TAXATION I

University of San Carlos College of Law

Part I Income Taxation, In General
A.

Definition of Terms
Income in its broad sense, means all wealth which flows into the taxpayer other than as a mere return on
capital.
Capital id s fund or property existing at one point of time (while income denotes a flow of wealth during a
definite period of time). Capital is wealth, Income is the service of wealth.
Gross Income all income derived from whatever source, including but not limited to the items enumerated
in Section 32A.
Gross Income Taxation is a system of taxation where the income is taxed at gross. The taxpayers under
this system are not entitled to any deductions.
Net Income Taxation is a system of taxation where the income is taxed at net. The taxpayer may claim
allowable deductions.
Taxable Income (the old term: Net Income) means all pertinent items of gross income specified in the Tax
Code less the deductions and/or personal and additional exemptions, if any, authorized for such types of
income by this Code or special laws.
Shorter version: All pertinent items of gross income less allowable deductions.
Income Tax a tax on all yearly profits arising from property, profession, trade or business, or as a tax on a
persons income, emoluments, profits and the like. It is generally regarded as an excise tax. It is not levied
upon persons, property, funds or profits but upon the right of a person to receive income or profits.

B.

Purposes of Income Taxation

C.

Systems of Income Taxation

Philippine Tax laws employ partly scheduler and partly global system of income taxation
a) Schedular Income Tax System
b) Global Income Tax System

D. Kinds of Income Tax Methods

1.
2.

E.

Gross Income Taxation

Advantages
Disadvantages
Net Income Taxation
Advantages
Disadvantages

Features of Our Present Income Taxation (RA No. 8424, RA No. 9337, RA No. 9504) Comprehensive Tax
Situs
1.

Basic Features of Individual Taxation

a) Schedular System of Taxation
b) Tax rates are progressive in character.
c) Modified gross income taxation as regards pure compensation earner.
d) Net income taxation as regards those individual taxpayers that derive business, trade or professional
income. Allowable deductions under Section 34 may be claimed by individual taxpayers who derive
business trade and professional income.
e) Pay as you File system.
f) Under certain cases, pay as you earn system, as applicable to income subject to withholding tax.

2.

Basic Features of Corporate Income Taxation

a)
b)
c)

3.

F.

Global Concept of Taxation

Corporate taxpayers, except non-resident foreign corporations, are entitled to deductions.
Net income taxation is applicable to domestic corporations and resident foreign corporations.
Pay as you File system (except insofar as the electronic filing system is applied)

Criteria Used
a) Residency
b) Nationality or Citizenship
c) Place/Source of Income

Sources of Income
1.
2.
3.
4.

Capital
Labor
Both labor and capital
Sale of property

G. Criteria to Determine if Income is Taxable

1.
2.
3.

There is gain or profit

In determining the profit from the sale of property, the formula is:
Amount Received/ Realized LESS Cost of Property = PROFIT
The gain or profit is realized or received (either actually or constructively received)
Such gain or profit is not exempt under any law or treaty

H. Kinds of Taxable Income or Gain

1.

2.

I.

Gross Income
1.

2.
J.

Capital Gains
Gains r income from the sale or exchange of capital assets, including:
a. Income from dealings in shares of stock of domestic corporation whether or not through the stock
exchange
b. Income from dealings in real property located in the Philippines; and
c. Income from dealings in other capital assets other than (a) and (b).
Ordinary Gains
Gains or income from the sale or exchange of property which are not capital assets
a. Business income
b. Compensation income
c. Passive income
d. Other income from whatever source derived

Inclusions Sections 32A

The enumeration is not exclusive
Treatment of some special items:
a) Forgiveness of indebtedness
b) Recovery of amounts previously written off
Exclusions Section 32B

Situs of Income (Section 42)

1.
2.

Compensation Income
Tax Situs: place where the services are rendered.
Business Income
Tax Situs: place where the business (merchandising, farming, mining) is undertaken.
For Manufacturing Business
Tax Situs:

(1) Goods are manufactured in the Philippines and sold within the Philippines income derived purely
within.
(2) Goods manufactured outside the Philippines and sold outside income derived purely without.
(3) Goods manufactured within the Philippines and sold outside the Philippines income partly within &
partly without.
(4) Goods manufactured outside the Philippines and sold within the Philippines income partly within &
partly without.
3. Income From Sale or Exchange Of Property
(1) If it involves personal property the place of sale.
(2) In the case of sale of transport documents the place where the transport document is sold.
(3) If it involves real property the place or location of the real property.
4. Interest Income
Tax Situs: residence of the debtor.
5. Rent Income
Tax Situs: place where the property subject of the contract of lease is located.
6. Royalties
Tax Situs: place where the intangible property is used.
7. Dividend
a. Received from domestic corporation income purely within.
b. Received from foreign corporation consider the income of the foreign corporation in the Philippines
during the last preceding 3 taxable years:
(1) The income is purely within if the income derived from the Philippine sources is more than 85%
(2) It is purely without if the proportion of its Philippine income to the total income is less than 50%
(3) There should be an allocation if it is more than 50% but not exceeding 85%
8. Annuities
Tax Situs: place where the contract was made.
9. Prizes and Winnings
Given on account of services rendered place where the services were rendered.
Not given on account of services place where the same was given.
10. Pension
Tax Situs: place where this may be given on account of services rendered.
11. Professional Income of Professional Partners
Tax Situs: place where the exercise of profession is undertaken.
K. Exclusions from Gross Income
1.

2.
3.
4.

5.
6.

Proceeds of Life Insurance Policy

Subject to tax if:
a.) Insurer & insured agreed that the amount of the proceeds shall be withheld by the insurer with the
obligation to pay interest in the same, the interest is the one subject to tax;
b.) There is transfer of the insurance policy.
Amount Received by the as Return of Premium
Reason for Exclusion: It represents a mere return of capital.
Gifts, Besquests, Devises or Descent
Exceptions to the rule: the income or fruit of such money given by donation, bequests or devise
Compensation for Injuries or Sickness
Reason for Exclusion: This is just an indemnification for the injuries or damages suffered (compensatory in
nature).
The sources are:
a) The compensation may be paid by virtue of a suit; or
b) It may be paid by virtue of health insurance, accident insurance or Workmens Compensation Act
Income Exempt Under Treaty
Reason for Exclusion: Treaty has the obligatory force of a contract.
Exception: As may be provided for in the treaty.
Retirement Benefits, Pensions, Gratuities
a) Retirement benefits under RA No. 7641 or a reasonable private benefit plan
b) Separation pay amount received by an official or employee by his heirs from the employer due to
separation from the service because of death, sickness or other physical disability or for any cause
beyond the control of the official or employee.

c)

7.

L.

Social security benefits, retirement gratuities, pensions and other similar benefits received by resident
or non-resident citizens or resident aliens from foreign institutions, whether public or private
d) US veterans benefits
e) SSS
f) GSIS
Recipient: Private employees or official of such private firm.
Requisites:
1. The private employee or official must be at least 50 years of age at the time of his retirement;
2. He must have rendered at least 10 years of service to the employer at the time of his retirement;
3. There must be reasonable private benefit plan established by the employer;
4. Reasonable private benefit plan may be in the nature of pension plan, profit sharing plan, stock
bonus plan, or gratuity;
5. The reasonable private benefit plan must be approved by the BIR;
6. The employer must give contribution and no amount shall inure to the benefit of a particular
employee or official. This must be established for the common benefit of the employees or
officials;
7. This can be availed of once. The subsequent retirement benefits received from another private
employer is no longer exempt but subject to tax. (If the second employer is a government entity
or institution exempt)
Miscellaneous Items
a) Prizes and awards given in recognition of religious, charitable, scientific, educational, artistic, literary,
or civic achievements
Conditions:
The recipient was selected without any action on his part to enter the contest or proceeding; and
The recipient is not required to render substantial future services as a condition to receiving the
prize or award.
b) Income derived by the Government or its Political Subdivisions from the exercise of any
essential governmental function or from any public utility
c) Income derived from investment in the Philippines by Foreign Government or financing
institutions
Requisites:
1. Recipient must be a:
a. Foreign government;
b. Financing institution owned, financed or controlled by foreign government;
c. Regional financing institution, international financing institution established by foreign
government;
2. It must be an income derived from the investment in the Philippines.
d) Prizes and awards in sports competitions
Requisites:
Competition and tournament must be sanctioned or approved by the National Sports Association;
and
The competition or tournament must also be approved by the Philippine Olympic Committee,
whether local or international; whether held in the Philippines or outside.
e) Gains derived from the redemption of shares of stock issued by the Mutual Fund Company
f) Contributions to GSIS, SSS, Pag-IBIG, And Union Dues
g) Benefits in the form of 13th month pay and other benefits
h) Gains derived from the sale, exchange, retirement of bonds debentures or other certificate
of indebtedness with a maturity of more than five (5) years.

Allowable Deductions
1.
2.
3.

4.

Deduction vs Exemption
Deduction vs Exclusion
Basic principles governing deductions
a. The taxpayer seeking a deduction must point to some specific provisions of the statute authorizing the
deduction; and
b. He must be able to prove that he is entitled to the deduction authorized or allowed.
Kinds of Allowable Deductions
a. Personal and Additional Deductions/Exemptions Section 35
b. Itemized Deductions Section 34A K and 34M

c.

