by the owner in the taxable year in which the stock of its worthlessness is made. !ny amount claimed as a loss on account of shrinkage in value of the stock through fluctuation in the market or otherwise cannot be deducted from gross income.

E. 'A& &E'TS
'A& &E'TS shall refer to those debts resulting from the worthlessness or uncollectibility in whole or in part of amounts due the taxpayer by others arising from money lent or from uncollectible amounts of income from goods sold or services rendered.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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RE$%ISITES FOR &E&%CTI'ILIT/ 1. 9xisting indebtedness due to the taxpayer which must be valid and legally demandable+ 2. .onnected with the taxpayer3s trade business or practice of profession+ ". %ust not be sustained in a transaction entered into between related parties+ $. !ctually ascertained to be worthless and uncollectible as of the end of the taxable year.+ and &. !ctually charged off in the books of accounts of the taxpayer as of the end of the taxable year. E$%ITA'LE &OCTRINE OF TAX 'ENEFIT ! recovery of bad debts previously deducted from gross income constitutes taxable income if in the year the account was written off the deduction resulted in a tax benefit. (1a: 3ene%it Rule) Illustration
.ase ! >et income ,lossbefore write off for bad debts 8ess? !ccounts written off as bad debts Dinal >et Income ,8oss;ad debts recovery in a subse5uent year TAXA'LE INCO<E u.o the (ad de(t re*o6er) .ase ; .ase .

International Rubber, GR No. *' 5559/, "ec. 55, ,098) Cepends upon the particular facts and the circumstances of the case. 4ood faith does not re5uire that the taxpayer be an <incorrigible optimist= but on the other hand he may not be unduly pessimistic.

F. &EPRECIATION
&EPRECIATION 6 the gradual diminution in the service or useful value of tangible property due from exhaustion wear and tear and normal obsolescence. /he term also applies to amorti0ation of intangible assets the use of which in trade or business i s o% limited duration. RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he allowance for depreciation must be reasonable. 2. It must be for property use or employment in trade or business or out of its not being used temporarily during the year. ". /he allowance must be charged off within the taxable year. $. Schedule on the allowance must be attached to the return. PROPERT/ #EL& '/ ONE PERSON FOR LIFE WIT# T#E RE<AIN&ER TO ANOT#ER PERSON /he deduction shall be computed as if the life tenant was the absolute owner of the property and as such the expense shall accrue to him. PROPERT/ #EL& IN TR%ST !llowable deduction shall be apportioned between the income beneficiaries and the trustees in accordance with the pertinent provisions of the instrument creating or in the absence of such provisions on the basis of the trust income allowable to each. <ET#O&S OF &EPRECIATION /he term Preasonable allowanceP shall include ,but not limited to- an allowance computed in accordance Aith the regulations prescribed by the Cepartment of Dinance under any of the following methods. 1. Straight-line method

'1B BBB

,' A BBB-

' & BBB

" BBB ' * BBB

2 BBB ,'11 BBB-

) BBB ,'1 BBB-

" BBB

2 BBB

) BBB

P@>FFF

,F,

PB>FFF

ASCERTAIN<ENT OF WORT#LESSNESS 'roof of /wo Dacts? 1. taxpayer did in fact ascertain the debt to be worthless in the year for which deduction is sought 2. that in so doing he acted in good faith. (Collector vs. Goodrich

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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2. Ceclining-balance method ". Sum of the years-digit method $. !ny other method which may be prescribed by the Cepartment of Dinance upon recommendation of the .ommissioner of Internal :evenue. <ET#O&S OF &EPRECIATION 8i d For3ula
1-Straight-line 2-Ceclining balance "-Sum of the years digits ,SICcost- salvage value estimated life cost 6 depreciation x :ate estimated life nth period x cost- salvage SIC

Illustration ! machine is used in the manufacturing department of .orporation ! compute the depreciation per annum with the following facts? .ost M '1& BBB Salvage JalueM '& BBB

1. 'etroleum Fperations Cepreciation of all properties directly related to production of petroleum shall be allowed under straight-line ,S8- or declining balance ,C;- method %ay shift from C; to S8 method Gseful life? 1B years or shorter life as allowed by the .ommissioner Gseful life of property not directly related to production? & years under straight line method 2. %ining Fperations Cepreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is less than 1B years. If expected life is more than 1B years depreciation shall be any number of years between & years and the expected life. ". Cepreciation deductible by nonresident aliens engaged in trade(business or non-resident corporation a. Fnly when such property is located in the Philippines.

1. 4traight *ine !ethod with estimated life M & years 1& BBB 6 & BBB M '2 BBB & years 2. "eclining balance with rate of 2BBE Iear 1? 1& BBB 6 B x 2BBE M ') BBB & Iear 2?1& BBB6) BBB x 2BBE M'" )BB & -. 4um o% the years digits SIC for & years M &T$T"T2T1 or 1& Iear 1? &(1& x ,1& BBB 6 & BBBM '" """."" Iear 2? $(1& x ,1& BBB 6 & BBBM '2 ))).)* AGREE<ENT AS TO %SEF%L LIFE ON W#IC# &EPRECIATION RATE IS 'ASE& /he ;ureau of Internal :evenue and the taxpayer may agree in writing on the useful life of the property to be depreciated. /he agreed rate may be modified if justified by facts or circumstances. /he change shall not be effective before the taxable year on which notice in writing by certified mail or registered mail is served by the party initiating. SPECIAL T/PES OF &EPRECIATION

G. &EPLETION OF OIL AN& GAS WELLS AN& <INES


&EPLETION - exhaustion of natural resources as in mines oil and gas wells. /he natural resources are called <wasting assets=. !s the physical units representing such resources are extracted and sold such assets move towards exhaustion. #nown as cost of depletion allowance for mines oil gas wells and other natural deposits starting calendar year 1A*) and fiscal year beginning Suly 1 1A*& TO W#O< ALLOWE& Fnly mining entities owning economic interest in mineral deposits. )conomic interest means interest in minerals in place investment therein or secured by operating or contract agreement for which income is derived

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and return of capital expected from the extraction of mineral. %ere economic or pecuniary advantage to be derived by production by one who has no capital investment in the mineral deposit does not amount to economic interest. FEAT%RES 1. Intangible 9xploration and development drilling cost in petroleum exploration shall be treated either as? a. revenue expenditures+ or b. capital expenditures 2. /he total amount deductible for exploration and development expenditures shall not exceed &BE of net income from mining operation. /he excess shall be carried forward to the succeeding year until fully deducted.
5; :ecipient is? ,a- 4overnment of the 'hilippines+ ,b- !ny of its agencies or political subdivisions+ or ,c- !ny fullyowned government corporation For .riorit) a*ti6it) i 9 1. Science+ 2. 9ducation ". .ulture $. 2ealth &. 9conomic Cevelopment ). 2uman Settlement *. Iouth and Sports Cevelopment :; :ecipient is a foreign or international organi0ation with an agreement with the 'hilippine 4overnment on deductibility or in accordance with special law. @; :ecipient is an accredited nongovernment organi0ation organi0ed( operated for ,purposes-? :; >on-government organi0ations 5; :ecipient is? ,a- 4overnment of the 'hilippines+ ,b- !ny of its agencies or political subdivisions Dor a non-priority activity in any of the areas mentioned in ! and exclusively for a public purpose.

#. C#ARITA'LE AN& OT#ER CONTRI'%TIONS


TAX TREAT<ENT A. &edu*ti(le I Full '. &edu*ti(le Su(Je*t To Li3itatio

@; :ecipient is an accredited domestic corporation or association organi0ed(operated for ,purposes-?

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,a,b,c,dScientific+ 9ducational+ .ultural+ .haracter building(youth and sports development .haritable Social welfare 2ealth :esearch ,a,b,c,d,e,f(g) (h) Scientific 9ducational+ .ultural+ Iouth and sports development .haritable Social welfare Religious Rehabilitation o% 2eterans

,e,f,g,h-

A d +ati+f)i ! the If the conditions followi ! in /able ! is not *o ditio +9 complied with? 1. /he donation must be utili0ed Su(Je*t to not later than li3itatio 9 the 1&th day of ,a- Individual the "rd month 1BE taxable following the income from close of its trade taxable year. business or 2. /he profession administrative before expense must not contribution exceed "BE of ,b- .orporation total expenses. - &E taxable ". Gpon dissolution income from assets must be trade distributed to business or another nonprofession profit domestic before corporation or to contribution the state.

TAX TREAT<ENT )ither as 5. Re6e ue Ex.e diture+ :e5uisites? a. 'aid or incurred during the taxable year b. Frdinary and necessary expenses in connection with trade business or profession c. >ot chargeable to capital account :. &eferred Ex.e +e+ :e5uisites? a. 'aid or incurred in connection with trade business or profession b. >ot treated as expense c. .hargeable to capital account but not chargeable to property subject to depreciation or depletion.
A3ou t dedu*ti(le9

!mount ratably distributed over a period of )B months beginning with the month taxpayer reali0ed benefits from such expenditures. EXCL%SION FRO< RESEARC# AN& &E"ELOP<ENT EXPEN&IT%RES 1. !ny expenditure for the ac5uisition or improvement of land or for the improvement of property to be used in connection with research and development subject to depreciation and depletion. 2. !ny expenditure paid or incurred for the purpose of ascertaining the existence location extent or 5uality of any deposit of ore or other mineral including oil or gas.

RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he contribution or gift must be actually paid. 2. It must be given to the organi0ations specified in the code. ". /he net income of the institution must not inure to the benefit of any private stockholder or individual. "AL%ATION .haritable contribution of property other than money shall be based on the ac5uisition cost of said property.

4. PENSION TR%ST CONTRI'%TIONS


PENSION TR%ST CONTRI'%TIONS 6 a deduction applicable only to the employer on account of its contribution to a private pension plan for the benefit of its employee. /his deduction is purely business in character.

I. RESEARC# AN& &E"ELOP<ENT 7RP&;

RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he employer must have established a pension or retirement plan to

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MEMORY AID IN TAXATION LAW


provide for the payment of reasonable pensions to his employees+ /he pension plan is reasonable and actuarially sound+ It must be funded by the employer+ /he amount contributed must be no longer subject to the control and disposition of the employer+ /he payment has not yet been allowed as a deduction+ and /he deduction is apportioned in e5ual parts over a period of 1B consecutive years beginning with the year in which the transfer or payment is made. 2. /he amount of premium deductible does not exceed '2 $BB per family or '2BB per month during the taxable ear. ". /hat said family has a gross income of not more than '2&B BBB for the taxable year. $. In case of married individual only the spouse claiming additional exemption shall be entitled to this deduction. W#O <A/ A"AIL OF T#E &E&%CTION 1. Individual taxpayers earning purely compensation income during the year. 2. Individual taxpayer earning business income or in practice of his profession whether availing of itemi0ed or optional standard deductions during the year. ". Individual taxpayer earning both compensation and business or practice of profession during the year.

2. ". $. &. ).

S%<<AR/ OF R%LES ON RETIRE<ENT 'ENEFITS PLAN - PENSION TR%ST 1. Exe3.t fro3 I *o3e Tax employees7 trust under 4ec. 96(3) 2. Ex*lu+io fro3 Gro++ I *o3e amount received by the employee from the fund upon compliance of certain conditions under 4ec. -5(3) (9) @. &edu*tio fro3 Gro++ I *o3e a. !mounts contributed by the employer during the taxable year into the pension plan to cover the pension liability accruing during the year 6 considered as ordinary and necessary expenses under 4ec. -+(A)(,) b. 1(1B of the reasonable amount paid by the employer to cover pension liability applicable to the years prior to the taxable year or so paid to place the trust in a sound financial basis 6 deductible under 4ec. -+(<)

NON,&E&%CTI'LE EXPENSES
REASONS FOR NON,&E&%CTI'ILIT/ 1. 'ersonal expenses 2. .apital expenditures ". Items not normally subject to income tax and therefore are not deductible. $. Items taken advantage of by the taxpayer to avoid payment of income tax. SPECIFIC ITE<S 7SECTION @G; 1. 'ersonal living or family expenses+ 2. !mount paid out for new buildings or for permanent improvements or betterment made to increase the value of any property or estate ):cept that intangible drilling and development cost incurred in petroleum operations are deductible+ ". !mount expended in restoring property or in making good the exhaustion thereof for which an allowance has been made+ $. 'remiums paid on any life insurance policy covering the life of any officer or employee or of any person financially interested in any trade or

8. PRE<I%< PA/<ENTS ON #EALT# AN&-OR #OSPITALIIATION INS%RANCE


&EFINITION9 It is an amount of premium on health and(or hospitali0ation paid by an individual taxpayer ,head of family or married- for himself and members of his family during the taxable year. RE$%ISITES FOR &E&%CTI'ILIT/ 1. Insurance must have actually been taken

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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business carried on by the taxpayer individual or corporate when the taxpayer is directly or indirectly a beneficiary under such policy. C4ec. -9D &. 8osses from sales or exchanges of property betAeen related ta:payers. C4 ec. -9D TRANSACTIONS 'ETWEEN RELATE& PARTIES 1. ;etween members of the family+ K7amilyI includes only the brothers sisters ,whether by the whole or half blood- spouse ancestors and lineal descendants of the taxpayer. 2. 9xcept in the case of distributions in li5uidation? a. between an individual and a corporation more than &BE in value of the outstanding stock of which is owned directly or indirectly by or for such individual+ b. between two corporations more than &BE in value of the outstanding stock of each of which is owned directly or indirectly by or for the same individual if either one of such corporations with respect to the taxable year of the corporation preceding the date of the sale of exchange was a personal holding company or a foreign personal holding company+ or ". ;etween the grantor and a fiduciary of any trust+ $. ;etween the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust+ &. ;etween a fiduciary of a trust and a beneficiary of such trust. TAX CONSE$%ENCES /he following are not deductible? 1. Interest expense C4ec. -+ (3)(5)D 2. ;ad debts C4ec. -+ ())(,)D ". 8osses from sales or exchanges of property C4ec -9 (3)D APPLIES TO9 1. Comestic corporations ,C.2. :esident foreign corporations ,:D.RATE OF TAX AN& &ATE OF EFFECTI"IT/ 5BL of the Gro++ I *o3e effective Sanuary 1 2BBB CON&ITIONS OR RE$%IRE<ENTS 1. ! tax effort ratio of 2BE of 4ross >ational 'roduct 2. ! ratio of $BE income tax collection to total tax revenues ". ! J!/ tax effort of $E of 4>' $. ! B.AE ratio of .onsolidated 'ublic Sector Dinancial 'osition ,.'SD'- to 4>' OT#ER FEAT%RES 1. !vailable only to firms whose ratio of?
.ost of sales 4ross sales or receipts from all sources UM&&E

2. /he election shall be irrevocable for three ,"- consecutive years <EANING OF GROSS INCO<E Ge eral *o *e.t 4ross sales *ess ,1- Sales :eturn+ ,2- Ciscount and allowances ,"- .ost of goods sold - means all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

7@; <INI<%< CORPORATE INCO<E TAX 7<CIT; SECTION :C 7E;


W#O ARE CO"ERE&0 %.I/ is imposed on domestic and resident foreign corporations 1. 1henever such corporation has 0ero or negative taxable income+ or 2. 1henever the amount of %.I/ is greater than the normal income tax due from such

7:; OPTIONAL CORPORATE INCO<E TAX SECTION :C 7A;

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MEMORY AID IN TAXATION LAW


corporation determined Section 2*Q!R. LI<ITATIONS 1. /he %.I/ shall apply only to domestic and resident foreign corporations subject to the normal corporate income tax ,income tax rates under Sec 2*Q!R of the ./:'-. 2. In the case of a domestic corporation whose operations or activities are partly covered by the regular income tax system and partly covered under a special income tax system the %.I/ shall apply on operations covered by the regular corporate income ta: system. ". In computing for the %.I/ due from a resident foreign corporation only the gross income from sources within the 'hilippines shall be considered for such purpose. W#EN &OES A CORPORATION 'ECO<E LIA'LE %N&ER T#E <CIT0 %.I/ is imposed beginning on the fourth taxable year immediately following the year in which such corporation commenced its business. /he taxable year in which the business operations commenced shall be the year when the corporation registers with the ;I:. CARR/ FORWAR& <INI<%< TAX OF T#E EXCESS under the %.I/ on any corporation which suffers losses because of? a. prolonged labor dispute+ b. force majeure+ or c. legitimate business reverses. <4ubstantial losses %rom a prolonged labor disputeP means losses arising from a strike staged by the employees which lasted for more than six ,)- months within a taxable period and which has caused the temporary shutdown of business operations. <7orce ma&eureP means a cause due to an irresistible force as by P!ct of 4odP like lightning earth5uake storm flood and the like. /his term shall also include armed conflicts like war and insurgency. <*egitimate business reverses P shall include substantial losses sustained due to fire robbery theft or embe00lement or for other economic reason as determined by the Secretary of Dinance. TAX RATE9 :L of !ro++ i *o3e or taxable base pertinent to a trading(merchandising concern or a service entity TAX 'ASE9 4ross Income <EANING OF GROSS INO<E Ge eral *o *e.t - gross income means? 4ross sales *ess ,1- Sales :eturn+ ,2- Ciscount and allowances ,"- .ost of goods sold - means all business expenses directly incurred to produce the merchandise to bring them to their present location and use. 8IN&S OF '%SINESS A. Tradi ! or <er*ha di+i ! Co *er Gro++ I *o3e M Co+t of Sale+ M gross sales( 1.Invoice cost of the receipts less sales goods sold+ returns discounts 2.import duties+ and allowances and ".freight in cost o% goods sold transporting the goods to the place

!ny excess of %.I/ over the normal income tax can be carried forward on an annual basis. /he excess can be credited against the normal income tax due in the next " immediately succeeding taxable years. !ny amount of the excess %.I/ which cannot be credited against the normal income tax due in the next "-year period shall be forfeited.

RELIEF FRO< <CIT /he Secretary of Dinance is authori0ed to suspend the imposition of

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


where the goods are actually sold+ $.insurance while the goods are in transit. Co+t of Sale+ Q !ll cost of production of finished goods such as 1.raw materials used+ 2.direct labor+ ".manufacturing overhead+ $.freight cost+ &.insurance premiums+ ).other costs incurred to bring the raw materials to the factory or warehouse. Co+t of Ser6i*e+ M !ll direct costs and expenses necessarily incurred to provide the services re5uired by the customers and clients including? a. Salaries and employee benefits of personnel consultants and specialists directly rendering the service+ b. .ost of facilities directly utili0ed in providing the service. It shall ot
i *lude i tere+t ex.e +e e:cept %or

See A ex T for interplay of normal tax optional corporate income tax and %.I/.

'. <a ufa*turi ! Gro++ I *o3e ,Same-

7A; I<PROPERL/ ACC%<%LATE& EARNINGS 7IAE; TAX SECTION :E


7RE"EN%E REG%LATIONS NO. : :FF5; &EFINITION9 KImproperly accumulated earnings (IA))I are the profits of a corporation that are permitted to accumulate instead of being distributed by a corporation to its shareholders for the purpose of avoiding the income ta: with respect to its shareholders or the shareholders of another corporation. TAX RATE9 5FL of the Improperly !ccumulated /axable Income ,in addition to other taxes-. Rati"nale be#ind IAET If the earnings and profits were distributed the shareholders would then be liable to income tax thereon whereas if the distribution were not made to them they would incur no tax in respect to the undistributed earnings and profits of the corporation. /hus a tax is being imposed+ a. in the nature of a penalty to the corporation for the improper accumulation of its earnings and b. as a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them by the corporation. 1I<PROPERL/ ACC%<%LATE& TAXA'LE INCO<E2 /axable income for the year !dd? Income exempt from tax+ Income excluded from gross income+ Income subject to final tax+ >et operating loss carry-over ,NOLCOTotal 8ess? Income tax paid(payable for the taxable year

C. Ser6i*e+ Gro++ I *o3e Q 4ross receipts less sales returns allowances discounts and costs o% services

ban?s and other %inancial institutions. 4ross income e:cludes passive income subject to final tax. Fther income and 9xtraordinary Income are included since :: A-A@ provides that gross sales include sales contributory to income taxable under the regular corporate tax.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


Cividends actually or constructively paid(issued from the applicable year7s taxable income !mount reserved for the reasonable needs of the business as defined in the :egulations Tax (a+e of i3.ro.erl) a**u3ulated ear i !+ tax EXCL%SIONS Dor corporations using the calendar basis the accumulated earnings tax shall not apply on IA) as o% "ec. -,, ,008. Dor fiscal year basis the tax shall not apply to the 12-month period of fiscal year 1AA*-1AA@. I!9 as of the end of a calendar or fiscal year period on or after Cec. "1 1AA@ shall be subject to the 1BE tax. W#O ARE CO"ERE&0 Ge eral Rule9 /he I!9 tax shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate instead of being divided or distributed. /hese are? 1. "omestic corporations as defined under the /ax .ode+ 2. .orporations which are classified as closely'held corporations. those corporations at least fifty percent ,&BE- in value of the outstanding capital stock or at least fifty percent ,&BE- of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty ,2B- individuals. Comestic corporations not falling under the aforesaid definition are therefore publicly-held corporations. Ex*e.tio 9 /he said tax shall not apply to? 1. 'ublicly held corporations (4ec. 50) 2. ;anks and other non-banks Dinancial intermediaries (4ec. 50) ". Insurance companies (4ec. 50) $. /axable partnerships (deemed to have actually or constructively received the ta:able income under 4ec. 8-") &. 4eneral professional partnerships (e:empt; ta:able against the partners) ). >on- taxable joint ventures and *. 9nterprises duly registered with the 'hilippine 9conomic Vone !uthority ,'9V!- under :.!. *A1) and enterprises registered pursuant to the ;ases .onversion and Cevelopment !ct of 1AA2 under :.!. *22* as well as other enterprises duly registered under special economic 0ones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes national or local. @. Doreign corporations CRR No. 65' 566,D E"I&ENCE OF INCO<E TAX P%RPOSE TO A"OI&

1. /he fact that any corporation is a mere holding company or investment company shall be prima %acie evidence of a purpose to avoid the tax upon its shareholders or members. I +ta *e+ i di*ati6e of .ur.o+e to a6oid i *o3e tax u.o +hareholder+9 1. Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business+ 2. Investment in bonds and other long-term securities+ ". !ccumulation of earnings in excess of 1BBE of paid-up capital not otherwise intended for the reasonable needs of the business as defined in these :egulations.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


2. /he fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs o% the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless the corporation by the clear preponderance of evidence shall prove the contrary. 1Rea+o a(le eed+ of the (u+i e++2 includes the reasonably anticipated needs of the business such as? a. !llowance for the increase in the accumulation of earnings up to 1BBE of the paid-up capital of the corporation as of ;alance Sheet date inclusive of accumulations taken from other years+ b. 9arnings reserved for definite corporate expansion projects or programs as approved by the ;oard of Cirectors or e5uivalent body+ c. :eserved for building plants or e5uipment ac5uisition as approved by the ;oard of Cirectors or e5uivalent body+ d. :eserved for compliance with any loan covenant or preexisting obligation established under a legitimate business agreement+ e. 9arnings re5uired by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition against its distribution+ f. In the case of subsidiaries of foreign corporations in the 'hilippines all undistributed earnings intended or reserved for investments within the 'hilippines as can be proven by corporate records and(or relevant documentary evidence. /he controlling intention o% the ta:payer is that which is manifested at the time o% accumulation not subse5uently declared intentions which are merely the product of afterthought. ! speculative and indefinite purpose will not suffice. Cefiniteness of plan(s coupled with action(s taken towards its consummation is essential. PERIO& FOR PA/<ENT OF &I"I&EN&PA/<ENT OF IAET Cividends must be declared and paid or issued not later than one year following the close of the taxable year otherwise the I!9/ if any should be paid within fifteen ,1&- days thereafter.

7B; INCO<E S%'4ECT TO


PREFERENTIAL OR SPECIAL RATES
'ertains to income derived by a particular individual or corporation belonging to a class of income taxpayer that is subject to either a preferential or special rate. Tax Rate+? 'lease refer to A ex C.

7G; GROSS INCO<E TAX 7GIT;


GROSS INCO<E TAX 7GIT; FOR<%LA 9ntire Income *ess 9xclusions and Income subject to Dinal /ax ,e.g. 'assive Income4ross Income !ultiply by /ax :ates ,E>et Income /ax Cue GIT APPLIES TO 1. >on-resident alien not engaged in trade or business ,2&E-+ and 2. >on-resident foreign corporation. ,"2E Tax Rate+9 'lease refer to A and '. ex A

7C; FINAL INCO<E TAX


GENERAL PRINCIPLES

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CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


1. It is constituted as a full and final payment of the income tax due from the payee on a particular type of income subject to final withholding tax 7FWT;. /he finality of the withholding tax is limited only to the payee7s income tax liability and does not extend to other taxes that may be imposed on said income. 2. /he income subjected to final income tax is no longer subject to the net income tax+ otherwise there would be a violation of prohibited double taxation. ". /he liability for the payment of the tax rests primarily on the payor as withholding agent. $. /he payee is not re5uired to file an income tax return for the particular income subjected to D1/. It is the withholding agent who files the return. &. /he rate of the final tax is multiplied to the gross income. /hus deductions and(or personal and additional exemptions are not allowed. *. 9xpenses for foreign travel @. 2oliday and vacation expenses A. 9ducational assistance to the employee or his dependents+ and 1B. 8ife or health insurance and other non-lire insurance premiums or similar amounts on excess of what the law allows. PERSONS LIA'LE /he E<PLO/ER ,as a withholding agent- whether individual professional partnership or a corporation regardless of whether the corporation is taxable or not or the government and its instrumentalities TAX RATE9 @:L ,from Sanuary 1 2BBB onwards- of the Grossed up !onetary 2alue (G!2) of fringe benefits. In the case of aliens the tax rates to be applied on fringe benefit shall be as follows? 1. >:!>9;/ 2&E 2. !liens employed by regional 2F 1& E ". !liens employed by F;G 1&E $. !liens employed by 'etroleum Service .ontractors and Subcontractors 1&E 1G<"2 OF REPRESENTS T#E FRINGE 'ENEFIT

7D; FRINGE 'ENEFIT TAX 7F'T;


FRINGE 'ENEFIT TAX is a fina& income tax on the employee which shall be withheld and paid by the employer on a 5uarterly basis. FRINGE 'ENEFIT means any good service or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries to an individual employee ,except rank and file employees- such as but not limited to the following? 1. 2ousing 2. 9xpense !ccount ". Jehicle of any kind $. 2ousehold personnel such as maid driver and others &. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. ). %embership fees dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organi0ations

1. /he whole amount of income reali0ed by the employee which includes the net amount of money or net monetary value of property which has been received+ plus 2. /he amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of the employee. <G<"= of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the Gro++ed u. di6i+or. /he 4rossed up divisor is the difference between 1BBE and the applicable rates. /EAR
1AA@ 1AAA

GROSSE& %P &I"ISOR
))E )*E

RATE
"$E D1/ ""E D1/

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


2BBB onwards )@E "2E D1/

FRINGE 'ENEFITS N) S%'4ECT TO F'T 1. Dringe benefits not considered as gross income 6 a. if it is re5uired or necessary to the business of employer b. if it is for the convenience or advantage of employer 2. Dringe ;enefit that is not taxable under Sec. "2 ,;- 6 9xclusions from 4ross Income ". Dringe benefits not taxable under Sec. "" Dringe ;enefit /ax? a. Dringe ;enefits which are authori0ed and exempted under special laws such as the 1"th month 'ay and Fther ;enefits with the ceiling of '"B BBB. b. .ontributions of the employer for the benefit of the employee to retirement insurance and hospitali0ation benefit plans+ c. ;enefits given to the :ank and Dile 9mployees whether granted under a collective bargaining agreement or not+ and d. /he "e minimis benefits 6 benefits which are relatively small in value offered by the employer as a means of promoting goodwill contentment efficiency of 9mployees /he term <Ra H a d File E3.lo)ee+= shall mean all employees who are holding neither managerial nor supervisory position as defined in the 8abor .ode In the case of rank and file employees fringe benefits other than those excluded from gross income under the /ax .ode and other special laws are taxable under the individual normal tax rate. &E&%CTI'ILIT/ TO T#E TAXA'LE INCO<E OF T#E E<PLO/ER Ge eral Rule9 /he amount of taxable fringe benefit and the fringe benefits tax shall constitute allowable deductions from gross income of the employer.

