Tax Revalida Notes

VALUE ADDED TAX (VAT)
1.) Section 105: "in the course of trade or business"

Under the law, not all sale of goods or properties are subject to VAT. The law provides:
"in the course of trade or business". There are two conditions:
a. there must be commercial or economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is
nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests) or
government entity
b. this must be coupled with regularity or habituality (services rendered by
nonresident foreign persons in the Philippines included)
Hence, the implication will be isolated sale of goods or properties are not subject to
VAT.
2.) VAT as indirect tax

CIR vs PLDT 478 SCRA 621
On the other hand, indirect taxes are those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention that he can shift the
burden to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for
the payment of the tax falls on one person but the burden thereof can be shifted or passed
on to another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in
effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of
goods sold or services rendered.
3.) Exception to the requirements "in the course of trade or business"

Exception to this is provided in RR 16-2005. As regards the first requisite, if the TP
has gross sales in the amount of P100,000 during the 12 month period, it is considered for
subsistence and does not constitute commercial or economic activity.
Second requisite: this must be coupled with regularity or habituality (services rendered by
nonresident foreign persons in the Philippines included even if the performance is not
regular)
4.) Section 106 (B)- Transactions deemed as sale

ACUBA, AGUS, AQUINO, ARTAIZ, CABILI, CARPIO, DALUMPINES, DANAO, ELNAS, GUYO, PROFUGO, REGIS, REYES,
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a. Transfer, use or consumption not in the course of business of goods or properties

originally intended for sale or for use in the course of trade or business. (e.g when
the VAT registered person withdraws goods from his business for personal use)
b. Distribution or transfer to
Shareholders or investors share in the profits of VAT registered person
Creditors in payment of debt or obligation
c. Consignment of goods if actual sale is not made within 60 days following the date
such goods were consigned. ( Consigned goods returned by the consignee within 60
days are not deemed sold.)
d. Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of such
retirement or cessation, whether or not the business is continued by the new owner
or successor. The following circumstances shall among others, give rise to
transactions "deemed sale"
Change of ownership of business. There is change in the ownership

when a single proprietorship incorporates; or the proprietor of the
single prop sells his entire business
Dissolution of partnership and creation of new partnership which takes

over the business
5.) Zero-Rated Sale of Goods

Export sales which include:
a) The sale and actual shipment of goods from the Philippines to a foreign country:
irrespective of any shipping arrangement
paid for in acceptable foreign currency or its equivalent in goods or

services and accounted for in accordance with the rules and
regulations of BSP.
b) Sale of raw materials or packaging materials by a VAT registered entity to a nonresident buyer
for delivery to a non-resident local export oriented enterprise
used in the manufacturing, processing, packing, repacking in the

Philippines of the said buyer's goods
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paid for in acceptable foreign currency or its equivalent in goods or

services and accounted for in accordance with the rules and
regulations of BSP.
c) Sale of raw materials or packaging materials to export oriented enterprise whose

export sales exceed 70% of the total annual production
d) Sale of gold to BSP
e) Those considered as export sales under the Omnibus Investment Code of 1987
f) The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations
g) Foreign currency denominated sale which means sale to a nonresident of goods,
except those mentioned in Sections 149 and 150, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign
currency or its equivalent in goods or services and accounted for in accordance with
the rules and regulations of BSP.
h) Effectively Zero Rated Sale refers to the local sale of goods and properties by a
VAT registered person to a person or entity who was granted indirect tax exemption
under special laws or international agreement. (Look at GN for additional info)
6.) Tax Base of the 12% in case of importation of goods.

It depends on whether it is based on volume or quantity or not.
If it is not based on volume or quantity, it is based on the total value used by the BOC
in determining tariff and customs duties, plus customs duties, excise tax if any and other
charges such as postage, commission prior to the release of the goods from custody.
In case the valuation used by the BOC is based on volume or quantity of the imported
goods, the landed cost shall be the basis of computing the VAT. Landed cost consists of the
invoice amount, customs duties, freight, insurance and other charges. If the goods imported
are subject to excise tax, it shall form part of the tax base.
**2008 Bar - Transaction Value
7.) Motion pictures, films, etc.
CIR vs PRIMEHOLDINGS 613 SCRA 774
Is showing or exhibition of motion pictures or films a sale of service? NO.
Is there a lease of films? YES.
Is the sale of admission ticket in the movie house subject to VAT? NO.
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(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films; except those under
Section 119 of this Code; XXX The phrase sale or exchange of services shall likewise
include:
(7) The lease of motion picture films, films, tapes and discs;
A cursory reading of the foregoing provision clearly shows that the enumeration of the sale
or exchange of services subject to VAT is not exhaustive. The words, including, similar
services, and shall likewise include, indicate that the enumeration is by way of example
only.
Among those included in the enumeration is the lease of motion picture films, films,
tapes and discs. This, however, is not the same as the showing or exhibition of motion
pictures or films.
Since the activity of showing motion pictures, films or movies by cinema/ theater
operators or proprietors is not included in the enumeration, it is incumbent upon the court to
the determine whether such activity falls under the phrase similar services. The intent of
the legislature must therefore be ascertained.
On October 10, 1991, the LGC of 1991 was passed into law. The local government
retained the power to impose amusement tax on proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at
a rate of not more than thirty percent (30%) of the gross receipts from admission fees under
Section 140 thereof. In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the local government before
the gross receipts are divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films. However, the provision in the Local Tax Code
expressly excluding the national government from collecting tax from the proprietors,
lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of
amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax base and
enhancing its administration. Three years later, RA 7716 was amended by RA 8241. Shortly
thereafter, the NIRC of 1997 was signed into law. Several amendments were made to
expand the coverage of VAT. However, none pertain to cinema/theater operators or
proprietors. At present, only lessors or distributors of cinematographic films are subject to
VAT. While persons subject to amusement tax under the NIRC of 1997 are exempt from the
coverage of VAT.
Based on the foregoing, the following facts can be established:
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Historically, the activity of showing motion pictures, films or movies by

cinema/theater operators or proprietors has always been considered as a form of
entertainment subject to amusement tax.
Prior to the Local Tax Code, all forms of amusement tax were imposed by the national
government.
When the Local Tax Code was enacted, amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of amusements
were transferred to the local government.
Under the NIRC of 1977, the national government imposed amusement tax only on
proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race
tracks.
The VAT law was enacted to replace the tax on original and subsequent sales tax and
percentage tax on certain services.
When the VAT law was implemented, it exempted persons subject to amusement tax
under the NIRC from the coverage of VAT.
When the Local Tax Code was repealed by the LGC of 1991, the local government
continued to impose amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of amusements.
Amendments to the VAT law have been consistent in exempting persons subject to
amusement tax under the NIRC from the coverage of VAT.
Only lessors or distributors of cinematographic films are included in the coverage of

VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under
the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax
on certain services. The mere fact that they are taxed by the local government unit and not
by the national government is immaterial. The Local Tax Code, in transferring the power to
tax gross receipts derived by cinema/theater operators or proprietor from admission tickets
to the local government, did not intend to treat cinema/theater houses as a separate class.
No distinction must, therefore, be made between the places of amusement taxed by the
national government and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an additional 10% VAT on top of the 30%
amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax. Such
imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a
better position than those taxed under the LGC of 1991. We need not belabor that a literal
application of a law must be rejected if it will operate unjustly or lead to absurd results.
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Thus, we are convinced that the legislature never intended to include cinema/theater
operators or proprietors in the coverage of VAT.
Diaz vs CIR 654 SCRA 96