Optional Standard Deduction or forty percent (40%) of the Gross Income

M. Non-Deductible Items, Section 36A and 36B

1.
2.
3.
4.
5.

Personal living or family expenses;

Amount paid for new buildings or permanent improvements, or betterment to increase the value of any
property or estate;
Any amount expended in restoring property or in making food the exhaustion thereof for which an
allowance is or has been made, or
Premiums paid on any life insurance policy covering the life of any officer or employee , or of nay person
financially interested in any trade or business carried on by the taxpayer, individual, or corporate, when
the taxpayer is directly or indirectly a beneficiary under such policy;
Losses from sales or exchanges of property directly or indirectly
a) Between members of a family (brother, sister of half or full blood, spouse, ascendant, lineal
descendants);
b) Except in case of distributions in liquidation, between an individual and a corporation more than 50%
in value of the outstanding capital stock of which is owned directly, by or for such an individual; or
c) Except in case of distributions in liquidation, between two corporations more than 50% in value of
the outstanding capital stock of each of which is owned, directly or indirectly, by or for same individual,
if either one of such corporation is a personal holding company or a foreign personal holding company;
or
d) Between the grantor and a fiduciary of any trust; or
e) Between fiduciary of a trust and the fiduciary of another trust, if the same person is a grantor with
respect to each trust; or
f) Between a fiduciary of a trust and a beneficiary of such trust.

N. General Principles of Income Taxation in the Philippines. Section 23

1.
2.
3.

4.
5.
6.

A resident citizen is taxable on all income derived from sources within and without the Philippines.
A non-resident citizen is taxable only on income derived from sources within the Philippines.
An overseas contract worker is taxable only on income from sources within the Philippines; a seaman
who is a citizen of the Philippines and who receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in the international trade shall be traded as an
overseas contract worker.
An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines.
A domestic corporation is taxable on all income derived from sources within and without the Philippines;
and
A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only
from sources within the Philippines.

TAXATION I
University of San Carlos College of Law
Part II Individual Income Taxation
A.

Taxable Individuals
1.

Resident Citizens (RC), Section 24

General Rule: A resident citizen is subject to the schedular rates of 5% - 32% tax on income derived from
sources within and without the Philippines.

2.

Non-Resident Citizens (NRC), enumerated in Section 22E

General Rule: A non-resident citizen is subject to the schedular rates of 5% - 32% tax on income derived
from sources within the Philippines.

3.

Resident Alien (RA), Section 24

General Rule: A resident alien is subject to the schedular rates of 5% - 32% tax on income derived from
sources within the Philippines.
Section 4 of Revenue Regulations No. 2 (Income Tax Regulations) provides:
An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the
Philippines for purposes of the income tax. Whether he is a transient or not is determined by his intentions
with regard to the length and nature of his stay a mere floating intention indefinite as to time, to return to
another country is not sufficient to constitute him a transient. If he lives int he Philippines and has no
definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose
which in its nature may be promptly accomplished is a transient. But if his purpose is of such a nature that
an extended stay may be necessary for its accomplishment, and to that end the alien makes his home
temporarily in the Philippines, he becomes a resident, though it may be his intention at all times to return
to this domicile abroad when the purpose for which he came has been consummated or abandoned.

B.

4.

Non-Resident Alien Engaged in Trade or Business (NRA-ETB), Section 25A

A non-resident alien is considered as engaged in trade or business if his aggregate stay in the Philippines is
more than 180 days.
General Rule: Subject to the same income tax rates as a citizen and a resident alien.
Exception: Cash and/or property dividends received by a NRA individual shall be subject to a final tax of
20%.

5.

Non-Resident Alien NOT Engaged in Trade or Business (NRA-NETB), Section 25B

A non-resident alien is considered not engaged in trade or business if his aggregate stay in the Philippines
is not more than 180 days.
General Rule: Subject to a 25% final tax on all items of income.
Exceptions:
Gain on sale of shared of stock in any domestic corporation
Gain on sale of real property located in the Philippines

6.

Special Employees, Section 25C, 25D and 25E

Those employed by:
a) Regional Area Headquarters of Multinational corporations, defined in Section 22
b) Regional Operation Headquarters of Multinational corporations, defined in Section 22
c) Offshore Banking Units;
d) Petroleum Service Contractors
General Rule: Subject to the 15% preferential tax on their salaries, honorarium, wages, emoluments,
remunerations and other similar income.

7.

Estates and Trusts

The income tax imposed upon individuals shall also apply to the income of estates or of any kind of
property held in trust. The tax shall be computed upon taxable income of the estate or tryst and shall be
paid by the fiduciary.

Types/Classification of Income

Gross Income, Inclusions

1.

2.

Compensation Income
General Rule: A resident citizen is subject to the 5% - 32% tax on income derived from sources within and
without the Philippines.
a.

Requisites for taxability:

i. There must be services, rendered under an employer-employee relationship.
ii. Payment must be for that services rendered.
iii. The compensation for services rendered must be reasonable.

b.

Different forms of Compensation Income

Doctrine of Cash Equivalent
i. Property/Kind Fair Market Value (FMV) of the property
If there is a price stipulated, it is the price stipulated that will be followed in the absence of
contrary evidence.
ii. Promissory Note or other evidence of Indebtedness
- If it is not discounted, it is the face value of the promissory note.
- If it is discounted, it is the fair discounted value of the promissory note.
iii. Stock FMV of that shares of stock
iv. Cancellation of Indebtedness in favor of services rendered
v. Tax liability of the Employee paid by the employer in consideration of services rendered amount
of tax liability
vi. Premiums paid by the employer on the life insurance policy of the employee
- It is a taxable compensation income if the beneficiaries designated are the heirs of the employee.
- It is not a taxable compensation income if the beneficiary designated is the employer.

c.

Fringe benefit any good, service, or other benefit furnished or granted in cash or in kind by an
employer to an individual employee (except rank and file employee).
i. Taxable Fringe Benefits
General Rule: Subject to 32% final tax on the grossed-up monetary value of the following taxable
fringe benefits, but not limited to the following:
- Housing;
- Expense account;
- Vehicle of any kind;
- Household personnel;
- Interest on load at less than market rate ((extent of the difference between market rate and
actual rate);
- Membership fees, dues and other expenses borne by the employer in social and athletic clubs or
other similar organizations;
- Expenses for foreign travel;
- Holiday and vacation expenses;
- Educational assistance to the employee or his dependents; and
- Life or health insurance and other non-life insurance premiums or similar amounts in excess of
the law allows.
ii. Exempt Fringe Benefits:
- Benefits given to rank & file employees, whether or not granted under a Collective Bargaining
Agreement.
- De minimis benefits benefits relatively of small amount, limited to facilities or privileges
furnished or offered by employer to his employees merely as a means of promoting health,
goodwill, contentment, or efficiency of employees, such as: see RR Nos. 8-00, 10-00 and 5-08.
- Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefits plans.
- Fringe benefits which are authorized or exempted from tax under special laws.
- Employers Convenience Rule those which are required by the nature of the trade, business or
profession of the employer.

Gross Income from Business, Trade and Profession

General Rule: A resident citizen is subject to the schedular rates of 5% - 32% tax on income derived from
sources within and without the Philippines.

3.

Passive Income
Passive income, being subjected to final tax, no longer forms part of the income of ones business or
profession, or in ones compensation income.
Income
i.
ii.
iii.
iv.
v.

subject to final tax are the following:

Royalties
Prizes
Winnings
Interests on bank deposit, deposit substitutes, trust funds and other similar arrangements.
Dividends received from domestic corporation, mutual fund insurance company, regional
headquarters of multi-national corporation and other corporation.
vi. Share of a partner in the net income after tax of a taxable partnership, joint account, joint venture
or concessions.

Royalties

Prizes exceeding Php10,000

If it is Php10,000 or less, it is
subject to final tax but the same
must be included in other income
(e.g. compensation, business,
professional)
Winnings derived from
sources within
Except PCSO & Lotto
Interests on Bank Deposits,
etc.
Dividends Received from
domestic corp., etc. (excluding
Liquidating Dividends)
Share of a Partner in the net
income after a tax of a taxable
partnership, etc.

RC, NRC, RA
20%, except in the
case of literary
works, books &
musical
compositions which
are subject to 10%
final tax

NRA-ETB

NRA-NETB

Same as RC,
NRC, RA

25%

20%

20%

25%

20%

20%

25%

20%

20%

25%

10%

20%

25%

10%

20%

25%

4.

Capital Gains derived from Sale of Shares of Stock

a. Listed and traded through local stock exchange Stock Transaction tax of of 1% of the gross
selling price.
b. Not listed and traded through local stock exchange this is the one subject to income tax (capital
gains tax), as follows:
Not over P100,000.00
5% of the capital gains
Amount Over P100,000.00
10%% of the capital gains

5.