Ex*e.tio 9 If the basis for computation of the fringe benefits tax is the depreciation value the 0onal value or the fair market value only the actual fringe benefits tax paid shall constitute a deductible expense for the employer. /he value of the fringe benefit shall not be deductible and shall be presumed to have been tacked on or actually claimed as depreciation expense by the employer. 'rovided however that if the aforesaid 0onal value or fair market value of the said property is greater than its cost subject to depreciation the excess amount shall be allowed as a deduction from the employer3s gross income as fringe benefit expense. (4ec. 5.--C"D, Rev. Reg. No. -'0.) EXA<PLE OF &E <INI<IS 'ENEFITS NOT S%'4ECT TO F'T 7RR NO. D,:FFF AN& 5F,:FFF; 1. %oneti0ed unused vacation leave credits of ':IJ!/9 employees not exceeding ,1B- days during the year and the moneti0ed value of leave credits paid to government officials and employees 2. %edical cash allowance to dependents of employees not exceeding '*&B.BB per employee per semester or '12& per month+ ". :ice subsidy of '1 BBB.BB or one ,1sack of &Bkg. rice per month amounting to not more than '1 BBB?BB $. Gniform and clothing allowance not exceeding '" BBB per annum+ &. !ctual yearly medical benefits not exceeding '1B BBB per annum+ ). 8aundry allowance not exceeding '"BB per month+ *. 9mployees achievement awards e. g. for length of service or safety achievement which must be in the form of a tangible personal property other than cash or gift certificate with an annual monetary value of not exceeding '1B BBB received by the employee under an established written plan which does not discriminate in favor paid employees+

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


@. 4ifts given during .hristmas and major anniversary celebrations not exceeding '" BBB per employee per annum+ A. Dlowers fruits books or similar items given to employees under special circumstances 1B. Caily meal allowance for overtime work not exceeding 2&E of the basic minimum wage. Ti3e for fili ! of =uarterl) re3itta *e retur of fi al i *o3e taxe+ withheld /he tax imposed under Sec. "" shall be treated as a final income tax on the employee that shall be withheld and paid by the employer whether a large taxpayer or non-large taxpayer on or 7efore t#e 15t# da! of t#e mont# following the calendar 5uarter in which the fringe benefits were granted ,:: B$2BB2-. Dor !dditional :ules on ;enefits refer to A ex #. Dringe b. Fn sale of land(building held as capital asset
Fn the gross selling price, or the current %air mar?et value at the time of sale whichever is higher 6 D/ of )E

(Reyes, 2irgilio. Income 1a: *aA and Accounting # A NeA Approach, 5665)

CAPITAL GAINS AN& LOSSES ,N -ENERA(


CONCEPT OF CAPITAL ASSETS Gnder the tax code there is no definition for the term Pcapital assetsP. 1hat it gives is the meaning of ordinary assets? a. Ordi ar) a++et+ /%ec. 310 N,RC4 a. Stock in trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer+ b. 'roperty held by the taxpayer primarily for sale to customers in the ordinary course of business+ c. 'roperty used in trade business and subject depreciation+ and or to

7E; CAPITAL GAINS TAX


S%<<AR/ OF TAX RATES 5. I di6idual+ a. Fn sale of shares of stock of a domestic corporation not listed and traded thru a local stock exchange held as capital asset
(n the Net Capital Gain >ot over '1BB BBB 6 D/ of &E !mount in excess of '1BB BBB 6 D/ of 1BE

d. :eal property used in trade or business. b. Ca.ital A++et+ include all property held by the taxpayer whether or not connected in trade or business but not including those enumerated above ,W1- as ordinary assets. CAPITAL GAIN
/he gain derived from the sale or exchange of capital assets.

b. Fn sale of real property in the 'hilippines held as capital asset


Fn the gross selling price, or the current %air mar?et value at the time of sale whichever is higher 6 D/ of )E

CAPITAL LOSS
/he loss incurred from the sale or exchange of capital assets.

:. Cor.oratio + a. Fn sale of shares of stock of a domestic corporation not listed and traded thru a local stock exchange held as capital asset
(n the Net Capital Gain # >ot over '1BB BBB 6 D/ of &E !mount in excess of '1BB BBB 6 D/ of 1BE

NET CAPITAL GAIN

NET CAPITAL LOSS

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


/he excess of the gains from sales( exchanges of capital assets over the gains from such sales( exchanges. /he excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges. dedu*ti(ilit) of Net Ca.ital lo++e+ .apital losses are allowed only to extent of the capital gains+ hence the net capital loss is not deductible. are allowed only to extent of the capital gains+ hence the net capital loss is not deductible. Ex*e.tio ? If any domestic bank or trust company a substantial part of whose business is the receipt of deposits sells any bond debenture note or certificate or other evidence of indebtedness issued by any corporation ,including one issued by a government or political subdivision >ot allowed

TRANSACTION RES%LTING IN TAXA'LE GAINS '%T NON,RECOGNITION OF LOSSES a. Sale or exchange between related parties+ b. 1ash sales by non-dealers of securities and when not subject to the stock transfer tax+ c. 9xchanges not solely in kind in merger and consolidation+ and d. Sales or exchanges that are not at arms length. OF

RE$%ISITES FOR RECOGNITION CAPITAL GAIN-LOSS

1. /he transaction must involve property classified as capital asset+ and 2. /he transaction must be a sale or exchange or one considered as e5uivalent to a sale or exchange. R%LES ON T#E RECOGNITION CAPITAL GAINS OR LOSSES IN&I"I&%AL
#oldi ! Period /he percentages of gain or loss to be taken into account shall be the following? a.1BBE - if the capital assets has been held for 12 mos. or less+ and b.&BE - if the capital asset has been held for more than 12 mos.
No ,

OF

CORPORATION
.apital gains and losses are recogni0ed to the extent of 1BBE. ,/here is no holding period-

Net Ca.ital Lo++ Carr) O6er !llowed /he net capital loss ,in an amount not in excess of the taxable income before personal exemption for such year- shall be treated in the succeeding year ,but not beyond 12 monthsas a deduction as short-term capital loss ,at 1BBE- from the net capital gains.

See A SALE or 1. 2. ".


OR

ex % for illustration.
OF

EXC#ANGE

CAPITAL ASSETS

.apital

losses

/he following are considered as sale exchange of capital assets? :etirement of bonds Short sales of property Dailure to exercise privilege or option to buy or sell property $. Securities becoming worthless &. Cistribution in li5uidation of corporations ). :eadjustment of interest in a general professional partnership. TAX FREE EXC#ANGES

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Sales or exchanges resulting in nonrecognition of gains or losses? 1. 9xchange solely in ?ind in legitimate 3er!er+ a d *o +olidatio + includes? a. ;etween the corporations which are parties to the merger or consolidation ,property for stocks-+ b. ;etween a stockholder of a corporation party to a merger or consolidation and the other party corporation ,stock for stock-+ c. ;etween a security holder of a corporation party to a merger or consolidation and the other party corporation ,securities for securities2. /ransfer to a *o trolled *or.oratio 6 exchange of property for stocks resulting in ac5uisition of corporate control by a person alone or together with others not exceeding four. 1Co trol2 means ownership of stocks in a corporation amounting to at least &1E of the total voting power of all classes of stocks entitled to vote. SALE
OR

b. /ransfer to a controlled corporation QSec. $B,. 2-R 1. /ransactions where gain is recogni0ed but not the loss 6 a. /ransactions between related taxpayers QSec. ")R b. Illegal transactions QSec. A) :ev. :eg. 2R c. 9xchanges of property not solely in kind in pursuance of corporate mergers and consolidations QSec. $B ,. "-R I<PORTANT &ISTINCTION If it is an ordi ar) a++et the ordinary gains and losses are considered in determining income or loss from trade business or profession. (4ee 4ecs. -5A, -+") If it is a *a.ital a++et determine further whether or not it is a real property located in the 'hilippines. If it is then it is subject to capital gains tax. (4ee 4ecs. 5+", 58"/) (4ee also 4ec s. 5+C, 58"5) If not the capital gains and losses are considered in determining the taxable income. (4ec. -0) CAPITAL GAINS AN& LOSSES %>ARE% )? % )C@ /he taxation of shares of stock whether or not listed and traded in the stock exchange is subject to %inal ta:. W#O ARE LIA'LE TO T#E TAX 1. Individual taxpayer citi0en or alien 2. .orporate taxpayer domestic or foreign ". Fther taxpayers such as estate trust trust funds and pension among others. RATES
OF TAX

EXC#ANGE

OF

OR&INAR/ ASSETS

4eneral rules of income taxation apply to both gain and loss. See A ex & ,4ross Income 6 4ains from dealings in propertyS%<<AR/ OF TAX TREAT<ENT OF GAINS-LOSSES IN T#E EXC#ANGE OF PROPERTIES Ge eral Rule9 Gpon the sale or exchange of property the entire gain or loss as the case may be shall be recogni0ed. QSec. $B ,. 1-R Ex*e.tio +9 1. /ransactions where gains and losses are not recogni0ed 6 a. 9xchange solely in kind in legitimate mergers and consolidation

1. Share+ of +to*H ot traded throu!h a lo*al +to*H ex*ha !e 6 >et capital gains derived during the taxable year from sale exchange or transfer shall be taxed as follows ,on a per transaction basis-? >ot over ' 1BB BBB - &E Fver ' 1BB BBB - 1BE

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


2. Share+ of +to*H li+ted throu!h a lo*al +to*H ex*ha !e 6 X of 1E of the gross selling price of the stock. EXCEPTIONS TO T#E TAX 1. 4ains derived by dealers in securities. 2. !ll other gains which are specifically exempt from income tax under existing investment incentives and other special laws. 'ASIS FOR CO<P%TING R%LING 5AG,ED;
GAIN OR LOSS

1.

Li+ted a d Traded i the Sto*H Ex*ha !e - /he stockbroker shall

turn over the tax collected to the ;.I.:. within %ive (/) banking days from the date of collection.

2.

Not traded throu!h the +to*H ex*ha !e

7'IR

- It shall be paid by the seller on a per transaction basis upon filing of the re5uired return within -6 days following each sale or other disposition of shares of stock.

/he fair market value ,D%J- of the sale of shares not traded but listed in the stock exchange is the highest closing price on the day the shares were sold transferred or exchanged. 1hen no sale is made in the stock exchange the D%J shall be the highest selling price on the day nearest to the day of sale transfer or exchange. Dor shares not listed in the exchange the D%J shall be the book value nearest the valuation date /he above rules shall be used in computing for the net capital gain(loss for disposition of shares.

CAPITAL GAINS AN& LOSSES /REA( PR)PER A4


PERSONS AFFECTE& LIA'LE AN& TRANSACTIONS

I<PORTANT FEAT%RES 1. Sale of shares of stock of a domestic corporation listed and traded in a local stock exchange and that of initial public offering shall be subject to 'ercentage tax ,;usiness /ax2. .apital losses sustained during the year ,not listed and traded in a local stock exchange- shall be allowed as a capital loss deductible on the same taxable year only ,no carry-over". /he entire amount of capital gain and capital loss ,not listed and traded in a local stock exchangeshall be considered without taking into account holding period irrespective of who is the taxpayer ,all 1BBE$. >on-deductibility of losses on wash sales. FILING
AN&

5. I di6idual tax.a)er+> e+tate+ a d tru+t+ Sale or exchange or other disposition of real property considered as capital assets. /he said sale shall include Lpacto de retro saleP and other conditional sale. :. &o3e+ti* Cor.oratio Sale or exchange or disposition of lands and(or building which are not actually used in business and are treated as capital asset. EXCEPTIONS TO T#E TAX 1. 4ains derived by dealers in real estate RATE AN& 'ASIS OF TAX ! final tax of )E is based on the gross selling price or %air mar?et value or Gonal value whichever is higher. Note9 4ain or loss is immaterial there being a conclusive presumption of gain. See A ex G 6 4uidelines in Cetermining 1hether a :eal 'roperty is a .apital or an Frdinary !sset. EXE<PTION
OF CERTAIN IN&I"I&%ALS FRO< T#E CAPITAL GAINS TAX ON T#E SALE OR &ISPOSITION OF A PRINCIPAL RESI&ENCE

PA/<ENT

OF

TAX

Co ditio +9

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


a. Sale or disposition of the old principal residence+ b. ;y natural persons - citi0ens or aliens provided that they are residents taxable under Sec. 2$ of the .ode ,does not include an estate or a trust-+ c. /he proceeds of which is fully utili0ed in ,a- ac5uiring or ,bconstructing a new principal residence within eighteen ,1@calendar months from date of sale or disposition+ d. >otify the .ommissioner within thirty ,"B- days from the date of sale or disposition through a prescribed return of his intention to avail the tax exemption+ e. .an only be availed of only once every ten ,1B- years+ f. /he historical cost or adjusted basis of his old principal residence sold exchanged or disposed shall be carried over to the cost basis of his new principal residence g. If there is no full utili0ation the portion of the gains presumed to have been reali0ed shall be subject to capital gains tax. GROSS INCO<E FRO< &IFFERENT SO%RCES 7SEC. A:; 'lease refer to A ex I. ACCO%NTNG PERIO&S
AN& ACCO%NTING

1. accounting period is other than a fiscal year 2. taxpayer has no accounting period ". taxpayer does not keep books $. taxpayer is an individual Fi+*al )ear? accounting period of 12 months ending on the last day of any month other than Cecember Cale dar )ear? accounting period from Sanuary 1 to Cecember "1

'. Period+ i whi*h ite3+ of !ro++ i *o3e i *luded 7Se*. AA; !mount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer unless any such amounts are to be properly accounted for in a different period under methods of accounting permitted In case of death of taxpayer? include for the taxable year in which falls the date of his death all amounts which accrued up to the date of his death+ if not otherwise properly includible in respect of such period or a prior period C. Period for whi*h dedu*tio a d *redit+ taHe 7Se*. AB; Ceductions provided in this /itle shall be taken for the taxable year in which Lpaid or incurred dependent upon the method of accounting upon the basis of which the net income is computed unless in order to reflect the income deductions should be taken as of a different period. In case of death of taxpayer? deductions allowed for the taxable period in which falls the date of his death amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period.

<ET#O&S

OF

I. ACCO%NTING PERIO&S A. Ge eral rule 7Se*. A@; /axable income is computed upon the basis of taxpayer7s annual accounting period ,fiscal or calendar year- in accordance with the method of accounting employed. If no method of accounting employed or method does not clearly reflect the income computation shall be made in accordance w( such method as the opinion of the .ommissioner clearly reflects the income. /axable income is computed based on calendar year if?

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


&. Cha !e of a**ou ti ! .eriod 7Se*.AG; #inds of changes? - from fiscal year to calendar year - from calendar year to fiscal year - from one fiscal year to another 9ffect of change? >et income shall with the approval of the .ommissioner be computed on the basis of the new accounting period subject to Sec. $*. E. Fi al or adJu+t3e t retur + for a .eriod of le++ tha 5: 3o th+ ,1- :eturns for short period resulting from change of accounting period taxpayer is other than an individual with the approval of the .ommissioner If change is from fiscal year to calendar year? - separate final or adjustment return be made for the period between the close of the last fiscal year for which return was made and the following Cecember "1 If change is from calendar year to fiscal year? - separate final or adjustment return be made for the period between the close of the last calendar for which return was made and the date designated as the close of the fiscal year If change is from one fiscal year to another? - separate final or adjustment return be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year ,2- Income computed on basis of short period In what casesH a. 1here a separate final or adjustment return is made on account of a change in accounting period b. In all other cases where a separate final or adjustment return is re5uire or permitted by :K: prescribed by Sec. of Dinance. upon recommendation of .ommissioner ;oth shall be made for a fractional part of a year. /hen income is computed on the basis of the short period for which separate final or adjustment return is made. II. <ET#O&S
OF ACCO%NTING

A. Ca+h 3ethod :ecognition of income and expense dependent on inflow or outflow of cash. 5. A**rual 3ethod %ethod under which income gains and profits are included in gross income when earned whether received or not and expenses are allowed as deductions when incurred? although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income 9xamples ? 1. interest or rent income earned but not yet received 2. rent expense accrued but not yet paid ". wages due to workers but remaining unpaid A**ou ti ! for lo !,ter3 *o tra*t+ *ong'term contracts? building installation or construction contracts covering a period in excess of 1 yr 'ersons whose gross income is derived in whole or in part

:.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


from such contracts shall report such income upon the basis of percentage o% completion /he return is accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under the contract Ceductions from gross income? all expenditures made during the taxable year on account of the contract? account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. !mended return may be permitted (re5uired by the .ommissioner? if upon completion of contract taxable income has not been clearly reflected for any year,s-. .ost 4ross profit ,4'1&B BBB &B BBB

Installments payable in 2 e5ual annual installments 4'(.' ratio M &B BBB(2BB BBB M 2&E .ollections in 2BBBM'1BB BBB Income for 2BBB M '1BB BBB x 2&E M '2& BBB ,2- Sales of realty and casual sales of 'ersonalty In cases o% a. casual sale or other casual disposition of personal property ,other than inventory on hand of the taxpayer at the close of the taxable year- for a price Y '1 BBB or b. sale or other disposition of real property if in either case the initial payments do not exceed 2&E of the selling price $oA may income be returned? same as in sales of dealer in personal property above Initial payments payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. ,"Sales of real property considered as capital asset by individuals Individual who sells of disposes of real property considered as capital asset and is otherwise 5ualified to report the gain under ,2above may pay the capital gains tax in

@.

I +tall3e t (a+i+ ,1- Sales of dealers in personal property Gnder rules and regulations prescribed by the Sec. of Dinance a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income there from in any taxable year that proportion of the installment payments actually received in that year which the gross profit reali0ed or to be reali0ed when payment is completed bears to the contract price. ):ample 4ale in 5666 .ontract price ,.',installments receivable'2BB BBB

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


installments under rules and regulations to be promulgated by the Sec. of Dinance. ,$- .hange from accrual installment basis to PERSONS RE$%IRE& RET%RN FILE INCO<E TAX exemptions the net taxable income the income tax rate the income tax due the income tax withheld if any and the income tax still to be paid or refundable.

taxpayer must be entitled to benefits under ,1- hereof sales of dealers in personal property in computing income for the year of change or any subse5uent year? amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded.

TO

A. Allo*atio of i *o3e a d dedu*tio + !pplicable to? cases of 2 or more organi0ations trades or businesses ,incorporated and organi0ed within the 'hilippinesowned or controlled directly (indirectly by the same interest .ommissioner is authori0ed to distribute apportion or allocate gross income or deductions between or among such organi0ation trade or business if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or to clearly reflect the income of any such organi0ation trade or business. FILING
OF

a. I di6idual 1. :esident citi0en+ 2. >on-resident citi0en on income from within the 'hil.+ ". :esident alien on income from within the 'hil.+ $. >:!9/; on income from within the 'hil. &. !n individual ,citi0ens ( aliensengaged in business or practice of a profession within the 'hil. regardless of the amount of gross income+ ). Individual deriving compensation income concurrently from two or more employers at any time during the taxable year+ *. Individual whose pure compensation income derived from sources within the 'hil. exceeds ')B BBB. b. Taxa(le E+tate a d Tru+t c. Ge eral Profe++io al Part er+hi. d. Cor.oratio 1. >ot exempt from income tax+ 2. 9xempt from income tax under Sec. "B of >I:. but has not shown proof of exemption. IN&I"I&%ALS EXE<PT FRO< FILING INCO<E TAX RET%RN 1. Individual whose gross income does not exceed total personal and additional exemptions+ 2. Individual with respect to pure compensation income derived from sources within the 'hilippines the income tax on which has been correctly withheld+ ". Individual whose sole income has been subjected to final withholding income tax+ $. Individual who is exempt from income tax.

TAX RET%RN

AN&

PA/<ENT

OF

TAX

TAX RET%RN 6 /his is a report made by the taxpayer to the ;I: of all gross income received during the taxable year the allowable deductions including

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


is when the employer7s annual return may be considered as the <substitute= Income /ax :eturn ,I/:- of employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer7s annual return.
S%'STIT%TE& FILING

$. /he employee3s spouse also complies with all three ,"- conditions stated above. &. /he employer files the annual information return ,;I: Dorm >o. 1)B$-.D). /he employer issues ;I: Dorm 2"1) ,Fct 2BB2 9>.S- version to each employee IN&I"I&%ALS NOT $%ALIFIE& FOR S%'STIT%TE& FILING 7STILL RE$%IRE& TO FILE; 1. Individuals deriving compensation from two or more employers concurrently or successively during the taxable year. 2. 9mployees deriving compensation income regardless of the amount whether from a single or several employers during the calendar year the income tax of which has not been withheld correctly ,i.e. tax due is not e5ual to the tax withheldresulting to collectible or refundable return. ". 9mployees whose monthly gross compensation income does not exceed '& BBB or the statutory minimum wage whichever is higher and opted for non-withholding of tax on said income. $. Individuals deriving other nonbusiness non-profession-related income in addition to compensation income not otherwise subject to final tax. &. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld but whose spouse falls under 1 to $ above. ). >on-resident aliens engaged in trade or business in the 'hilippines deriving purely compensation income or compensation income and other non-business nonprofession-related income. N(1) >on-filing of I/: for employees who are 5ualified for the substituted filing shall be (P1I(NA* for the taxable year 2BB1 the returns for which shall be filed on or before !pril 1& 2BB2. /hereafter substituted filing where

#OW IS 1S%'STIT%TE& FILING2 &IFFERENT FRO< 1NON,FILING20 Su(+tituted Fili ! 6 an individual taxpayer although re5uired under the law to file his income tax return will no longer have to personally file his own income tax return. 6 but instead the employerFs annual in%ormation return filed is the considered <substitute= income tax return of the employee inasmuch as the information in the employer7s return is e:actly the same in%ormation contained in the employee7s return. No ,fili ! 6 applicable to certain types of individual taxpayers who are not re5uired under the law to file an income tax return. 9xample? employee whose pure compensation income does not exceed ')B BBB and has only one employer for the taxable year and whose tax withheld is e5uivalent to his tax due.

S%'STIT%TE& FILING OF INCO<E TAX RET%RNS '/ E<PLO/EES RECEI"ING P%REL/ CO<PENSATION INCO<E. NSECTION A> RR @, :FF:M R<C F5,F@O Re=ui+ite+9 1. /he employee receives purely compensation income ,regardless of amount- during the taxable year. 2. /he employee receives the income only from one employer during the taxable year. ". /he amount o% ta: due from the employee at the end of the year eBuals the amount of tax withheld by the employer.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


applicable shall be !AN"A1(RM. C4ec / RR -'5665) ". 1ith the Fffice of the .ommissioner

RE$%IRE<ENT OF 'AN8S FOR S%'<ISSION OF AN ITR FOR LOAN O R CRE&IT CAR& APPLICATIONS ;anks may re5uire the submission of ;I: Dorm >o. 1*BB ,for employees not entitled to substituted filing of I/:-. 2owever for employees entitled to substituted filing of I/: the submission of the Soint .ertification will suffice. 4OINT CERTIFICATION - It is a sworn statement made by the employer and employee which serve the following purposes? 1. It contains the employee3s consent that ;I: Dorm >o. 1)B$.D may be considered his substituted return in lieu of ;I: Dorm >o. 1*BB which the employee no longer filed. 2. It contains the employer3s certification that he has reported the employee3s income to the ;I: and that he has remitted the taxes on the employee3s income as indicated in ;I: Dorm >o. 1)B$-.D. ". It serves as proof of financial capacity in case the employee decides to apply for a bank loan or a credit-card or for any other purpose as if he had in fact filed a ;I: Dorm >o. 1*BB. IN&I"I&%ALS RE$%IRE& INFOR<ATION RET%RN TO FILE AN

Ti3e For Fili ! 7Pa) a+ )ou file +)+te3; Apri& 15 6 for those earning sole compensation income or solely business practice of profession or combination of business and compensation. RET%RN AN& PA/<ENT OF ESTI<ATE& INCO<E TAX '/ IN&I"I&%AL 7SELF,E<PLO/E& OR PRACTICE OF PROFESSION; 1. Dirst 5uarter - !pril 1& of current year 2. Second 5uarter -!ugust 1& of current year ". /hird 5uarter 6 >ovember 1& of current year $. Dinal 5uarter - !pril 1& of the following year. Note? 1hen the tax due is in excess of '2 BBB - the taxpayer may elect to pay in two ,2- e5ual installments? 1st installment - !pril 1& 2nd installment - on or before Suly 1& EXTENSION
OF

TI<E

TO

FILE RET%RN

/he .ommissioner may on meritorious cases grant a reasonable extension of time for filing income tax return and may subject the imposition of twenty ,2B- percent interest per annum from the original due date. Retur Of #u+(a d A d Wife

Individuals not re5uired to file an income tax return may nevertheless be re5uired to file an information return pursuant to rules and regulations prescribed by the Secretary of Dinance upon recommendation of the .ommissioner. PLACE OF FILING 1. 8egal residence - authori0ed agent bank+ :evenue Cistrict Ffficer+ .ollection agent or duly authori0ed treasurer 2. 'rincipal place of business

for the taxpayer year if following re5uisites complied+ a. %arried individuals ,citi0ens resident or nonresident aliensb. Co not derived income purely from compensation. If i3.ra*ti*a(le to file o e retur ? each spouse file a separate return of income but the return so filed shall be consolidated by the ;ureau for the purposes of verification for the year.
File o e 75; retur

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


%N<ARRIE& <INOR Income of unmarried minors derived from property received by the living parent shall be included in the return of the parent except? a. when donor7s tax has been paid on such property or b. when transfer of such property is exempt from donor7s tax PERSONS %N&ER &ISA'ILIT/ If a taxpayer is unable to make his own return it may be made by his 1. duly authori0ed agents+ 2. representative+ ". by guardian+ $. other person charged with the care of his person or property+ who will assume the responsibility of making the return and incurring penalties provided for erroneous false or fraudulent return. RET%RN OF
ESTATE>

". Insurance company doing business in the 'hilippines or deriving income therein $. Doreign corporation having income from within the 'hilippines Fili ! of retur 7Pa) a+ )ou file +)+te3; Zuarterly returns for the first three ,"- 5uarters on a strictly sixty ,)B- day basis and the final or adjusted return on the 1&th day of the fourth ,$th- month following the close of either a-fiscal on calendar year. See A ex " for Illustration.

Who +hall file0 /he return shall be filed by the president vice-president or other principal officer and shall be sworn to by such officer and by the treasurer or assistant treasurer.

WIT##OL&ING TAXES
Withholdi ! Taxe+ 8i d+9 1. 1ithholding /ax at Source? a. Dinal 1ithholding /ax b. .reditable 1ithholding /ax ,9xpanded withholding tax2. 1ithholding /ax on .ompensation ,1ages". 1ithholding /ax on .reditable Jalue-!dded /ax $. 1ithholding of 'ercentage /ax FINAL WIT##OL&ING TAX S/STE<
/he amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income. QSec. 2.&* ,a- :ev. :eg. 2-A@R

TR%ST

AN&

PARTNES#IP

9state and /rust with gross income of '2B BBB or more and partnership ,whether professional or business- shall file their income tax return on or before !pril 1&. TAX RET%RNS OF GENERAL PROFESSIONAL PARTNERS#IPS 7GPP; 9ach 4'' shall file in duplicate a return of its income ,except those income exempt Shall set forth? a. items of gross income and deductions allowed b. names of partners c. /I> d. address and share of each partner Tax Retur of a Cor.oratio /hose re5uired to file? 1. .orporation subject to tax having existed during the taxable year whether with income or not. 2. .orporation in the process of li5uidation or receivership.