May toll fees collected by tollway operators be subjected to value- added tax? YES.
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is
levied, assessed, and collected, according to Section 108, on the gross receipts derived from
the sale or exchange of services as well as from the use or lease of properties. The third
paragraph of Section 108 defines sale or exchange of services as follows:
The phrase sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators
of restaurants, refreshment parlors, cafes and other eating places, including clubs and
caterers; dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of goods or cargoes;
common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines; sales of electricity by
generation companies, transmission, and distribution companies; services of franchise
grantees of electric utilities, telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. (Underscoring
supplied)
It is plain from the above that the law imposes VAT on all kinds of services rendered
in the Philippines for a fee, including those specified in the list. The enumeration of affected
services is not exclusive. By qualifying services with the words all kinds, Congress has
given the term services an all-encompassing meaning. The listing of specific services are
intended to illustrate how pervasive and broad is the VATs reach rather than establish
concrete limits to its application. Thus, every activity that can be imagined as a form of
service rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112
or the Toll Operation Decree establishes the legal basis for the services that tollway
operators render.
Essentially, tollway operators construct, maintain, and operate
expressways, also called tollways, at the operators expense. Tollways serve as alternatives
to regular public highways that meander through populated areas and branch out to local
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roads. Traffic in the regular public highways is for this reason slow-moving. In consideration
for constructing tollways at their expense, the operators are allowed to collect governmentapproved fees from motorists using the tollways until such operators could fully recover their
expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latters use of the tollway facilities over which the operator enjoys private proprietary rights
that its contract and the law recognize. In this sense, the tollway operator is no different
from the following service providers under Section 108 who allow others to use their
properties or facilities for a fee:
Lessors of property, whether personal or real;
Warehousing service operators;
Lessors or distributors of cinematographic films;
Proprietors, operators or keepers of hotels, motels, resthouses, pension

houses, inns, resorts;
Lending investors (for use of money);
Transportation contractors on their transport of goods or cargoes, including

persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes; and
Common carriers by air and sea relative to their transport of passengers,

goods or cargoes from one place in the Philippines to another place in the
Philippines.
It does not help petitioners cause that Section 108 subjects to VAT all kinds of
services rendered for a fee regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. This means that services to be
subject to VAT need not fall under the traditional concept of services, the personal or
professional kinds that require the use of human knowledge and skills.
And not only do tollway operators come under the broad term all kinds of services,
they also come under the specific class described in Section 108 as all other franchise
grantees who are subject to VAT, except those under Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to exceptions (the
low-income radio and/or television broadcasting companies with gross annual incomes of
less than P10 million and gas and water utilities) that Section 119 spares from the payment
of VAT. The word franchise broadly covers government grants of a special right to do an
act or series of acts of public concern.
8.) Section 109 (q)
Summary of Rules regarding Lease of Property
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a) Lease of residential units with a monthly rental per unit not exceeding P12,800,
regardless of the amount of aggregate rentals received by the lessor during the year
is VAT EXEMPT and NO PERCENTAGE TAX CAN BE IMPOSED
b) If the monthly rental per unit exceeds P12,800 but the aggregate of such rentals of
the lessor during the year do not exceed P1,919,500 shall likewise be exempt from
VAT however shall be subjected to three(3%) percentage tax.
c) If the monthly rental is above P12,800 and annual gross sales exceed P1,919,500
then it will be subject to VAT.
**NOTE: The term 'residential units' shall refer to apartments and house and lots used for
residential purposes and buildings or units thereof used solely as dwelling places (e.g.
dormitories, rooms, bed spaces) except motels, motel rooms, hotel, hotel rooms, lodging
houses, inns and pension houses. (RR 16-2011)
9.) Zero Rated Transaction as distinguished from Exempt Transaction

A zero-rated sale of goods, properties and/or services (by a VAT registered person) is
a taxable transaction for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services related to such zero-rated sale, shall
be available as tax credit or refund in accordance with existing regulations. Under this type
of sale, no VAT shall be shifted or passes on by the VAT registered sellers/suppliers from the
Customs Territory on their sale, barter or exchange of goods, properties or services to the
subject Freeport Zone enterprises.
A VAT-exempt transaction, on the other hand, refers to sale of goods, properties or
services the use or lease of properties that is not subject to VAT (output tax) under Section
109 of the Tax Code of 1997, and the seller/supplier is not allowed any tax credit on the VAT
(input tax) on purchases related to such exempt transaction. (Rev. Memorandum 50-2007)
Simply put, the difference lies in the input tax. In VAT-exempt transactions there is no
input tax credit allowed. In the case of zero rated transaction of a VAT registered person, the
sale of goods or properties is multiplied by 0% thus his output tax is P0.00. if the person is
VAT registered, he may claim such input tax as tax credit or refund.
10) Section 112 (C) in relation to (A)

Any unutilized input VAT attributable to zerorated or effectively zerorated sales may
be claimed as a refund/tax credit. Initially, claims for refund/tax credit for unutilized input
VAT should be filed with the BIR, together with the complete documents in support of the
claim. Pursuant to Section 112(A) of the NIRC, the administrative claim for refund/tax credit
must be filed with the BIR within two years after the close of the taxable quarter when the
sales were made.
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Under Section 112(C) of the NIRC, the CIR is given 120 days from the submission of
complete documents in support of the application for refund/tax credit within which to either
grant or deny the claim. In case of (1) full or partial denial of the claim or (2) the failure of
the CIR to act on the claim within 120 days from the submission of complete documents, the
taxpayerclaimant may, within 30 days from receipt of the CIR decision denying the claim or
after the lapse of the 120day period, file a petition for review with the CTA.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the
lapse of the 120day period. For this reason, we find the filing of the judicial claim with the
CTA premature.
Respondents assertion that the nonobservance of the 120day period is not fatal to
the filing of a judicial claim as long as both the administrative and the judicial claims are
filed within the twoyear prescriptive period has no legal basis.
There is nothing in Section 112 of the NIRC to support respondents view. Subsection
(A) of the said provision states that any VATregistered person, whose sales are zerorated
or effectively zerorated may, within two years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales. The phrase within two (2) years x x x
apply for the issuance of a tax credit certificate or refund refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the
first paragraph of subsection ([C]) of the same provision, which states that the CIR has 120
days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) within which to decide on the claim.
In fact, applying the twoyear period to judicial claims would render nugatory Section
112([C]) of the NIRC, which already provides for a specific period within which a taxpayer
should appeal the decision or inaction of the CIR. The second paragraph of Section 112([C])
of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the
lapse of the 120day period; and (2) when no decision is made after the 120day period. In
both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we
see it then, the 120day period is crucial in filing an appeal with the CTA
11.) Section 115

Power of the Commissioner to Suspend the Business Operations of a Taxpayer.
The Commissioner or his authorized representative is hereby empowered to suspend
the business operations and temporarily close the business establishment of any person for
any of the following violations:
(a) In the case of a VAT-registered Person.
Failure to issue receipts or invoices;
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Failure to file a value-added tax return as required under Section 114; or
Understatement of taxable sales or receipts by thirty percent (30%) or more of

his correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236.