Capital Gains derived from the Sale Of Real Property

Capital Asset, Section 39 property held by the taxpayer whether or not connected in his trade or
business except:
a. Stock in trade or other property of any kind which would be included in the inventory of the taxpayer
of on hand at the end of the taxable year.
b. Property primarily held for sale to customers in the Ordinary course or trade or business.
c. Property used in trade or business subject to depreciation.
d. Real property used in trade or business.
General Rule: Final tax on capital tax on capital gain derived from the sale of real property is 6% of the
gross selling price or zonal value whichever is higher.

Optional: if the option to choose from the final tax of 6% of gross selling price or fair market value
whichever is higher, or the schedular tax rate of 5% - 32% under Section 24A, wherein the basis under
said section is taxable income so deductions may be allowed. The cost of the property may be deducted.
Exception: Sale or disposition of the principal residence of natural persons is exempt from capital gains tax
if certain conditions are met, as follows:
a. Proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from
the date of sale or disposition;
b. Historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new
principal residence built or acquired;
c. Notice to the Commissioner of Internal Revenue shall be given within 30 days from the date of sale or
disposition;
d. This exemption can only be availed of once every 10 years.
e. If the proceeds of the sale were not fully utilized, the portion of the gain presumed to have been
realized from the sale or disposition shall be subject of capital gains tax.
GSP or FMW, whichever is higher x Unutilized proceeds/GSP = Taxable Portion
6.

C.

Other Income
a. Rent income other than royalties
b. Interest income other than interest income on bank deposit
c. Dividend income
d. Income from Other sources and this may include:
d.1. Bad debts recovered
d.2. Illegal gains derived from gambling
d.3. Tax Refunds
d.4. Compensation for private property expropriated by the government for public use.
d.5. Damages
d.6. Cancellation of indebtedness

Exclusions from Gross Income, refer to Outline II

D. Entitlement to Deductions, in general

1.
2.
3.
4.
5.
6.
E.

Resident Citizen entitled to deductions, tax base is taxable income.

Non Resident Citizen entitled to deductions, tax base is taxable income.
Resident Alien entitled to deductions, tax base is taxable income.
Non Resident Alien-Engaged in Trade or Business entitled to deductions, tax base is taxable income.
Non Resident Alien-Not Engaged in Trade or Business not entitled to deductions, tax base is gross income.
Special Employees subject to 15% tax rate on their income in the form of salaries, honoraria, wages,
emoluments and remuneration and other similar income.

Entitlement to Deductions, according to income earned

1.

For Individuals (Citizens and Resident Aliens) Earning Purely Compensation Income
a.

Personal and Additional Exemptions

Only individual taxpayers, including estates and trusts, are entitled to personal exemptions.
Kinds of Personal Exemption:
i. Basic personal exemption Php50,000.00
ii. Additional exemption Php25,000.00 for every qualified dependent, but not to exceed four (4).
Qualified Dependent refers only to the legitimate, illegitimate or legally adopted children of the
taxpayer.
The child is:
a. Living with the taxpayer;
b. Chiefly dependent upon the taxpayer for support
c. Not more than 21 years of age;
d. Not married;
e. Not gainfully employed or, even though over 21 years old, incapable of self support because
of mental or physical defect.

Note: If the taxpayer has no compensation income, this can be claimed as deduction from gross income
from business, trade or profession.
Change of Status: (general rule: interpret in favor of the taxpayer)
1. Death of spouse during the taxable year;
2. Death of dependent during the taxable year;
3. Death of the taxpayer during the taxable year; estate may claim the basic personal exemption;
4. Additional dependent during the taxable year;
5. Taxpayer got married during the taxable year;
6. Gainful employment of the dependent during the taxable year
7. Dependent became more than 21 years old during the taxable year.

b.

2.

RC

NRC

RA

Personal
Exemption

/
Within

/
Within

Additional
Exemption

/
Within

/
Within

NRA-NTB
/
Subject to rule on
reciprocity must not
exceed the maximum
allowable personal
exemption
X
Reciprocity does not
apply

NRA-NETB

Premiums on Health and Hospital Insurance

Limitations:
i. It must not be more than Php2,400.00 a year (i.e., Php200.00 a month).
ii. The family must have an income of not more than Php250,000.00 a year.
iii. The claimant must be the spouse claiming the additional exemption.

For Individuals Earning Compensation and/or Business and/or Professional Income (except NRANETB)
a.

Personal and Additional Exemptions, as discussed above

b.

Premiums on Health and Hospital Insurance, as discussed above

c.

Itemized or Optional Standard Deductions

i.

Itemized Deductions those expenses incurred in relation to trade, business or profession, as

enumerated in Section 34 (to be discussed lengthily in Corporate Income Taxation). The following may
claim allowable itemized deductions:
1. Resident Citizens
2. Non Resident Citizens, only those expenses incurred in the Philippines
3. Resident Aliens, only those expenses incurred in the Philippines
4. Non Resident Alien, Engaged in Trade or Business, but only those expenses incurred in the
Philippines
5. Professional Partners, Section 26
Exceptions:
1. Individual taxpayers earning purely compensation income
2. Non Resident Alien, Not Engaged in Trade or Business
3. Aliens Employed by Regional Area HQs, Regional Operating HQs, Offshore Banking Units,
Petroleum Service Contractors & Subcontractors

ii.

Optional Standard Deduction a standard deduction available to individuals except nonresident aliens, in an amount not exceeding forty percent (40%) of the gross income, in lieu of
itemized deductions. Unless the taxpayer signifies in his return his intention to elect the optional
standard deduction, he shall be considered as having availed himself of the itemized deductions.
Such election when made in the return shall be irrevocable for the taxable year in which the
return is made. A taxpayer whop is entitled to and claimed for the optional standard deduction

shall not be required to submit with his tax return such financial statements otherwise required in
the Tax Code.
F.

Estates and Trusts

1.

Income of estates or trusts included for taxation

a) Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent
interests and income accumulated or held for future distribution under the terms if the will or trust.
b) Income which is to be distributed currently but he fiduciary to the beneficiaries, and income collected by a
guardian or an infant which is to be held or distributed as the court may direct.
c) Income received by estates of deceased persons during the period of administration or settlement of the
estate.
d) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or
accumulated.

2.

Exception from taxation

Employees trust which forms part of a pension, stock, bonus or profit-sharing plan of an employer for the
benefit of some or all of his employees shall be exempt from income tax:
a) If contributions are made to the trust by such employer, or employees or both, for the purpose of
distributing such employees the earning and the principal of the fund accumulated by the trust in
accordance with such plan; and
b) If under the trust instrument, it is impossible, at any time prior to the satisfaction of all liabilities with
respect to employees under the trust, for any part of the corpus or income to be used for or diverted to
purposes other than for the exclusive benefit of the employees.
However, any amount actually distributed to any employee or distribute shall be taxable to him in the year in
which so distributed to the extent that it exceed the amount contributed by such employee or distribute.

3.

Exemption allowed to estates and trusts Php50,000 personal exemption

4.

Deductions allowed to estates and trusts

a)

The amount of the income of the estate or trust for the taxable year which is to be distributed currently by
the fiduciary to the beneficiaries
b) The amount of the income collected by a guardian of an infant which is to be held or distributed as the
court may direct
c) The amount of the income of the estate or trust for its taxable year, which is properly paid or credited
during such year to the legatee, heir or beneficiary
Note: the amount so allowed as a deduction shall be included in computing the taxable income of the heirs.
Beneficiaries or legatees whether distributed or not.

Part III Corporate Income Taxation

A.

Introduction and Definition of Terms

Corporation includes partnership no matter how created or organized, join account companies, insurance
companies and other associations, except:
1. General professional partnership;
2. Joint venture for the purpose of undertaking construction projects;
3. Joint consortium for the purpose of engaging in petroleum, geothermal and other energy operations
pursuant to a consortium agreement with the government
4. Sole proprietorship
Partnership an association of two or more persons where they may contribute money, property, or industry to
a common fund with the intention of dividing the profits among themselves. The partners are considered as
stockholders and, therefore, profits distributed to them by the partnership are considered as dividends.

Tests that will determine whether a partnership exists or not:

1.
2.

There must be a contribution to a common fund

There must be an intention to divide the profits among themselves.