CRE&ITA'LE WIT##OL&ING TAX S/STE<


/axes withheld on certain income payments are intended to e5ual or at least approximate the tax due from the payee on the said income.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


/he liability for payment of the tax rests primarily on the payor or the withholding agent. /he payee is not re5uired to file an income tax return for the particular income. /he income recipient is still re5uired to file an income tax return and(or pay the difference between the tax withheld and the tax due on the income. QSec. 2.&*,;- :ev. :egs. 2-A@R

1. Coes not exceed the statutory minimum wages+ or 2. Dive thousand ,'& BBB- monthly ,')B BBB a year <#ic#ever is #i"#er. ELE<ENTS OF WIT##OL&ING ON CO<PENSATION 1. /here must be an employeremployee relationship 2. /here must be payment of compensation or wages for services rendered

Ti3e to Withhold Tax at Sour*e - arises at the time an income is paid or payable whichever comes first. /he term <payable= refers to the date the obligation becomes due demandable or legally enforceable. (4ec. 5./+.+ Rev. Regs. 5.0.) Nature of Withholdi ! A!e t?+ Lia(ilit) /he withholding agent is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittance. (Commissioner vs. Procter and Gamble, GR No. 99.-., "ecember 5, ,00,) CONSE$%ENCES FOR FAIL%RE TO WIT##OL&9 1. liable for surcharges and penalties+ 2. liable upon conviction to a penalty e5ual to the total amount of the tax not withheld or not accounted for and remitted. (4ec. 5/,, ,008 NIRC) ". any income payment which is otherwise deductible from the payor7s gross income will not be allowed as a deduction if it is shown that the income tax re5uired to be withheld is not paid to the ;I:. (4ec. 5./../, Rev. Reg. 5'0.) Withholdi ! Tax O Co3.e +atio 9very employer must withhold from compensation paid an amount computed in accordance with the regulations. Ex*e.tio 9 1here such income of an individual? compensation

3. There must be a payroll period.


CO<PENSATION EXE<PTE& 1. :emunerations received as an incident of employment 2. :emunerations paid for agriculture labor ". :emunerations paid for domestic services $. :emunerations for casual not in the course of an employer3s trade or business. &. .ompensation for services of a citi0en resident of the 'hilippines for a foreign government or an international organi0ation ). Camages *. 8ife insurance @. !mount received by the insured as return of premium A. .ompensation for injuries and sickness 1B. Income exempt under treaty 11. /hirteenth ,1"th- month pay and other benefits 12. 4SIS+ SSS+ 'hilhealth and other contributions Tax,Free Co6e a t 'ON& 9%ec. 53/C4: CO"ENANT 'ON&S 6 bonds mortgages deeds of trust and other similar obligations of domestic(resident foreign corporation which contain a contract(provision by which the obligor agrees+ 1. to pay any portion of the tax imposed upon the obligee+ 2. to reimburse the obligee for any portion of the tax+ or ". to pay the interest without deduction for any tax which the

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


obligor may be re5uired(permitted to pay or to retain therefrom. Fbligor shall deduct and withhold a tax M "BE of the interest and other payments whether interest or other payments are payable annually or at a shorter period+ whether bonds securities obligations had been(will be issued( marketed and the interest and other payments paid within and without the 'hilippines if the interest or other payment is payable to a non-resident alien or a citi0en or resident of the 'hilippines I *o3e of Re*i.ie t 9%ec. 52 /d4: Income which any creditable tax is re5uired to be withheld at source shall be included in the return of its recipient. /he e:cess of the amount of tax withheld over the tax due on his return shall be refunded to him subject to Section 2B$ ,abatement refund(credit taxes-. If amount withheld at source is less than the tax due on his return the difference is paid in accordance with Section &) ,payment and assessment of income tax-. !ll taxes withheld shall be considered as trust funds and maintained in a separate account and not commingled with any other funds of the withholding agent.

75; ESTATE TAXES


&EFINITION9 an excise tax on the right of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death. E+tate Tax For3ula 4ross 9state (4ec. ./) *ess ,1- Ceductions (4ec. .9) ,2->et share of the SS in the .'' >et /axable 9state !ultiply by /ax rate (4ec. .+) 9state /ax due *ess /ax .redit Qif anyR (4ec. .9C)D or ,,6C3D 9state /ax Cue if any

GROSS ESTATE
A de*ede t?+ !ro++ e+tate i *lude+ /%ec. 254 RESI&ENT P NON, RESI&ENT CITIIEN> RESI&ENT ALIEN &ECE&ENT
1. :eal property Aherever situated 2. 'ersonal property Aherever situated a- /angible and b- Intangible

NON,RESI&ENT ALIEN &ECE&ENT


1. :eal property situated in the Philippines. 2. 'ersonal property a- /angible property situated in the Philippines b- Intangible personal property with a situs in the Philippines unless exempted on the basis of reciprocity.

'. TRANSFER TAXES


TRANSFER TAX
/ax on transfer of property. :ates are lower --&E to 2BE estate tax -- 2E to 1& E or "BE - donor7s tax 8esser exemptions

INCO<E TAX
/ax on income :ates are higher -- &E to "2E

%ore exemptions

The law that !o6er + the i3.o+itio of e+tate tax

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


/he statute in force at the time o% death o% the decedent shall govern estate taxation. I ta !i(le .er+o al .ro.ertie+ with a +itu+ i the Phil. /%ec. 1540 1113 N,RC4 1. Dranchise which must be exercised in the 'hilippines+ 2. Shares obligations or bonds issued by any corporation or sociedad anonima organi0ed or constituted in the 'hilippines in accordance with its laws+ ". Shares obligations or bonds issued by any foreign corporation eightyfive per centum ,@&E- of the business of which is located in the 'hilippines+ $. Shares obligations or bonds issued by any foreign corporation if such shares obligations or bonds have ac5uired a business situs in the 'hilippines+ &. Shares or rights in any partnership business or industry established in the 'hilippines. I ta !i(le .er+o al .ro.ert)> with a +itu+ i the Phili..i e+> of a de*ede t who i+ a o ,re+ide t alie +hall ot for3 .art of the !ro++ e+tate if 7re*i.ro*it) *lau+e; /%ec. 1544 1. the decedent at the time of his death was a citi0en and resident of a foreign country which at the time of his death that foreign (Reciprocity). "aluatio of the !ro++ e+tate /he properties comprising the gross estate shall be valued based on their fair market value as of the time of death. PROPERT/
1- :eal 'roperty

country

"AL%ATION
- fair market value a- as determined by the .ommissioner or b- as shown in the schedule of values fixed by the provincial and city assessors
12I.29J9: IS 2I429:

2- Shares of Stock Gnlisted .ommon Shares 'referred Shares 8isted

,book value -par value ,arithmetic mean between the highest and lowest 5uotation at a date nearest the date of death if none is available on the date of death itself. - shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table to be approved by the Secretary of Dinance upon recommendation of the Insurance .ommissioner. - whether tangible or intangible appraised at D%J. <Sentimental value= is practically disregarded.

"-:ight to usufruct use or habitation as well as that of annuity

a.

1. in respect of intangible personal property of citi0ens of the 'hilippines not residing in that foreign country+ or 2. the laws of the foreign country of which the decedent was a citi0en and resident at the time of his death a. allow a +i3ilar exe3.tio from transfer taxes or death taxes of every character b. in respect of intangible personal property owned by citi0ens of the 'hilippines not residing in

did ot i3.o+e a tra +fer tax or death tax of any character

$- 'ersonal property

I *lu+io + i the Gro++ E+tate /%ec. 254 5. &ECE&ENT?S INTEREST /o the extent of the interest in property of the decedent at the time of his death.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


:. TRANSFER IN CONTE<PLATION OF &EAT# 1. ! transfer motivated by the thought of impending death although death may not be imminent+ or 2. ! transfer by which the decedent retained for his life or for any period which does not in fact end before his death? a. the possession or enjoyment of or the right to the income from the property or b. the right either alone or in conjunction with any person to designate the person who shall possess or enjoy the property or the income therefrom. Ex*e.tio 9 bona fide sale for an ade5uate and full consideration in money or money7s worth. @. RE"OCA'LE TRANSFER ! transfer whereby the terms of enjoyment of the property may be altered, amended, revo?ed or terminated by the decedent alone or in conjunction with any other person or where any such power is relin5uished in contemplation of the decedent7s death. It is enough that the decedent had the power to alter amend or revoke though he did not exercise such power. Ex*e.tio 9 bona fide sale for an ade5uate and full consideration in money or money7s worth. A. TRANSFER %N&ER GENERAL POWER OF APPOINT<ENT ! power of appointment is the right to designate the person or persons who will succeed to the property of the prior decedent. /he general power of appointment may be exercised by the decedent? 1. by will+ or 2. by deed executed in contemplation of his death+ or ". by deed under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death? a. the possession or enjoyment of or the right to the income from the property+ or b. the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom. Ex*e.tio 9 bona fide sale for an ade5uate and full consideration in money or money7s worth. B. PROCEE&S OF LIFE INS%RANCE 'roceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary is? a. the estate of the decedent his e:ecutor or administrator ,regardless whether the designation is revocable or irrevocable-+ or b. a third person other than the estate executor or administrator where the designation of the beneficiary is revocable. G. TRANSFERS FOR INS%FFICIENT CONSI&ERATION /he value to be included in the gross estate is the e:cess of the fair market value of the property at the time of the decedent7s death over the consideration received. /his is applicable in cases of transfer in contemplation of death revocable transfer and transfer under general power of appointment made for a consideration but is not a bona fide sale for an ade5uate and full consideration in money or money7s worth. C. PRIOR INTERESTS !ll transfers trusts estates interests rights powers and relin5uishment of powers made created arising existing exercised or relin5uished before or after the effectivity of the >I:.. Pro.ert) relatio + (etwee #u+(a d a d Wife /he property relations between the spouses shall be governed by contract ,marriage settlement- executed before the marriage.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


In the absence of such contract or if the contract is void? Fn marriages contracted before !ugust " 1A@@ the system of conjugal partnership of gains shall govern+ Fn marriages contracted on or after !ugust " 1A@@ ,effectivity of the Damily .ode of the 'hilippines- the system of absolute community of property shall govern. Exe3.t Tra +3i++io + /%ec. 234 1. /he merger of usufruct in the owner of the naked title+ 2. Dideicommisary substitution+ ". /he transmission from the first heir legatee or donee in favor of another beneficiary in accordance with the will of the predecessor+ and !ll be5uests devices legacies or transfers to social welfare cultural and charitable institutions no part of the net income of which inures to the benefit of any individual+ 'rovided that not more than "BE of the said be5uests legacies or transfers shall be used by such institutions for administration purposes.

&
E & % C T I O N S

O
N

G
R O S S

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S T A T E

A
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O

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


R
E % , + E N

/ R
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A
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R
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A
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C
, , B E N %

2 2 5 5 3 4
/he following are deductible from the gross estate of citi0ens and resident aliens? 1. 9xpenses losses indebtedness taxes etc. /ordinar! deductions4 2. /ransfer for public use ". Janishing deduction $. Damily home &. Standard deduction e5uivalent to one million pesos ,'1 BBB BBB). %edical expenses *. !mounts received by heirs under :! $A1* ,:etirement ;enefits@. >et share of the surviving spouse in the conjugal or community property

5. OR&INAR/ &E&%CTIONS
A. Fu eral Ex.e +e+ /he amount deductible is the lowest among the following? 1. actual funeral expenses 2. &E of the gross estate ". '2BB BBB.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


It i *lude+ the followi !9 1. %ourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used in the occasion of the burial. 2. 9xpenses of the wake preceding the burial including food and drinks. ". 'ublication charges for death notices. $. /elecommunication expenses in informing relatives of the deceased. &. .ost of burial plot. /ombstone monument or mausoleum but not their upkeep. In case deceased owns a family estate or several burial lots only the value corresponding to the plot where he is buried is deductible. ). Interment fees and charges. *. !ll other expenses incurred for the performance of the ritual and ceremonies incident to the interment. 9xpenses incurred a%ter the interment such as for prayers masses entertainment or the like are not deductible. !ny portion of the funeral and burial expenses borne or de%rayed by relatives and %riends of the deceased are not deductible. '. 4%&ICIAL EXPENSES OF T#E TESTA<ENTAR/ OR INTESTATE PROCEE&INGS 9xpenses allowed as deduction under this category are those? 1. incurred in the inventory-taking of assets comprising the gross estate 2. administration ". payment of debts of the estate as well as the distribution of the estate among the heirs. In short these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law or the extension thereof for the filing of the estate tax return. C. CLAI<S AGAINST T#E ESTATE /he word PclaimsP is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. .laims against the estate or indebtedness in respect of property may arise out of? 1. .ontract+ 2. /ort+ or ". Fperation of 8aw. Re=ui+ite+9 1. /he liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses ,i.e. expenses incurred up to the time of interment- and unpaid medical expenses which are classified under a different category of deductions+ 2. /he liability was contracted in good faith and for ade5uate and full consideration in money or money3s worth+ ". /he claim must be a debt or claim which is valid in law and enforceable in court+ $. /he indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. &. CLAI<S AGAINST INSOL"ENT PERSONS Re=ui+ite+9 1. /he amount thereof has been initially included as part of his gross estate ,for otherwise they would constitute double deductions if they were to be deducted2. /he incapacity of the debtors to pay their obligation is proven. C. %NPAI& <ORTGAGE In case unpaid mortgage payable is being claimed by the estate verification must be made as to who was the beneficiary of the loan proceeds.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


If the loan is found to be merely an accommodation loan where the loan proceeds went to another person the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recogni0e the same as receivable of the estate said unpaid obligation( mortgage payable shall not be allowed as a deduction from the gross estate. In all instances the mortgaged property to the e:tent o% the decedentNs interest therein, should always form part of the gross taxable estate. ". In favor of the government of the 'hil. or any political subdivision thereof $. Dor exclusive public purposes. Note /his should also include be5uests devices or transfers to social welfare cultural and charitable institutions.

@. "ANIS#ING &E&%CTION
&EFINITION9 /he deduction allowed from the gross estate for properties that were subject to donor7s or estate taxes. It is called vanishing deduction because the deduction allowed diminishes over a period of five years. /he rate of deduction depends on the period from the date of transfer to the death of the decedent as follows? PERIO&
1 1 2 " $ year or less year 6 2 years years 6 " years years 6 $ years years 6 & years

F. TAXES /axes which have accrued as of the death of the decedent which were unpaid as of the time of death. The followi ! are ot dedu*ti(le9 1. income tax on income received after death 2. property taxes not accrued before death ". estate tax G. LOSSES Re=ui+ite+9 1. It should arise from fire storm shipwreck or other casualty robbery theft or embe00lement+ 2. >ot compensated by insurance or otherwise+ ". >ot claimed as deduction in an income tax return of the taxable estate+ $. Fccurring during the settlement of the estate+ and &. Fccurring before the last day for the payment of the estate tax ,last day to pay? six months after the decedent7s death-.

&E&%CTION
1BBE @BE )BE $BE 2BE

:. TRANSFER FOR P%'LIC %SE


Re=ui+ite+9 1. /he disposition is in a last will and testament 2. /o take effect after death

Re=ui+ite+9 1. the present decedent died within & years from transfer of the property from a prior decedent or donor. 2. /he property must be located in the 'hils. ". /he property formed part of the taxable estate of the prior decedent or of the taxable gift of the donor. $. /he estate tax or donor7s tax on the gift must have been finally determined and paid. &. /he property must be identified as the one received from the prior decedent or something ac5uired in exchange therefor. ). >o vanishing deduction on the property was allowable to the estate of the prior decedent.

A. FA<IL/ #O<E
Co ditio +9 1. /he family home must be the actual residential home of the decedent and his family at the time of his death as certi%ied by the 3arangay

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Captain of the locality where the family home is situated+ 2. /he total value of the family home must be included as part of the gross estate of the decedent+ and ". !llowable deduction must be in an amount e5uivalent to 1. the current fair market value of the family home as declared or included in the gross estate or 2. the extent of the decedent3s interest ,whether conjugal(community or exclusive property- whi*he6er i+ lower but not exceeding '1 BBB BBB

D. NET S#ARE OF T#E S%R"I"ING SPO%SE IN T#E CON4%GAL PARTNERS#IP OR CO<<%NIT/ PROPERT/
!fter deducting the allowable deductions (only the ordinary deductions) appertaining to the conjugal or community properties included in the gross estate the share of the surviving spouse must be removed to ensure that only the decedent3s interest in the estate is taxed.

B. STAN&AR& &E&%CTION

! deduction in the amount of Fne %illion 'esos ,'1 BBB BBB- shall be allowed as an additional deduction Aithout need o% substantiation. /he full amount of '1 BBB BBB shall be allowed as deduction for the benefit of the decedent.

G. <E&ICAL EXPENSES
!ny amount of medical expenses incurred within one year from death in excess of Dive 2undred /housand 'esos ,'&BB BBB- shall no longer be alloAed as a deduction under this subsection. >either can any unpaid amount thereof in excess of the '&BB BBB threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate.

C. A<O%NT RECEI"E& '/ #EIRS %N&ER REP%'LIC ACT NO. AE5C


!ny amount received by the heirs from the decedent3s employer as a conseBuence o% the death o% the decedent'employee in accordance with :epublic !ct >o. $A1* is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW &


E & % C T I O N S

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/he following are deductible from the gross estate of non-resident aliens?

E
S T A T E

1. 9xpenses losses indebtedness and taxes ,98I/- (ordinary deductions) For3ula9 1a: O 'hil. 4ross Credit 9state O 1orld *imit 1orld 4ross 98I/ 9state 2. /ransfer for public use ". Janishing deduction on property in the 'hilippines. $. .onjugal spouse share of the surviving

A
P P L I C A ' L E

T
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TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


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S E T T L E < E N T O F T # E E S T A T E T A X
A. FILING
Noti*e Of &eath To 'e Filed In all cases of transfers subject to tax or where though exempt from tax the gross value o% the estate e:ceeds P56,666 the executor administrator or any of the legal heirs Aithin tAo months after the decedent7s death or within a like period after 5ualifying as such executor or administrator shall give a written notice thereof to the .ommissioner. (4ec. .0) A E+tate Tax Retur I+ Re=uired To 'e Filed 1. when the estate is subject to estate tax+ or 2. when the estate is not subject to estate tax but the gross estate exceeds ' 2BB BBB+ or

! tax credit is granted for estate taxes paid to a foreign country on the estate of citi0ens and resident aliens subject to the following limitations 5. O e forei! *ou tr) o l) /he tax credit is whichever is lower between? $. 9state tax paid to the foreign country &. /ax .redit 8imit M >/9 foreign country O 'hil. estate >/9 world /ax (N E ' Net 1a:able )state) :. <ore tha o e forei! *ou tr) /he credit shall be that which is the lower amount between 8imit ! and 8imit ;. Li3it A. 1hichever is lower between? 9state tax paid to a foreign country /ax .redit 8imit M >/9 foreign country O 'hil. estate >/9 world /ax Li3it '. 1hichever is lower between? /otal of estate taxes paid to all foreign countries /ax .redit 8imit M >/9 outside 'hil. O 'hil. estate NTE, world /ax

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


3. regardless of the amount of the gross estate where the gross estate consists of registered or registrable property such as motor vehicle or shares of stock or other similar property for which clearance from the ;I: is re5uired as a condition precedent for the transfer of ownership thereof in the name of the transferee. Ti3e for Fili ! of the e+tate tax retur /he estate tax return shall be filed <it#in six /$4 mont#s a%ter the death of the decedent. Exte +io 9 /he ;I: may in meritorious cases grant an extension of not e:ceeding thirty (-6) days for the filing of the estate tax return. Whe The Gro++ E+tate Ex*eed+ P:>FFF>FFF> The E+tate Tax Retur Shall 'e A**o3.a ied ') A State3e t Whi*h I+ Certified ') A I de.e de t Certified Pu(li* A**ou ta t Stati ! 1. the itemi0ed assets of the decedent with its corresponding gross value at the time of his death or in the case of a non-resident not citi0en of the 'hilippines that part of his gross estate situated in the 'hilippines+ 2. the itemi0ed deductions from the gross estate+ 3. the amount of tax due whether paid or still due and outstanding. Pla*e Where to File the E+tate Tax Retur 5. Re+ide t CitiKe - with the !ccredited !gent ;ank ,!!;:evenue Cistrict Ffficer .ollection Ffficer or duly authori0ed /reasurer of the city or municipality where the decedent was domiciled at the time of his death. :. No ,re+ide t 7*itiKe or alie ; a. has registered executor or administrator - with the :evenue Cistrict Fffice where such executor or administrator is registered b. executor or administrator is not registered - with the :evenue Cistrict Fffice having jurisdiction over the executor7 or administrator7s residence c. no executor or administrator with the Fffice of the .ommissioner (4ec. 0C, Rev. Reg. 5'566-)

'. PA/<ENT
Pa)3e t of the e+tate tax due /he estate tax due shall paid at the time when the estate tax return is filed. 1hen the .ommissioner finds that the payment of the estate tax on the due date would impose undue hardships upon the estate or any heir? a. the payment of the estate tax may be extended for a period not to exceed five ,&- years if there is a judicial settlement of the estate+ or b. the payment of the estate tax may be extended for a period not to exceed two ,2- years if there is an extra-judicial settlement of the estate. N(1) In case the available cash is not sufficient to pay its total estate tax liability the estate may be allowed to pay ta: by installment. (4ec. 07, Rev. Reg. 5'566-) Lia(ilit) for Pa)3e t The estate ta% shall be paid b& the e%ecutor or administrator before deliver& to an& beneficiar& of his distributive share of the estate. Such beneficiary to the extent of his distributive share of the estate shall be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. (4ec. 0G, Rev. Reg. 5'566-) >o judge shall authori0e the distribution of the estate unless a certification from the .ommissioner that tax has been paid is shown. ,Sec. A$>o shares or other forms of securities shall be transferred in the books of any corporation partnership business or industry organi0ed in the 'hilippines unless a similar certification by the .ommissioner is shown. ,Sec. A*-

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


1hen a bank has knowledge of the death of a person who maintained a joint account it shall not allow any withdrawal by the surviving depositor without the above certification. ,Sec. A*Provided. that the administrator of the estate or any one ,1- of the heirs of the decedent may upon authori0ation by the .ommissioner withdraw an amount not exceeding twenty thousand pesos 7P:F>FFF; without the said certification. property belonging to the taxpayer for unpaid income tax is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate. (Commissioner o% Internal Revenue vs. Pineda, GR No. * #558-+, 4eptember ,/, ,098)

/here is nothing in the /ax .ode and in the pertinent remedial law that implies the necessity of the probate court or estate settlement of court7s approval of the State7s claim for estate taxes before the same can be enforced and collected by the ;I:. Fn the contrary under Section A$ it is the probate or settlement court which is bidden not to authori0e the delivery of the distributive share to any interested party without a certification from the .I: showing the payment of the estate tax. (!arcos II vs. Court o% Appeals, GR No. ,56..6, <une /, ,008) COLLECTION OF TAX FRO< T#E #EIRS !n estate or inheritance tax whether assessed before or after the death of the deceased can be collected from the heirs even after the distribution of the properties of the decedent. (Palanca vs. Commissioner o% Internal Revenue, GR No. ,999,, <anuary -,, ,095) /he 4overnment has two ways of collecting taxes due from the estate. a. ;y going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received or b. 'ursuant to the lien created by Section 21A of the /ax .ode upon all property and rights to

7:; &ONOR?S TAXES


&EFINITION9 ! tax on the privilege of transmitting one7s property or property rights to another or others without ade5uate and full valuable consideration. Co6era!e Of The Tax /%EC. 1544 RESI&ENT P NON, RESI&ENT CITIIEN> RESI&ENT ALIEN &ONOR
1. :eal property Aherever situated 2. 'ersonal property Aherever situated a. /angible and Intangible

NON,RESI&ENT ALIEN &ONOR


1. :eal property situated in the Philippines. 2. 'ersonal property a. /angible property situated in the Philippines b. Intangible personal property with a situs in the 'hilippines unless exempted on the basis of reciprocity.

Re=ui+ite+ 1. .apacity of the donor 2. Conative Intent ". Celivery whether actual constructive of the subject gift

or

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


$. !cceptance by the donee Law that !o6er + the i3.o+itio &o or?+ Tax of provided by laA to legitimate children and therefore donation to him shall not be considered as donation made to stranger. Conation made between business organi0ations and those made between an individual and a business organi0ation shall be considered as donation made to a stranger.

/he donor7s tax shall not apply unless and until there is a completed gift. /he transfer is per%ected from the moment the donor knows of the acceptance by the donee+ it is completed by the deliver either actually or constructively of the donated property to the donee. /hus the law in force at the time o% the per%ectionPcompletion o% the donation shall govern the imposition of the donor7s tax. ! gift that is incomplete because of reserved powers becomes complete when either? 1. the donor renounces the power+ or 2. his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition other than because of the donor3s death. :enunciation by the surviving spouse of his(her share in the conjugal partnership or absolute community a%ter the dissolution o% the marriage in favor of the heirs of the deceased spouse or any other person(s is subject to donor3s tax. 1hereas general renunciation by an heir including the surviving spouse of his(her share in the hereditary estate left by the decedent is not subject to donor3s tax unless specifically and categorically done in favor of identified heir(s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (4ec. ,,, Rev. Reg. 5'566-) STRANGER , a person who is not a brother sister spouse ancestor and lineal descendant or of a relative by consanguinity in the collateral within the $th civil degree. ! legally adopted child is entitled to all the rights and obligations

"aluatio of !ift+ of .ro.ert) /he fair market value of the property given at the time of the gift shall be the value of the gift.

I ta !i(le .er+o al .ro.ertie+ with a +itu+ i the Phil. 7+a3e a+ i e+tate tax +u(Je*t to the re*i.ro*it) rule; /%ec. 1544 7ormula ((n a cumulative basis over a period o% one calendar year) 5. O the 5+t do atio of a )ear 4ross gifts *ess Ceductions from gross gifts >et gifts !ultiply by /ax :ate Conor7s tax on the net gifts xxx xxx xxx xxx xxx

:. O do atio of a +u(+e=ue t date duri ! the )ear 4ross gifts made on this date *ess Ceductions from gross gifts >et gifts Add? !ll prior net gifts within the year !ggregate net gifts !ultiply by? /ax :ate Conor7s tax on aggregate net gifts *ess Conor7s tax on all prior net gifts Conor7s tax on the net gifts on this date Exe3.tio of *ertai !ift+ 1. 4ifts made by a resident a. Cowries or gifts made on account of marriage and before OO OO OO OO OO OO OO OO OO

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first '1B BBB. b. 4ifts made to or for the use of the >ational 4overnment or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said government. c. 4ifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organi0ation research institution or organi0ation accredited nongovernment organi0ation ,>4F-. 'rovided that no more than "BE of said gifts shall be used by such donee for administration purposes. 2. 4ifts made by a non-resident not a citi0en of the 'hil. a. same as ,bb. same as ,c- except accredited non-government organi0ation ,>4FA o ,.rofit edu*atio al a d-or *harita(le *or.oratio > i +titutio > a**redited o ,!o6er 3e t or!a iKatio > tru+t or .hila tro.hi* or!a iKatio > re+ear*h i +titutio or or!a iKatio i+ 1. one incorporated as a non-stock entity 2. paying no dividends ". governed by trustees who receive no compensation and $. devoting all its income whether students7 fees or gifts donations subsidies or other forms of philantrophy to the accomplishment and promotion of the purposes enumerated in its !rticles of Incorporation. Tax *redit for do or?+ taxe+ .aid to a forei! *ou tr) 1. Conor was a Dilipino citi0en or resident alien 2. !t time of foreign donation ". Conor7s taxes of any character and description $. !re imposed and paid by the authority of a foreign country. Li3itatio + o tax *redit 1. /he amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken which the decedent7s net gifts situated within such country taxable under the >I:. bears to his entire net gift+ and 2. /he total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the decedent7s net gift situated outside the 'hilippines taxable under the >I:. bears to his entire net gift. For3ula of Tax Credit Li3it 5. For do or?+ taxe+ .aid to o e forei! *ou tr) >4 situated /ax in a foreign country O 'C/ M .redit 9ntire net gift 8imit 7NG , Net Gift+M P&T , Phil. &o orR+ Tax; :. For do or?+ taxe+ .aid to two or 3ore forei! *ou tr) >4 outside the 'hil. 9ntire net gifts O 'C/ M /ax .redit 8imit

/he allowable tax credit is the loAer amount between the tax credit limit under ,a- and ,b-.