The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.
ESTATE TAX
1. Gross Estate
The gross estate of a decedent shall be comprised of the following properties and
interest therein at the time of his death, including revocable transfers and transfers for
insufficient consideration, etc.:
Residents and citizens all properties, real or personal, tangible or intangible,

wherever situated.
Non-resident aliens only properties situated in the Philippines provided, that, with
respect to intangible personal property, its inclusion in the gross estate is subject to the
rule of reciprocity provided for under Section 104 of the Code.
2. Under section 85, the following items comprise the decedents gross
estate:
a) Decedents Interest
This refers to all property owned by the decedent- real or personal, tangible or
intangible- including shares of stock in corporations- at the time of his death.
b) Transfer in Contemplation of Death
The transfer shall be considered as transfer in contemplation of death if after the
property has been transferred during the lifetime of the decedent, he still retained:
The possession or enjoyment of; or

Notwithstanding the transfer he continues to receive, the income or fruits;
The right, whether alone or in conjunction with any person , to designate the
person who shall possess or enjoy the property or the income from such property.
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As an exception, the Code provides that such transfer shall not be considered as one
in contemplation of death in case
the transfer is a bonafide sale

for an adequate and full consideration in money or moneys worth [Sec 104 (b)]
The Rationale: for the inclusion in the gross estate of properties in contemplation of
death is to prevent taxpayer from escaping the imposition of estate taxes through the
retention of some attribute of ownership.
VIDAL ROCES vs. POSADAS
Where the taxpayer donated properties to her heirs prior to her death. A deed of
donation and a last will were executed at the same time, but death arrived shortly
after the donation. The done-heirs tried to pay donors tax but the BIR assessed them
for estate tax.
The SC rule that the donation was a transfer in contemplation of death since the
deed of donation was executed simultaneously with the last will. Further, the donees
were also the heirs instituted in the last will. This last circumstance shows that the
transfer was really in contemplation of death.
DIZON vs. POSADAS ( 57 PHIL 465)
Where a donor donated a property and after a to his only son but he reserved to himself the
usufruct of three parcels of land.The SC held that the donation made by the donor-father to
his done-son was really a transfer in contemplation of death.
c) Revocable Transfer
This refers to property that had been transferred but the transferor, personally
or through another person, retained for life the right to alter, amend, revoke, or
terminate the enjoyment by the transferee of the property transferred.
Here, a property no longer owned by the decedent still forms part of his gross estate.
This is another situation where estate tax applies to transfer of property made during
the lifetime of the transferor. If the donors tax had been paid, it is simply credited to
the amount of estate tax due.
d) Property Passing Under General Power of Appointment
Under this paragraph, a property which the decedent never owned in his lifetime now
forms part of his gross estate. There are three persons involved here. The transferor, the
first transferee, and the second transferee. The first transferee is the decedent.
If authority is granted by the transferor to the first transferee to determine the person,
who, upon the latters death, would next possess or enjoy the property transferred, his
authority emanates from a general power of appointment. But if the transferor himself had
determined beforehand who upon the death of the first transferee, would next possess or
enjoy the property, then the authority of the first transferee emanated from a special
power of appointment.
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Although the decedent never formally owned it, property passing under a general power of
appointment forms part of his gross estate because his absolute authority to choose the
next transferee, upon his death, is a badge of ownership.
If the transferor died, the same property would form part of his (transferor) gross estate
under sec. 85 (a) of the tax code.
e) Proceeds of Life Insurance
This contemplates a situation where a person insures his own life If the beneficiary is his
estate, represented by his administrator, executor or heir- irrespective of whether the
designation of said beneficiary is revocable or irrevocable- proceeds therefrom form part of
his gross estate.
But if the beneficiary is a third person, proceeds of life insurance form part of the gross
estate of the decedent only if the designation of said beneficiary is revocable.
f) Transfer for Insufficient Consideration
Where the transfers in contemplation of death, revocable transfers, and general
power of appointment are made, created, exercised or relinquished for less than the
adequate or full consideration, the difference between the FMV of the subject
property at the time of death and the value of the consideration received therefore
forms part of the decedents gross estate subject to estate tax.
3. Deductions Allowed to the Estate of Citizen or a Resident
a) Expenses, losses, indebtedness, and taxes. - such amounts (A) For actual funeral expenses or in an amount equal to five percent (5%) of the
gross estate, whichever is lower, but in no case to exceed Two hundred thousand
pesos (P200,000);
Under RR 2-2003 The term "FUNERAL EXPENSES" is not confined to its ordinary or
usual meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried minor children of
the deceased bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In
case the deceased owns a family estate or several burial lots, only the value
corresponding to the plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
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(g) All other expenses incurred for the performance of the rites and
ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or the
like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by
relatives and friends of the deceased are not deductible.
Medical expenses as of the last illness will not form part of funeral expenses but should be
claimed under subsection (F) of this section.
Illustrations on how to determine the amount of allowable funeral expenses
If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is
P50,000, only P50,000 will be allowed as deduction;
If the expenses actually incurred amount to P90,000 and five percent (5%) of the
gross estate is P70,000, only P70,000 will be allowed as deduction;.
If five percent (5%) of the gross estate is P220,000 and the amount actually incurred
is P215,000, the maximum amount that may be deducted is only P200,000;
If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed
as deduction for funeral expenses is P100,000. The entire P50,000 excess amount
consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be
claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted
from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof.
b) For judicial expenses of the testamentary or intestate proceedings;

Expenses allowed as deduction under this category are those incurred in the
inventory-taking of assets comprising the gross estate, their administration, the
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.
Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
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(i) Brokerage fees for selling property of the estate.

Any unpaid amount for the aforementioned cost and expenses claimed under
Judicial Expenses should be supported by a sworn statement of account
issued and
signed by the creditor. ( RR 2-2003)
c) For claims against the estate: Provided, That at the time the indebtedness was incurred
the debt instrument was duly notarized and, if the loan was contracted within three (3) years
before the death of the decedent, the administrator or executor shall submit a statement
showing the disposition of the proceeds of the loan;
d) For claims of the deceased against insolvent persons where the value of decedent's
interest therein is included in the value of the gross estate; and
e) For unpaid mortgages upon, or any indebtedness in respect to, property where the value
of decedent's interest therein, undiminished by such mortgage or indebtedness, is included
in the value of the gross estate, but not including any income tax upon income received
after the death of the decedent, or property taxes not accrued before his death, or any
estate tax. The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be
limited to the extent that they were contracted bona fide and for an adequate and full
consideration in money or money's worth. There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms, shipwreck, or other casualties,
or from robbery, theft or embezzlement, when such losses are not compensated for by
insurance or otherwise, and if at the time of the filing of the return such losses have not
been claimed as a deduction for the income tax purposes in an income tax return, and
provided that such losses were incurred not later than the last day for the payment of the
estate tax as prescribed in Subsection (A) of Section 91.
f. Vanishing deductions
The deduction allowed when from the gross estates of citizen, resident aliens and
nonresident estates for properties which were previously subject to donors or estate taxes.
The deduction is called a vanishing deduction because the deduction allowed diminishes
over a period of 5 years.
Purpose: It is provided in order to reduce the tax on property received from a prior decedent
where the deceased died within 5 years after the death of the prior decedent.
The following percentages should be taken into account the computation of the net estate
Within 1 year 100%
More than 1 year but not more than 2 years 80 %
More than 2 years but not more than 3 years- 60 %
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Bar Questions:
Vanishing deduction is availed of by taxpayers to: (2006)
a.
correct his accounting records to reflect the actual deductions mad
b.
reduce his gross income
c.
reduce his output value-added tax liability
d.
reduce his gross estate
Answer: C
Q: (2009 Bar) In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00.
The fair market value (FMV) of the painting at the time of the purchase was P1-million. Yuri
paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last will and
testament, Xavier bequeathed the painting, already worth P1.5-million, to his only son,
Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as successor to
the painting in the event of Zandro's death. Zandro died in 2007, and Wilma succeeded to
the property.
May a vanishing deduction be allowed in either or both of the estates? Explain.
Answer: No. There is no deductible vanishing deduction from the estate of Xavier because
there is no showing in the problem if any property part of his estate that was previously the
subject of donors or estate tax within a period of 5 years.
g) Transfers for public use
The amount of all the bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines, or any political subdivision thereof, for
exclusively public purposes.
h) The family home
An amount equivalent to the current fair market value of the decedent's family home:
Provided, however, That if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the
exemption or deduction, said family home must have been the decedent's family home as
certified by the barangay captain of the locality.
Family home The dwelling house, including the land on which it is situated,
where the husband and wife, or a head of the family, and members of their family
reside, as certified to by the Barangay Captain of the locality. The family home is
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deemed constituted on the house and lot from the time it is actually occupied as a
family residence and is considered as such for as long as any of its beneficiaries
actually resides therein. (Arts. 152 and 153, Family Code)
For purposes of these regulations, however, actual occupancy of the house or house
and lot as the family residence shall not be considered interrupted or abandoned in such
cases as the temporary absence from the constituted family home due to travel or studies or
work abroad, etc.
Conditions for the allowance of FAMILY HOME as deduction from the gross estate
The family home must be the actual residential home of the decedent and
his family at the time of his death, as certified by the Barangay Captain of
the locality where the family home is situated;
The total value of the family home must be included as part of the gross
estate of the decedent; and
Allowable deduction must be in an amount equivalent to the current fair