For the purposes of taxation, this business partnership is taxable irrespective of whether it is orally

constituted or in writing and whether or not it is registered in the Securities and Exchange Commission.
Insurance Pool or Clearing House
Where an insurance pool or clearing house (composed of non-life insurance corporations) is created,
whose role is limited to the principal function of allocating and distributing the risks arising from the
original insurance among the signatories to the members of the pool on their ability to absorb the risks
ceded as well as the performance of incidental functions and which did not insure/assure any risk in its
own name, a partnership or association is created and subject to tax as a corporation.
Co-ownership as a rule, tax exempt, because co-ownership is not a partnership but one formed and
organized not for profit but for common enjoyment of the property or for the preservation of the property.
Lease of properties under common management
Where there is a series of transactions (i.e., properties leased out to tenants for several years,) whose
purpose is not limited to the conservation of the common fund or even acquired properties, a taxable
partnership is formed. The character of habituality peculiar to business transactions engaged in for the
purposes of gain is present. (Evangelista v. Collector, 102 Phil 140)
General Professional Partnership (GPP) - partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from engaging in any trade or business. Persons engaged
in business as partners in GPP shall be liable for income tax only in their separate and individual capacities. For purposes
of computing the distributive share of the partners, the net income of the partnership shall be computed in the same
manner as a corporation. Each partner shall report as gross income his distributive share, actually or constructively
received, in the net income of the partnership. Income of a GPP is deemed constructively received by the partners.
Joint Venture created when two corporations, while registered and operation separately, are placed under one sole
management which operated the business affairs of said companies as though they constituted a single entity thereby
obtaining substantial economy and profits in the operation.
Joint Account created when two persons form or create a common fund and such persons engages in a business for
profit. This may result in a taxable unregistered association or partnership.
Joint Stock Companies the midway between a corporation and a partnership, a hybrid personality, somewhat a
corporation because this is managed but a Board of Directors and such persons may transfer their share/s without the
consent of others, and somewhat a partnership because it is an association, and persons or members of the same
contribute fund, money to a common fund.
Emergency Operation these may be formed by two corporations with separate personalities. If they form that
emergency operation (it really is a special activity) to engage in a joint venture, corporation 1 may be taxed only from
the income derived from such business. The income derived from such emergency operation should also be included in

that taxable income subject to corporate income tax. In the same way, that corporation 2, has a separate and distinct
personality; it its a part of that emergency operation, the income derived from such special activity should also be
included in the income of that corporation 2, subject to corporate income tax, even if it is not registered with the
Securities and Exchange Commission.
B.

Taxable Corporations
1.

Domestic Corporations (DC), Section 27

A corporation formed or organized under Philippine laws. It is subject to tax on its net taxable income from
sources within and without the Philippines.

2.

Resident Foreign Corporations (RFC), Section 24

A corporation formed, organized, authorized or existing under the laws of any foreign country, and
engaged in trade or business within the Philippines. It is subject to tax on its net taxable income from
sources within the Philippines.
This is no fix criterion as to what constitutes engaged in trade or business. Being engaged in business
implies continuity of commercial transactions or dealings continuity of business or continuity of intention
to conduct continuous business.

3.

Non-Resident Foreign Corporations (NRFC), Section 28B

A corporation formed, organized, authorized or existing under the laws of any foreign country. It is subject
to tax on its gross income from sources within the Philippines.
Such gross income may include interests, dividends, rents, royalties, salaries, premiums (except
reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual
gains, profits and income, and capital gains, EXCEPT, capital gains from the sale of shares of stock not
traded in the stock exchange.

C.

Income Tax Exempt Entities, Section 30

1.
2.
3.
4.

5.
6.

7.
8.

9.

General Professional Partnerships

Special rule in expense deductions
Joint Venture for the purpose of undertaking construction projects
Joint Consortium for the purpose of engaging in petroleum, geothermal and other energy
operation pursuant to a consortium agreement under service contract with the government.
Labor, agricultural or horticultural organization not organized principally for profit.
May derive income from such business as long as it is merely incidental (the organization is still
exempt).
It is important that in the articles of incorporation of this tax-exempt organization, it must be clearly
provided that it is not formed or organized for profit.
Mutual savings bank not having capital stock represented by shares and cooperative bank
without capital stock organized and operated for mutual purposes and without profit.
A beneficiary society, order or association, operating for the exclusive benefits of the
members such as a fraternal organization operation under the lodge system (one which must
operate under a parent and subsidiary associations), or a payment of life, sickness, accident, or
other benefits exclusively to members of such society, order or association, or non-stock
corporation or their dependents.
Cemetery company owned and operated exclusively for the benefit of its members (must be a
non-profit cemetery)
Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans; no
part of its income or asset shall belong to or inure to the benefit of any member, organizer,
officer, or any specific person.
Business league, chamber of commerce, or board of trade, not organized for profit, and not
part of the net income of which inures to the benefit of any private stock holder or individual.
Requisites:
a. This must be established for common business interest
b. No part of the income shall inure to the benefit or a particular individual

10. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare
11. Farmers associations or like associations, organized and operated as a sales agent, for the
purpose of marketing the products of its members, and turning back to them the proceeds of
sales, less the necessary selling expenses on the basis of quantity of produce finished by them
(must be a non-profit association)
12. Farmers cooperative or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, or like organization of a purely local character, the income of which
consists of solely assessments, dues and fees collected from members for the sole purpose of
meeting its expenses.
13. Government educational institution.
14. Non-stock and non-profit educational institution
General Rule: All corporations, agencies or instrumentalities owned and controlled but the government shall
pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged
in a similar business, industry or activity.
15.
16.
17.
18.
19.
20.

Exception:

GSIS (Government Service Insurance System)

SSS (Social Security System)
PHIC (Philippine Health Insurance Corporation)
PCSO (Philippine Charity Sweepstakes Office)
LWD (Local Water Districts) RA 10026
NAPOCOR (special law)

Exception:
1.
2.

Income from the use of properties, real or personal

Income from activities conducted for profit

D. Types/Classification of Income
1.

Gross Income, Inclusions

a) Compensation for services
b) Gross income from trade or business or the exercise of a profession
c)

Gains derived from dealings in property

d) Interests
May or may not be subject to final withholding tax.
Interest on bank deposit substitutes/trust fund and similar arrangement
Interest from lending/interest income from bonds
Interest on foreign bonds/government bonds
Interest on treasury bills
Interest earned from deposits maintained under the FCDU system
Interest income of pawnshop operators
e) Rents

Operating Lease a contract under which the asses is not wholly amortized during the primary period

of the lease, and where the lessor does not rely solely on the rentals during the primary period for his
profits, but looks for the recovery of the balance of his costs and for the rest of his profits from the
sale or the re-lease of the returned assets at the end of the primary lease period.
Financial Lease also called the full payout lease, a contract involving payment over an obligatory
period (also called the primary or basic period) of specified rental amounts for the use of a lessors
property, sufficient in total to amortize the capital outlay of the lessor and to provide for the lessors
borrowing costs and profits. Obligatory period is primary non-cancellable period of the lease which in
no case shall be less than 730 days. Lessee exercises choice over the asset.
f)

Royalties

g) Dividends

Any distribution made by a corporation to its shareholders out of its earnings on profits and payable to
its shareholders, whether in money or in other property.

Requirements for dividend declaration, in general:

1.
2.
3.

Unrestricted retained earnings

Board of Directors declaration
Absence of prohibition in any loan agreement

Kinds of dividend income:

i.

Stock Dividend
General Rule: Stock dividend representing the transfer of surplus to capital account shall not
be subject to tax.

Exception:
a)
b)
ii.

iii.

iv.

Taxable if subsequently cancelled and redeemed by the corporation;

Taxable if it leads to a substantial alteration in the proportion of tax ownership in a
corporation.
Disguised Dividends
These are payments which are equivalent to dividend distribution. In the case of excessive
payments by corporations, if such payments correspond or bear a close relationship to
stockholdings, and are found to be a distribution of earnings or profits, the excessive
payments will be treated as dividends.
Property Dividends
These are dividends paid in securities or other property, in which the earning of a corporation
have been invested are income to the recipients to the amount of the full market value of
such property when receivable by individual stockholders.
Note: A dividend paid in stock of another corporation is not a stock dividend, even though the
stock distributed was acquired through the transfer by the corporation declaring the dividends
of property to the corporation the stock of which is distributed as a dividend.
Liquidating Dividends
Occurs where a corporation distributes all its assets in complete liquidation or dissolution. The
gain realized or loss sustained by the stockholder, whether individual or corporation, is a
taxable income or deductible loss.

h) Annuities
i)

Prizes and winnings

j)

Pensions

k) Partners distributive share from the net income of the general professional partnership
l)
E.

Others

Deductions
1.

Fundamental Principles in Deductions

a) The taxpayer must prove that there is a law authorizing deductions.
b) The taxpayer must prove that he is entitled to deductions.

2.

Entitlement to Deductions
a) Domestic Corporations (includes private educational institutions, non-profit hospital, governmentowned and controlled corporations) entitled to deductions, tax base is taxable income.
b) Resident Foreign Corporations entitled to deductions, tax base is taxable income
c) Non-Resident Foreign Corporations not entitled to deductions, tax base is gross income.

3.

Allowable Deductions]
a) Itemized Deductions
i.
Expenses
ii.
Interests
iii.
Taxes
iv.
Losses
v.
Bad Debts

vi.
Depreciation
vii.
Depletion of oil, gas, wells and mines
viii.
Charitable Contributions
ix.
Research and Development
x.
Contribution to Pension Trust
b) Optional Standard Deduction
A standard deduction available to corporation, except to non-resident, in an amount not exceeding
forty percent (40%) of the gross income, in lieu of itemized deductions. Unless the taxpayer signifies
in its return its intention to elect the optional standard deduction, it shall be considered as having
availed of the itemized deductions. Such election when made in the return shall be irrevocable for the
taxable year in which the return is made. A taxpayer who is entitled to and claimed for the optional
standard deduction shall not be required to submit with its tax return such financial statements
otherwise required in the Tax Code.
See: Rule for general professional partnerships and its partners
4.