SETTLE<ENT OF T#E &ONOR?S TAX


Ti3e for Fili ! of Retur a d .a)3e t of the &o or?+ Tax /he donor7s tax return is filed and the donor7s tax due is paid Aithin thirty (-6) days after the date the gift is made.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


/he return shall be under oath in duplicate setting forth? 1. 9ach gift made during the calendar year which is to be included in computing net gifts+ 2. /he deductions claimed and allowable+ ". !ny previous net gifts made during the same calendar year+ $. /he name of the donee+ &. :elationship of the donor to the donee+ and ). Such further information as may be re5uired by rules and regulations made pursuant to law. N(1) /he filing of a notice of donation is not reBuired, unlike in estate tax where notice of death is re5uired. Pla*e for Fili ! of Retur a d .a)3e t of the &o or?+ Tax 5. Re+ide t 1ith an authori0ed agent bank the :evenue Cistrict Ffficer :evenue .ollection Ffficer or duly authori0ed /reasurer of the city or municipality where the donor Aas domiciled at the time of the transfer or if there be no legal residence in the 'hilippines with the (%%ice o% the Commissioner. :. No ,re+ide t Diled with the Philippine )mbassy or Consulate in the country where he is domiciled at the time of the transfer or directly with the (%%ice o% the Commissioner. Tax rate If the donee is a +tra !er the rate of tax shall be "BE of the net gifts. If the donee is ot a +tra !er the rate shall be from 2E to 1&E of the net gifts. See A ex W - Conor7s /ax

I. TAX RE<E&IES OF T#E GO"ERN<ENT


I3.orta *e 1. /hey enhance and support the government7s tax collection. 2. /hey are safeguards of taxpayer7s rights against arbitrary action. Tax *olle*tio *a ot (e re+trai ed () *ourt i Ju *tio /%ec. 2120 1113 N,RC4 4u+tifi*atio 9 8ifeblood /heory Ex*e.tio 9 Injunction may be issued by the ./! in aid of its appellate jurisdiction under :! 112& ,as amended by :! A2@2-. Co ditio + for the I++ua *e of a I Ju *tio () the Court of Tax A..eal+ /he ./! may enjoin collection of taxes? a. If in its opinion the same may jeopardi0e the interest of the government and(or the taxpayer. b. In this instance the court may re5uire the taxpayer either to deposit the amount claimed or file a surety bond for not more than double the amount with the court. N ;efore enforcement of remedies assessment is necessary to trigger the process. If no return is filed the .ommissioner is empowered to obtain information and to summon(examine and take testimony of persons to determine the amount of tax due. (4ec. /, ,008 NIRC) TAX RE<E&IES %N&ER T#E 5EEC TAX CO&E9 1. Summary 6 remedies at the administrative level or regulation that are executed without ceremony or delay+ short or concise 2. Substantive 6 remedies provided for by law or regulation+ an essential part or constituent or relating to what is essential ". 'rocedural 6 remedies involving law of pleading evidence jurisdiction etc.

C. TAX RE<E&IES
%N&ER T#E NIRC

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


$. !dministrative 6 remedies available at the administration ,;I:- level &. Sudicial 6 remedies that are enforced through judicial action which may be civil or criminal tax re3edie+ of the !o6er 3e t to effe*t *olle*tio of taxe+ 1. 2. ". $. &. ). .ompromise (4ec. 56+) Cistraint ,!ctual and .onstructive) (4ecs. 56/'56.) 8evy (4ec. 5683) /ax 8ien (4ec. 5,0) .ivil !ction (4ec. 55,) .riminal !ction (4ecs. 55,, and 555) *. Dorfeiture of 'roperty (4ec. 55+'55/) @. Suspension of business operations in violation of J!/ (4ec. ,,/) A. 9nforcement of !dministrative Dine criminal and civil cases arising from violations of the /ax .ode C4ecs. 8(C) and 56+, ,008 NIRCD. /his power of the .I: is discretionary and once exercised by him cannot be reviewed or interfered with by the .ourts. (=oppel, Philippines vs. Commissioner, GR No. *',088, 4eptember 5,, ,0/6) 2. ;y the Re!io al E6aluatio 'oard composed of? a. the :egional Cirector as .hairman b. !ssistant :egional Cirector the heads of the 8egal !ssessment and .ollection Civisions and c. the :evenue Cistrict Ffficer having jurisdiction over the taxpayer as members+ on assessments issued by the regional offices involving basic taxes of '&BB BBB or less and minor criminal violations. Ca+e+ whi*h 3a) (e *o3.ro3i+ed 1. Celin5uent accounts 2. .ases under administrative protests ". .ivil tax cases being disputed before the courts $. .ollection cases filed in courts &. .riminal violations other than those already filed in court or those involving criminal tax fraud+ and ". 'ases covered b& pre(assessment notices but ta%pa&er is not agreeable to the findings of the audit office as confirmed b& the review office. (Sec.2, Rev. Reg. 7-2001) Ex*e.tio + 1. 1ithholding tax cases+ 2. .riminal tax fraud cases+ ". .riminal violations already filed in court+ $. Celin5uent accounts with duly approved schedule of installment payments+ &. .ases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision.

/he remedies of distraint and levy as well as collection by civil and criminal actions may in the discretion of the .ommissioner be pursued singly or independently of each other or all of them simultaneously.

75; CO<PRO<ISE
&EFINITION9 ! contract whereby the parties by reciprocal concessions avoid litigation or put an end to one already commenced (Art. 565., NeA Civil Code). Re=ui+ite+ 1. /he taxpayer must have a tax liability. 2. /here must be an offer ,by the taxpayer of an amount to be paid by the taxpayer". /here must be an acceptance ,by the .ommissioner or taxpayer as the case may be- of the offer in the settlement of the original claim. Offi*er+ authoriKed to *o3.ro3i+e 1. /he
Co33i++io er of I ter al Re6e ue ,.I:- with respect to

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


). .ases which become final and executory after final judgment of a court where compromise is re5uested on the ground of doubtful validity of the assessment (RR. -6# 5665)+ *. 9state tax cases where compromise is re5uested on the ground of financial incapacity of the taxpayer. (RR. -6#5665) Co33i++io er 3a) *o3.ro3i+e the .a)3e t of a ) i ter al re6e ue tax whe 1. ! rea+o a(le dou(t a+ to the 6alidit) of the *lai3 against the taxpayer exists+ or a. /he delin5uent account or disputed assessment is one resulting from a jeopardy assessment. b. /he assessment seems to be arbitrary in nature appearing to be based on presumptions and there is reason to believe that its is lacking in legal and(or factual basis+ or c. /he taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that its is lacking in legal and(or factual basis+ or d. /he taxpayer failed to file a re5uest for reinvestigation(reconsideration within "B days from receipt of final assessment notice and there is reason to believe that its is lacking in legal and(or factual basis+ or e. /he taxpayer failed to elevate to the ./! an adverse decision of the .ommissioner or his authori0ed representative in some cases within "B days from receipt thereof and there is reason to believe that its is lacking in legal and(or factual basis+ or f. /he assessment were issued on or after San. 1 1AA@ where the demand notice allegedly failed to comply with the formalities prescribed under Sec. 22@ of the 1AA* >I:.+ or !ssessments made based on the <;est 9vidence Fbtainable :ule= and there is reason to believe that the same can be disputed by sufficient and competent evidence. /he assessment was issued within the prescriptive period for assessment as extended by the taxpayer3s execution of 1aiver of the Statute of 8imitations the validity or authenticity of which is being 5uestioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic. (RR. -6# 5665) /he assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the ;ureau but for which the Supreme .ourt has not decided upon with finality. (RR. 6.' 566+).

g.

h.

i.

2. /he financial position of the taxpayer demonstrates a *lear i a(ilit) to .a) the assessed tax C4ec. 56+(A), ,008 NIRC). In such case the taxpayer should waive the confidentiality privilege on bank deposits under :! >o. 1$B& C4ec. 9(7)(5), NIRCD. Dinancial Incapacity. [ /he offer to compromise based on financial incapacity may be accepted upon showing that? a. /he corporation ceased operation or is already dissolved. 'rovided that tax liabilities corresponding to the Subscription :eceivable or !ssets distributed(distributable to the stockholders representing return of capital at the time of cessation of operation or dissolution of business shall not be considered for compromise+ or b. /he taxpayer as reflected in its latest ;alance Sheet supposed to be filed with the ;ureau of Internal :evenue is suffering from

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


surplus or earnings deficit resulting to impairment in the original capital by at least &BE provided that amounts payable or due to stockholders other than business-related transactions which are properly includible in the regular Paccounts payableP are by fiction of law considered as part of capital and not liability and provided further that the taxpayer has no sufficient li5uid asset to satisfy the tax liability+ or /he .ongressional Fversight .ommittee under Section 2AB of the 1AA* >I:. is empowered to re5uire the ;I:? 1. /he submission of all pertinent information including but not limited to industry audits collection performance data status reports on criminal actions initiated against persons+ and 2. /he submission of taxpayer returns.

c. /he taxpayer is suffering from a networth deficit ,total liabilities exceed total assets- computed by deducting total liabilities ,net of deferred credits and amounts payable to stockholders(owners reflected as liabilities except business-related transactionsfrom total assets ,net of prepaid expenses deferred charges preoperating expenses as well as appraisal increases in fixed assets- taken from the latest audited financial statements provided that in the case of an individual taxpayer he has no other leviable properties under the law other than his family home+ (4ec. -, RR. -6#5665). c. /he taxpayer is a compensation earner with no other source of income and the family7s gross monthly compensation does not exceed ,'1B &BB(month if single+ '21 BBB(month if married- and that it appears that the taxpayer possesses no other leviable( distrainable assets other than his family home+ or d. /he taxpayer has been granted by the S9. or by any competent tribunal a moratorium or suspension of payments to creditors or otherwise declared bankrupt or insolvent. (4ec. -, RR. 68'566,)

<i i3u3 Co3.ro3i+e Rate+ 7<CR; of a ) tax lia(ilit) a. In case of financial incapacity? %.: M 1BE of the basic assessed tax b. Fther cases? %.: M $BE of the basic assessed tax C4ec. 56+(A), ,008 NIRCD A..ro6al of the *o3.ro3i+e () the E6aluatio 'oard i+ re=uired whe a. the basic tax involved exceeds '1 BBB BBB.BB or b. the settlement offered is less than the %.:. N(1) /he %.: may be less than the prescribed rates of 1BE or $BE as the case may be provided it is approved by the 9valuation ;oard ,composed of the ;I: .ommissioner and the four ;I: Ceputy .ommissioners-. Co3.ro3i+e of Cri3i al "iolatio + Ge eral Rule9 !ll criminal violations under the ./:' may be compromised. Ex*e.tio +9 1. /hose already filed in court 2. /hose involving fraud C4ec. 56+(3), ,008 NIRCD. Exte t of &i+*retio to "iolatio + the Co33i++io er?+ Co3.ro3i+e Cri3i al

1. 'efore the *o3.lai t i+ filed with the Pro+e*utor?+ Offi*e9 /he .I: has full discretion to compromise except those involving fraud.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


2. After the *o3.lai t i+ filed with the Pro+e*utor?+ Offi*e (ut (efore the i for3atio i+ filed with the *ourt /he .I: can still compromise provided the prosecutor must give consent. ". After information is fi&ed <it# t#e court9 /he .I: is no longer permitted to compromise with or without the consent of the 'rosecutor. (People vs. !agdaluyo, GR No. *',95-/, April 56, ,09,) /his is more so when the court has rendered a fi al Jud!3e t. !s a mere agent of the 4overnment the .ommissioner is not authori0ed to accept anything less than what is adjudicated in favor of the 4overnment. ;y virtue of such final judgment the 4overnment has already ac5uired a 6e+ted ri!ht. Nature of a Co3.ro3i+e i ExtraJudi*ial Settle3e t of the Tax.a)er?+ Cri3i al Lia(ilit) for hi+ "iolatio It is consensual in character hence may not be imposed on the taxpayer without his consent. /he ;I: may only suggest settlement of his tax liability through a compromise. /he extrajudicial settlement and the amount of the suggested compromise penalty should conform with the schedule of compromise penalties provided under the relevant ;I: regulations or orders. Re3ed) i *a+e the tax.a)er refu+e+ or fail+ to a(ide the tax *o3.ro3i+e 1. 9nforce the compromise a. If it is a judicial compromise it can be enforced by mere execution. ! judicial compromise is one where a decision based on the compromise agreement is rendered by the court on re5uest of the parties. b. !ny other compromise is extrajudicial and like any other contract can only be enforced by court action. 2. :egard it as rescinded and insist upon original demand (Art. 56+,, Civil Code). Co3.ro3i+e Pe alt) It is an amount of money that the taxpayer pays to compromise a tax violation. /his is paid in lieu of criminal prosecution. ! taxpayer cannot be compelled to pay a compromise penalty. If he does not want to pay the .I: must institute a criminal action. CO<PRO<ISE "S. A'ATE<ENT Compromise involves a reduction of the taxpayer7s liability while abatement means that the entire tax liability of the taxpayer is cancelled.

A'ATE<ENT
The Co33i++io er 3a) a(ate or *a *el a tax lia(ilit) whe 1. /he tax or any portion thereof appears to be u Ju+tl) or ex*e++i6el) a++e++ed+ C4ec. 56+(3), ,008 NIRCD. a. 1hen the filing of the return(payment is made at the wrong venue+ b. 1hen the taxpayer7s mistake in payment of his tax is due to erroneous written official advice of a revenue officer+ c. 1hen the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute force majeure legitimate business reverses provided however the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. 2$A of the .ode+ d. 1hen the assessment is brought about or the result of taxpayer7s non-compliance with the law due to a difficult interpretation of said law. e. 1hen the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control provided however

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. 2$A of the .ode+ f. 8ate payment of the tax under meritorious circumstances ,ex. Dailure to beat bank cut-off time surcharge erroneously imposed etc.- (4ec. 5, Rev. Reg. ,-'566,) 2. /he ad3i i+tratio a d *olle*tio *o+t+ i 6ol6ed do ot Ju+tif) the *olle*tio of the amount due C4ec. 56+(3), ,008 NIRCD. a. !batement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a higher court b. !batement of penalties on withholding tax assessment under meritorious circumstances c. !batement of penalties on delayed installment payment under meritorious circumstances d. !batement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment+ and e. Such other circumstances which the .ommissioner may deem analogous to the enumeration above. (4ec. -, Rev. Reg. ,-'566,) /he Commissioner may also even without a *lai3 therefor refund or credit any tax where on the face of the return upon which payment was made such .a)3e t a..ear+ *learl) to ha6e (ee erro eou+l) .aid (4ec. 550, ,008 NIRC)). /he warrant is a summary procedure <forcing= the taxpayer to pay. /he receipt of a warrant may or may not partake the character of a final decision. If it is an indication of a final decision the taxpayer may appeal to the ./! within "B days from service of the warrant.

Cuties of the officer serving the


warrant of distraint? 1. %ake an account of the personal properties distrained+ 2. Sign the list of personal properties distrained to which shall be added a statement of the sum demanded and note of the time and place of sale+ ". 8eave either with the owner or person from whose possession such personal properties were taken or at the dwelling or place of business of such person with someone of suitable age and discretion ,Sec. 2B@ ./:'Two t).e+ of &i+trai t 1. A*tual9 there is taking of possession of the personal property from the taxpayer by the government. 'hysical transfer of possession is not always re5uired. /his is true in the case of intangible property such as stocks and credits. 2. Co +tru*ti6e9 the owner is merely prohibited from disposing of his property. A*tual 6+. Co +tru*ti6e &i+trai t ACT%AL &ISTRAINT
%ade only on the property of a delin5uent taxpayer /here is taking of possession

".

7:; &ISTRAINT
&EFINITION9 It is the sei0ure by the government of personal property tangible or intangible to enforce the payment of taxes. /he property may be offered in a public sale if taxes are not voluntarily paid. It is a summary remedy. Nature of the Warra t of &i+trai t or Le6)

CONSTR%CTI"E &ISTRAINT
%ade on the property of any taxpayer whether delin5uent or not /he taxpayer is merely prohibited from disposing of his property 9ffected by re5uiring the taxpayer to sign

9ffected by leaving a list of distrained

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


ACT%AL &ISTRAINT
property or by service of a warrant of distraint or garnishment

CONSTR%CTI"E &ISTRAINT
a receipt of the property or by the revenue officer preparing and leaving a list of such property >ot necessarily so

!n immediate step for collection of taxes

in5uiry is made on garnishment for it only earmarks a portion of the deposits. >otwithstanding any contrary provision of :! 1$B& the .ommissioner is authori0ed to in5uire into the bank deposits of? 1. a decedent to determine his gross estate 2. a taxpayer who waives his right by reason of financial incapacity to pay his tax liability ,Sec.& >I:.Pro*edure+ for the A*tual &i+trai t or Gar i+h3e t

'oth !re summary remedies for the collection of taxes+ N(1)? :efer only to personal property+ and cannot be availed of where the amount of the tax involved is not more than '1BB

I Co33e *e3e t of di+trai t .ro*eedi !+ 9ither by the .I: or his duly authori0ed representative+ or by the :evenue Cistrict Ffficer

Re=ui+ite+ for the exer*i+e of the re3ed) of di+trai t 1. /he taxpayer must be delin5uent ,except in constructive distraint- in the payment of tax+ 2. /here must be a subse5uent demand for its payment ,assessment-+ ". /he taxpayer must fail to pay the tax at the time re5uired+ and $. /he period within which to assess or collect the tax has not yet prescribed. Per+o + who +hall +eiKe a d di+trai t .er+o al .ro.ert) 7a*tual di+trai t; 1. !mount of delin5uent tax is more than '1 BBB BBB 6 .ommissioner or his duly authori0ed representatives. 2. !mount of delin5uent tax is '1 BBB BBB or less 6 :evenue Cistrict Ffficer. (4ec. 568(A), ,008 NIRC) A%T#ORIT/ OF T#E CO<<ISSIONER IN$%IRE INTO 'AN8 &EPOSIT ACCO%NTS TO

II Ser6i*e of Warra t of &i+trai t 7Se*. :FD; 1ith respect to? 1. 'ersonal property 6 ,a- upon the owner of the goods chattels or other personal property+ or ,b- upon the person from whose possession such properties are taken. 2. Stocks and other securities ,a- upon the taxpayer+ and ,b- upon the president manager treasurer or other responsible officer of the corporation company or association which issued the said stock and securities. ". ;ank accounts shall be garnished by serving a warrant of distraint 6 ,a- upon the taxpayer+ and ,b- upon the president manager treasurer or other responsible officer of the bank.

Cistraint includes garnishment of money even in bank deposits because :! 1$B& ,;ank Secrecy 8aw- covers only divulging of information of deposits. >o

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Note Gpon receipt of the warrant of distraint the bank shall turn over to the .ommissioner so much of the bank accounts as may be sufficient to satisfy the claim of the government. $. Cebts and credits 6 ,a- persons owing or having in his possession the debts+ ,b- or under his control such credits+ or ,c- upon his agent. Note /he warrant of distraint shall be sufficient authority to the person owing the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the .ommissioner the amount of such debts or credits. 1. is retiring from any business subject to tax+ 2. is intending to 6 a. leave the 'hilippines b. remove his property therefrom c. hide or conceal his property ". is performing any act tending to obstruct the proceeding for collecting the tax due or which may be due from him (4ec. 55-, ,008 NIRC). Pro*edure for the Co +tru*ti6e &i+trai t of Per+o al Pro.ert) Tax.a)er?+ o(li!atio to .re+er6e .I: shall re5uire the taxpayer or any person having possession or control of such property to ,a- sign a receipt covering the property distrained and ,b- obligate himself to 1. preserve the same intact and unaltered and 2. not to dispose of the same in any manner whatsoever without the express authority of the .ommissioner of Internal :evenue.

Tax.a)er 3u+t +i! re*ei.t

III Po+ti ! of Noti*e 7Se*. :FE> NIRC; >otice specifying the time and place of sale and the articles distrained. /he posting shall be made in not less than two ,2- public places in the city or municipality where the distraint is made. Fne place for posting of such notice is at the Fffice of the %ayor of such city or municipality.

Re3ed) whe tax.a)er did ?t +i! re*ei.t 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 ,a- proceed to prepare a list of such property and ,b- in the presence of two ,2- witnesses leave a copy thereof in the premises where the property distrained is located after which the said property shall be deemed to have been placed under constructive distraint.

I" Sale of Pro.ert) &i+trai ed

The tax.a)er?+ .ro.ert) 3a) (e .la*ed u der *o +tru*ti6e di+trai t whe he

7@; LE"/

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


&EFINITION9 It refers to the act of sei0ure of real property in order to enforce the payment of taxes. /he property may be offered in a public sale if after sei0ure the taxes are not voluntarily paid. RE$%ISITES
OF LE"/ FOR T#E

EXERCISE

OF T#E

RE<E&/

III Ad6erti+e3e t of the Ti3e a d Pla*e of Sale /he advertisement shall contain? 1. the amount of tax and penalties due+ 2. name of the taxpayer against whom taxes are levied+ ". short description the property to be sold. /he advertisement shall be made within 2B days after the levy and the same shall be for a period of at least "B days. It shall be effectuated by? a. posting a notice at the main entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real property lies+ and b. by publication once a week for " weeks in a newspaper of general circulation in the municipality or city where the property is located (4ec. 5,-, C1RP).

Same as in the remedy of distraint.

Whe 3a) Le6) (e Effe*ted0 :eal property may be levied upon before simultaneously or after the distraint of personal property belonging to the delin5uent C4ec. 568(3), ,008 NIRCD; and the remedy by distraint and levy may be repeated if necessary until the full amount including all expenses is collected (4ec. 5,8, ,008 NIRC). Pro*edure of Le6) o Real Pro.ert) I Pre.are Certifi*ate of Le6) I 'reparation of a duly authen-ticated certificate containing? ,a- description of the property levied+ ,b- name of the taxpayer and ,c- the amounts of tax and penalty due from him. /his certificate shall operate with the force of a legal execution throughout the 'hilippines (4ec. 5683, ,008 NIRC).

I" Sale

&i+trai t 6+. Le6) &ISTRAINT II Ser6i*e of Noti*e Service of written notice to? ,a- the delin5uent taxpayer+ or ,b- if he is absent from the 'hilippines to his agent or manager of the business in respect to which the liability arose+ or c. to the occupant of the property. d. the proper :egister of Ceeds shall also be notified of the levy (4ec. 5683, ,008 NIRC).
:efers to personal property Dorfeiture by the government is not provided /he taxpayer is not given the right of redemption with respect to distrained personal property.

LE"/
:efers to real property Dorfeiture is authori0ed /he right of redemption is granted in case of real property levied upon and sold or forfeited to the government.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


&ISTRAINT LE"/ addition thereto is a lien upon all property and rights to property belonging to the ta:payer. /he lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the .ommissioner of Internal :evenue in the Fffice of the :egister of Ceeds of the province or city where the property of the taxpayer is situated or located (4ec. 5,0, ,008 NIRC). Whe doe+ it Atta*h0 >ot only from the service of the warrant of distraint but from the time tax became due and payable. Lie 6+. &i+trai t LIEN
Cirected against the property subject to the tax :egardless of the owner of the property

'oth !re summary remedies for the collection of taxes+ and .annot be availed of where the amount of the tax involved is not more than '1BB

Rede3.tio of Pro.ert) Sold >ithin , year %rom the date o% sale, the property may be redeemed by the delin5uent taxpayer or anyone from him upon payment of the taxes penalties and interest thereon from the date of delin5uency to the date of sale together with interest on purchase price at 1&E per annum from the date of sale to the date of redemption. (4ec. 5,+, NIRC). Forfeiture to the Go6er 3e t If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes penalties and costs the real property shall be forfeited to the 4overnment. Further &i+trai t a d Le6) /he remedy of distraint and levy may be repeated if necessary until the full amount of the tax delin5uency due including all expenses is collected from the taxpayer. Ftherwise a clever 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 holdings.

&ISTRAINT
>eed not be directed against the property subject to tax 'roperty sei0ed must be owned by the taxpayer

7B; CI"IL ACTIONS


&EFINITION9 Dor tax remedy purposes these are actions instituted by the government to collect internal revenue taxes. It includes filing by the government with the probate court claims against the deceased taxpayer. Whe re+orted to0 1. 1hen a tax is assessed but the assessment becomes final and unappealable because the tax.a)er fail+ to file a ad3i i+trati6e .rote+t with the CIR withi @F da)+ fro3 re*ei.tM or 2. 1hen a protest against assessment is filed and a decision of the .I: was rendered but the said decision becomes final executory and demandable for failure of the

7A; TAX LIEN


&EFINITION? It is a legal claim or charge on property either real or personal established by law as a security in default of the payment of taxes (/, Am<ur ..,). 4enerally it attaches to the property irrespective of ownership or transfer thereof. Exte t a d ature /he tax together with interests penalties and costs that may accrue in

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


tax.a)er to a..eal the de*i+io to the CTA withi @F da)+ fro3 re*ei.t of the de*i+io . N(1) Sudicial action may be resorted to even be%ore assessment although impractical as stated in 4ec. 56-, ,008 NIRC <\ and no proceeding in court without assessment for the collection of such taxes shall be begun a%ter the expiration of such ,"year- period.= It should be noted that no civil or criminal action for the recovery of taxes shall be filed in court without the approval of the .ommissioner. Where to file 1. Court of Tax A..eal+ 6 where the principal amount of taxes and fees exclusive of charges and penalties claimed is (ne million pesos and above. 2. Re!io al Trial Court> <u i*i.al Trial Court> <etro.olita Trial Court 6 where the principal amount of taxes and fees exclusive of charges and penalties claimed is less than (ne million pesos. (4ec. 8, RA No. 05.5) T#E CIR IS ESSENTIAL IN under 4ec. 8, ,008 NIRC the .ommissioner may delegate such power to a :egional Cirector.
APPRO"AL OF T#E CI"IL CASES. 2owever

1. Court of Tax A..eal+ 6 on criminal offenses arising from violations of the >I:. or /.. and other laws administered by the ;I: and the ;F. where the principal amount of taxes and fees exclusive of charges and penalties claimed is (ne million pesos and above. 2. Re!io al Trial Court> <u i*i.al Trial Court> <etro.olita Trial Court 6 on criminal offenses arising from violations of the >I:. or /.. and other laws administered by the ;I: and the ;F. where the principal amount of taxes and fees exclusive of charges and penalties claimed is less than (ne million pesos or Ahere there is no speci%ied amount claimed. (4ec. 8, RA No. 05.5) I<PORTANT CONSI&ERATIONS 1. >o criminal action shall be begun without the approval of the .ommissioner. (4ec. 556, ,008 NIRC) 2. It shall be brought in the name of the 4overnment and shall be conducted by the legal officers of the ;I:. EFFECT OF AC$%ITTAL OF TAXPA/ER IN A CRI<INAL ACTION T#E

&efe +e+ whi*h are .re*luded () fi al a d exe*utor) a++e++3e t+ 1. Invalidity or illegality of the assessment+ and 2. 'rescription of the government7s right to assess.