market value of the family home as declared or included in the gross
estate,
or
the
extent
of
the
decedents
interest
(whether
conjugal/community or exclusive property), whichever is lower, but not
exceeding P1,000,000.
i) Standard deduction
An amount equivalent to One million pesos (P1,000,000).
j) Medical expenses
All medical expenses (cost of medicines, hospital bills, doctors fees, etc.) incurred
(whether paid or unpaid) within one (1) year before the death of the decedent shall
be allowed as a deduction provided that the same are duly substantiated with official
receipts for services rendered by the decedents attending physicians, invoices,
statements of account duly certified by the hospital, and such other documents in
support thereof and provided, further, that the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
Any amount of medical expenses incurred within one year from death in
excess of Five Hundred Thousand Pesos (P500,000) shall no longer be allowed as a
deduction under this subsection. Neither can any unpaid amount thereof in excess of
the P500,000 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.( RR 2-2003)
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Illustrations on how to determine the amount of allowable medical expenses given the
P500,000 threshold amount
If the actual amount of medical expenses incurred is P250,000, then only P250,000
shall be allowed as deduction and not to the extent of the P500,000 threshold
amount;
If the actual amount of medical expenses incurred within the year prior to decedents
death is P600,000, only the maximum amount of P500,000 shall be allowed as
deduction. If in case the excess of P100,000 (P600,000-500,000) is still unpaid, such
amount shall not be allowed to be deducted from the gross estate as claims against
the estate.
k) Amount received by heirs under republic act no. 4917

Any amount received by the heirs from the decedent - employee as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917: Provided, That
such amount is included in the gross estate of the decedent.
4. Deductions Allowed to Nonresident Estates.
In the case of a nonresident not a citizen of the Philippines, by deducting from the value of
that part of his gross estate which at the time of his death is situated in the Philippines:
Expenses, Losses, Indebtedness and Taxes
Vanishing Deduction
Transfers for Public Use.
Share in the Conjugal Property

The net share of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property shall, for
the purpose of this Section, be deducted from the net estate of the decedent.
Miscellaneous Provisions
No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case
may be, includes in the return required to be filed under Section 90 the value at the
time of his death of that part of the gross estate of the nonresident not situated in
the Philippines.
DONORS TAX
1. What is meant by stranger?