F.

Additional Requirement for Deductibility of Certain Payments

Any amount paid or payable which is otherwise deductible from or take into account in computing gross
income or for which depreciation or amortization may be allowed, shall be allowed as a deduction only if it
shown that the tax required to be deducted and withheld therefrom has been paid to the BIR. Section 34K

Itemized Deductions
1.

Expenses

Definition of Terms:

Business Expense v. Capital Expense

Business Expenses refer to all the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on which are directly attributable to the development, management, operation and/or
conduct of the trade, business or the exercise of a profession.
Capital Expenses are expenditures for the extraordinary repairs which are capitalized and subject to
depreciation. These are expenses which tend to increase the value or prolong the life of the taxpayers
property.
Ordinary & Necessary Expenses
Ordinary Expenses refers to the expenses which are normal, usual or common to the business, trade or
profession of the taxpayer. An expense is ordinary when it is commonly incurred in the trade or business of
the taxpayer as distinguished from capital expenditures. The payments, however, need not be normal or
habitual in the sense that the taxpayer will have to make them often. The payment may be unique or nonrecurring to the particular taxpayer affected.
Necessary Expenses one which is useful and appropriate in the conduct of the taxpayers trade or
profession.
Extra-Ordinary Expenses these are amortized or depreciated.
a) Common Requisites for Deductibility of Ordinary and Necessary Expenses
i.
The expenses must be ordinary and necessary;
ii.
It must be paid or incurred during the taxable year;
iii.
It must be paid or incurred in connection with the trade, business or profession
iv.
It must be reasonable in amount;
v.
It must be substantiated by sufficient evidence such as official receipts and other official
records; and
Official receipts
Adequate Records
Amount of Expense being deducted
Date and place where such expense is paid or incurred
Nature of expense direct connection or relation of the expense being deducted to
the development, management, operation, and/or conduct of the trade, business or
profession of the taxpayer.
vi.
It must not be against law, morals, public policy or public order.
b) Kinds of Ordinary & Necessary Expenses
i.
Compensation for services rendered
ii.
Advertising & promotional expenses

iii.
iv.
v.
vi.
vii.
c)

Rent Expenses
Travelling expenses
Entertainment expenses
Repairs & maintenance expenses
Supplies and materials

Compensation for Services Rendered

Special Requisites for deductibility of these Expenses:

i.
ii.

This must be reasonable, meaning, this must not be ostensible; and

These are, in fact, payments for personal services actually rendered.

Special Requisites for Deductibility of Bonuses to Employees:

i.
ii.
iii.

The bonuses are made in good faith

They are given for personal services actually rendered; and
They do not exceed a reasonable compensation for the services rendered, when added to the
stipulated salaries, measured by the amount and quality performed in relation to the
taxpayers business.
Bonuses must be given in good faith and in determining whether bonuses will form part of the
compensation for services rendered, you have to consider the (1) nature of the business, (2) the
financial capacity of the taxpayer and (3) the extent of the services rendered.
d) Advertising and Promotional Expenses
It must be reasonable.
e) Rental Expenses
i.
The rental payment is required as a condition for continued use or possession;
ii.
The purpose is for trade, business or profession;
iii.
The taxpayer must not be the owner of the property or he has no equitable title over the
property. The taxpayer must not be taking title to the property.
iv.
This is subject to withholding tax.
f)

Traveling Expenses

Special Requisites for Deductibility of Traveling Expenses:

i.
ii.

iii.

The expenses must be reasonable and necessary

They must be incurred or paid while away from home, and
Home does not refer to your residence but to the station assignment or post/principal place
of business.
They must be paid or incurred in the conduct of trade or business.

g) Entertainment, Amusement and Recreation Expenses

Special Requisites for Deductibility of EAR Expenses:

i.
ii.
iii.

iv.

v.

Reasonable in amount;
Incurred during the taxable period;
Directly connected to the development, management and operation of the trade, business, or
profession of the taxpayer, or that are directly related to or in furtherance of the conduct of
his or its trade, business or profession;
Not to exceed such ceiling as the Secretary of Finance may, by rules and regulations,
prescribe; and
of 1% of net sales for sellers of goods
1% of net sales for sellers of services
Any expense incurred for entertainment, amusement or recreation which is contrary to law,
morals, public policy, or public order shall in no case be allowed as deduction.

h) Repairs and Maintenance Expenses

Expenses for repairs are deductible if such repairs are incidental or ordinary, that is, made to keep the
property used in the trade or business of the taxpayer in an ordinarily efficient operation condition.
Repairs in the nature of replacement to the extent that they arrest deterioration and prolong the life of
the property are capital expenditures and should be debited against the corresponding allowance of
depreciation.

Note: If the cost of the repair increases the life of an asset for a period of more than one (1) year, that
amount is considered extra-ordinary repair. Otherwise, it is considered ordinary repair.
i)

Supplies and Materials

This must be actually consumed during the taxable year.

j)

Litigation Expenses
Litigation expenses defrayed by a taxpayer to collect apartment rentals and to eject delinquent tenants
are ordinary and necessary expenses in pursuing his business.
However, litigation expenses that are incurred in the defense or protection of title are capital in nature
and not deductible.

k) Option to Private Educational Institution

In addition to the allowable deductions, a private educational institution may, at its option, elect
either:
i.
Deduct expenditures otherwise considered as capital outlays of depreciable assets incurred
during the taxable year for the expansion of school facilities; or
ii.
To deduct allowance for depreciation thereof.
2.

Interests
The amount of interest paid or incurred within a taxable year on indebtedness in connection with the
taxpayers profession, trade or business shall be allowed as deduction from gross income.
a) Arbitrage Rule
The taxpayers allowable deduction for interest expense shall be reduced by an amount equal to 33%
(effective January 1, 2009) of the interest income earned by him which has been subjected to final tax.
b) Requisites for Deductibility
i.
This must be paid or incurred during the taxable year;
ii.
This must be incurred in connection with the trade, business or profession of the taxpayer;
iii.
There must be an obligation which is valid and subsisting;
iv.
There must be an agreement in writing to pay interest;
v.
This must observe the limitation under the arbitrage rule; and
vi.
This must not be between related taxpayers.
c)

Delinquency Interest on Tax Payments

d) Interest Expense which are Non-Deductible

i.
Interest Expense on preferred stock.
As a rule, interest on preferred stock is not deductible because there is no obligation to speak
of. It is in effect an interest on dividend. Reason: the payment is depended upon the profits
of the corporation. It will only be paid if the corporation earns profits. BUT if it is not
dependent upon corporate profits or earnings, it is deductible. If it is payable on a particular
date or maturity without regard to the corporate profits, it is deductible.
ii.
When there is no agreement in writing to pay interest.
iii.
Interest expense on loan entered into between related taxpayers

Related taxpayers:
a.

b.
c.
d.

Members of the same family which includes:

a.1. spouses
a.2. brothers and sisters
a.3. descendants and ascendants
Between 2 corporations owned or controlled by one individual. He must have a
controlling interest over these 2 corporations. OR if one corporation is considered as
personal holding company of another corp.
Between a corporation and an individual; that individual owns or controls more than 50%
of the outstanding capital stock of the such corporation.
Parties to a trust;
d.1. grant or fiduciary
d.2. fiduciary of one trust and fiduciary of another trust but there is only one grantor
d.3. beneficiary and fiduciary

iv.
v.
vi.
vii.
viii.

Interest paid or calculated for cost-keeping purposes.

Interest paid in advance through discount or otherwise by an individual taxpayer reporting
income on the cash basis. Such interest shall be allowed as a deduction in the year the
indebtedness is paid.
Interest on obligation to finance petroleum exploration.
Interest on unclaimed salaries of the employees.
33% interest income subject to final tax.

e) Theoretical Interest
An interest which is computed or calculated, not paid or incurred, for the purposes of determining the
opportunity cost of investing in a business. This does not arise from legally demandable interestbearing obligation. This is not a deductible interest.
f)

3.

Optional Treatment of Interest Expense

At the option of the taxpayer, interest incurred to acquire property used in trade, business or exercise
of a profession may be allowed as a deduction or treated as a capital expenditure.

Taxes

General Rule: All taxes, national or local, paid or incurred within the taxable year in connection with the
taxpayers trade, business or profession are deductible from gross income.

Exception:
i.
ii.
iii.
iv.
v.
vi.