7G; CRI<INAL ACTIONS


/he judgment in the criminal case shall not only impose the penalty but shall also order the payment of taxes subject of the criminal case as finally decided by the .ommissioner (4ec. 56/, NIRC). Where to file

It does not necessarily result in the exoneration of said taxpayer from his civil liability to pay taxes. Ratio ale9 /he duty to pay tax is imposed by statute prior to and independent of any attempt on the part of the taxpayer to evade payment. It is not a mere conse5uence of the felonious acts charged nor is it a mere civil liability derived from a crime. (Republic vs. Patanao, GR No. *',+,+5, !ay -6, ,09,) EFFECT OF S%'SE$%ENT SATISFACTION OF CI"IL LIA'ILIT/ /he subse5uent satisfaction of civil liability by payment or prescription does not e:tinguish the taxpayer7s criminal liability. NO S%'SI&IAR/ I<PRISON<ENT

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


In case of insolvency on the part of the taxpayer subsidiary imprisonment cannot be imposed as regards the ta: Ahich he is sentenced to pay. 2owever it may be imposed in cases of failure to pay the fine imposed. (4ec. 5.6, ,008 NIRC) sale may be injurious to public health or prejudicial to law enforcement.

CRI<INAL ACTION <A/ 'E FILE& &%RING T#E PEN&ENC/ OF AN A&<INISTRATI"E PROTEST IN T#E 'IR It is not a re5uirement for the filing thereof that there be a precise computation and assessment of the tax since what is involved in the criminal action is not the collection of tax but a *ri3i al .ro+e*utio for the 6iolatio of the NIRC. Provided, hoAever, that there is a .ri3a fa*ie showing of a willful atte3.t to evade taxes. (4ee Hngab vs. Cusi, GR Nos. *'+,0,0'5+, !ay -6, ,0.6 in relation to Commissioner vs. Court o% Appeals, GR No. ,,0-55, <une +, ,009)

d. Other arti*le+ +u(Je*t to ex*i+e tax whi*h ha6e (ee 3a ufa*tured or re3o6ed i 6iolatio of the Code> die+ for .ri ti ! or 3aHi ! faHe re6e ue +ta3.+ a d la(el+ Gpon forfeiture may be sold or destroyed at the discretion of the .ommissioner. Dorfeited property shall not be destroyed until at least 2B days from sei0ure. EFFECT OF PROPERT/ T#E FORFEIT%RE OF

7C; FORFEIT%RE
&EFINITION9 divestiture of property without compensation in conse5uence of a default or offense. ENFORCE<ENT OF T#E RE<E&/ OF FORFEIT%RE a. I *a+e of .er+o al .ro.ert) /he forfeiture of chattels and removable fixtures of any sort is enforced by +eiKure a d +ale or de+tru*tio of the specific forfeited property. b. I *a+e of real .ro.ert) /he forfeiture of real property is enforced by a Jud!3e t of *o de3 atio a d +ale in a legal action or proceeding civil or criminal as the case may re5uire. c. I *a+e of di+tilled +.irit+> li=uor+> *i!ar+> *i!arette+ 3a ufa*tured> .rodu*t+ of to(a**o a d a..aratu+ u+ed for their .rodu*tio Gpon forfeiture may be destroyed by order of the .ommissioner where the

/he effect is to transfer the title to the specific thing from the owner to the government. !ll the proceeds in case of a sale go to the coffers of the government (H.4. vs. 4urla, GR No. 9/-9, 4eptember 5, ,0,,). In sei0ure for the enforcement of a tax lien the residue after deducting the tax liability and expenses will go to the taxpayer (3an? o% the Phil. Island vs. 1rinidad, GR No. ,96,+, (ctober +, ,0+,). INFOR<ER?S REWAR& 7Se* :D:; A. Dor violations of the >I:. a reward of 1BE of the revenues surcharges or fees re*o6ered and(or fine or penalty imposed and *olle*ted or ' 1 % per case whichever is lower shall be given to? 1. any person who voluntarily gives definite and sworn information not yet in the possession of the ;I: leading to the discovery of fraud upon the Internal :evenue 8aws and(or any violations thereof 2. an informer where the offender has offered to compromise the violation of law comiited by him and his offer has been accepted and *olle*ted by the .I: . /his

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


excludes an Internal :evenue Ffficer(employee or other public official(employee or his relative within the sixth degree N /his shall not refer to a case already pending or examined by the .I: '. Dor the discovery and sei0ure of smuggled goods - a reward of 1BE of the D%J of the smuggled and confiscated goods or ' 1 % per case whichever is lower shall be given to persons instrumental in the discovery and sei0ure of such smuggled goods. N /his does not apply to all public officials whether incumbent or retired who ac5uired the information in the course of performance of their duties during their incumbency. a demand for payment prescribed period. PRESCRIPTI"E PERIO& ASSESS<ENT OF TAXES within a

FOR

T#E

Ge eral Rule9 1hree (-) years after the date the return is due or filed whichever is later (4ec. 56-, ,008 NIRC). Ex*e.tio +9 ,. Failure to file a retur 9 ten ,1Byears from the date of the discovery of the omission to file the return (4ec.555CAD); 5. Fal+e or fraudule t retur with i te tio to e6ade the tax9 ten ,1B- years from the date of the discovery of the falsity or fraud (4ec.555 CAD); Note >othing in Section 222,!shall be construed to authori0e the examination and investigation or in5uiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. Draud must be alleged and proved as a %act. It must be the product of a deliberate intent to evade taxes. It may be established by the? a. Intentional and substantial understatement of tax liability by the taxpayer+ b. Intentional and substantial overstatement of deductions of exemptions+ and(or c. :ecurrence of the above circumstances Dalsity constitutes a deviation from the truth due to mista?e, carelessness or ignorance.

PRESCRIPTI"E PERIO&S FOR T#E ASSESS<ENT AN& COLLECTION OF TAXES


RATIONALE OF PRESCRIPTI"E PERIO&S Such periods are designated to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. /hey are also beneficial to the government because tax officers will be obliged to act promptly. R%LES ON PRESCRIPTION 1. 1hen the tax law itself is silent on prescription the tax is imprescriptible+ 2. 1hen no return is re5uired tax is imprescriptible+ Note :emedy of taxpayer is to file a return. ". Cefense of prescription is waivable+ W#AT CONSTIT%TES ASSESS<ENT0 !n assessment contains not only a computation of tax liabilities but also

There i+ fraud i the followi ! de*ided *a+e+9 1. Draud must be the product of a deliberate intent to evade taxes ,<alandoni vs. Republic2. Simple statement that return filed was not fraudulent does not disprove existence of fraud ,1ayengco vs. Collector-

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


". Substantial under-declarations of income for six consecutive five years demonstrate fraudulence of return ,PereG vs. C1A$. 'resence of fictitious expenses with no evidence presented proves existence of fraud ,1an Guan vs. Commissioner2owever the courts did not consider the tax returns filed as false or fraudulent with intent to evade payment of tax in the following cases? a. %ere understatement in the tax return will not necessarily imply fraud (<alandoni vs. Republic) b. Sale of a real property for a price less than its fair market value is not necessarily a false return (Commissioner vs. Ayala 4ecurities) c. Draud is a 5uestion of fact and the circumstances constituting fraud must be alleged and proved in the trial court (Commissioner vs. Ayala 4ecurities) d. Draud is never imputed and the courts never sustain findings of fraud upon circumstances that only create suspicion (Commissioner vs. <avier) e. %istakes of revenue officers on three different occasions remove element of fraud ,AGnar vs. C1A and Collector) -. A!ree3e t i writi ! to the extension of the period to assess between the .I: and the taxpayer before the expiration of the "-year period. >;? /he extended period agreed upon can further be extended by a subse5uent written agreement made before the expiration of the extended period previously agreed upon (4ec. 555CbD). +. Writte wai6er of re u *iatio of the original three ,"- year limitation signed by the ta:payer (4ambrano vs. Court o% 1a: Appeals, GR No. *'.9/5, !arch -6, ,0/8). Note >otice of the assessment is released mailed or sent to the taxpayer also within the " year period. It is not reBuired that the notice be received by the ta:payer Aithin the prescribed period. ;ut the sending of the notice must clearly be proven. (3asilan )state, Inc. vs. Commissioner, GR No. *'55+05, 4eptember /, ,098) A<EN&<ENT OF RET%RN If the amended return is substantially di%%erent from the original return the prescriptive period shall be counted %rom the %iling o% the amended return. ;ut the said period shall run from the %iling o% the original return if the same is su%%iciently complete to enable the .ommissioner to make a proper assessment. (Commissioner vs. Phoeni: Assurance Co., GR No. *',0858, !ay 56, ,09/) Whe Su(+ta ti6e9 a. substantial under declaration (e:ceeding -6Q o% that declared) of taxable sales receipts or income b. or a substantial overstatement ,e:ceeding -6Q of deductions(4ec. 5+.) PRESCRIPTI"E PERIO& COLLECTION OF TAXES FOR T#E

Ge eral Period+9 7ive (/) years 6 from assessment or within period for collection agreed upon in writing before expiration of the &-year period (4ec. 555, ,008 NIRC). 1en (,6) years 6 without assessment in case of false or fraudulent return with intent to evade or failure to file return (4ec. 555, ,008 NIRC). W#AT IS T#E PRESCRIPTI"E PERIO& W#ERE T#E GO"ERN<ENT?S ACTION IS ON A 'ON& W#IC# T#E TAXPA/ER EXEC%TES IN OR&ER TO SEC%RE T#E PA/<ENT OF #IS TAX O'LIGATION0 1en (,6) years under !rt. 11$$,1- of the .ivil .ode and not three ,"- years under the >I:.. In this case the 4overnment proceeds by court action to forfeit a bond. /he action is for the enforcement of a contractual

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


obligation. (Republic vs. Araneta, GR No. *',+,+5, !ay -6, ,09,) GRO%N&S FOR S%SPENSION OF T#E R%NNING OF T#E STAT%TE OF LI<ITATIONS a. 1hen the .I: is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court and for sixty ,)B- days thereafter+ b. 1hen the taxpayer re5uests for a reconsideration which is granted by the .I:+ c. 1hen the taxpayer cannot be located in the address given by him in the return unless he informs the .I: of any change in his address. d. 1hen the warrant of distraint or levy is duly served and no property is located+ and e. 1hen the taxpayer is out of the 'hilippines (4ec. 55-, ,008 NIRC). A TAX RET%RN IS CONSI&ERE& FILE& FOR P%RPOSES OF STARTING T#E R%NNING OF T#E PERIO& OF LI<ITATIONS IF a. /he return is valid 6 it has complied substantially with the re5uirements of the law+ and b. /he return is appropriate 6 it is a return for the particular tax re5uired by law. Note ! defective tax return is the same as if no return was filed at all. PRESCRIPTI"E PERIO& FOR T#E "IOLATION OF AN/ PRO"ISION OF T#E TAX CO&E /%EC. 2210 1113 N,RC4 1. Should be filed within %ive (/) years from the ,a- day of the commission o% the violation of the law and if the same be not known from the ,bdiscovery thereo% and the institution o% the &udicial proceedings for its investigation and punishment. 2. Illustrative case? (*im vs. Court o% Appeals GR Nos. +.,-+'-8, (cober ,. , ,006) a. charge is failure or refu+al to .a) deficiency income tax 6 committed only after the finality of the assessment coupled with the taxpayer7s willful refusal to pay the taxes within the allotted period. ,i.e. cannot be committed upon filing the returnb. charge is fili ! of fal+e or fraudule t retur with i te t to e6ade the assessment 6 in addition to the fact of discovery there must be a judicial proceeding for the investigation and punishment of the tax offense before the & year prescriptive period begins to run.

II. TAX RE<E&IES OF T#E TAXPA/ER


Ge eral Re3edie+ A. A&<INISTRATI"E 'efore Pa)3e t a. Prote+t filing a petition for reconsideration or reinvestigation within "B days from receipt of assessment 1ithin )B days from filing of protest all relevant supporting documents should have been submitted otherwise the assessment shall become %inal 6 cannot be appealed (4ec. 55., ,008 NIRC). Note Submission of documents within the )B day period is optional to the ta:payer. P/hat the relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


necessary to support his protest and not what the .ommissioner feels should be submitted otherwise taxpayer would always be at the mercy of the ;I: which may re5uire production of such documents which taxpayer could not produce.P (4tandard Chartered 3an? vs. CIR, C1A Case No. /909, August ,9, 566,) ! protest is a vital document which is a formal declaration of resistance of the taxpayer. It is a repository of all arguments. It can be used in court in case administrative remedies have been exhausted. It is also the formal act of the taxpayer 5uestioning the official actuation of the .I:. /his is e5uivalent to a pleading. b. E teri ! i to a *o3.ro3i+e (4ec. 56+, ,008 NIRC). After Pa)3e t Diling of claim for refund or tax credit within 2 years from date of payment regardless of any supervening cause (4ec. 550, ,008 NIRC). '. 4%&ICIAL Ci6il A*tio a. A..eal to the Court of Tax A..eal+ within "B days from receipt of decision on the protest or from the lapse of 1@B days due to inaction of the .ommissioner (4ec. 55., ,008 NIRC). b. A*tio to *o te+t forfeiture of *hattel> at any time (efore the +ale or de+tru*tio thereof to recover the same and upon giving proper bond enjoin the sale+ or after the +ale and within ) months an action to recover the net proceeds reali0ed at the sale (4ec. 5-,, ,008 NIRC); and c. A*tio for da3a!e+ against a revenue officer by reason of any act done in the performance of official duty (4ec. 558, ,008 NIRC). Cri3i al A*tio a. Fili ! of *ri3i al *o3.lai t a!ai +t erri ! 'IR offi*ial+ a d e3.lo)ee+. b. I Ju *tio when the ./! in its opinion the collection by the ;I: may jeopardi0e taxpayer. Note 1ith the enactment of the new ./! law ,:! >o. A2@2- amending :! >o. 112& ./! now has jurisdiction over criminal cases. (4ee Chapter 2I ' Court o% 1a: Appeals.) Su(+ta ti6e Re3edie+ 1. Zuestioning the constitutionality or validity of tax statutes or regulations 2. >on-retroactivity of rulings (4ec.5+9, NIRC) ". Dailure to inform the taxpayer in writing of the legal and factual bases of assessment makes it void (4ec. 55., NIRC) $. 'reservation of books of accounts and once a year examination ,Sec. 2"& >I:.ASSESS<ENT AN& PROTEST Assessment General rule /axes are self assessing and thus do not re5uire the issuance of an assessment notice in order to establish the tax liability of a taxpayer. ):ceptions 1. /ax period of a taxpayer is terminated (4ec. 9("), NIRC) 2. Ceficiency tax liability arising from a tax audit conducted by the ;I: (4ec. /9(3), NIRC) ". /ax lien (4ec. 5,0, NIRC) $. Cissolving .orporation (4ec. /5(c), NIRC) Protest 5. &ire*t de ial of .rote+t Admnistrative decision on a disputed assessment ' /he decision of the .ommissioner or his duly authori0ed representative shall ,a- state the facts the applicable law rules and regulation or jurisprudence on which such decision is based otherwise the decision shall be void in which case the same shall not be considered a decision a disputed assessment and ,b- that the same is his

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


final decision (4ec. -.,./, Rev. Regs. No. ,5'00) :. I dire*t de ial of .rote+t a. .ommissioner did not rule on the taxpayer7s motion for reconsideration of the assessment 6 it was only when respondent received the summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (Commissioner vs. Hnion 4hipping Corp.) b. :eferral by the .ommissioner of re5uest for reinvestigation to the Solicitor 4eneral (Republic vs *im 1ian 1eng 4ons) c. :eiterating the demand for immediate payment of the deficiency tax due to taxpayer7s continued refusal to execute waiver (Commissioner vs. Ayala 4ecurities Corp.) d. 'reliminary collection letter may serve as assessment notice (Hnited International Pictures vs. Commissioner) ACTS OF 'IR CO<<ISSIONER CONSI&ERE& AS &ENIAL OF PROTEST W#IC# SER"E AS A 'ASIS FOR APPEAL TO T#E CO%RT OF TAX APPEALS 1. filing by the ;I: of a civil suit for collection of the deficiency tax (Commissioner vs. Hnion 4hipping Corporation, GR No. 99,96, !ay 5,, ,006) 2. indication to the taxpayer by the .ommissioner <in clear and une5uivocal language= of his final denial. (Commissioner vs. Hnion 4hipping Corporation, GR No. 99,96, !ay 5,, ,006) ". ;I: demand letter reiterating his previous demand to pay sent to the taxpayer after his protest of the assessment. (4urigao )lectric Co., Inc. vs. C1A, GR No. *'5/5.0, <une 5., ,08+; Commissioner vs. Ayala 4ecurities Corporation, GR No. *' 50+./, !arch -,, ,089) $. /he actual issuance of a warrant of distraint and levy in certain cases cannot be considered a final decision on a disputed settlement. (Commissioner vs. Hnion 4hipping Corporation, GR No. 99,96, !ay 5,, ,006)

FILING OF CLAI< FOR TAX REF%N& OR TAX CRE&IT


GRO%N&S FOR FILING A CLAI< FOR TAX REF%N& OR TAX CRE&IT 1. /ax is collected erroneously or illegally. 2. 'enalty is collected without authority. ". Sum collected is excessive. TAX REF%N& "S. TAX CRE&IT TAX REF%N&
/he taxpayer asks for restitution of the money paid as tax /wo-year period to file claim with the .I: starts after the payment of the tax or penalty

TAX CRE&IT
/he taxpayer asks that the money so paid be applied to his existing tax liability /wo-year period starts from the date such credit was allowed ,in case credit is wrongly made-.

RE$%ISITES OF TAX REF%N& OR TAX CRE&IT 1. Clai3 3u+t (e i writi !M 2. It 3u+t (e filed with the Co33i++io er withi two 7:; )ear+ after the .a)3e t of the tax or .e alt). Note >o suit or proceeding shall be begun after the expiration of the said two ,2- years regardless of any supervening cause that may arise after payment. ". Show .roof of .a)3e t. CO<<ENCE<ENT OF T#E TWO 7:; /EAR PERIO& 74%RISPR%&ENCE;

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


5. Tax +ou!ht to (e refu ded i+ ille!all) or erro eou+l) *olle*ted - from the date the tax was paid. (Commissioner vs. 2ictorias !illing, GR No. *'5+,6., <anuary -,, ,09.) :. Tax i+ .aid o l) i i +tall3e t+ or o l) i .art - from the date the last or final installment or payment because for tax purposes there is no payment until the whole or entire tax liability is fully paid. (Collector vs. Prieto, GR No. *',,089, August 50, ,09,) @. Tax.a)er 3erel) 3ade a de.o+it - counted from the conversion of the deposit to payment (Hnion Garment vs. Collector, C1A Case No. +,9, November ,8, ,0/.) - %erely making a deposit is not e5uivalent to payment until the amount is actually applied to the specific purpose for which it was deposited. A. Tax ha+ (ee withheld fro3 +our*e 7throu!h the withholdi ! tax +)+te3; - counted from the date it falls due at the end of the taxable year - ! taxpayer who contributes to the withholding tax system does not really deposit an amount to the government but in truth performs and extinguishes his tax obligation for the year concerned. (Gibbs vs. Commissioner, GR No. *',8+69, November 50, ,09/) B. E d of taxa(le )ear 6+. date of the fili ! of the fi al adJu+ted retur - from the date when the final adjusted return was filed. - the rationale in computing this period is the fact that it is only then the corporation can ascertain whether it made profits or incurred losses in its business operations. (ACCRA Investments vs. Court o% Appeals, GR No. 09-55, "ecember 56, ,00,) G. &ate whe =uarterl) i *o3e tax wa+ .aid 6+. date whe fi al adJu+ted retur wa+ filed - from the date when final adjusted return was filed - /he filing of the 5uarterly income tax return ,Sec. )@- and payment of 5uarterly income tax should only be considered mere installments of the annual tax due. (Commissioner vs. 1!@ 4ales, GR No. .-8-9, <anuary ,/, ,005) C. &ate whe the fi al adJu+t3e t retur wa+ a*tuall) filed /ex. Apr. 24 6+. La+t da) whe the adJu+t3e t retur *ould +till (e filed /ex. Apr. 154 - from the date the final adjustment return was actually filed. (Commissioner vs. Court o% Appeals, GR No ,,85/+, <anuary 5,, ,000) D. Tax wa+ ot erro eou+l) or ille!all) .aid (ut the tax.a)er (e*a3e e titled to refu d (e*au+e of +u.er6e i ! *ir*u3+ta *e+ - from the date the taxpayer becomes entitled to refund and not from the date of payment. (Commissioner vs. "on Pedro Central AGucarera, GR No. *'5.+98, 7eb. 5., ,08-) PA/<ENT %N&ER PROTEST IS NOT NECESSAR/ %N&ER NIRC ! suit or proceeding for tax refund may be maintained <whether or not such tax penalty or sum has been paid under protest or duress= (4ec. 550, NIRC). Note Similarly payment under protest is not necessary in refund for local taxes. (4ee 4ec. ,09, *GC). 2owever payment under protest is necessary in claim for refund for real property taxes (4ec. 5/5, *GC) and for customs duties (4ec. 5-6., 1CC). S%SPENSION OF T#E PRESCRIPTI"E PERIO& TWO,/EAR

1. /here is a pending litigation between the 4overnment and the taxpayer+ and 2. .I: in that litigated case agreed to abide by the decision of the S. as to the collection of taxes relative thereto (Panay )lectric Co. vs. Collector, GR No. *',6/8+, !ay 5., ,0/.). INTEREST ON TAX REF%N&S Ge eral Rule9

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


4overnment cannot be reBuired to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authori0ing such payment. ,.ommissioner vs. 4Aeeney, GR No. *' ,5,8., August 50, ,0/0) Ex*e.tio +9 1. 1hen the .I: acted with patent arbitrariness. !rbitrariness presupposes inexcusable or obstinate disregard of legal provisions. (Commissioner vs. 2ictorias !illing, GR No. *',0998, Nov. 50, ,099) 2. Gnder Sec. *A,.-,2- with respect to income taxes withheld on the wages of the employees. TAX CRE&IT CERTIFICATE 1. %ay be applied against any internal revenue tax e:cept withholding taxes 2. Friginal copy is surrendered to the revenue office ". >o tax refund will be given resulting from availment of incentives granted by law where no actual payment was made ,4ec. 56+C, ,008 NIRC). FORFEIT%RE CRE&IT OF CAS# REF%N&-TAX ;I: makes a tax a++e++3e t

If taxpayer is not satisfied with the assessment file a .rote+t withi @F da)+ from receipt thereof

Su(3it +u..orti ! do*u3e t+ withi GF da)+ from date of the filing of the protest

If protest is denied> ele6ate the 3atter to the .ommissioner of Internal :evenue ,.I:; withi @F da)+ from receipt of the decision of the .I:7s duly authori0ed representative officer

A..eal to the &i6i+io of the Court of Tax A..eal+ 7CTA; withi @F da)+ from receipt of final decision of .I: or his duly authori0ed representative ,the taxpayer has the option to appeal straight to the ./! upon receipt of the decision of the .I:7s duly authori0ed representative-

If the .I: or his duly authori0ed representative fail+ to a*t o the .rote+t withi 5DF da)+ from date of submission by taxpayer the latter may a..eal withi @F da)+ from lapse of the 1@B-day period with the ./! Civision

/he 'arty adversely affected by the ./! Civision7s decision may file one motion for reconsideration(new trial withi 5B da)+ from receipt of decision. If the %: is denied file a petition for review with the ./! en banc

1. Dorfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within five ,&- years from date of mailing or delivery. 2. Dorfeiture of /ax .redit 6 a tax credit certificate which remains unutili0ed after five ,&- years from date of issue shall be invalid unless revalidated (4ec. 5-6, ,008 NIRC).

A..eal to the Su.re3e Court withi 5B da)+ from receipt of the ./! en banc decision under :ule $& of the :ules of .ourt Pre,A++e++3e t Noti*e> Whe Re=uired /%ec. 2220 N,RC4 Not

REGLE<ENTAR/ PERIO&S IN INCO<E TAX I<POSE& '/ LAW %PON T#E TAXPA/ER
7P%RS%ANT TO RE". REG. NO. 5:,EE> SEC. ::D OF T#E 5EEC NIRC> AN& RA NO. 55:B AS A<EN&E& '/ RA NO. E:D:;

1. 1hen the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return+ or

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


2. 1hen a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent+ or ". 1hen a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable 5uarter or 5uarters of the succeeding taxable year+ or $. 1hen the excise tax due on excisable articles has not been paid+ &. 1hen an article locally purchased or imported by an exempt person such as but not limited to vehicles capital e5uipment machineries and spare parts has been sold traded or transferred to nonexempt persons. Notes !s a general rule payment under protest is not re5uired under the >I:. except when partial payment of uncontroverted taxes is re5uired under :: 12-AA. /he .ommissioner may even without a written claim therefor refund or credit any tax where on the face of the return upon which payment was made such payment appears clearly to have been erroneously paid. In case of the .I:7s final denial of the claim for refund the "B-day period to appeal with the ./! must be within the 2-year peremptory period for instituting judicial action.

A&&ITIONS TO T#E TAX 7SECS. :AC,:B: NIRC;


&EFINITION9 increments to the basic tax incident due to the taxpayer7s noncompliance with certain legal re5uirements. 1. CI"IL PENALT/ - S%RC#ARGE 1. 2&E surcharge a. Dailure to file any return and pay the tax due thereon as re5uired under the provisions of this .ode or rules and regulations on the date prescribed+ or b. Gnless otherwise authori0ed by the .ommissioner filing a return with an internal revenue officer other than those with whom the return is re5uired to be filed+ or c. Dailure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment+ or d. Dailure to pay the full or part of the amount of tax shown on any return re5uired to be filed under the provisions of this .ode or rules and regulations or the full amount of tax due for which no return is re5uired to be filed on or before the date prescribed for its payment. (4ec. 5+.) 2. &BE surcharge a. in case of willful neglect to file the return within the period prescribed by the .ode or will not apply in case a taxpayer without notice from the .ommissioner or his duly authori0ed representative voluntarily files the said return ,only 2&E shall be imposed &BE surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the .ommissioner or his duly

See

ex

!ssessment

'rocess and !ppeal

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


authori0ed representative (4ec. +.5, Rev. Reg. ,5'00)

b.

in case a false or fraudulent return is willfully made Prima 7acie evidence substantial underdeclaration (e:ceeding -6Q o% that declared) of taxable sales receipts or income or a substantial overstatement (e:ceeding -6Q o% actual deductions) of deductions ,Sec. 2$@-

.ongress cannot enact laws depriving 84G from exercising such power to tax but it may set guidelines and limitations for the exercise. %uc# taxes0 fees0 and c#ar"es s#a&& accrue exc&usive&! to t#e &oca& "overnment units. Nature of the Taxi ! Power a. >ot inherent+ b. 9xercised only if delegated to them by law or .onstitution+ c. >ot absolute+ subject to limitations provided for by law. Gnder the present constitutional rule <where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although .ongress may provide statutory limitations and guidelines. /he basic rationale for the current rule is to safeguard the viability and selfsufficiency of local government units by directly granting them general and broad tax powers.= ,!anila )lectric Co. vs. Province o% *aguna, G.R. No. ,-,-/0 A+.e*t+ of Lo*al Taxi ! Power a. local taxation b. real property taxation Fu da3e tal Pri *i.le+ !o6er i ! Lo*al Taxatio 7Se*. 5@F> l!*; a. Shall be uniform in each local sub-unit b. Shall be e5uitable and based as much as possible on the taxpayer7s ability to pay c. 8evied for public purposes d. Shall not be unjust excessive oppressive or confiscatory e. Shall not be contrary to law public policy national economic policy or in restraint of trade f. .ollection of local taxes and other impositions shall not be let to any person

2. INTEREST - 2BE per annum or such higher rate as may be prescribed by the rules and regulations a. Ceficiency interest (4ec. 5+03) b. Celin5uency interest (4ec. 5+0C) c. Interest on 9xtended 'ayment (4ec. 5+0") ". OT#ER CI"IL PENALTIES A&<INISTRATI"E FINES OR

a. Dailure to file certain information returns (4ec. 5/6) b. )ailure of a withholding agent to collect and remit ta% (Sec. 251) c. )ailure of a withholding agent of refund e%cess withholding ta% (Sec. 252)

III.