RR 2-2003 Sec 10. (B)
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When the donee or beneficiary is a stranger, the tax payable by the donor
shall be thirty per cent (30%) of the net gifts. For purposes of the donor's tax, a
"stranger" is a person who is not a:
(1) Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal
descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of
relationship.
A legally adopted child is entitled to all the rights and obligations provided by
law to legitimate children, and therefore, donation to him shall not be considered as
donation made to stranger.
Donation made between business organizations and those made between an
individual and a business organization shall be considered as donation made to a
stranger
2. Political Parties subject to donors tax
Under R.A. No. 7166, any contribution in cash or in kind to any candidate or
political party or coalition of parties for campaign purposes shall not be subject to the
payment of any gift tax. What instance will it be subject to Donors Tax?
Those contributions in cash or in kind NOT duly reported to the Commission on
Elections (COMELEC) shall not be subject to donors tax.
Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or
in kind for campaign purposes shall be governed by R.A. No. 7166 or the Election
Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to
the contrary notwithstanding any contribution in cash or kind to any candidate or
political party or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax (donors tax).
Accordingly, the BIR can impose donors tax on contributions of this nature. (Q-14,
RMC No. 63-2009)
3. SEC 100. NIRCTransfer of insufficient consideration
Where property, other than real property referred to in Section 24 (D) of the
NIRC, as amended, is transferred for less than adequate and full consideration in
money or moneys worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of Donors
Tax, be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year. (Sec. 100, NIRC, as amended)
When is there a transfer for less than an adequate and full consideration in
money or moneys worth?
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Where property, other than real property classified as capital asset subject to
final capital gains tax, is transferred for less than an adequate and full consideration
in money or moneys worth, the amount by which the fair market value of the
property exceeded the value of the consideration shall, for purposes of donors tax,
be deemed a gift.
**Note: (1) The element of donative intent is conclusively presumed in transfers of
property for less than an adequate or full consideration in money or moneys worth.
(2) Why is real property, classified as capital asset, that is transferred for less
than an adequate and full consideration in money or moneys worth not deemed a
gift subject to donors tax? Well, it is already subject to final capital gains tax, which
is 6% of the gross selling price of fair market value of the property, whichever is
higher. So what the seller avoids in the payment of the donors tax, it pays for in CGT.
(PM REYES REVIEWER)
4. SEC. 101. Exemption of Certain Gifts. [A(3)]
The following gifts or donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization: Provided, however,
That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of the exemption, a 'non-profit educational
and/or charitable corporation, institution, accredited nongovernment organization,
trust or philanthropic organization and/or research institution or organization' is a
school, college or university and/or charitable corporation, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends, governed by
trustees who receive no compensation, and devoting all its income, whether
students' fees or gifts, donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation.
LOCAL TAX
1. Local Taxing Authority (Section 132, LGC)
The power to impose a tax, fee or charge, or to generate revenue SHALL be exercised by the
sanggunian of the LGU concerned through an appropriate ordinance.
2. Common Limitations (Section 133, LGC)
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These limitations are applicable to provinces, cities, municipalities and barangays. All LGUs
are subject to the said limitations.
There are two groups: Absolute prohibition and Relative prohibition.
(a) Income tax, except when levied on banks and other financial institutions;
Relative limitation
The limitation provided hereunder extends to non-bank financial intermediaries,
lending investors, finance and investment companies, pawnshops, money shops,
insurance companies, stock markets, stockbrokers and dealers in securities and
foreign exchange. (Section 131[e]).
Q: In allowing LGUs to impose income tax on banks and other financial institutions, will it not
amount to the prohibited double taxation?
A: NO. One of the elements of the prohibited double taxation is that the tax is being imposed
by the same taxing authority. Such element is absent in this case since there are two
different taxing authorities: the LGU and the National Government.
(b) Documentary Stamp Tax;
Absolute limitation
The Code does not provide for any exemption, hence, LGUs cannot impose
documentary stamp tax.
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis cause, except
as otherwise provided herein;
Relative limitation
Exception: Sec. 135 Tax on Transfer of Real Property Ownership - (a) the province may
impose a tax on the sale, donation, barter, or on any other mode of transferring
ownership or title of real property at a rate of not more than fifty percent (50%) of
one percent (1%) of the total consideration involved in the acquisition of the property
or of the fair market value in case the monetary consideration involved in the
transfer is not substantial, whichever is higher. The sale, transfer or other disposition
of real property pursuant to R.A. No. 6657 shall be exempt from this tax.
(d) Custom duties, registration fees of vessel 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;
Relative limitation
The LGU can impose wharfage dues on wharves constructed and maintained by the
LGU concerned.
Wharfage due is defined as a custom fee imposed on the weight of the cargoes.
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, passing
through the territorial jurisdictions of local government units in the guise of charges for
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wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
Absolute limitation
PALMA DEVELOPMENT CORP vs. MALANGAS DEL SUR (413 SCRA 572)
The municipal council of the LGU passed an ordinance imposing tax o all motor vehicles
passing through a street in a town under the jurisdiction of the LGU. Petitioner questioned
the validity of the ordinance invoking Section133(e) of the LGC. The Supreme Court ruled in
favor of the petitioner. The ordinance passed by the municipal council violated the
prohibition under Section133(e). Although the title of the ordinance is "Police Surveillance
Fee,"" such title is not material, what is to be considered is the substance of the ordinance.
Under the ordinance assailed, the tax us being imposed upon the passage of the vehicles
through the town of LGU, this it is violative of the prohibition, therefore, the ordinance is
void.
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
Semi-Relative Limitation
It only extends to those agricultural and aquatic products sold by marginal farmers or
fishermen.
The term "marginal farmers or fishermen" is defined by Section 131(p) as those
individuals engaged in subsistence farming or fishing which shall be limited to the
sale, barter, pr exchange by himself and his immediate family. Hence, for individuals
other than marginal farmers or fishermen, the prohibition does not apply. They may
be taxed by the LGUs.
(g) Taxes on business enterprises certified by the Board of Investments as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively from the date of registration;
Relative limitation
The prohibition is only for a limited period. Pioneer-6years from date or registration;
non-Pioneer 4 years from date of registration
(h) Excise tax on articles enumerated under the NIRC, as amended, and taxes, fees, or
charges on petroleum products;
Relative limitation
Exception: Section 143(b), LGC, provides that: "x x x: Provided, That on any business
subject to excise tax, x x x, the rate of tax shall not exceed two percent (2%) of gross
sales or receipts of the preceding calendar year." Therefore, LGU may impose excise
taxes under the exception.
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
Relative limitation
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Exception: Section 143(h), LGC, "x x x, on any business, not otherwise specified in
the preceding paragraphs, which the sanggunian concerned may deem proper to tax:
Provided, That on any business subject to excise, value-added or percentage tax
under NIRC, as amended, the rate of tax shall not exceed two percent (2%) of gross
sales or receipts of the preceding calendar year. The sanggunian concerned may
prescribe a schedule of graduated tax rates but in no case to exceed the rates
prescribed herein.
(j) Taxes on gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land, water,
except as herein provided by the Code;
Relative limitation
FIRST HOLDING CO vs. BATANGAS (300 SCRA 661)
The Supreme Court considered several pipelines within the ambit of "common
carriers" and as such, the prohibition under this section shall apply. The Court ruled
that since such pipelines are habitually being used to transport petroleum products
which can be considered as commodity, such pipelines are considered as common
carriers. Therefore, the percentage tax being imposed by the municipal council upon
such pipelines, is null and void for being contrary to law.
(k) Taxes on premiums by way of reinsurance or retrocession;
Absolute limitation
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all
kinds of license or permits for the driving thereof, except tricycles;
Relative limitation
Exception: tricycles
BUTUAN CITY VS. LTO 322 SCRA 805
The Supreme Court clarified that the prohibition applies to the taxes, fees or chargers
for the registration of motor vehicles, which function is being performed by the LTO.
With respect to the granting of a franchise and the regulation of common carriers,
which function lies with the LTFRB, such function may be delegated and performed by
the LGUs. Thus, the prohibition extends to the functions of LTO while those of the
LTFRB's are not covered by the prohibition.
(m) Taxes, fees or other charges on Philippine products actually exported, except as
otherwise provided herein;
Relative limitation
Exception: Section 143(c) which provides that municipalities may impose taxes on
exporters, x x x.
(n) Taxes, fees or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and R.A. No. 6938 otherwise known as the
"Cooperatives Code of the Philippines" respectively;
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Absolute limitation
However, for thus prohibition to apply, the foregoing must be present: (1) the
cooperative is duly registered under RA No. 6938, (Cooperative Code) or under RA
No. 6810, (Business Kalakalan); and the number of workers does not exceed twenty
(20).
The absence of any of these requirements negates the application of prohibition,
meaning, can be subject of taxation.
(o) Taxes, fees or chargers of any kind on the National Government, its agencies and
instrumentalities and local government units.
Relative prohibition
Exception: Section 154, LGC. It provides: "[l]ocal government units may fix the rates
for the operation of public utilities owned, operated and maintained by them within
their jurisdiction." Thus, in the exercise of a pu lic utility, the LGU may impose taxes
therefor.
Q: May the government tax itself?
A: depends on who is the taxing authority. If the taxing power is being exercised by the LGU
against the National Government, the answer is in negative. On the other hand, if the taxing
authority is the National Government, it may impose taxes on the LGU. (NAIA V. Paraaque,
G.R. No. 155650, July 20, 2006; Basco V. PAGCOR, 197 SCRA 52).
However, in Cebu V. Mactan (261 SCRA 667), the Supreme Court correctly ruled in
exempting Mactan Airport from the imposition of the real estate tax being imposed by the
LGU of Cebu. It was ruled by the Supreme Court that real estate tax is totally different from
local tax. Although Mactan Airport may be exempt from local tax, it may be liable for real
estate tax.
3. Professional Tax (Section 139, LGC)
(a) The province may levy an annual professional tax on each person engaged in the
exercise or practice of his profession requiring government examination at such amount and
reasonable classification as the sangguniang panlalawigan may determine but shall in no
case exceed Three Hundred pesos (P300.00).
(b) Every person legally authorized to practice his profession shall pay the professional tax
to the province where he practices his profession or where he maintains his principal office
in case he practices his profession in several places: Provided, however, That such person
who had paid the corresponding professional tax shall be entitled to practice his profession
in any part of the Philippines without being subjected to any other national or local tax,
license, or fee for the practice of such profession.
(c) Any individual or corporation employing a person subject to professional tax shall require
payment by that person of the tax on his profession before employment and annually
thereafter.
(d) The professional tax shall be payable annually, on or before the 31st day of January. Any
person first beginning to practice profession after the month of January must, however, pay
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the full tax before engaging therein. A line of profession does not become exempt even if
conducted with some other profession for which tax has been paid. Professionals exclusively
employed in the government shall be exempt from the payment of this tax.
(e) Any person subject to the professional tax shall write in deeds, receipts, prescriptions,
reports, books of accounts, plans, and designs, surveys and maps, as the case may be, the
number of the official receipt issued to him.
**NOTE: This is one of the exemptions provided under Section 153, LGC, that a city cannot
increase the rate of this tax.
Provinces may levy an annual professional tax on each person engaged in the exercise or
practice of profession requiring government examination, at such amount and reasonable
classification as the sangguniang panlalawigan may determine, but shall in no case exceed
P300.00.
In relation to this, Section 147 provides for a similar tax to be imposed by cities and
municipalities.
In Section 139, the tax is imposed by provinces. The individuals subject to tax are those who
passed a government examination. Maximum is P300.00.
In Section 147, it is imposed by cities and municipalities. The individuals taxed are not those
who are required to pass a government examination. There's no maximum, subject to
general limitations, such must be fair and reasonable.
4. Franchise Tax (Section 137, LGC)
Sec. 137- Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at the rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein.
**NOTE: The province may impose a tax on business enjoying a franchise, at the rate not
exceeding 50% of 1% of gross annual receipts for the preceding calendar year.
3 Kinds of Franchise Tax
(1) local franchise tax
(2) national franchise tax provided under the franchise itself
(3) franchise tax under the old internal revenue code which was abolished by E.O. 37
5. Section 137 in relation to Section 193, LGC
Section 193. Withdrawal of Tax Exemption Privileges - Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
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Under this provision, the exemptions granted by any law or other special law are revoked.
Thus, the entities granted with exemptions before the passage of LGC are no longer exempt
from franchise tax. Hence, LGUs may now impose franchise tax on these entities.
All exemptions granted BEFORE the effectivity of the LGC are revoked after its passage
EXCEPT:
(1)
(2)
(3)
(4)
local water districts

cooperatives duly registered under RA No.6938
non-stock, non-profit educational institutions
non-profit hospitals
LGC took effect on January 1, 1992.