Special Assessment on real properties tax imposed on the improvement of a parcel of land
Income Tax Philippine and Foreign income tax.
Taxes which are not connected with the trade, business or profession of the taxpayer
Transfer Taxes Estate Tax and Donors Tax
Value-Added Tax
Electric Energy Consumption Tax (BP No. 36)

a) Requisites for Deductibility of Taxes

i.
This must be paid or incurred during the taxable year; and
ii.
This must be taxes paid or incurred in connection with the trade, business or profession of
the taxpayer.
b) Tax Deductions v. Tax Credits
Taxes, as deductions, include those taxes which are paid or incurred in connection with the trade,
business or profession of the taxpayer. However, the source of a tax credit is foreign income tax paid,
war profit tax, excess profit tax paid to the foreign country.
Taxes, as deductions, may be claimed as deductions from gross income in computing the net income
WHILE tax credit is a deduction from Philippine income tax.
The foreign income tax paid to the foreign country is not always the amount that may be claimed as
tax credit because under the limitation under the Tax Code, it must not be more that the ration of
foreign income to the total income multiplied by the Philippine income tax.
c)

Who may claim tax credits for taxes of foreign countries?

i.
Citizens
ii.
Domestic corporations
iii.
Members of GPPs
iv.
Beneficiaries of estates and trusts

Limitations on deductions for NRA-ETB and RFC:

In the case of a NRA-ETB in the Philippines and a RFC, deductions for taxes shall be allowed
only if and to the extent that they are connected with income from sources within the
Philippines.
d) Limitations on Credit
The amount of the credit taken shall be subject to each of the following limitations:
i.
Per Country Limitation the amount of the credit in respect to the tax paid or incurred to any
country shall not exceed the same proportion of the tax against which such credit is taken,
which the taxpayers taxable income from sources within such country bears to his entire
taxable income for the same taxable year; and

ii.

Global Limitation the total amount of the credit shall not exceed the same proportion of the
tax against which such credit is taken, which the taxpayers taxable income from sources
without the Philippines taxable under this Title bears to his entire taxable income for the
same taxable year.

e) Proof of Credits (Tax Credits)

The credits shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner the
following:
i.
The total amount of income from sources without the Philippines;
ii.
The amount of income derived from each country, the tax paid or incurred to which is
claimed as a credit; and
iii.
All other information necessary for the verification and computation of such credits.
f)

4.

Tax subsequently Refunded or Credited

Taxes previously 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.

Losses
a) Classification of Losses
i.

Ordinary Losses losses sustained in the course of trade, business or profession of the
taxpayer.
Net Operation Loss the excess of allowable deduction over gross income of the business
in a taxable year.
Net Operation Loss Carry Over (NOLCO) shall be carried over as a deduction from the
gross income for the next 3 consecutive taxable years immediately following the year of loss.
Such loss shall be allowed as a deduction if it had not been previously offset as deduction
from gross income. However, any net loss incurred in a taxable year during which the
taxpayer was exempt from income tax shall not be allowed as a deduction.
NOLCO shall be allowed only if there has been no substantial change in the ownership of the
business or enterprise. There is no substantial change when:
a.
Not less than 75% in nominal value of outstanding issued shares, if the
business is in the name of a corporation, is held by or on behalf of the
same persons; or
b.
Not less than 75% of the paid up capital of the corporation, if the business
is in the name of a corporation, is held by or on behalf of the same persons.

ii.

Capital Losses governed by rules on loss from the sale or exchange of capital assets.
Losses from sales or exchange of capital asses shall be allowed only to the extent of the gains
from such sales or exchanges.
Net Capital Loss the excess of capital loss over capital gains
Net Capital Loss Carry Over (NCLCO) not available to corporate taxpayers.
Capital Losses include the following:
a. Loss arising from failure to exercise privilege to sell or buy property
b. Securities becoming worthless
c. Abandonment losses in the case of natural resources
d. Loss from wash sale or stock securities
Wash Sale occurs where it appears that within a period beginning 30 days
before the date of the sale or disposition of shares of stock or securities and
ending 30 days after such date, the taxpayer has acquired (by purchase or
exchange) or has entered into a contract or option to so acquire, substantially
identical stock or securities. No deduction for loss shall be allowed for wash
sales unless the claim 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.
Wagering or Gambling Losses the amount that is deductible must not exceed the gains
Casualty Losses include losses from fire, storm, shipwreck, other casualty losses, robbery,
embezzlement and theft.

iii.
iv.

v.
vi.

Abandonment Losses - in the even a contract are where petroleum operations are
undertaken is partially or wholly abandoned, all accumulated exploration and development
expenditures pertaining thereto shall be allowed as deduction.
Special Losses
e.g., loss arising from voluntary removal of buildings as an incident to renewal or replacement.

b) Common Requisites for Deductibility of Losses

i.
The loss must be incurred by the taxpayer in the course of his trade, business or profession;
ii.
Losses must be actually sustained and charged off within the taxable year, and not mere
anticipated losses;
iii.
Must be evidenced by a closed and completed transaction;
iv.
Must not be compensated by insurance or other forms of indemnity;
If it is partly compensated, only the amount not compensated by insurance is deductible.
v.
The loss is not claimed as a deduction for estate tax purposes; and
vi.
If it is a casualty loss, the taxpayer has filed a sworn declaration of loss within 45 days after
the date of discovery of the casualty or robber, theft or embezzlement.
5.

Bad Debts
These are debts due to the taxpayer which are usually ascertained to be worthless and charged off within
the taxable year.
a) Requisites for Deductibility of Bad Debts
i.
Must be valid and subsisting indebtedness;
ii.
Must be ascertained to be worthless;
iii.
Must be charged off and uncollectible within the taxable year;
iv.
Must be uncollectable in the near future; and
v.
Must arise from trade, business or profession of the taxpayer.
b) Steps to Prove the Worthlessness
i.
There must be a statement of account sent to the debtor;
ii.
A collection letter;
iii.
If he failed to pay, refer the case to a lawyer;
iv.
If lawyer may send a demand letter to the debtor; and
v.
If the debtor still fails to pay the same, file an action in court for collection.
c)

6.

Bad Debts Charged Off Subsequently Collected

If the recovery of bad debts, resulted in tax benefit to the taxpayer, that is taxable. If it did not result
in any tax benefit to the taxpayer, that is not taxable.

Depreciation
The gradual diminution of the useful value of the property used in trade, business or profession of the
taxpayer, arising from wear and tear or natural obsolescence. The term is also applied to amortization of
the value of intangible assets, the use of which in trade or business is definitely limited in duration.
a) Requisites for Deductibility of Depreciation
i.
The property must be used in trade, business or profession of the taxpayer;
ii.
There must be depreciable properties;
The non-depreciable properties are:
a. Personal property not used in trade, business or profession of the taxpayer;
b. Inventoriable stock and securities
c. Land
d. Mining and other natural resources
iii.
The allowance for depreciation must be reasonable;
iv.
This must be charged off during the taxable year;
v.
A statement on the allowance must be attached to the return; and
vi.
The method in computing the allowance for depreciation must be in accordance with the
method prescribed by the Secretary of Finance upon the recommendation of the BIR
Commissioner.
This prescribed method includes:
a. Declining balance method

b.
c.
d.

Sum of the years digit method

Straight line method
Any other method as may be prescribed by the Secretary of Finance upon the
recommendation of the BIR Commissioner.

b) Agreement as to Useful Life on which Depreciation Rate is based

Where the taxpayer and the CIR have entered into an agreement in writing specifically dealing with
the useful life and rate of depreciation of the property, the rate so agreed upon shall be binding upon
the taxpayer and the National Government in the absence of facts and circumstances not taken into
consideration during the adoption of such agreement. The responsibility of establishing the existence
of such facts and circumstances shall rest with the party initiating the modification.
c)

Deduction for Obsolescence

If the whole or any portion of physical property is clearly shown by the taxpayer as being affected by
economic conditions that will result in its being abandoned at a future date prior to the end of its
natural life, so that depreciation deductions alone would be insufficient to return the cost at the end of
its economic terms of usefulness, a reasonable deduction for obsolescence, in addition to depreciation,
may be allowed.

d) Depreciation of Patent or Copyright

In computing a depreciation allowance in the case of a patent or copyright, the capital sum to be
replaced is the cost or other basis of the patent copyright. The allowance should be computed by an
apportionment of the cost or other basis of the patent or copyright over the life of the patent or
copyright since its grant, or since its acquisition by the taxpayer, or since March 1, 1913 as the case
may be.
7.

Depletion
Depletion is the exhaustion of natural resources like mines and oil and gas wells as a result of production
or severance from such mines or wells. These are non-replaceable assets.
a) Requisites for Deductibility of Depreciation

Same as that of depreciation, except that the properties involved are natural resources.

Depletion vs. Depreciation

Depletion and depreciation are predicated on the same basic premise of avoiding tax on capital.
Depletion is based upon the concept of exhaustion of natural resource whereas depreciation is based
upon the concept of exhaustion of the property, not otherwise a natural resource, used in a trade or
business or held for the production of income. Thus, depletion and depreciation are made applicable to
different types of assets.
b) Determination of Amount of Depletion Cost

Essential factors:
i.
ii.
iii.

c)

8.

The basis of the property;

The estimated total recoverable units in the property; and
The number of units recovered during the taxable year.

Intangible Cost in Petroleum Operations

Any cost incurred in petroleum operations which in itself has no salvage value and which is incidental
to and necessary for the drilling of wells and preparation of wells for the production of petroleum.

Charitable and Other Contribution

a) Kinds of Charitable Contributions
i.
Ordinary those which are subject to limitations as to the amount deductible from gross
income
Limitations: It must not exceed 10% in the case of an individual and 5% in the case of a
corporation of the taxpayers taxable income (except when the donation is deductible in full)
to be determined without the benefit of the contribution.
ii.
Special those which are deductible in full from gross income
b) Requisites for Deductibility of Charitable and Other Contributions

i.
ii.
iii.

iv.
c)

Charitable and Other Contributions which are Fully Deductible

If the contributions are given to the following:

i.

ii.
iii.