LOCAL TAXATION
POWERS
AN&

LI<ITATIONS

NAT%RE AN& SO%RCE OF LOCAL TAXING POWER 7SEE. SEC B> ART. X> 5EDC CONSTIT%TION AN& SEC. 5:E> LGC; /he 8ocal 4overnment Gnit has the power? a. to create its own sources of revenue and b. to levy taxes fees and charges.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


g. /he revenues collected under the .ode shall inure solely to the benefit of and subject to disposition by the 84G levying the tax or other imposition unless otherwise specifically provided therein 9ach 84G shall as far as practicable evolve a progressive system of taxation. Gnless otherwise provided in this .ode tax exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical including government-owned or controlled corporations are hereby withdrawn upon the effectively of the 84. except the following? @. local water districts A. cooperatives duly registered under :.!. >o. )A"@ non-stock and nonprofit hospitals and 1B. educational institutions. /he power to grant tax exemptions tax incentives and tax reliefs shall not apply to regulatory %ees which are levied under the police power of the 84G. /ax exemptions shall be conferred through the issuance of a nontransferable tax exemption certificate. Guideli e+ for the Gra ti ! of Tax Exe3.tio +> Tax I *e ti6e+ a d Tax Relief+ /Art. 22297:0 Ru&es and Re"u&ations ,mp&ementin" t#e ("c4 5. O the !ra t of tax exe3.tio + or tax relief+9 a. the same may be granted in cases of natural calamities civil disturbance general failure of crops or adverse economic conditions such as substantial decrease in prices of agricultural or agri-based products. b. /he grant shall be through an ordinance. c. !ny exemption or relief granted to a type or kind of business shall apply to all business similarly situated. d. /he same shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided in the ordinance. e. In the case of shared revenues the exemption or relief shall only extend to the 84G granting such exemption or relief. 2. O the !ra t of tax i *e ti6e+9 a. /he same shall be granted only to new investments in the

h.

Lo*al Taxi ! Authorit) 7Se*. 5@:> l!*; Shall be exercised by the Sanggunian of the 84G concerned through an appropriate ordinance. Power to .re+*ri(e Pe altie+ for Tax "iolatio + a d Li3itatio + thereo 7Se*. B5G> l!*; 1. /he Sanggunian is authori0ed to prescribe fines or other penalties for violations of tax ordinances. a. in no case shall fines be less than '1 BBB nor more than '& BBB b. nor shall the imprisonment be less than one ,1- month nor more than six ,)- month. 2. Such fine or other penalty shall be imposed at the discretion of the court. ". /he Sangguniang ;arangay may prescribe a fine of not less than '1BB nor more than '1 BBB. Power to AdJu+t Lo*al Tax Rate 7Se*. 5E5> l!*; !djustment of the tax rates as prescribed herein should not be oftener than once every five ,&- years and in no case shall such adjustment exceed ten percent ,1BE- of the rates fixed under the 84.. Power to Gra t Lo*al Tax Exe3.tio + 7Se*. 5E:> l!*; 8ocal government units may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary. Tax Exe3.tio + Exi+ti ! 'efore the Effe*ti6it) of the LGC ha+ (ee A(oli+hed 7Se*. 5E@> l!*;

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


locality and the ordinance shall prescribe the terms and conditions therefore. b. /he grant shall be for a definite period of not exceeding 1 calendar year. c. /he grant shall be by ordinance passed prior to the 1 st day of Sanuary of any year. d. !ny grant to a type or kind of business shall apply to all businesses similarly situated. LE"/ING OF LOCAL TAXES 7LOCAL TAX OR&INANCE; Re=ui+ite+? 1. /he procedure applicable to local government ordinances in general should be observed (4ec. ,.8, *GC) 2. 'rocedural details (4ecs. /+, //, and /0, *GC) a. necessity of a 5uorum b. submission for approval by the local chief executive c. he matter of veto and overriding the same d. the publication and affectivity ". 'ublic hearings are re5uired before any local tax ordinance is enacted (4ec.,.8, *GC) $. 1ithin 1B days after their approval publication in full for " consecutive days in a newspaper of general circulation. In absence of such newspaper in the province city or municipality then the ordinances may be posted in at least 2 conspicuous and publicly accessible places (4ec. ,.0, *GC) Re+idual Taxi ! Power+ of the Lo*al !o6er 3e t u it+ 7Se*. 5DG> l!*; /o levy taxes fees or charges on any base or subject >F/? 1. Specifically enumerated in 84. 2. /axed under the provisions of the >I:. as amended and ". Fther applicable laws Co ditio +? 1. /hat the taxes fees or charges shall not be unjust excessive oppressive confiscatory or contrary to declared national policy 2. /he ordinance levying such taxes fees or charges shall not be enacted without any prior public hearing conducted for the purpose.

LI<ITATIONS OF T#E RESI&%AL POWER 1. .onstitutional limitations on taxing power 2. .ommon limitations prescribed in Sec. 1"" of the 84. ". Dundamental principles governing the exercise of the taxing power of the 84Gs prescribed under Sec. 1"B of the 84. $. /he ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and &. /he principle of preemption. Pri *i.le of Pree3.tio or Ex*lu+io ar) do*tri e 1here the >ational 4overnment elects to tax a particular area it impliedly withholds from the local government the delegated power to tax the same field. /his doctrine principally rests on the intention of the .ongress. Ex*luded i3.o+itio + 7.ur+ua t to the do*tri e of .ree3.tio ;9 a. /axes which are levied under the >I:. unless otherwise provided by 84. of 1AA1+ b. /axes fees etc. which are imposed under the /ariffs and .ustoms .ode+ c. /axes fees etc. the imposition of which contravenes existing governmental policies or which violates the fundamental principles of taxation+ d. /axes fees and other charges imposed under special law. CO<<ON LI<ITATIONS ON LOCAL TAXING POWER 7SEC. 5@@> LGC; 8ocal government units cannot levy? 1. Income tax except on banks and other financial institutions+ 2. &ocumentary stamp tax+

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


". Estate tax inheritance gifts legacies and other ac5uisitions mortis causa except as otherwise provided $. Customs duties registration fees of vessels and wharfage on wharves tonnage dues and all other kinds of customs fees charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned+ &. Taxes fees charges and other impositions upon goods carried into or out of or passing through the territorial jurisdictions of local government units in the guise of charges for wharfage tolls for bridges or otherwise. ). Taxes fees or charges on agricultural and a5uatic products when sold by marginal farmers or fishermen+ *. Taxes on business enterprises certified by the ;oard of Investments as pioneer or non-pioneer for a period of ) and $ years respectively from the date of registration+ @. Excise taxes on articles enumerated under the >I:. as amended and taxes fees or charges on petroleum products+ A. Percentage or value-added tax ,J!/- on sales barters or exchanges or similar transactions on goods or services except as otherwise provided herein+ 1B. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in the .ode+ 11. Taxes on premiums paid by way of :einsurance or retrocession+ 12. Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycle+ 1". Taxes fees or other charges on 'hilippine products actually exported except as otherwise provided in the .ode+ 1$. Taxes fees or charges on .ountryside and barangay business enterprises and cooperatives duly registered under :.!. )@1B and :.!. )A"@ ,.ooperatives .ode of the 'hilippines- + and 1&. Taxes fees or charges of any kind on the >ational 4overnment its agencies and instrumentalities and local government units. CLASSIFICATION OF CO<<ON LI<ITATIONS 1. /axes which are levied under the >I:. unless otherwise provided by the 84. Numbers 10 20 30 20 10 15 2. /axes fees etc. which are imposed under the /ariffs and .ustoms .ode Number 4 ". /axes fees and charges where the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation Numbers 50 $0 30 110 130 140 15 $. /axes fees and charges imposed under special laws. Number 12 TAXES AN& OT#ER I<POSITIONS T#AT T#E LOCAL GO"ERN<ENT <A/ LE"/ 7A; PRO"INCES /%EC%. 134-1410 (-C4 /ax on /ransfer of :eal 'roperty /ax on ;usiness of 'rinting and 'ublication Dranchise /ax /ax on Sand 4ravel and other Zuarry :esources extracted from 'ublic 8and 'rofessional /ax !musement /ax !nnual Dixed /ax for every Celivery /ruck or Jan of %anufacturers or 'roducers 1holesalers of Cealers or :etailers in certain products

1. 2. ". $. &. ). *.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

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MEMORY AID IN TAXATION LAW


See A ex 4 for the rates and details.

7'; <%NICIPALITIES /%EC. 1430 (-C4 5. <u i*i.al Taxe+, taxes on the businesses of the following? a. Fn manufacturers assemblers repackers processors brewers distillers rectifiers and compounders of li5uors distilled spirits and wines or manufacturers of any article of commerce of whatever kind or b. Fn wholesalers distributors or dealers in any article of commerce of whatever kind or c. Fn exporters and on manufacturers millers producers wholesalers distributors dealers or retailers of essential commodities d. Fn retailers e. Fn contractors and other independent f. Fn banks and other financial g. Fn peddlers engaged in the sale of any merchandise or article of commerce h. Fn any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax. :. <u i*i.al o ,re6e ue fee+ a d *har!e+ /he municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. ,Sec. 1$*. 84.Rate+ of Tax withi the <etro.olita <a ila Area 7+e*. 5AA> l!*; - >ot to exceed by &BE the maximum rates prescribed in the preceding Section.

Pa)3e t of 'u+i e++ Taxe+ a. It shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. b. /he tax on a business must be paid by the person conducting the same. c. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 1$" of 84. - which are subject to the same rate o% ta: the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. - which are subject to di%%erent rates o% ta: the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. See A ex 8 for the rates and details. 7C; CITIES /%EC. 1510 (-C4 /he city may levy the taxes fees and charges which the province or municipality may impose. /he tax rates that the city may levy may e:ceed the maximum rates allowed for the province or municipality by not more than &BE except the rates of professional and amusement taxes. 7&; 'ARANGA/S /%EC. 1520 (-C4

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


;arangays may levy the following taxes fees and charges which shall accrue exclusively to them? a. Taxe+ 6 Fn stores or retailers with fixed business establishments with the gross sales or receipts for the preceding calendar year of '&B BBB or less ,for barangays in the cities- and '"B BBB or less ,for barangays in municipalitiesb. Rate M not exceeding 1E of such gross sales or receipts. c. Ser6i*e Fee+ or Char!e+ 6 Dor services rendered in connection with the regulation or the use of barangay-owned properties or service facilities such as palay copra or tobacco dryers d. 'ara !a) Cleara *e 6 >o city or municipality may issue any license or permit fee for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. e. Other Fee+ a d Char!e+ 6 /he barangay may levy reasonable fees and charges? 1. Fn .ommercial breeding of fighting cocks cockfights and cockpits+ 2. Fn places of :ecreation which charge admission fees+ and ". Fn ;illboards signboards neon signs and outdoor advertisements. SIT%S OF LOCAL TAXATION A. Situ+ A**ordi ! to the Ca+e+ 1ith respect to excise tax the tax is upon the performance of an act enjoyment of a privilege or the engaging in an occupation. /he power to levy such tax is not dependent on the domicile of the taxpayer but on the place in which the act is performed or the occupation is engaged in+ not upon the location of the office but the place where the sale is perfected. ,Allied 1hread Co., Inc. v. City !ayor o% !anila, *'+65091ith respect to sale it is the place of the consummation of the sale associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation and not merely the place of the perfection of the contract. ,4hell Co., Inc. v. !unicipality o% 4ipocot, Camarines 4ur ,6/ Phil ,59-'. Situ+ A**ordi ! to Se*. 5BF> LGC 'ra *h or +ale+ offi*e 6 a fixed place in the locality which conducts the operation of the business as an extension of the principal office Pri *i.al offi*e- the head or the main office of the business+ the city or the municipality specifically mentioned in the !rticles of Incorporation or official registration papers as being the official address of said principal office shall be considered the situs thereof. 1. 'lace of sale ,with branch or sales outlet therein-? %unicipality or city where the branch or outlet is located. 'lace of sale ,no branch or sales outlet-? %unicipality or city of principal office ,not in the place of saleIf manufacturer assembler contractor producer or exporter ,%!.'9- with factory project office plant or plantation ,D'''"BE of recorded sales in the principal office? city or municipality where the principal office is located *BE of recorded sales in the principal office? city or municipality where the D''' is located pro rata if D''' are located in different municipalities or cities in proportion to their respective volumes of production. If plantation is located in some other place than where the factory is located the foregoing *BE shall be subdivided as follows? )BE to the city or municipality where the factory is located

2.

".

$. &.

).

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


$BE to the city or municipality where the plantation is located. Tax Rate M '&.BB and an annual additional tax of '1.BB for every '1 BBB of income regardless of whether from business exercise of profession or from property which in no case shall exceed '& BBB. In case of husband and wife the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. '. 4uridi*al Per+o + /%ec. 1524 9very corporation no matter how created or organi0ed whether domestic or resident foreign engaged in or doing business in the 'hilippines shall pay an annual community tax. Tax Rate M '&BB and an annual additional tax which in no case shall exceed '1B BBB in accordance with the following schedule? 1. Dor every P/,666 Aorth o% real property owned by it during the preceding year based on the valuation used for the payment of the real property tax - '2.BB+ and 2. Dor every P/,666 o% gross receipts or earnings derived by it from its business in the 'hilippines during the preceding year - '2.BB. /he dividends received by a corporation shall for the purpose of the additional tax be considered as part o% the gross receipts or earnings of said corporation. T#E FOLLOWING ARE EXE<PT FRO< T#E CO<<%NIT/ TAX /%EC. 1514 1. Ciplomatic and consular representatives+ and 2. /ransient visitors when their stay in the 'hilippines does not exceed three ,"- months. PLACE OF PA/<ENT9 place of residence of the individual or in the place where the principal office of the juridical entity is located.

CO<<ON RE"EN%E,RAISING POWERS OF LG%+ /%EC. 153 ) 1554 1. Service fees and charges for services rendered 2. 'ublic Gtility .harges for the operation of public utilities owned operated and maintained by 84Gs within their jurisdiction. ". /oll fees or charges for the use of any public road pier or wharf waterway bridge ferry or telecommunication system funded and constructed by the local government unit concerned Ex*e.tio +9 a. Ffficers and enlisted men of the !D' and '>'+ b. 'ost office personnel delivering mail+ and c. 'hysically handicapped and disabled citi0ens who are sixty-five ,)&- years or older. ,Sec. 1&2 84.1hen public safety and welfare so re5uires the sanggunian concerned may discontinue the collection of the tolls and thereafter the said facility shall be free and open for public use. CO<<%NIT/ TAX .ities or municipalities may levy a community tax. A. I di6idual+ Lia(le /%ec. 1534 a. every inhabitant of the 'hilippines+ b. eighteen ,1@- years of age or over+ c. under any of the following instances? d. who has been regularly employed on a wage or salary basis for at least thirty (-6) consecutive Aor?ing days during any calendar year+ or e. who is engaged in business or occupation+ or f. who owns real property with an aggregate assessed value of '1 BBB or more+ or g. who is re5uired by law to file an income tax return

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


TI<E OF PA/<ENT9 accrues on the 1st day of Sanuary of each year which shall be paid not later than the last day of Debruary of each year. PENALTIES FOR &ELIN$%ENC/9 an interest of 2$E per annum from the due date until it is paid shall be added to the amount due. ! community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of '1.BB (4ec. ,95, *GC). Pre+e tatio of Co33u it) Tax Certifi*ate o Certai O**a+io + /%ec. 1$34 A. I di6idual 1. 1hen an individual subject to the community tax acknowledges any document before a notary public+ 2. takes the oath of office upon election or appointment to any position in the government service+ ". receives any license certificate or permit from any public authority+ pays any tax or fee+ $. receives any money from any public fund+ &. transacts other official business+ or ). receives any salary or wage from any person or corporation. /he presentation of the community tax certificate shall not be re5uired in connection with the registration of a voter. '. Cor.oratio 1. receives any license certificate or permit from any public authority+ 2. pays any tax or fee+ ". receives money from public funds+ or $. transacts other official business. /he city of municipal treasurer deputi0es the barangay treasurer to collect the community tax in their respective jurisdictions. (4ec. ,9+, *CG) /he proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. 'roceeds of the community tax collected through the barangay treasurers shall be apportioned as follows? &BE accrues to the general fund of the city or municipality concerned+ and &BE accrues to the barangay where the tax is collected. Colle*tio Of Lo*al Taxe+ Tax Period a d <a er of Pa)3e t /%ec. 1$50 (-C4 Gnless otherwise provided the tax period shall be the calendar year. Such taxes fees and charges may be paid in 5uarterly installments. A**rual of Tax /%ec. 1$$0 (-C4 Gnless otherwise provided shall accrue on the first day of Sanuary of each year. 2owever new taxes fees or charges or changes in the rates thereof shall accrue on the %irst day o% the Buarter ne:t %olloAing the effectivity of the ordinance imposing such new levies or rates. Ti3e of Pa)3e t /%ec. 1$30 (-C4 Gnless otherwise provided shall be paid Aithin the %irst tAenty (56) days o% <anuary or of each subse5uent 5uarter as the case may be. %ay for a justifiable reason or cause be extended without surcharges or penalties but only for a period not e:ceeding si: (9) months. Sur*har!e+ a d Pe altie+ o % .aid Taxe+> Fee+ or Char!e+ /%ec. 1$20 (-C4

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Surcharge not exceeding 2&E of the amount of taxes fees or charges including surcharges until such amount is fully paid. ;ut in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six ,")- months. I tere+t+ o Other % .aid Re6e ue+ /%ec. 1$10 (-C4 !n interest thereon at the rate not exceeding 2E per month from the date it is due until it is paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six ,")- months. Colle*tio of Lo*al Re6e ue+ () the Trea+urer /%ec. 135 (-C4 !ll local taxes fees and charges shall be collected by the provincial city municipal or barangay treasurer or their duly authori0ed deputies. /he provincial city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes fees or charges. In case a bond is re5uired for the purpose the provincial city or municipal government shall pay the premiums thereon in addition to the premiums of the bond that may be re5uired under the .ode. 7:; Ci6il Re3edie+ ,a- by administrative action through distraint of personal property and by levy upon real property ,b- by judicial action 9ither of these remedies or all may be pursued concurrently or simultaneously at the discretion of the 84G concerned. 4%RIS&ICTION OF CO%RTS O"ER LOCAL TAXATION CASES a. 1ith the amendment brought by :! >o. A2@2 the .ourt of /ax !ppeals now has appellate jurisdiction over local taxation cases decided by the :egional /rial .ourt in the exercise of its appellate or original jurisdiction. b. :egular judicial courts are not prohibited from enjoining the collection of local taxes subject to :ule &@ ,'reliminary Injunction- of the :ules of .ourt. Note Gnlike the >I:. the 8ocal /ax .ode does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. Such statutory lapse or intent may have allowed preliminary injunction where local taxes are involved. ;ut it cannot negate the procedural rules and re5uirements under :ule &@ of the :ules of .ourts. (2alley 1rading Co. vs. C7I o% Isabela, GR No. +0/50, !arch -,, ,0.0)

LOCAL TAX RE<E&IES %N&ER T#E LGC


5. TAX RE<E&IES OF T#E LOCAL GO"ERN<ENT %NITS 7LG%+;
Ci6il Re3edie+ Of The Lo*al Go6er 3e t % it+ 7LG%; To Effe*t Colle*tio Of Taxe+ 75; Lo*al Go6er 3e t?+ Lie 6 8ocal taxes fees charges and other revenues constitute a lien superior to all liens charges or encumbrances in favor of any person enforceable by any appropriate administrative or judicial action.

PRESCRIPTI"E PERIO&S FOR T#E ASSESS<ENT AN& COLLECTION OF LOCAL TAXES PRESCRIPTI"E PERIO&S OF ASSESS<ENT 1. Lo*al taxe+> fee+> or *har!e+ 6 five ,&- years from the date they became due. (4ec. ,0+, *GC). 2. Whe there i+ fraud or i te t to e6ade the .a)3e t of taxe+> fee+ or *har!e+ 6 ten ,1B- years %rom discovery of the fraud or intent to evade the payment (4ec. ,0+ *GC).

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


PRESCRIPTI"E PERIO& OF COLLECTION 8ocal taxes fees or charges may be collected within five ,&- years from the date of assessment by administrative or judicial action. >o such action shall be instituted after the expiration of such period (4ec. ,0+, *GC). GRO%N&S FOR T#E S%SPENSION OF T#E R%NNING OF T#E PRESCRIPTI"E PERIO&S a. /he treasurer is legally prevented from the assessment or collection of the tax+ b. /he taxpayer re5uests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect+ and c. /he taxpayer is out of the country or otherwise cannot be located (4ec. ,0+, *GC). taxpayer is entitled to a refund or credit. c. Ri!ht of rede3.tio 6 1 year from the date of sale or from the date of forfeiture (4ec. ,80, *GC). '. 4%&ICIAL 5. Court a*tio within "B days after receipt of decision or lapse of )B days of Secretary of Sustice7s inaction (4ec. ,.8 *GC) within "B days from receipt when protest of assessment is denied (4ec. ,0/ *GC) if no action is taken by the treasurer in refund cases and the two year period is about to lapse (4ec. ,0/ *GC) if remedies available does not provide plain speedy and ade5uate remedy. :. A*tio for de*larator) relief ". I Ju *tio 6 if irreparable damage would be caused to the taxpayer and no ade5uate remedy is available.

2. TAX

RE<E&IES OF T#E TAXPA/ER


Lo*al

Re3edie+ Of The Tax.a)er I Taxatio

A. A&<INISTRATI"E Before assessment a. A..eal 6 any 5uestion on constitutionality or legality of tax ordinance within "B days from effectivity thereof to Secretary of Sustice 74ec. ,.8 *GC) b. &e*larator) relief whenever applicable. After assessment a. Prote+t 6 within )B days from receipt of assessment (4ec. ,0/ *GC). 'ayment under protest is not necessary. b. Pa)3e t P +u(+e=ue t refu d or tax *redit within 2 years from payment of tax to local treasurer (4ec. ,09 *GC). It is to be noted that unlike in internal revenue taxes the supervening cause applies in local taxation because the period for the filing of claims for refund or credit of local taxes is counted not necessarily from the date of payment but from the date the

I".

REAL PROPERT/ TAXATION

&efi itio +9 REAL PROPERT/ TAXATION ! direct tax on ownership of lands and buildings or other improvements thereon payable regardless of whether the property is used or not although the value may vary in accordance with such factor. Gnder the 84. it covers the administration appraisal assessment levy and collection of :eal 'roperty /ax i.e. tax on land and building and other structures and improvements on it including machineries. REAL PROPERT/ 6 subject to the definition given by Art. +,/ o% the Civil Code.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


I<PRO"E<ENT 6 valuable addition made to a property or amelioration in its condition amounting to more than a mere replacement of parts involving capital expenditures and labor. EXTENT OF T#E POWER TO LE"/ ;asic real property tax+ 1E additional real estate tax to finance the Special 9ducation Dund+ (4ec. 5-9) &E additional ad valorem tax on Idle lands+ (4ec. 5-9, *GC) and Special levy or special assessments ,may be imposed even by municipalities outside %etro %anila- on lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned. Provided Special levy shall not exceed )BE of the actual cost of such projects and improvements including the costs of ac5uiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects. (4ec. 5+6, *GC). FOR P%RPOSES OF REAL PROPERT/ TAXATION I&LE LAN&S S#ALL INCL%&E9 7%EC. 2330 (-C4 1. !gricultural lands 3ore tha o e he*tare in area o e,half of whi*h re3ai u *ulti6ated or unimproved by the owner of the property or person having legal interest therein. !gricultural lands planted to permanent or perennial crops with at least &B trees to a hectare shall not be considered idle lands. 8ands actually used for gra0ing purposes shall likewise not be considered idle lands+ and 2. 8ands other than agricultural located in a city or municipality
3ore tha o e thou+a d +=uare 3eter+ in area o e,half of whi*h re3ai u utiliKed or u i3.ro6ed by the

NAT%RE AN& CLASSES


C#ARACTERISTICS OF REAL PROPERT/ TAX 1. Cirect tax on the Fwnership of real property 2. Ad valorem tax. /he value is based on the tax base. ". 'roportionate 6 the tax is calculated on the basis of a certain percentage of the value assessed. $. Indivisible single obligation &. 8ocal tax TAXING A%T#ORITIES /%EC. 2330 (-C4 LG%
1. 'rovince 2. .ity ". %unicipality within %etro %anila

Rate of 'a+i* Real Pro.ert) Tax


not e:ceeding 1E of assessed value not e:ceeding 2E not e:ceeding 2E.

F%N&A<ENTAL PRINCIPLES GO"ERNING REAL PROPERT/ TAXATION /%EC. 1120 (-C4 1. :eal property shall be appraised at its current and Dair market value+ 2. :eal property shall be classified for assessment purposes on the basis of actual Gse. ". :eal property shall be assessed on the basis of Gniform classification within each 84G $. /he appraisal assessment levy and collection of :' /ax shall not be let to any 'rivate person &. /he appraisal and assessment of real property shall be 95uitable.

owner of the property or person having legal interest therein.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


I&LE LAN&S EXE<PT FRO< TAX 7%EC. 2320 (-C4 ;y reason of? ,. %orce ma&eure 1. civil disturbance 2. natural calamity ". or any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving utili0ing or cultivating the same. CLASSIFICATION OF LAN&S FOR P%RPOSES OF ASSESS<ENT %EC. 212 /A4 a. b. c. d. e. f. g. .ommercial !gricultural :esidential %ineral Industrial /imberland Special purposes (Art. 2I, 4ec. 5., Constitution); ". %achineries and e5uipment that are a*tuall)> dire*tl) a d ex*lu+i6el) u+ed by local water utilities and 4F..7s engaged in the supply and distribution of water and(or electric power+ $. :eal property ow ed by duly registered cooperatives as provided for in :! )A"@+ and &. %achinery and e5uipment u+ed for pollution control and environmental protection. ACT%AL %SE OF PROPERT/ AS 'ASIS FOR ASSESS<ENT 7%EC. 213 (-C; :eal property shall be classified valued and assessed on the basis of a*tual u+e regardless o% Ahere located, Ahoever oAns it, and Ahoever uses it. Gnpaid realty taxes attach to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. /o impose the real property tax on the subse5uent owner which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. ()state o% *im vs. City o% !anila, GR No. 069-0, 7ebruary 5,, ,006)

SPECIAL CLASSES OF REAL PROPERT/ /%EC. 21$0 (-C4 1. 2ospitals 2. .ultural and Scientific purposes ". owned and used by 8ocal water districts $. 4F..s rendering essential public services in the supply and distribution of water and(or generation or transmission of electric power. PROPERTIES EXE<PT FRO< REAL PROPERT/ TAX 7%EC. 2340 (-C; 9xemption is limited only to the following? 1. :eal property ow ed by the government e:cept when the (e efi*ial u+e thereof has been granted to a taxable person+ 2. .haritable institutions churches personages or convents appurtenant thereto mos5ues non-profit or religious cemeteries and all lands buildings and improvements a*tuall)> dire*tl) a d ex*lu+i6el) u+ed for religious charitable or educational

PROCE&%RE
STEP 59 &ECLARATION OF REAL PROPERT/
&ECLARATION '/ OWNER OR A&<INISTRATOR 7SEC. :F:,:F@; Dile a sworn declaration with the assessor - once every " years during the period from Sanuary 1 to Sune "B. 7or neAly acBuired property 6 W#EN? %ust file with the assessor within )B days from date of transfer W#AT? Sworn statement containing the fair market value and description of the property.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


7or improvement on property W#EN? %ust file within )B days upon completion or occupation ,whichever comes earlierW#AT? Sworn statement containing the fair market value and description of the property. &ECLARATION '/ PRO"INCIAL - CIT/ <%NICIPAL ASSESSOR /%EC. 2544 W#EN? Fnly when the person under Sec. 2B2 re%uses or %ails to make a declaration within the prescribed time. >o oath by the assessor is re5uired. Notes. Proof of Exe3.tio of Real Pro.ert) fro3 Taxatio , /%ec. 25$4 W#O? ;y any person or for whom real property is declared. .laim for exemption must be filed with the assessor together with sufficient documentary evidence to support claim &eter3i atio of fair 3arHet 6alue 7F<"; ?or &and !ssessor of the province(city or municipality may summon the owners of the properties to be affected and may ta?e depositions concerning the property its ownership amount nature and value (4ec. 5,-, *GC) !ssessor prepares a schedule of D%J for different classes of properties. Sanggunian enacts an ordinance /he schedule of D%J is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall and in two other conspicuous public places therein (4ec. 5,5, *GC) ?or mac#iner! 1. Dor ;rand new machinery? D%J is the ac5uisition cost 2. In all other cases? D%J
M :emaining eco. life 9stimated 9co.8ife O :eplacement .ost

W#EN9 within "B days from the date of declaration of property. IF PROPERT/ IS &ECLARE& FOR T#E FIRST TI<E 7SEC.:::; If Ceclared for the first time real property shall be assessed for back taxes? Dor ot 3ore tha 5F )ear+ prior to date of initial assessment /axes shall be computed on the basis of applicable schedule of values in force during the corresponding period.