All exemptions granted before Jan. 1, 1992 are revoked except for those mentioned as
exempted from the coverage of Section 193.
Q: What about the exemptions granted AFTER January 1, 1992?
A:
CAGAYAN DE ORO ELECTRIC vs. MISAMIS OCCIDENTAL (181 SCRA 38)
Supreme Court ruled that there are two kinds of franchise: one is a franchise which provides
for a condition that the franchise tax shall be "in lieu of all other taxes"; and the other one
"does not contain such provision". It is the latter where the LGU can impose the local
franchise tax.
In 1999, the Supreme Court ruled, Section 193 of the LGC does not only revoke the
exemptions granted by different statutes but also those exemptions enjoyed by franchise
holders by virtue of pronouncement in Cagayan case. (Reyes V. San Pablo City, 305 SCRA
353; Meralco V. Laguna, 306 SCRA 750).
PLDT vs. DAVAO CITY (363 SCRA 522)
SMART and GLOBE are claiming exemption from the franchise tax being imposed by the LGU.
Their franchises were issued in 1995.
Q: Are they included in the coverage of Section 193 which provides that all exemptions
granted by law or any other special law are withdrawn? ANSWER: No. The Court ruled in
favor of SMART and GLOBE. It is to be noted that the franchise of SMART and GLOBE were
only granted in 1995. Said franchise contained the provision that they were exempt from
any local franchise tax. The LGC became effective on Jan.1,1992. The franchise containing
the exemption was granted after the effectivity of the LGC. Hence, the exemption granted to
SMART and GLOBE are not within the coverage of Section 193. SMART and GLOBE are
therefore exempt from local franchise tax.
NAPOCOR vs. CITY OF CABANATUAN GR NO. 149110, APRIL 9, 2003
The person claiming the exemption has the burden of proving its claims by clear grant of
exemption after the enactment of the LGC.
6. Situs of Tax (Section 150, LGC)
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Sec. 150
(a) For purposes of collection of taxes under Section 143 (Tax on Business), manufacturers,
assemblers, repackers, brewers, distillers, rectifiers, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks amd other financial institutions, and
other businesses, maintaining or operating branch or sales outlet elsewhere shall record the
sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality
where such branch or sales outlet in the city or municipality where the sale or transaction is
made, the sale shall be duly recorded in the principal office and the taxes due shall accrue
and shall be paid to such city or municipality.
(b) The following sales allocation shall apply to manufacturers, assemblers, contractors,
producers, and exporters with factories, project offices, plants, and plantations in the pursuit
of their business:
(1) 30% of all sales recorder in the principal office shall be taxable by the city or
municipality where the principal office is located: and
(2) 70% of all sales recorded in the principal office shall be taxable by the city or
municipality where the factory, project office, plant or plantation is located.
(c) In case of plantation located at a place other than the place where the factory is located,
said 70% mentioned in subparagraph(b) of subsection(2) above shall be divided as follows:
(1) 60% to the city or municipality where the factory is located;
(2) 40% to the city or municipality where the plantation is located.
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2)
or more factories, project offices, plants or plantations located in different localities, 70%
sales allocation mentioned in subpar.(b) of subsection(2) above shall be prorated among the
localities where the factories, project offices, plants, and plantations are located in
proportion to their respective volumes of production during the period for which the tax is
due.
(e) The foregoing sales allocations shall be applied irrespective of whether or not sales are
made in the locality where the factory, project office, plant or plantation is located.
**NOTE: The taxes subject of this provision are the taxes on wholesaling and retailing
imposed by LGUs.
Manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compundere of
liquors, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors,
dealers, contractors, banks and other financial institutions, and other businesses,
maintaining or operating branch or sales outlet elsewhere shall record the sale or
transaction - tax shall be paid to the municipality where the branch is located. In absence
thereof, to the city or municipality where the principal office of such business is located.
For business with factories, project offices, plants and plantations, in the conduct of its
business: 30% of the sales shall be taxed by the city or municipality where principal office is
located; while the 70% shall be taxed by the city or municipality where the factory, project
office, plant and plantation are located.
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In case plantation is located in a place different from where the factory is located, the 70%
mentioned shall be further divided, thus, 60% to the city or municipality where factory is
located; and the 40% to the city or municipality where plantation is located.
In case the factory, project office, plant and plantation is located in different localities, the
70% abovementioned shall be divided pro rata among the different localities where such
establishments are located. The basis for division shall be the respective volumes of
production during the taxable period.
7. Local Taxation
Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue
Measures; Mandatory Public HearingsThe procedure for approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within 30days from the effectivity thereof to the Secretary of Justice who
shall render a decision within 60days from date of receipt of appeal:
Provided, however, That such appeal shall not have the effect of suspending the effectivity
of the ordinance and the accrual of payment of tax, fee or charge levied therein: Provided
finally, That within 30days after receipt of the decision or the lapse of the 60-day period
without the Secretary of Justice acting upon appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
REAL PROPERTY TAXATION
1.
Section 198- Fundamental Principles
The appraisal, assessment, levy and collection of real property tax shall be guided by
the following fundamental principles:
a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual
use;
c. Real property shall be assessed on the basis of a uniform classification within each
local government unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let
to any private person; (No Let Principle)
e. The appraisal and assessment of real property shall be equitable.
2. When is machinery considered a real property subject to real property tax?
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Section 199- Definition of Terms.

o. Machinery embraces machines, equipment, and mechanical contrivances,
instruments, appliances or apparatus which may or may not be attached
permanently or temporarily, to the real property. It includes the physical facilities for
production, the installations and appurtenant service facilities, those which are
mobile, self-powered or self-propelled, and those not permanently attached to the
real property which are actually, directly, and exclusively used to meet the needs of
the particular industry, business or activity and which by their very nature and
purpose are designed for, or necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes.
**NOTE: It is considered as real property even if it is temporarily or permanently
attached to the land. The determinative test is that it must meet the immediate
needs of the business. As long as it is installed to meet the needs of the business,
that will qualify as real property and therefore subject to real property tax.
3.
Section 234- Exemptions from Real Property Tax
The following are exempted from payment of the real property tax:
a. Real property owned by the Republic of the Philippines or any of its political
subdivision except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person;
b. Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes.
c. All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
d. All real property owned by duly registered cooperatives as provided for under
RA No. 6983; and
e. Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property
tax previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
4.
What is that 60% Special Levy by the Local Government?
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Section 240- Special Levy by Local Government Units

A province, city or municipality may impose a special levy on the lands
comprised within its territorial jurisdiction specially benefited by public works
projects or improvements funded by the local government concerned: Provided,
however, That the special levy shall not exceed sixty percent (60%) of the actual
cost of such projects and improvements, including the costs of acquiring land and
such other real property in connection therewith: Provided, further, That the special
levy shall not apply to lands exempt from basic real property tax and the remainder
of the land portions which have been donated to the local government unit
concerned for the construction of such projects or improvements.
Section 241- Ordinance Imposing a Special Levy
A tax ordinance imposing a special levy shall:
Describe with reasonable accuracy the nature, extent, and location of the
public works projects or improvements to be undertaken
which
State the estimated cost thereof