9.

The contribution must actually be paid or made to the Philippine government or any political
subdivision or to any of the domestic corporations or associations specified by the Tax Code;
No part of the net income of the beneficiary must insure to the benefit of any private
stockholder of individual;
It must be made within the taxable year;
It must not exceed 10% in the case of an individual and 5% in the case of a corporation of
the taxpayers taxable income (except when the donation is deductible in full) to be
determined without the benefit of the contribution; and
It must be evidenced by adequate records or receipts.

Government or to any of its agencies or political subdivisions, including GOCCs, exclusive to

finance, to provide for, or to be used in undertaking priority projects:
a. Sports development, science and invention
b. Health and human settlement
c. Educational and economic development
Foreign government or institution and international civic organizations;
Accredited NGO
NGO means non-profit domestic corporation which are formed and organized for any of the
following purposes:
a. Research
b. Health
c. Education
d. Charitable, cultural, character building
e. Sports development and social welfare

Research and Development Program

Research and development expenditures which are paid or incurred by a taxpayer during the taxable year
in connection with his trade, business or profession may be treated as ordinary and necessary expenses
which are not chargeable to capital account. The expenditures so treated shall be allowed as deduction
during the taxable year when paid or incurred.
a) Amortization of Certain Research and Development Expenditures
The taxpayer may also elect to treat the following research and development expenditures as deferred
expenses:
i.
Paid or incurred by the taxpayer in connection with his trade, business or profession;
ii.
Not treated as expense; and
iii.
Chargeable to capital account but not chargeable to property of a character which is subject
to depreciation or depletion.
b) Nondeductible Research and Development Expenditures
i.
Amount spent for the acquisition or improvements of land or for the improvement or
development of natural resources.
ii.
Amount paid or incurred for the purpose of ascertaining the existence, location, extent or
quality of any natural resources like deposits of ore or other materials including oil or gas.

10. Contribution to Pension Trusts

a) Contributions
i.
Current year the contribution is considered as ordinary & necessary expenses fully
deductible.
ii.
Past years if it refers to the services rendered for the past 10 years, the contribution is
deductible but apportioned over the next 10 years (i.e., 1/10 deductible every year).
b) Requisites for Deductibility of Contributions to Pension Trusts
i.
There must be a pension or retirement plan established by the employer;
ii.
The pension must be reasonable and actuarially sound;
iii.
Contribution must be given by the employer to that pension plan;
iv.
The amount contributed must no longer be subject to the control or disposition of the
employer;

v.
vi.
vii.

The payment has not yet been allowed as a deduction;

This must be for the benefit of the employees; and
The deduction is apportioned in equal parts over a period of ten (10) consecutive years
beginning with the year in which the transfer or payment is made.

G. Tax Rates
Classification

Sources

Tax Base

Entitled Deduction

Tax Rate

DC
RFC
NRFC

Within & without

Within
Within

Taxable Income
Taxable Income
Gross Income

Yes
Yes
No

30%
30%
30%

1.

Rules

General Rule: 30% effective January 1, 2009 (except in special cases)

Optional: Domestic Corporations and Resident Foreign Corporations have the option to be taxed at
15% of gross income, provided certain conditions are satisfied. This is available to firms whose ratio of
cost of sales to gross sales or receipts from all sources do not exceed 55%. Once elected by the
corporation, the option shall be irrevocable for the 3 consecutive years.

Exception to the General Rule:

a.

b.

MCIT a minimum corporate income tax of 2% of the gross income as of the end of the taxable year.
It is imposed on a taxable corporation beginning on the 4th taxable year immediately following the year
in which such corporation commenced its business operations, when the minimum income tax is
greater than the normal income tax. The 30% tax rate may not be applied if it is lower than the 2% of
gross income of such corporate taxpayer.
Special Rates

2.

Conditions to be satisfied to avail of the 15% optional corporate tax:

a. A tax effort ratio of 20% of the Gross National Product (GNP)
b. A ratio of 40% of income tax collection to total tax revenues
c. A VAT tax effort ratio of 4% of the GNP
d. A 0.9% ratio of the Consolidated Public Sector Financial Position to GNP

3.

2% Minimum Corporate Income Tax

The minimum corporate income tax rate of 2% gross income means that the corporate taxpayer must
pay corporate income tax not lower than 2% of its gross income. If the actual corporate income tax is
lower than the 2% tax that is supposed to be paid, it is the 2% minimum.
Relief from the MCIT under certain conditions:
The Secretary of Finance may suspend the imposition of the MCIT on any corporation which suffers losses
on account of (1) prolonged labor dispute; (2) force majeure; and (3) legitimate business reverses.

Definition of Terms
Gross Income derived from business shall equivalent to gross sales less sales returns, discounts and
allowances and cost of goods sold. (Section 27A and 27E)
For taxpayers engaged in sale of service, gross income means gross receipts less sales returns,
allowances and discounts. (Section 27A)
For taxpayers engaged in sale of service, gross income means gross receipts less sales returns,
allowances and discounts, and cost of services. (Section 27E)
Cost of goods shall include all business expenses directly incurred to produce the merchandise to bring
them to their present location and use. (Section 27A and 27E)
For trading concern: Cost of goods sold shall include the invoice cost of the goods sold, plus import
duties, freight in transporting the goods to the place where the goods are actually sold, including
insurance while the goods are in transit. (Section 27A and 27E)
For a manufacturing concern: Cost of goods manufactured and sold shall include all costs of
production of finished goods, such as raw materials used, direct labor and manufacturing overhead,

freight cost, insurance and other costs incurred to bring the raw materials to the factory/warehouse.
(Section 27A and 27E)
For a service concern: Cost of services shall mean all direct costs and expenses necessarily incurred
to provide the services required by the customers and clients including (A) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and (B) cost of facilities
directly utilized in providing the service such as depreciation or rental of equipment used and cost of
supplies. Provided, however, that in case of banks, cost of services shall include interest expense.

Carry Forward of Excess Minimum Tax

Any excess of the minimum corporate income tax over the normal income tax shall be carried forward and
credited against the normal income tax for the 3 immediately succeeding taxable years.
4.

Special Rules
a.

Special Domestic Corporations

Sources

Tax Base

Tax rate

1.

Proprietary Educational Within and without

Taxable Income
10% or 30%
Institution
Proprietary Educational Institution any private school maintained and administered by private
individual or group with an issued permit to operate from the DECS or CHED, or TESDA, as the case
may be.
Tax rates:
10% if its income derived from unrelated trade, business or activity does not exceed
50% of its total gross income.
30% ordinary tax rate if its income from unrelated, trade or business or activity exceeds
50% of its gross income.
Sources
Tax Base
Tax rate
2. Non-Profit Hospital
Within and without
Taxable Income
Same principle (10% or 30%) applied in proprietary educational institution.
b.

10% or 30%

Special Resident Foreign Corporations

Sources
1.

Tax Base

Tax rate

International
Air Within
Gross Phil. Billings
2.5%
Carrier
Within
Gross Phil. Billings
2.5%
2. International Shipping
For purposes of International Air Carrier, Gross Philippine Billings refer to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight irrespective of the place of sale or issue, and
the place of payment of the ticket or passage document. Tickets revalidated, exchanged and/or
endorsed to another international airline form part of the Gross Philippine Billings if the passenger
boards a plane in a port or point in the Philippines.
For purposes of International Shipping, Gross Philippine Billings means gross revenue whether
from passenger, cargo or mail originating from the Philippines up to final destination, regardless
of the place of sale or payments of the passage or freight documents.
3. Offshore Banking Units Within
Income derived from Exempt
foreign
currency
transactions
with
nonresidents,
offshore
banking
units in the Phils.,
local
commercial
banks, inc. branches
of foreign banks that
may be authorized by
the BSP to transact
business with the

OBUs,
Income derived from
foreign
currency
loans
granted
to
residents.

c.

4.

Tax on Branch Profits

Remittances

5.
6.

RAHQs
ROHQs

Within

Exempt
15%

Exempt
10%

Special Non-Resident Foreign Corporations

1.

2.

3.

5.

Income
of
nonresidents (individual/
corporation)
from
OBUs
Total profits applied
or earmarked for
remittance, without
deduction for the tax
components thereof.
Read: ING Bank,
Manila
Branch vs. CIR, CTA
Case
No. 6017, March 11,
2002
N/A
Taxable Income

10%

Non
Resident
Cinematographic Film
Owner,
Lessor
or
Distributor
Non Resident Owner or
Lessor
of
Vessels
Chartered to Filipino
Nationals
or
Corporations
The Charter Agreement of
which is approved by
Maritime
Industry
Authority
Non Resident Owner or
Lessor
of
Aircraft,
Machinery
and
Equipment

Sources

Tax Base

Tax rate

Within

Gross Income

25%

Within

Gross Rentals, Lease

or Charter Fees

4.5%

Within

Gross Rentals or Fees

7.5%

Passive Income (These incomes must be derived from the Philippines)

1.