STEP A9 &ETER<INE ASSESSE& "AL%E 7SEC. :5D;


&eter3i e A++e++ed "alue Procedure 1. /ake the schedule of D%J 2. !ssessed Jalue M D%J x !ssessment level ". /ax M !ssessed value x /ax rate

STEP :9 LISTING OF REAL PROPERT/ IN T#E ASSESS<ENT ROLLS 7SECS. :FB> :FC;
!ll declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor.

STEP B9 PA/<ENT AN& COLLECTION OF TAX


7a; A**rual of Tax9 Sanuary of every year and such will constitute as a superior lien. (4ec. 5+9) 7(; Ti3e a d <a er of Pa)3e t9 (4ec. 5/6) 1. basic real property tax in $ e5ual installments ,%arch "1 Sune "B September "B Cecember "B-

STEP @9 APPRAISAL AN& "AL%ATION OF REAL PROPERT/ 7SECS. :5:,:5A> ::A,::B;

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


2. special levy ordinance 6 governed by 1. :eal 'roperty tax lien (4ecs. 5/8, *GC) 6 superior to all liens charges or encumbrances+ 2. Cistraint (4ec. 5/+C3D, *GC); ". 8evy (4ec. 5/+CAD, 5/. *GC); $. 'urchase of property by local treasurer for want of bidder (4ec. 59-, *GC). '. 4%&ICIAL .ivil !ction ( 4ec. 599, 586 *GC)

7*; I tere+t for Late Pa)3e t (4ec. 5//) 1. two percent 7:L; for ea*h 3o th on unpaid amount until the delin5uent amount is paid 2. provided in no case shall the total interest exceed thirty-six ,")- months. 7d; For Ad6a *e a d Pro3.t Pa)3e t
1. 2. !dvance payment exceeding 2BE of 2&1 8.4'rompt payment exceeding 1BE of ,!rt "$2 I::6 discount not annual tax ,Sec. 6 discount not annual tax due

PRESCRIPTI"E PERIO&S FOR T#E COLLECTION OF REAL PROPERT/ TAXES


1. 'a+i* real .ro.ert) tax a d a ) other tax le6ied u der the title o Real Pro.ert) Taxatio 6 five ,&years from the date they became due. (4ec. 586, *GC). 2. Whe there i+ fraud or i te t to e6ade the .a)3e t of taxe+ ten ,1B- years from discovery of the fraud or intent to evade the payment (4ec. 586, *GC). GRO%N&S FOR T#E S%SPENSION OF T#E R%NNING OF T#E PRESCRIPTI"E PERIO&S 1. /he treasurer is legally prevented from the assessment or collection of the tax+ 2. /he taxpayer re5uests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect+ and ". /he taxpayer is out of the country or otherwise cannot be located (4ec. 586, *GC).

Colle*tio of Tax /%ec. 2434 It shall be the responsibility of the city or municipal treasurer concerned. /he city or municipal treasurer may deputi0e the barangay treasurer to collect all taxes on real property located in the barangay+ provided the barangay treasurer is properly bonded. Period to Colle*t /%ec. 2354 1. within five ,&- years from the date they become due 2. within ten ,1B- years from discovery of fraud in case there is fraud or intent to evade Su+.e +io of Pre+*ri.ti6e Period /%ec. 2354 1. local treasurer is le!all) .re6e ted to collect tax. 2. the owner or property re5uests for rei 6e+ti!atio and write+ a wai6er before expiration of period to collect. ". the owner of property is out of the country or cannot be located.

:. TAX RE<E&IES OF T#E TAXPA/ER


A. A&<INISTRATI"E Prote+t 6 payment under re5uired within "B days to city or municipal treasurer. shall be entertained unless first paid. (4ec. 5/5 *GC) protest is provincial >o protest the tax is

REAL PROPERT/ TAX RE<E&IES %N&ER T#E LGC


5. TAX RE<E&IES OF T#E LOCAL GO"ERN<ENT TO EFFECT COLLECTION OF TAXES
A. A&<INISTRATI"E

Clai3 for Tax Refu d or .redit (4ec. 5/-)

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


a- the taxpayer may file a written claim for refund or credit with the provincial or city treasurer within two years from the date the taxpayer is entitled to such reduction or adjustment. b- in case of denial of refund or credit appeal to 8;!! as in protest case. Rede3.tio *GC) of real .ro.ert) (4ec. 59,

within 1& days


S%PRE<E CO%RT

Re3ed) a!ai +t the A++e++3e t-A..eal ,st within )B days from notice of assessment of provincial city or municipal assessor to 8;!! (4ec. 559 *GC) 5nd within "B days from receipt of decision of 8;!! to .;!! (4ec. 5-6 *GC) -rd within "B days from receipt of decision of .;!! to .ourt of /ax !ppeals en banc +th within 1& days from receipt of decision of .ourt of /ax !ppeals en banc to the Supreme .ourt

'. 4%&ICIAL 1. Court A*tio appeal of .;!!7s decision to .ourt of /ax !ppeals en banc. 2. Suit a++aili ! 6alidit) of taxM re*o6er) of refu d of taxe+ paid (4ec. 9+ P" +9+). ". Suit to de*lare i 6alidit) of tax due to irre!ularit) i a++e++3e t a d *olle*tio (4ec. 9+ P" +9+) $. Suit a++aili ! the 6alidit) of tax +ale (4ec. .- P" +9+) (4ec. 598 *GC) Co do atio of Real Pro.ert) Taxe+ 1. ;y the Sanggunian :eal property taxes may be condoned wholly or partially in a given local government unit when? a. /here is general failure of crops+ b. /here is substantial decrease in the price of agricultural or agribased products+ or c. /here is calamity. 2. ;y the 'resident of the 'hilippines when public interest so re5uires.

APPEALS IN REAL PROPERT/ TAXATION


PRO"INCIAL> CIT/ OR <%NICIPAL ASSESSOR

within )B days
Fwner('erson with legal interest must file? 1- 1ritten 'etition under Fath 2- 1ith Supporting Cocuments LOCAL 'OAR& OF ASSESS<ENT APPEALS 7L'AA +hould de*ide withi 5:F da)+ fro3 re*ei.t of .etitio ;

". TARIFF AN& C%STO<S CO&E


&EFINITIONS TARIFF9 .ustoms duties toll or tribute payable upon merchandise to the 4overnment. C%STO< &%TIES9 /ax assessed upon merchandise from or exported to a foreign country. (Garcia v. ):ecutive 4ec., GR No. ,6,58-, <uly-, ,005)) Note Customs and tari%%s are synonymous Aith one another. 1hey both re%er to the ta:es imposed on imported or e:ported Aares, articles, or merchandise.

within "B days

CENTRAL 'OAR& OF ASSESS<ENT APPEALS

within "B days

CO%RT OF TAX APPEALS 7EN 'ANC;

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Other T).e+ of Fee+ Char!ed () the 'ureau of Cu+to3+ 1. !rrastre charge 2. 1harfage due 6 counterpart of license charged not for the use of any wharf but for a special fund known as the 'ort 1orks Dund. ". ;erthing fee $. 2arbor fee &. /onnage due <ea i ! a d S*o.e of the Tariff a d Cu+to3+ Law+ Include not only the provisions of the /ariff and .ustoms .ode ,/..- and regulations pursuant thereto but all other laws and regulations that are subject to the ;ureau of .ustoms ,;F.or otherwise within its jurisdiction. !s to its scope therefore tariff and customs laws extend not only to the provisions of the /.. but to all other laws as well the enforcement of which is entrusted to the ;F.. 4%RIS&ICTION OF COLLECTOR OF C%STO<S O"ER I<PORTATION OF ARTICLES 1. .ause all articles for importation to be entered in the customhouse 2. .ause all such articles to be appraised and classified ". !ssess and collect the duties taxes and other charges thereon and $. 2old possession of all imported articles until the duties taxes and other charges are paid thereon. (4ec. ,569, 1CC) TERRITORIAL 4%RIS&ICTION OF T#E 'OC 1. !ll seas within the jurisdiction of the 'hilippines 2. !ll coasts ports airports harbors bays rivers and inland waters whether navigable or not from the sea. (,st par, 4ec. 96-, 1CC)

C%STO<S &%TIES
W#EN TARIFF AN& C%STO<S APPLIE& Fnly after importation has begun but before importation is terminated.

T#E '%REA% OF C%STO<S


F%NCTIONS C%STO<S OF T#E '%REA% OF

1. !ssessment and collection of revenues from imported articles and all other impositions under the tariff and customs laws+ 2. .ontrol smuggling and related frauds+ ". Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce+ $. 9nforcement of /.. and related laws+ &. Supervision and control over the handling of foreign mails arriving in the 'hilippines+ ). Supervise and control all import and export cargoes for the protection of government revenue+ *. 9xclusive original jurisdiction over sei0ure and forfeiture cases under the tariff and customs laws.

Importation begins 1- when the conveying vessel or aircraft 2- enters the jurisdiction of the 'hil. "- with intention to unload therein Importation is deemed terminated ,a- upon payment of the duties taxes and other charges due upon the articles. ,b- and legal permit for withdrawal shall have been granted. In case the articles are free of duties taxes and other charges until they have legally left the jurisdiction of the customs (4ec. ,565, 1CC) INTENTION TO %NLOA& 9ven if not yet unloaded and there is unmanifested cargo forfeiture may take place because importation has already begun.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


ARTICLES %N&ER TCC !ay either be 1. Su(Je*t to dut) 6 a. 8ive animals and animal products+ b. Jegetable products+ c. !nimal or vegetable fats+ oils and their cleavage products+ prepared edible fats+ animal or vegetable waxes+ d. 'repared foodstuffs+ beverages spirits and vinegar+ tobacco and manufactured tobacco substitutes+ e. %ineral products+ f. 'roducts of chemical or allied industries+ g. 'lastics and articles thereof+ rubber and articles thereof+ h. :aw hides and skins+ leather etc.+ i. 1ood and articles of wood etc.+ j. 'ulp of wood etc.+ k. /extiles and textile articles+ l. !rticles of stone+ plaster cement etc.+ m. Dootwear headgear etc.+ n. >atural or cultured pearls precious(semi-precious stones+ o. ;ase metals and articles of base metals+ p. %achinery and mechanical appliances+ electric e5uipment+ sound recorders etc+ 5. Jehicles aircraft vessels and associated transport e5uipment+ r. Fptical photographic medical surgical instruments etc.+ s. !rms ammunition parts and accessories+ t. %iscellaneous manufactured articles+ and u. 1orks of art collector3s pieces arid anti5ues (4ec. ,6+, 1itle ,, 1CC). 2. Prohi(ited fro3 (ei ! i3.orted ,'rohibited importationa. Absolutely prohibited such as? weapons of war+ gambling devices+ narcotics or prohibited drugs+ immoral obscene or insidious articles+ and those prohibited under special laws (4ec.,65, 1CC). b. Ruali%iedly prohibited 1here such conditions as to warrant a lawful importation do not exist the legal effects of the importation of 5ualifiedly prohibited articles are the same as those of absolutely prohibited articles. (Auyong $ian vs. C1A, GR No. *'5.8.5, 4eptember ,5, ,08+) ". Co ditio all),free fro3 tariff a d *u+to3+ dutie+ ,conditionally-free importation /hose provided in Sec. 1B& /..+ /hose granted to government agencies 4F..s with agreements with foreign countries+ /hose given to international institutions entitled to exemption by agreement or special laws+ and /hose that may be granted by the 'resident upon >9C!7s recommendation. $. Free fro3 TC dutie+ ,duty-freeImported goods must be entered in a customhouse at their port of entry otherwise they shall be considered as contraband and the importer is liable for smuggling (4ee 4ec. ,6,, 1CC). !ll articles when imported from any country into the 'hilippines shall be subject to duty upon each importation even though previously exported from the 'hilippines except as otherwise specifically provided for in the /.. or other laws. Lia(ilit) for Cu+to3+ &utie+ Ge eral Rule9 !ll importations ( exportations of goods are subject to customs duties (4ec. ,6/, 1CC). Ex*e.tio +9 ,1- 9xemptions under the /..+ ,2- 9xemptions granted to government agencies instrumentalities or 4F..s with existing contracts commitments agreements or

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


obligations with foreign countries+ ,"- 9xemptions of international organi0ations pursuant to agreements or special laws+ and ,$- 9xemptions granted by the 'res. of the 'hil. upon recommendation of >9C! (4ec. ,6/, 1CC). LIA'ILIT/ OF I<PORTER FOR C%STO< &%TIES ! personal debt which can be discharged only by payment in full thereof+ ! lien upon the imported articles while they are in custody or subject to the control of the government. (4ec. ,56+, 1CC). Exte t Of I3.orter?+ Lia(ilit) /he liability of an importer is limited to the value of the imported merchandise. In case of forfeiture of the sei0ed material the maximum civil penalty is the forfeiture itself. (!endoGa vs. "avid, GR No. *'0+/5, !arch 58, ,09,) &raw(a*H ! device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it had not been taxed at all. (Hy Chaco 4ons vs. Collector o% Customs, GR No. 89,., !arch 58, ,0,-) I3.ort E tr) It is a declaration to the ;F. showing particulars of the imported article that will enable the customs authorities to determine the correct duties. !n importer is re5uired to file an import entry. It must be accomplished from disembarking of last cargo from vessel. Tra +a*tio 6alue u der RA NO. D5D5 It is the invoice value of the goods plus freight insurance costs expenses and other necessary expenses. /his replaces the 2ome .onsumption Jalue as basis of valuation of goods. CLASSIFICATION OF C%STO< &%TIES !. Re!ular &utie+ 6 those which are imposed and collected merely as a source of revenue. 1. Ad 6alore3 dut)9 /his is a duty based on the value of the imported article. 2. S.e*ifi* dut)9 /his is a duty based on the dutiable weight of goods ,either the gross weight legal weight or net weight-. ". Alter ati ! dutie+9 /his is a duty which alternates ad valorem and specific. $. Co3.ou d &ut)9 /his is a duty consisting of ad valorem and specific duties. ;. S.e*ial dutie+ those which are imposed and collected in addition to the ordinary customs duties usually to protect local industries against foreign competition. 5. :. @. A. &u3.i ! dut) Cou ter6aili ! dut) <arHi ! dut) &i+*ri3i ator) dut)

NAT%RE OF SPECIAL C%STO<S &%TIES Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions. P%RPOSE OF SPECIAL C%STO<S &%TIES /he special customs duties are imposed for the protection of consumers and manufacturers as well as 'hil. products from undue competition posed by foreign-made products.

SPECIAL &%TIES CO<PARE&

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


&%<PING &%T/
1. Nature Imposed upon foreign products with value lower than their fair market value to the detriment of local products.

CO%NTER"AILING &%T/
Imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated. 95uivalent to bounty subsidy subvention. the or

<AR8ING &%T/
Imposed upon those not properly marked as to place of origin of the goods.

&ISCRI<INATOR/ &%T/
Imposed upon goods coming from countries that discriminate against 'hilippine products.

5. AmountCRate Cifference between the actual price and the normal value of the article. ". ,mposin" Aut#orit! Special committee on !nti-Cumping ,composed of the Secretary of Dinance as .hairman+ %embers? the Secretary of C/I and either the Secretary of !griculture if article in 5uestion is agricultural product or the Secretary of labor if nonagricultural product

&E ad valorem of articles

!ny amount not exceeding 1BBE ad valorem of the subject articles 'resident of the 'hilippines

Secretary of Dinance

.ommissioner of .ustoms

FLEXI'LE TARIFF CLA%SE /he 'resident may fix tariff rates import and export 5uotas etc. under /.. (4ee 4ec. 5., Art. 2I, Constitution and 4ec. +6,, 1CC) 1. to increase reduce or remove existing protective rates of import duty ,including any necessary change in classification-. /he existing rates may be increased or decreased to any level on one or several stages but in no case shall the increased rate of import duty be higher than a maximum of one hundred ,1BBE- per cent ad valorem

2. to establish import 5uota or to ban imports of any commodity as may be necessary+ and ". to impose an additional duty on all imports not exceeding ten ,1BE- per cent ad valorem whenever necessary? LI<ITATIONS I<POSE& REGAR&ING T#E FLEXI'LE TARIFF CLA%SE a. .onduct by the /ariff .ommission of an investigation in a public hearing. /he .ommission shall also hear the views and recommendations of any government office agency or instrumentality concerned.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


/he .ommission shall submit their findings and recommendations to the >9C! within thirty ,"B- days after the termination of the public hearings. /he >9C! thereafter submits its recommendation to the 'resident. 1. /he power of the 'resident to increase or decrease the rates of import duty within the abovementioned limits fixed in the .ode shall include the modi%ication in the %orm o% duty. In such a case the corresponding ad valorem or specific e5uivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases (4ec. +6,, 1CC). g. conditions causes and effects relating to competition of foreign industries with those of the 'hilippines including dumping and cost of production+ and h. in general to investigate the operation of customs and tariff laws including their relation to the national revenues their effect upon the industries and labor of the country and to submit reports of its investigation as provided. :. Ad3i i+trati6e A++i+ta *e to the Pre+ide t a d Co !re++ 7Se*. BFG> TCC;

T#E TARIFF CO<<ISSION 7TC;


F%NCTIONS OF T#E TARIFF CO<<ISSION 5. I 6e+ti!ati6e Power+ 7Se*. BFB> TCC; a. the administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted+ b. the relations between the rates of duty on raw materials and the finished or partly finished products+ c. the effects of ad valorem and specific duties and of compound specific and ad valorem duties+ d. all 5uestions relative to the arrangement of schedules and classification of articles in the several schedules of the tariff law+ e. the tariff relations between the 'hilippines and %oreign countries commercial treaties preferential provisions economic alliances the effect of export bounties and preferential transportation rates+ f. the volume of importations compared with domestic production and consumption+

TAX RE<E&IES %N&ER T#E TARIFF AN& C%STO<S CO&E 7TCC;


TAX RE<E&IES GO"ERN<ENT OF T#E

A. A&<INISTRATI"E 5. Tax Lie 7Se*. 5:FA TCC; attaches on the goods regardless of ownership while still in the custody or control of the 4overnment availed of when the importation is neither prohibited nor improperly made :. Ad3i i+trati6e Fi e+ a d Forfeiture+ applied when the importation is unlawful and it may be exercised even where the articles are not or no longer in .ustom7s custody ' unless the importation is merely attempted in which case it may be effected only while the goods are still within the .ustoms jurisdiction or in the hands of a person who is aware

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


thereof (4ec. 5/-, E 5/-6, 1CC) under 4ec. 5/-6(a) o% the 1CC in order to warrant forfeiture it is not necessary that the vessel or aircraft must itself carry the contraband. /he complementary if collateral use of the .essna plane for smuggling operation is sufficient for it to be deemed to have been used in smuggling. (*lamado vs. Commissioner o% Customs, GR No. *'5..60, !ay ,9, ,0.-) @. Redu*tio of *u+to3+ dutie+ *o3.ro3i+e subject to approval of Sec. of Dinance (4ec. 860, 5-,9 1CC) . *ei+ure, *earch, -rrest 2205, 2210, 2211 TC') (Sec. a. ! written claim for refund may be submitted by the importer in abatement cases on missing packages deficiencies in the contents of packages or shortages before arrival of the goods in the 'hilippines articles lost or destroyed after such arrival dead or injured animals and for manifest clerical errors+ and b. Crawback cases where the goods are re-exported (4ec. ,86,',86. 1CC). ". Settle3e t of a ) +eiKure () .a)3e t of fi e or rede3.tio ;ut this shall not be allowed in any case where importation is absolutely prohibited or the release would be contrary to law or when there is an actual and intentional fraud (4ec. 5-68 1CC). $. A..eal 1ithin 1& days to the .ommissioner after notification by .ollector of his decision (4ec. 5-,1CC). '. 4%&ICIAL 5. A..eal 1ithin "B days from receipt of decision of the .ommissioner or Secretary of Dinance to the division of the ./! (4ec. 5+6- 1CC, 4ec. 8 RA ,,5/, as amended by 4ec. 0 RA 05.5) Since Sec.11 of :! 112& as amended by :! A2@2 empowers the /ax .ourt to issue injunctions it would appear that an importer may appeal without first paying the duties such as in sei0ure but not in protest cases. :. A*tio to =ue+tio the le!alit) of +eiKure @. A(a do 3e t /%ec. 1251 CC4 a. expressly (4ec. ,.6, 1CC)

'. 4%&ICIAL 1. thi+ re3ed) i+ or3all) a6ailed of whe the tax lie i+ lo+t () the relea+e of the !ood+ .ivil !ction ,Sec. 12B$ /.. .riminal !ction

TAX RE<E&IES OF T#E TAXPA/ER


A. A&<INISTRATI"E 1. Prote+t a. !ny importer or interested party if dissatisfied with published value within 1& days from date of publication or within & days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. b. /axpayer 6 within 1& days from assessment. 'ayment under protest is necessary. (4ec. 5-6., 55,6 1CC) 2. Refu d

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


b. impliedly 6 c. failure to file an import entry within "B days from the discharge of goods or d. having filed an entry fails to claim within 1& days but it shall not be so effective until so declared by the collector. (4ec. ,.6,, as amended by RA 89/,) &. %ust be filed when the amount claimed is paid or within 1& days after the payment+ ). 'rotestant must furnish samples of goods under protest when re5uired. PROCE&%RE CASES IN C%STO<S PROTEST

/he .ollector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse

TWO 8IN&S OF PROCEE&INGS IN T#E '%REA% OF C%STO<S 7'OC;


A. C%STO<S PROTEST CASES &EFINITION9 /hese are cases which deal solely with liability for customs duties fees and other charges. Note ;efore filing a protest there must first be a payment under protest. Whe *u+to3+ .rote+t a..li*a(le /he customs protest is re5uired to be filed only in case the liability of the taxpayer for duties taxes fees and other charges is determined and the taxpayer disputes said liability. Whe Cu+to3+ .rote+t N) re=uired 1here there is no dispute but the claim for refund arises by reason of the happening of supervening events such as when the raw material imported is utili0ed in the production of finished products subse5uently exported and a duty drawback is claimed. Re=uire3e t+ for 3aHi ! a .rote+t 1. %ust be in writing 2. %ust point out the particular decision or ruling of the .ollector of .ustoms to which exception is taken or objection made+ ". %ust state the grounds relied upon for relief+ $. %ust be limited to the subject matter of a single adjustment+

/he .ollector shall assess li5uidate and collect the duties thereon or detain the said goods if the party liable does not pay the same

/he party adversely affected ,the protestant- may file a written protest on his foregoing liability with the .ollector within 1& days after paying the li5uidated amount ,the payment under protest rule applies-

2earing within 1& days from receipt of the duly presented protest. Gpon termination of the hearing the .ollector shall decide on the same within "B days

If decision is adverse to the protestant

If decision is adverse to the government

!ppeal with the .ommissioner within 1& days from notice

!utomatic :eview by the .ommissioner

!utomatic review by the Secretary of Dinance

!ppeal with the .ourt of /ax !ppeals Civision within "B days from notice

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW

!ppeal with the ./! en banc

!ppeal by certiorari with the Supreme .ourt within 1& days from notice

If decision of .ommissioner or Secretary of Dinance is adverse to the protestant he may appeal to the ./! and S. under the same procedure on the left.

d.

9xport contrary to law. (4ec. -/,+, 1CC)

2. /he 'hilippines is divided into various ports of entry 6 entry other than port of entry will be S%G448I>4. PORT OF ENTR/ ! domestic port open to both foreign and coastwise trade including <airport of entry=. (4ec. -/,+, 1CC) !88 articles imported into the 'hilippines whether subject to duty or not shall be entered through a customshouse at a port of entry. 9>/:I? in .ustoms law means1. the documents filed at the .ustoms house 2. the submission and acceptance of the documents ". the procedure of passing goods through the customs house (RodrigueG vs. Court o% Appeals, GR No. ,,/5,., 4eptember ,., ,00/) CONTRA'AN&9 !rticles of prohibited importations or exportations. (4ec. -/,+, 1CC)

Rea+o + for the auto3ati* re6iew of de*i+io + ad6er+e to the Go6er 3e t 1. /o protect the interest of the 4overnment 2. ! favorable decision will not be appealed by the taxpayer and certainly a .ollector will not appeal his own decision. ". 8ifeblood /heory '. SEII%RE AN& FORFEIT%RE CASES &EFINITION9 /hese refer to matters involving smuggling. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. /hese are actions in rem. /hus It is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. /he absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. (Commissioner o% Customs vs. !anila 4tar 7erry, Inc., GR Nos. -,889'8., (ctober 5,, ,00-) S<%GGLING 1. !n act of any person who shall? a. Draudulently import any article contrary to law or b. !ssist in so doing or c. :eceive conceal buy sell facilitate transport conceal or sell such article knowing its illegal importation (4ec. -96,, 1CC)

E"I&ENCE FOR CON"ICTION IN S<%GGLING CASES %ere possession of the article in 5uestion - unless defendant could explain that his possession is lawful to the satisfaction of the court (4ec. -96,, 1CC). 'ayment of the tax due after apprehension is not a valid defense (RodrigueG vs. Court o% Appeals, GR No. ,,/5,., 4eptember ,., ,00/) T#INGS S%'4ECT TO CONFISCATION IN S<%GGLING CASES !nything that was used for smuggling is subject to confiscation like the vessel plane etc. (*lamado vs. Commissioner o% Customs, GR No. *' 5..60, !ay ,9, ,0.-).