Specify the metes and bounds by monuments and lines, and
The number of annual installments for the payment of the special levy
in no case shall be lass than five (5) nor more than ten (10) years.
The sanggunian concerned shall not be obliged, in the apportionment and computation of
the special levy, to establish a uniform percentage of all lands subject to the payment of
the tax for the entire district, but it may fix different rates for different parts or sections
thereof, depending on whether such land is more or less benefitted by the proposed work.
TARIFF AND CUSTOMS
1.
Tariff and custom laws include:

a) Provisions of the Tariff and Customs Code of the Philippines (TCCP or PD No.
1464, as amended) and regulations issued pursuant thereto; and
b) Other laws and regulations subject to the enforcement by the Bureau of
Customs or otherwise within its jurisdiction. (Sec. 3514, TCCP)
2.
Tariff
Means taxes. It may also refer to a list of articles liable to duties. (Bouvier)
A list or schedule of articles on which a duty is imposed upon the

importation into the country, with the rates at which they are severally taxed.
And, derivatively, the system of imposing duties or taxes on the importation of
foreign merchandise (Black)
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A table or catalogue in alphabetical order containing the names of the
merchandise with the duties to be paid (Matic, Taxation in the Philippines, Vol. I.
pp. 388 399)
3. Custom duties
Taxes on the importation or exportation of commodities.
These are duties which are charged upon commodities on their being
imported into or exported out of a country (1 Cooley 73).
The name given to taxes on the importation and exportation of commodities;

the tariff or tax assessed upon merchandise imported from, or exported to, a
foreign country. (Nestle Phils. v. Court of Appeals, G.R. No. 134114, July 6,
2001)
4. Jurisdiction of Collector of Customs

a) Over Imported Articles (CAHA) (Sec. 1206, TCCP)
Cause all articles for importation to be entered in the customhouse;
Cause all such articles to be appraised and classified;
Assess and collect the duties, taxes and other charges thereon; and
Hold possession of all imported articles until the duties, taxes and other
charges are paid thereon.
b) Over Prohibited Importations to exercise jurisdiction with respect thereto as will

prevent importation or otherwise secure compliance with all legal requirements
**Note: The exclusive jurisdiction of the Collector of Customs cannot be interfered
with by regular courts even upon the allegation of ownership (Commissioner of
Customs vs. CA, G.R. No. 111202-05 January 31, 2006)
Special Surveillance for Protection of Customs Revenue and Prevention of Smuggling
In order to prevent smuggling and to secure the collection of the legal duties, taxes
and other charges, the customs service shall exercise surveillance over the coast,
beginning when a vessel or aircraft enters Philippine territory and concluding when
the article imported therein has been legally passed through the customhouse. (Sec.
2202, TCCP)
5. Territorial Jurisdiction
The Bureau of Customs shall have the right of supervision and police authority over:
a)
All seas within the jurisdiction of the Philippines
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Customs Zone 12 nautical miles of territorial sea from the baseline;

Exclusive economic zone 200 nautical miles from the baseline;
b)
All coasts, ports, airports, harbors, bays, rivers and inland waters whether
navigable or not from the sea. (par. 1 Sec. 603, TCCP)
6. Ecozone
A place specifically designated for the location of certain industries or

business that enjoys tax exemption privilege. It is also known as a SPECIAL
ECONOMIC ZONE.
An ecozone while geographically within the Philippines is deemed a separate

customs territory and is regarded in law as foreign soil.
Sales by suppliers from outside the borders of the ecozone are deemed exports
and are treated as export sales.
Conversely, if the sales are made to persons or entities outside the ecozone
but within the Philippines, such sales are considered as importations by the
buyers and subject to import duties.
7. Doctrine of Hot Pursuit
(Sec. 603, TCCP) Customs officials are given the power to continue the seizure of a
vessel or imported articles, when there is violation of the Philippine tariff and customs
laws, even beyond the jurisdictional limits.
a) When a vessel becomes subject to seizure by reason of an act done in
Philippine waters in violation of tariff and custom laws, a pursuit of such vessel
which began within the jurisdictional waters may continue beyond the maritime
zone and the vessel may be seized on high seas;
b) Imported articles which may be the subject of seizure for violation of tariff and
custom laws may be pursued in their transportation in the Philippines by land,
water or air and such jurisdiction extend over them at any place therein as may
be necessary for the due enforcement of the law.
8. Property Seized from Dwelling Place by Virtue of a Judicial Warrant is in
Custodia Legis
Case law has it that the court which issued the search warrant acquires
jurisdiction over items seized under the said warrant (Tenorio v. CA, GR
110604, October 10, 2003)
Only the court that issued the warrant may order the release or disposition
thereof. The jurisdiction, custody and control of the court over the items seized
cannot be interfered with even by the Bureau of Customs via warrant of seizure
and detention issued by the Collector of Customs.
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The Collector of Customs has exclusive original jurisdiction over seizure and
detention proceedings and that the regular courts cannot interfere with nor
deprive him of such jurisdiction. However, the exclusive original jurisdiction of the
Collector on the said goods pertains only to the goods seized pursuant to the
authority under the TCCP .
Even if the Customs Seizure is illegal, exclusive jurisdiction (to the exclusion of
regular courts) still belongs to the Bureau of Customs. (Jao et al. v. Court of
Appeals, G.R. No. 104604 October 6, 1995)
9. Implications on the Doctrine of Concurrent Jurisdiction
a) The authority first taking cognizance of the case excludes all others.
b) The RTC and BOC do not have concurrent jurisdiction over seizure and forfeiture
proceedings. BOC has primary jurisdiction.
However, the principle of exclusion apply:
In criminal cases, the jurisdiction is with the courts. BOC excluded.
Forfeiture is with BOC
10.Doctrine of Primary Jurisdiction in Seizure and Forfeiture
Where there is competence or jurisdiction vested upon administrative body to act upon
a matter, no resort to courts may be made before such administrative body shall
have acted upon the matter.
Judicial process is suspended pending referral of such issues to an administrative body.
The question of seizure and forfeiture is for the Collector of Customs to determine in the
first instance and then the Commissioner of Customs. This is a field where the
doctrine of primary jurisdiction controls. Thereafter appeal may be taken to CT A. The
RTC is denied of competence to act on the matter.
The Collector of Customs when sitting in forfeiture proceedings, constitute a tribunal

upon which the law confers jurisdiction to hear and determine all questions touching
forfeiture and further disposition of the subject matter.
REPUBLIC vs. CFI MANILA, L-43747, SEPTEMBER 2, 1992
The Bureau of Customs acquires exclusive jurisdiction over imported goods,
for the purposes of enforcement of the custom laws, from the moment the goods are
actually in the possession or control, even if no warrant of seizure or detention had
previously been issued by the Collector of Customs in connection with seizure and
forfeiture proceedings.
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SBMA vs. MERLINO RODRIGUEZ AND WIRA INTERNATIONAL TRADING CORP., G.R. NO.
160270, APRIL 23, 2010
The Collector of Customs sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions touching on the seizure and
forfeiture of dutiable goods. Regional trial courts are devoid of any competence to
pass upon the validity or regularity of seizure and forfeiture proceedings conducted
by the BOC and to enjoin or otherwise interfere with these proceedings. Regional trial
courts are precluded from assuming cognizance over such matters even through
petitions for certiorari, prohibition or mandamus.
11.Reasons for Exclusive Jurisdiction upon the Collector of Customs
a. No unnecessary hindrance on the governments drive to prevent smuggling and

other frauds upon the Customs;
b. Render effective and efficient the collection of import and export duties due the
State;
c. Doctrine of Primary Jurisdiction; and
d. Specific mandate of Section 602 (g) of the TCCP shall exercise exclusive original
jurisdiction over seizure and forfeiture cases under the tariff and custom laws.
12. Special Duties imposed under the Tariff and Customs Code:
(a) Dumping Duty - This is a duty levied on imported goods where it appears
that a specific kind or class of foreign article is being imported into or sold or is likely
to be sold in the Philippines at a price less than its fair value;
(b) Countervailing Duty - This is a duty equal to the ascertained or estimated
amount of the subsidy or bounty or subvention granted by the foreign country on the
production, manufacture, or exportation into the Philippines of any article likely to
injure an industry in the Philippines or retard or considerable retard the establishment
of such industry;
(c) Marking Duty - This is a duty on an ad valorem basis imposed for
improperly marked articles. The law requires that foreign importations must be
marked in any official language of the Philippines the name of the country of origin of
the article;
(d) Discriminatory or Retaliatory Duty - This is a duty imposed on imported
goods whenever it is found as a fact that the country of origin discriminates against
the commerce of the Philippines in such a manner as to place the commerce of the
Philippines at a disadvantage compared with the commerce of any foreign country.
13.Absolutely prohibited Articles (WINGS - Tapsi) (Sec. 101, TCCP)
a.
Weapons of war
Exception: when authorized by law

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b.
Insidious or seditious written or printed articles in any form; Obscene
or immoral or insidious articles;
c.Narcotics and prohibited drugs;
d.
Gambling devices;
e.
Those prohibited by special laws
14.Exempt Articles (ASAP - Tapsi)

a.
Animals, plans, dor experimentations
b.
Sample articles
c.Articles for repairs/reconditions

d.
Personal and household effects
15. Returning residents for purposes of conditionally free importation of

personal and household effects:
a) Nationals (Filipino);
b) who have stayed in the foreign country;
c) for a period of at least six (6) months.
Conditions (NNN -tapsi)
Not in commercial quantity
Not exceeding 60days from his arrival to the Philippines, the articles must arrive here
The amount must not be more than 100,000 pesos. it is settled that he is entitles to
50% reduction of custom duties. this extends also to overseas contract workers.
Berthing Fees: (please refer to TAPSI page 63)

Remedies: (UST IS NUMBER ONE -please refer to tapsi page 65)
16.Nature of Forfeiture Proceedings

It is administrative and civil in nature and is directed against the thing itself. These
are actions in rem. The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the Tariff and Customs
Code.
**NOTE: Since it is not criminal in nature, proof beyond reasonable doubt is NOT required
in order to justify the forfeiture of the goods
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COMMISSIONER OF CUSTOMS vs. MANILA STAR FERRY, INC., G.R. NOS. 31776-78
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. The 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.
17.When Forfeiture can be Effected
a) Forfeiture shall be effected only when and while the article is in the custody or
within the jurisdiction of the customs authority;
b) In the hands or subject to the control of importer, exporter, original owner,
consignee, agent or other person effecting the importation, entry or exportation; and
c) In the hands or subject to the control of some person who shall receive, conceal,
buy, sell or transport or aid in such acts, with knowledge.
18. Acquittal in Criminal Charge not res judicata in Seizure or Forfeiture
Proceedings
Criminal proceedings are actions in personam while seizure or forfeiture
proceedings are actions in rem.
Customs compromise does not extinguish criminal liability (People

Desiderio, G.R. No. L-20805, November 29, 1965).
v.
**NOTE: At any time prior to the sale, the delinquent importer may settle his
obligations with the Bureau of Customs, in which case the aforesaid articles may be
delivered upon payment of the corresponding duties and taxes and compliance with
all other legal requirements (Sec. 1508, TCCP)
19. Requirements for Customs Forfeiture
The 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.
That such declaration, affidavit, invoice, letter or paper is false. (Farolan, Jr. v.
CTA, G.R. No. 42204, January 21, 1993)
An intention on the part of the importer/exporter to evade the payment of the

duties due.
18.Forfeiture of Common Carriers

Generally, common carriers are not subject to forfeiture. If the owner has knowledge
of its use in smuggling and was a consenting party, it may be forfeited.
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**NOTE: A common carrier is converted into a private carrier in cases of demise

charter, at least in so far as the particular voyage covering the charter party is
concerned. (Planters Products, Inc. v. CA, G.R. No. 101503, September 15, 1993)
19.Prima Facie Presumption of Knowledge by the Owner of the Common
Carrier
1. If the conveyance was used for smuggling at least twice before;

2. If the owner is not in the business for which the conveyance is generally used; and
3. If the owner is financially not in a position to own such conveyance.
20. Goods in Customs Custody Beyond Reach of Attachment
Goods in the customs custody pending payment of customs duties are

beyond the reach of attachment. As long as the importation has not been terminated,
the imported goods remain under the jurisdiction of the Bureau of Customs (Viduya v.
Berdiago, G.R. No. L-29218, October 29, 1976).
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VALUE ADDED TAX (VAT)

1.) Section 105: "in the course of trade or business"

2.) VAT as indirect tax

3.) Exception to the requirements "in the course of trade or business"

4.) Section 106 (B)- Transactions deemed as sale

a. Transfer, use or consumption not in the course of business of goods or properties

Shareholders or investors share in the profits of VAT registered person

Creditors in payment of debt or obligation

Change of ownership of business. There is change in the ownership

Dissolution of partnership and creation of new partnership which takes

5.) Zero-Rated Sale of Goods

irrespective of any shipping arrangement

paid for in acceptable foreign currency or its equivalent in goods or

for delivery to a non-resident local export oriented enterprise

used in the manufacturing, processing, packing, repacking in the

paid for in acceptable foreign currency or its equivalent in goods or

c) Sale of raw materials or packaging materials to export oriented enterprise whose

6.) Tax Base of the 12% in case of importation of goods.

Is showing or exhibition of motion pictures or films a sale of service? NO.

Is there a lease of films? YES.

Historically, the activity of showing motion pictures, films or movies by

Only lessors or distributors of cinematographic films are included in the coverage of

Diaz vs CIR 654 SCRA 96

Lessors of property, whether personal or real;

Warehousing service operators;

Lessors or distributors of cinematographic films;

Proprietors, operators or keepers of hotels, motels, resthouses, pension

Lending investors (for use of money);

Transportation contractors on their transport of goods or cargoes, including

Common carriers by air and sea relative to their transport of passengers,

9.) Zero Rated Transaction as distinguished from Exempt Transaction

10) Section 112 (C) in relation to (A)

11.) Section 115

Failure to issue receipts or invoices;

Failure to file a value-added tax return as required under Section 114; or

Understatement of taxable sales or receipts by thirty percent (30%) or more of

(b) Failure of any Person to Register as Required under Section 236.

Residents and citizens all properties, real or personal, tangible or intangible,

The possession or enjoyment of; or

the transfer is a bonafide sale

b) For judicial expenses of the testamentary or intestate proceedings;

(i) Brokerage fees for selling property of the estate.

Within 1 year 100%

More than 1 year but not more than 2 years 80 %

More than 2 years but not more than 3 years- 60 %

More than 3 years but not more than 4 years- 40 %

More than 5 years but not more than 5 years- 20 %

correct his accounting records to reflect the actual deductions mad

reduce his gross income

reduce his output value-added tax liability

reduce his gross estate

Allowable deduction must be in an amount equivalent to the current fair

k) Amount received by heirs under republic act no. 4917

Expenses, Losses, Indebtedness and Taxes

Transfers for Public Use.

Share in the Conjugal Property

1. What is meant by stranger?

local water districts

LGC took effect on January 1, 1992.

REAL PROPERTY TAXATION

Section 198- Fundamental Principles

Section 199- Definition of Terms.

Section 234- Exemptions from Real Property Tax

What is that 60% Special Levy by the Local Government?