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Ex*e.tio 9 .ommon carriers that are not privately chartered cannot be confiscated. RIG#T OF C%STO<S OFFICERS TO EFFECT SEII%RE P ARREST /%EC. 22554 1. %ay sei0e any vessel aircraft cargo article animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws rules K regulations 2. %ay exercise such powers only in conformity with the laws and provisions of the /.. CO<<ON CARRIERSM FORFEIT%RE 1. .ommon carriers are generally not subject to forfeiture although if the owner has knowledge of its use in smuggling and was a consenting party it may also be forfeited. 2. If a motor vehicle is hired to carry smuggled goods but it has no .ertificate of 'ublic .onvenience ,.'.- it is not a common carrier. It is thus subject to forfeiture and lack of personal knowledge of the owner or the carrier is not a defense to forfeiture. PROPERTIES NOT S%'4ECT TO FORFEIT%RE IN T#E A'SENCE OF PRI<A FACIE E"I&ENCE /he forfeiture of the vehicle vessel or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid has no =no<&ed"e of or participation in t#e un&a<fu& act? Provided however that a prima facie presumption shall exist against the vessel vehicle or aircraft under any of the following circumstances? 1. If the conveyance has been used for smuggling at least twice before+ 2. If the owner is not in the business for which the conveyance is generally used+ and ". If the owner is financially not in a position to own such conveyance. &OCTRINE OF #OT P%RS%IT Re=ui+ite+9 5. O6er "e++el+ a. !n act is done in 'hil. 1aters which constitutes a violation of the tariff and customs laws b. a pursuit of such vessel began within the jurisdictional waters which ,i- may continue beyond the maritime 0one and ,ii- the vessel may be sei0ed on the high seas. :. O6er I3.orted Arti*le+ a. /here is a violation of the tariff and customs laws b. !s a conse5uence they may be pursued in the 'hil. c. 1ith jurisdiction over them at any place therein for the enforcement of the law. (5nd par. 4ec. 96-, 1CC) REGIONAL TRIAL CO%RTS 7RTC; "S. '%REA% OF C%STO<S 7'OC; /he :/.s do not have jurisdiction over sei0ure and forfeiture proceedings conducted by the ;F. and to interfere with these proceedings. /he .ollector of .ustoms has exclusive jurisdiction over all 5uestions touching on the sei0ure and forfeiture of dutiable goods. >o petitions for certiorari prohibition or mandamus filed with the :/. will lie because these are in reality attempts to review the .ommissioner3s actuations. >either replevin filed with the :/. will issue. Rationa&e. "octrine o% Primary <urisdiction. 9ven if a .ustoms sei0ure is illegal exclusive jurisdiction ,to the exclusion of regular courts- still belongs to the ;ureau of .ustoms (<ao v. Court o% Appeals, GR No. ,6+96+, (ctober 9, ,00/).

GOO&S IN C%STO<?S C%STO&/ 'E/ON& REAC# OF ATTAC#<ENT

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


4oods in the custom7s custody pending payment of customs duties are beyond the reach of attachment. !s long as the importation has not been terminated the imported goods remain under the jurisdiction of the ;ureau of .ustoms. (2iduya vs. 3erdiago, GR No. *'505,., (ctober 50, ,089) A&<INISTRATI"E AN& 4%&ICIAL PROCE&%RES RELATI"E TO C%STO<S SEII%RES AN& FORFEIT%RES Cetermination of probable cause and issuance of warrant 1- officials of the ;F. district collectors police officers agents inspectors and guests of the ;F.+ 2- officers of the 'hil. >avy and other members of the !D' and national law enforcement agencies when authori0ed by the .ommissioner of .ustoms "- officials of the ;I: on all cases falling within the regular performances of their duties when the payment of internal taxes are involved+ $- officers generally empowered by law to effect arrests and execute processes of courts when acting under the direction of the .ollector. RE$%IRE<ENTS FOR C%STO<S FORFEIT%RE 1. /he wrongful making by the owner importer exporter or consignee of any declaration or affidavit or the wrongful making or delivery by the same persons of any invoice letter or paper - all touching on the importation or exportation of merchandise.+ and 2. /hat such declaration affidavit invoice letter or paper is false. (7arolan, <r. vs. Court o% 1a: Appeals, GR No. +556+, <anuary 5,, ,00-) PLACES W#ERE SEARC#ES P SEII%RES <A/ 'E CON&%CTE& ,a- enclosures ,b- dwelling house ,there must be search warrant issued by a judge,c- vessels or aircrafts and persons or articles conveyed therein ,d- vehicles beasts and persons ,e- persons arriving from foreign countries. Note. ;urden of proof in sei0ure or forfeiture is on the claimant. (4ec. 5/-/, 1CC) RE$%IRE<ENTS FOR <ANIFEST ! manifest in coastwise trade for cargo and passengers transported from one place or port in the 'hilippines to another is re5uired when one or both of such places is a port of entry (4ec. 069, 1CC). %anifests are also re5uired of vessel from a foreign port (4ec. ,66/, 1CC).

!ctual sei0ure of the articles

8isting of description appraisal and classification of sei0ed property

:eport of sei0ure to the .omm. of .ustoms and the .hairman .omm. on !udit

Issuance by the .ollector of a warrant of detention

>otification to owner or importer

Dormal hearing

Cistrict collector renders his decisions

If decision is not favorable to the aggrieved owner or importer

If decision is not favorable to the government

!ppeal by the aggrieved owner or importer

!utomatic :eview by the .ommissioner

PERSONS #A"ING POLICE A%T#ORIT/ TO ENFORCE T#E TARIFF P C%STO<S LAWS AN& EFFECT SEARC#ES> SEII%RES AN& ARRESTS /%EC. 22530 CC4

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


IS <ANIFEST RE$%IRE& ONL/ FOR I<PORTE& GOO&S0 >F. !rticles subject to sei0ure do not have to be imported goods. %anifests are also re5uired for articles found on vessels or aircraft engaged in coastwise trade. (Rigor vs. Rosales, GR No. *'--8/9, (ctober 5-, ,0.5) %N<ANIFESTE& CARGO IS S%'4ECT TO FORFEIT%RE whether the act of smuggling is established or not under the principle o% res ipsa loBuitur. It is enough that the cargo was unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. SETTLE<ENT OF FORFEIT%RE CASES Ge eral Rule9 Settlement of cases by payment of fine or redemption of forfeited property is alloAed. Ex*e.tio +9 1. the importation is absolutely prohibited or 2. the surrender of the property to the person offering to redeem would be contrary to law or ". when there is fraud. (4ec. 5-68, 1CC) compliance with all other re5uirements (4ec. ,/6., 1CC) legal

A'ATE<ENT /he reduction or non-imposition of customs duties on certain imported materials as a result of? 1- Camage incurred during voyage+ 2- Ceficiency in contents packages "- 8oss or destruction of articles after arrival $- Ceath or injury of animals FRA%&%LENT PRACTICES CONSI&ERE& AS CRI<INAL OFFENSES AGAINST C%STO<S RE"EN%E LAWS 1- Gnlawful importation+ 2- 9ntry of imported or exported article by means of any false or fraudulent practices invoice declaration affidavit or other documents+ "- 9ntry of goods at less than their true weights or measures or upon a classification as to 5uality or value+ $- 'ayment of less than the amount due+ &- Diling any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise+ or )- Diling any affidavit certificate or other document to secure to himself or others the payment of any drawback allowance or refund of duties on the exportation of mdse. greater than that legally due thereon. (4ec. -965, 1CC)

AC$%ITTAL IN CRI<INAL C#ARGE NOT RES 4%&ICATA IN SEII%RE OR FORFEIT%RE PROCEE&INGS Rea+o +9 1- .riminal proceedings are actions in personam while sei0ure or forfeiture proceedings are actions in rem. 2- .ustoms compromise does not extinguish criminal liability. (People vs. "esiderio, GR No. *'56.66/, November 59, ,09/) Note. !t any time prior to the sale the delin5uent importer 3a) +ettle hi+ o(li!atio + with the ;ureau of .ustoms in which case the aforesaid articles may be delivered upon payment of the corresponding duties and taxes and

"I. CO%RT OF TAX APPEALS 7RA 55:B a+ a3e ded () RA E:D:;


See ANNEX O for comparison of ./! as created by :! >o. 112& and the amendments made by :! >o. A2@2.

NAT%RE AN& POWERS


ELE"ATION OF RAN8

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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shall be of the same level as the .ourt of !ppeals possessing all the inherent powers of a .ourt of Sustice CO<POSITION .onsists of a 'residing Sustice and five ,&- !ssociate Sustices %ay sit en banc or in two ,2Civisions each Civision consisting of three ,"- Sustices. /he 'residing Sustice and the most Senior !ssociate Sustice shall serve as chairmen of the two divisions $%OR%< Dour ,$- Sustices shall constitute a 5uorum for sessions )N 3ANC. /wo ,2- Sustices for sessions of a "I2I4I(N. PR(2I")" in case the reBuired Buorum cannot be had due to any vacancy, disBuali%ication, inhibition, disability, or any other laA%ul cause, the Presiding <ustice shall designate any <ustice o% other "ivisions o% the Court to sit temporarily therein. POWERS 1. to administer oaths+ 2. to receive evidence+ ". to summon witnesses by subpoena+ $. to re5uire production or papers or documents by subpoena duces tecum+ &. to punish contempt+ ). to promulgate rules and regulations for the conduct of its business+ *. to assess damage against appellant if appeal to ./! is found to be frivolous or dilatory+ @. to suspend the collection of the tax pending appeal+ and A. to render decisions on cases brought before it 1B. to issue order authori0ing distraint of personal property and levy of real property &ISTRAINT OF PERSONAL PROPERT/ AN& LE"/ OF REAL PROPERT/ Gpon the issuance of any ruling order or decision by the ./! favorable to the national government the ./! shall issue an order authori0ing the ;I: through the .ommissioner? 1. to sei0e and distraint any goods chattels or effects and the personal property including stocks and other securities debts credits bank accounts and interests in and rights to personal property and(or 2. levy the real property of such persons in sufficient 5uantity to satisfy the tax or charge together with any increment thereto incident to delin5uency. /his remedy shall not be exclusive and shall not preclude the .ourt from availing of other means under the :ules of .ourt.

4%RIS&ICTION
I. EXCL%SI"E APPELLATE 4%RIS&ICTION TO RE"IEW '/ APPEAL 7a; Cecisions of the Commissioner of ,nterna& Revenue 1. in cases involving disputed assessments refunds of internal revenue taxes fees or other charges penalties in relation thereto 2. or other matters arising under the >I:. or other laws administered by the ;I:+ 7(; Inaction by the Commissioner of ,nterna& Revenue 1. in cases involving disputed assessments refunds of internal revenue taxes fees or other charges penalties in relation thereto 2. or other matters arising under the >I:. or other laws administered by the ;I: where the >I:. provides a specific period for action in which case the inaction shall be deemed a denial+ 7*; Cecisions orders or resolutions of the R C 6 in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction+

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


7d; Cecisions of the Commissioner of Customs 1. in cases involving liability for customs duties fees or other money charges sei0ure detention or release of property affected fines forfeitures or other penalties in relation thereto 2. or other matters arising under the .ustoms 8aw or other laws administered by the ;ureau of .ustoms+ 7e; Cecisions of the Centra& Board of Assessment Appea&s 6 in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals+ 7f; Cecisions of the %ecretar! of ?inance 6 on customs cases elevated to him automatically for review from decisions of the .ommissioner of .ustoms which are adverse to the 4overnment under Section 2"1& of the /ariff and .ustoms .ode+ 7!; Cecisions of the %ecretar! of rade and ,ndustr! in the case of nonagricultural product commodity or article and the 4ecretary o% Agriculture in the case of agricultural product commodity or article 6 involving dumping and countervailing duties under Secs. "B1and "B2 respectively of the /ariff and .ustoms .ode and safeguard measures under :! >o @@BB where either party may appeal the decision to impose or not to impose said duties. II. 4%RIS&ICTION O"ER IN"OL"ING CRI<INAL CASES CASES administered by the ;I: or the ;ureau of .ustoms Provided hoAever, Ahere the principal amount of taxes and fees exclusive of charges and penalties claimed is less than one million pesos ,'1 BBB BBB. BB- or where there is no specified amount claimed - the offenses or penalties shall be tried by the regular courts and the jurisdiction of the ./! shall be appellate. !ny provision of law or the :ules of .ourt to the contrary notwithstanding the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with and jointly determined in the same proceeding by the ./! the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action and no right to reserve the filing of such civil action separately from the criminal action will be recogni0ed. /74 Exc&usive appe&&ate Durisdiction in criminal offenses Fver appeals from the judgments resolutions or orders of the :/. in tax cases originally decided by them in their respective territorial jurisdiction. Fver petitions for review of the judgments resolutions or orders of the :/. in the exercise of their appellate jurisdiction over tax cases originally decided by the %etropolitan /rial .ourts %unicipal /rial .ourts and %unicipal .ircuit /rial .ourts in their respective jurisdiction. III. 4%RIS&ICTION O"ER TAX COLLECTION CASES /a4 Exc&usive ori"ina& Durisdiction in tax collection cases involving final and executory assessments

/a4 Exc&usive ori"ina& Durisdiction over all criminal cases arising from violations of the >I:. or /ariff and .ustoms .ode and other laws

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


for taxes fees charges and penalties. In collection cases where the principal amount of taxes and fees exclusive of charges and penalties claimed is less than one million pesos ,' 1 BBB BBB. BB- 6 shall be tried by the proper !unicipal 1rial Court !etropolitan 1rial Court and Regional 1rial Court. 1ithin "B days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action. <ode+ of A..eal ,1- ;y filing a petition for review under a procedure analogous to that provided for under :ule $2 of 1AA* :ules on .ivil 'rocedure decision ruling or inaction of the Commissioner o% Internal Revenue Commissioner o% Customs the 4ecretary o% 7inance the 4ecretary o% 1rade and Industry or the 4ecretary o% Agriculture or the Regional 1rial Courts this appeal shall be heard by a Civision of the ./! ,2- ;y filing a petition for review under a procedure analogous to that provided for under :ule $" of 1AA* :ules on .ivil 'rocedure decisions or rulings of the Central 3oard o% Assessments Appeals and the Regional 1rial Courts in the exercise of its appellate jurisdiction this appeal shall be heard by the ./! en banc. Pro*edure !. !ny party adversely affected by a ruling order or decision of a Civision of the ./! may file a motion for reconsideration or new trial before the same Civision within 1& days from notice

/74 Exc&usive appe&&ate Durisdiction in tax collection cases Fver appeals from the judgments resolutions or orders of :/. in tax collection cases originally decided by them in their respective territorial jurisdiction. Fver petitions for review of the judgements resolutions or orders of the :/. in the exercise of their appellate jurisdiction over tax collection cases originally decided by the %etropolitan /rial .ourts %unicipal /rial .ourts and %unicipal .ircuit /rial .ourts in their respective jurisdiction.

In criminal and collection cases the

4overnment may directly file the said cases with the ./! covering amounts within its exclusive and original jurisdiction.

See ANNEX P 6 .omparative Ciagrams on ./! jurisdiction.

1Other <atter+2 /hose controversies which can be considered within the scope of the function of the ;I: ( ;F. under ejusdem generis rule ,e.g. action for the nullity of distraint and levy+ 5uestioning the propriety of the assessment+ collection of compromise penalties-.

;. !ny party adversely affected by a resolution of a Civision of the ./! on a motion for reconsideration or new trial may file a petition for review with the ./! en banc. .. !ny party adversely affected by a decision or ruling of the ./! en banc may file with the Supreme .ourt a verified petition for review on certiorari pursuant to :ule $& of the 1AA* :ules on .ivil 'rocedure.

APPEAL
Whe

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


Thirt) 7@F; da) Pre+*ri.ti6e Period for A..eal Starts to run from the date the ta:payer receives the appealable decision. If the taxpayer7s re5uest for reconsideration ,i.e. the protest is denied or the original assessment is maintained the appealable decision is the decision denying the re5uest for reconsideration. /he said period is &urisdictional and non'e:tendible. :e5uests or motions for reconsideration however operate to suspend the running of the period to appeal. ! pro forma re5uest for reconsideration or one which is directed to the Secretary of Dinance does not suspend the running of the "B-day reglementary period. O l) A Fi al &e*i+io I+ A..eala(le To The Court Of Tax A..eal+

Gamble Phils. !%g. Corp, GR No. 99.-., April ,/, ,0..) N(1) 2owever this was reversed in Supreme .ourt7s subse5uent resolution wherein it was held that <in the absence of explicit statutory provisions to the contrary the 4overnment must follow the same rules of procedure which bind private parties.= (Commissioner vs. Procter and Gamble, GR No. 99.-., "ecember 5, ,00,, Resolution) Tax *olle*tio A..eal Not Su+.e ded duri !

Ge eral Rule9 >o appeal taken to the ./! shall suspend the payment levy or distraint and(or sale of any property of the taxpayer. Ex*e.tio 9 /he ./! is empowered to suspend the collection of internal revenue taxes and custom duties only when there was a 6 c- showing that collection of the tax may jeopardi0e the interest of the government and ( or the taxpayer+ d- deposit of the amount claimed or file a surety bond for not more than double the amount of tax with the .ourt when re5uired+ and e- showing by taxpayer that appeal is not frivolous nor dilatory. Ca The CTA E Joi Taxe+0 Colle*tio of

'reliminary collection letters post reporting notices and pre-assessment notices are not appealable because they are not the final decision of the .ommissioner. !n assessment can be appealed if taxpayer does not seek a reconsideration. !t times there is an exchange of communications between taxpayer and .ommissioner states that his action is final then period for appeal begins to run. .ommissioner must state that his decision is final for period of appeal to run. Dinal decision cannot be implied from issuance of warrant of distraint and levy unless it is issued after a re5uest for reconsideration. GENERAL R%LE9 >ew issues cannot be raised for the first time on appeal. EXCEPTIONS9 a. Cefense of prescription :eason? /his is a statutory right. (2isayan *and 1ransportation vs. Collector) b. 9rrors of administrative officials :eason? State can never be in estoppel and lifeblood theory. (Commissioner vs. Procter and

Sec. 11 of :! >o. 112& as amended by Sec. A of :! >o. A2@2 grants ./! power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. 2owever Sec. 21@ of the /ax .ode provides no court may grant injunction to restrain collection of any tax fee or charge imposed by /ax .ode. /he provision in /ax .ode refers to courts other than the ./!. (3laBuera vs. RodrigueG, GR No. *' ,,50/, !arch 50, ,0/.) !ppeal to the ./! does not automatically suspend collection

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


unless ./! issues suspension order at any stage of proceedings. Si3ulta eou+ fili ! of a a..li*atio for refu d or *redit a d i +titutio of a *a+e (efore the CTA allowed /he law fixes the same period of two ,2- years for filing a claim for refund with the .ommissioner and for filing a case with the ./!. /he two-year period for both starts from the date after the payment of the tax or penalty or from the approval of the application for credit. )7servation. If we are not going to allow the taxpayer to file a refund before the ./! and let him wait for the .I:7s decision and the latter failed to render a decision within the 2-year period the said taxpayer can no longer file a refund before the ./! because his right to appeal has prescribed. Wei!ht of &e*i+io of CTA Cecisions of /ax .ourt have persuasive effect and may serve as judicial guides. /hey have more persuasive value than ;I: :ulings. ./!7s findings of fact are entitled to the highest respect. (Raymundo vs. de <oya, GR No. *'588--, "ecember -, ,0.6) /he Supreme .ourt will not set aside conclusions reached by /ax .ourt which by the very nature of its function is dedicated exclusively to the consideration of tax problems and has developed an expertise on the subject unless there has been an abuse or an improvident exercise of authority on its part. (Commissioner vs. Court o% Appeals E Atlas Consolidated, GR No. .98./, November 5,, ,00,) be shifted or passed on to the buyer transferee or lessee of the goods properties or services. /his rule shall likewise apply to existing contracts of sale or lease of goods properties or services at the time of the effectivity of :epublic !ct >o. **1). J!/ replaced Sales /ax as imposed by previous /ax 8aws. #ISTOR/9 a. 9xecutive Frder >o. 2*" b. :epublic !ct >o. **1) c. :epublic !ct >o. @2$1 d. :epublic !ct >o. @$2$ ,took effect on 1 Sanuary 1AA@TRANSACTIONS CO"ERE& '/ "AT9 1. Sale of .ommodities or 4oods ,in the course of trade or business only2. Sale of Services ,in the course of trade or business only". 9xportation ,in the course of trade or business only$. Importation ,<#et#er or not in the course of trade or businessPERSONS LIA'LE FOR "AT !ny person who in the course of trade or business sells barters exchanges leases goods or properties renders services and any person who imports goods shall be subject to the value-added tax ,J!/- imposed in Sections 1B) to 1B@ of the >ational Internal :evenue .ode. E,N >E C)*R%E )? RA+E )R B*%,NE%%F /he regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock nonprofit private organi0ation ,irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests- or government entity. /herefore if the disposition of goods or services is NOT in the course of trade or business then it is not subject to J!/+

"II."AL%EA&&E& TAX 7"AT; TITLE I" OF NIRC


&EFINITION9 /he value-added tax is an indirect tax and the amount of tax may

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


1

MEMORY AID IN TAXATION LAW


with the exception of importation of course. /he rule of regularity to the contrary notwithstanding services as defined in this .ode rendered in the 'hilippines by non-resident foreign persons shall be considered as being course of trade or business. I3.ortatio i+ +u(Je*t to "AT re!ardle++ of whether or ot it i+ i the *our+e of trade or (u+i e++ /he reason for the rule is to protect our local or domestic goods or articles and to regulate the entry or introduction of foreign articles to our local market. :egulation is one of the purposes of /axation. Tax Rate+9 1. 1BE - the rate used in sale of commodities and goods sale of services and importation. 2. Vero-rated ,BE- - the rate used in exportation. <ANNER OF CO<P%TING T#E "AT9 A. 15G rate of ax 1. In sale of commodities and goods 1BE is multiplied with the 4ross Selling 'rice. 2. In sale of services 1BE is multiplied with the 4ross :eceipts. ". In importation 1BE is multiplied with the rates used by the ;ureau of .ustoms in imposing tariff and customs duties plus customs duties excise taxes if any and other charges such tax to be paid by the importer prior to the release of such goods from customs custody? 'rovided /hat where the customs duties are determined on the basis of the 5uantity or volume of the goods the value-added tax shall be based on the landed cost plus excise taxes If any. customs duties. B. Bero-rated /5G4 rate of tax 1. 9xport Sales as provided in Section 1B),!-,2-,a2. Doreign .urrency Cenominated Sale as provided in Section 1B) ,!-,2-,b". Sale to persons or entities which is J!/ exempt under special laws or international agreements to which the 'hilippines is a signatory as provided in Section 1B) ,!-,2-,c$. /ransactions subject to 0ero-rated ,BE- as provided in Section 1B@,;REGISTRATION %N&ER T#E "AT S/STE< 7SECTION :@G OF T#E NIRC; -enera& Ru&e. Dailure to register is subject to temporary closure of the establishment for & days as provided in Section 11&,b-. Ex*e.tio 9 It does not apply to an exporter who fails to register. /he effect is instead of treating the transaction as 0ero-rated ,BE- it is treated as an exempt transaction. What i+ the differe *e0 In Gero'rated (6Q) transactions, ta: credit is available. $oAever, in e:empt transactions, ta: credit is not available. EXE<PT TRANSACTIONS 7SECTION 5FE;9 1. In Section 1BA,a- and ,c- food and non-food products are 2A1'e:empt as long as these products are in its original state. /he simple process of preparation or preservation for the market such as free0ing drying salting broiling roasting smoking or stripping doe+ ot remove the product from its category of being in its original state. 2owever even if the products were no longer in its original state it can still be J!/-exempt under Section 1BA,rif sold by agricultural cooperatives duly registered by .ooperative Cevelopment !uthority. 2. Gnder Section 1BA,mprivate educational institutions are exempt from J!/ if duly accredited by the C9.S or by the .29C. In case of government educational institution no accreditation is re5uired. ". /ransactions in the field of !rts are J!/-exempt only as provided in

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


Section 1BA,n- if the seller is the artist himself or the artist7s services performed for the production of such works. $. Section 1BA,p- makes :egional or !rea 2ead5uarters exempt from J!/. &. Gnder Section 1BA,w- in order for the sale or lease of real property to be exempted from J!/ the transaction must >F/ be conducted in the ordinary course of trade or business. It complements Section 1B),!-,1-,a- where it states that in order for the sale or lease of real property to be covered by J!/ it must be made in the ordinary course of trade or business. ). :evenue :egulations >o. )-A* adds a re5uirement in order for the lease of residential units with a monthly rental of not more than '@ BBB.BB as provided in Section 1BA,x- to be J!/ exempt that the annual gross receipts must not exceed '&&B BBB.BB. *. Section 1BA,0- provides that the sale or lease of goods or performances of services other than those mentioned in the preceding paragraphs are J!/ exempt if the 4ross !nnual :eceipts do not exceed '&&B BBB.BB. 2owever the limitation of '&&B BBB.BB does apply for those transactions from Section 1BA,a- to ,y- except ,x- because :evenue :egulations >o. )-A* imposes a '&&B BBB.BB limitation. In cases of tax-free importation of goods into the 'hilippines by persons entities or agencies exempt from tax where such goods are subse5uently sold transferred or exchanged in the 'hilippines to nonexempt persons or entities the purchasers transferees or recipients shall be considered the importers thereof who shall be liable for any internal revenue tax on such importation. /he tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods irrespective of the possessor thereof. TRANSACTIONS &EE<E& SALE9 /he following transactions shall be deemed sale therefore making them covered by J!/? 75; /ransfer use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business+ 7:- Cistribution or transfer to? 7a; Shareholders or investors as share in the profits of the J!/-registered persons+ or 7(; .reditors in payment of debt+ 7@; .onsignment of goods if actual sale is not made within sixty ,)B- days following the date such goods were consigned+ and 7A; :etirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation. >o< to determine t#e 'A . /he tax shall be computed by multiplying the total amount indicated in the invoice by one-eleventh ,1(11-. Exa3.le9 the total amount indicated in the invoice is '11B. '11B(11 M '1B. '1B is the amount of J!/. TAX CRE&IT AN& REF%N& ?ormu&a for ax Credit. Futput 8ess? Input J!/ due. If Input is greater than Futput /ax .redit is available.

H,NP* A6H means the value-added tax due from or paid by a J!/-registered person in the course of his trade or business on importation of goods or local purchase of goods or services including lease or use of property from a J!/registered person. It shall also include the transitional input tax determined in

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo

San Beda College of Law


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MEMORY AID IN TAXATION LAW


accordance with Section 111 of the >I:.. H)* P* A6H means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or re5uired to register under Section 2") of the >I:.. If at the end of any taxable 5uarter the output tax exceeds the input tax the excess shall be paid by the J!/-registered person. If the input tax exceeds the output tax the excess shall be carried over to the succeeding 5uarter or 5uarters. !ny input tax attributable to the purchase of capital goods or to 0erorated sales by a J!/-registered person may at his option be refunded or credited against other internal revenue taxes subject to the provisions of Section 112. /he claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the ;ureau of Internal :evenue but also those filed with other government agencies such as the ;oard of Investments or the ;ureau of .ustoms. /he .ommissioner within 12B days in proper cases from the date of submission of complete documents in support of the application shall grant a refund or issue the tax credit certificate for creditable input taxes. :emedy in case of full or partial denial or failure on the part of the .ommissioner to act upon the application for tax credit or refund? the taxpayer affected may within thirty ,"Bdays from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period appeal the decision or the unacted claim with the .ourt of /ax !ppeals. RET%RN AN& PA/<ENT OF "AT 9very person liable to pay the valueadded tax shall file a 5uarterly return of the amount of his gross sales or receipts within 2& days following the close of each taxable 5uarter prescribed for each taxpayer? Provided, hoAever, /hat J!/registered persons shall pay the valueadded tax on a monthly basis. !ny person whose registration has been cancelled in accordance with Section 2") shall file a return and pay the tax due thereon Aithin 5/ days from the date of cancellation of registration? Provided, /hat only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

)P ,)N% )? A A6PAAER A% PR)',+E+ ,N %EC ,)N 112. 1. to claim for tax credit+ or 2. to claim for refund /he claim which must be in writing for both cases must be filed within 2 years after the close of the taxable 5uarter when the sales were made for? a- the issuance of a tax credit certificate+ b- refund of creditable input tax due or paid attributable to such sales. #OW TO &ETER<INE CRE&ITA'LE INP%T TAX /he sum of the excess input tax carried over from the preceding month or 5uarter and the input tax creditable to a J!/-registered person during the taxable month or 5uarter shall be reduced reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments such as purchase returns or allowances and input tax attributable to exempt sale.

TAXATION LAW COMMITTEE


CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J ., Ryan Co, E!"in To es :#E#BERS: #a i$a %o& !es A'& , E!i'e En i(&e', Ch is$ian Ca) e a, Jh&n!ee *&ille mo