Interest
Deposit

Income

on

Bank

DC

RFC

NRFC

20%

20%

This
should
be
included in its gross
income subject to
30%* tax. BUT in
the case of interest
on loans which have
been made on or
after August 1, 1986,
the same is subject

2.
3.
4.

5.

6.

7.

Interest Income on Bank

Deposit Under the Expanded
Foreign Currency Dep. System
Royalties Derived Within the
Philippines
Capital Gains Derived from Its
Sale of Shares of Stock
a. If it is listed and traded
thru local stock exchange:
of 1% of the Gross
Selling Price
b. If it is NOT listed or traded
thru local stock exchange:
Not over P100,000: 5%
Over P100,000: 10%
Capital Gains Derived from the
Sale of Real Property which is
Not Used in Trade or Business

7.5%

7.5%

to 20% final tax.

Tax-exempt

20%

20%

30%

This rule applies BOTH to corporate and individual

taxpayers.

6% of the
GSP or ZV
whichever is
higher

Should be treated as OTHER INCOME

SUBJECT to 30%

Not
Applicable

Subject
to
Branch Profit
Remittance
Tax of 15%,
the basis of
the tax is the
amount
applied for or
earmarked for
remittance

Not applicable

Exempt

These
dividends
received from DC by
NRFC is subject to
15% Final Tax IF:
the foreign govt. of
that foreign corp.
allows a tax credit at
least 15% of the
taxes deemed paid in
the Philippines by
NRFC.

Branch Profit Remitted by a

Branch Office

Dividends
Received
Domestic Corporation

from

Exempt

Tax Sparing Credit [Sections 28B(5)b] - 15%

Purpose: To attract investors in the Philippines
There is no statutory provision that requires actual grant of tax credit by the foreign government.
Neither is there a Revenue Regulation requiring actual grant. It is clear that the provision of the law
says allows. So, it is enough to prove that the foreign government allows a tax credit. It is not
incumbent upon the foreign government to prove the amount actually granted.
H.

Tax on Improperly Accumulated Earnings, Section 29, Tax Code. See also similar provision in the
Corporation Code.
In addition to the other income taxes, there is hereby imposed for each taxable year on the improperly
accumulated taxable income of each corporation an improperly accumulated earnings tax equal to 10% of the
improperly accumulated taxable income.
1.

Coverage
For corporations using the calendar basis, the accumulated earnings tax shall not apply on improperly
accumulated income as of December 31, 1997.
For corporations adopting the fiscal year accounting period, the improperly accumulated income not
subjected to this tax shall be reckoned as of the end of the month comprising the 12-month period of FY
1997-98.

2.

Corporations Subject to Improperly Accumulated Earnings Tax (IAET)

The IAET shall apply to every corporation formed or availed for the purpose of avoiding the income tax
with respect to shareholders or the shareholders of any other corporation, by permitting earnings and
profits to accumulate instead of being distributed or divided.

3.

Exceptions to IAET
The IAET shall not apply to:
a. publicly held corporations
b. banks and other non-bank financial intermediaries
c. insurance companies
d. Revenue Regulations No. 2-01

4.

Evidence of Purpose to Avoid Income Tax

Prima Facie Evidence: The fact that any corporation is a mere holding company or investment company
Evidence Determinative of Purpose: the fact that the earnings or profits of a corporation are permitted to
accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid
the tax upon its shareholders or members unless the corporation, by clear preponderance of evidence, shall
prove to the contrary. The term reasonable needs of the business includes the reasonably anticipated
needs of the business.

5.

Computation of Improperly Accumulated Taxable Income

Taxable Income adjusted by:

a.
b.
c.
d.

Income exempt from tax

Income excluded from gross income
Income subject to final tax
Amount of net operating loss carry-over deducted (NOLCO)

a.
b.

Dividends actually or constructively paid; and

Income tax paid for the taxable year.

And reduced by the sum of:

Part IV- Capital Transactions

A.

Introduction
Capital Transaction- involves capital asset
Capital Asset- property held by the taxpayer whether or not connected with his trade or business except
ordinary assets.
Capital Gain- gain from the sale or exchange of capital asset
Capital Loss- loss incurred from the sale or exchange of capital asset
Net Capital Gain- the excess of capital gain over capital loss
Net Capital Loss- the excess of capital loss over capital gain

B.

Assets

1. Ordinary Assets, Section 39 (A)(1)

a. Stock in trade of a taxpayer or other real property of a kind which may be properly included in the inventory at
the end of the taxable year. [inventoriable property may include finished goods, raw materials or work in
process]
b. Real property primarily held for sale to customers in the ordinary course of trade or business.
c. Property used in trade or business subject to depreciation, which means that this must be depreciable property.
d. Real property used in trade or business.
2.

Ordinary Assets- When Converted into a Capital Asset

The properties of a taxpayer engaged in real estate business are considered as ordinary assets. If the taxpayer
dies, these properties will be transmitted to the heirs. Should the heirs discontinue the real estate business of
deceased parent, such properties which are ordinarily held for sale to customers maybe converted into capital
assets.

the

3. Capital Assets
a. Properties not included in those above enumerated in no.1
b. Properties used in trade or business classified as capital assets:
i. Accounts receivable
ii. Property for investment in stock
iii. Subdivision of lots to tenants at the instance of the government
iv. Interest of a partner in partnership. The partner may transfer that interest to another and he may derive
gain therefrom, that is considered as Capital Transaction.
Note: all properties not used in trade or business are considered Capital Assets.
4.

Capital Assets- When Converted into an Ordinary Asset

Land inherited by the heirs from their deceased parents is considered as capital asset. In the event that this
property is substantially improved by the heirs and sold at a profit, said capital asset may be converted into an
ordinary asset. The profit derived from the sale of land is already considered as ordinary gain.

5. Rules on Real Properties of:

a) Taxpayers engaged in the real estate business (dealer, developer or lessor)
b) Taxpayers not engaged in the real estate business
c) Taxpayers changing from real estate business to non-real estate business
d) Taxpayers originally registered to be engaged in the real estate business but failed to subsequently operate
6. Treatment of Abandoned and Idle Real Properties of:
a) Taxpayers engaged in the real estate business
b) Taxpayers not engaged in the real estate business
7.

Treatment of Real Properties Transferred, whether the Transfer is through Sale, Barter or Exchange,
Inheritance, Donation or Declaration of Property Dividends

8.

Treatment of Real Property Subject of Involuntary Transfer

C.
1.
2.
3.
4.
5.
the

of

6.

Special Capital Transactions

Failure to exercise option or privilege to buy or sell property
Distribution of assets or shares of stock to stockholder upon liquidation of a corporation
Readjustment of partners interest in a partnership
Retirement of bonds
Wash Sale
61 days sale- 30 days before the sale, the seller acquired substantially identical securities OR 30 days after
sale, he acquired identical or substantially the same stocks or securities. Sale may also include exchange or
option to sell securities.
Tax Consequence:
The gain is taxable as capital gain, because the seller is not engaged in such business (the seller here is not a
dealer in securities). If there is a loss, since it is classified as capital transaction, that is considered capital loss.
The capital gain is taxable but the capital loss incurred from wash sale transaction is not deductible. A different
rule applies if it is entered into by a dealer in securities, as it becomes a transaction made in the regular course
trade or business.
Short Sale
A transaction wherein a person sells securities which he does not own yet (provided however, that he has
ownership of the securities at the time of delivery- he has the right to transfer ownership)
Tax Consequence:
Gains or losses from short sales of property shall be considered as gains or losses from sales or exchanges of
capital assets. If there is a gain, the gain is taxable. If there is a loss, the loss is deductible.

Wash Sale vs. Short Sale

-both may be classified as capital transactions
-in wash sale, the loss that may be incurred is not deductible, whereas in short sale, the loss is deductible
D. Rules Governing Capital Transactions
1.

Holding Period Rule

Applies only to individual taxpayers:
-If the property has been held by the taxpayer for a period of not more than 12 months, the gain or loss is
100% recognized
- If it has been held for a period of more than 12 months, the gain or loss is 50% recognized
Capital gains derived from capital transaction of corporate taxpayers is always 100% recognized irrespective
of the number of months during which the property was in the possession of the corporate
taxpayer.
2.
as

Capital Loss Limitation Rule

Applies to both individual and corporate taxpayers [except: banks and trust companies as they are considered
dealer in securities]
Capital losses are deductible only to the extent of capital gains

3.

Net Capital Loss Carry-Over Rule

Applies only to individual taxpayers
-If any individual taxpayer sustains in any taxable year a net capital loss, such loss (in an amount not in excess
of
the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or
exchange
of a capital asset held for not more than 12 months.
General Rule: Expenses must be paid or incurred during the taxable year.
Exception: Net Capital Loss Carry-Over
E.

Gains Derived from Dealings in Property (Section 32A3)

This may include sale or exchange of goods or properties
-If the property is sold for cash: sale
-If its property for another property: exchange
2. Gains from Exchange of Property, Requisites
a) The property received must have a fair market value;
b) The property disposed of must be substantially different from the property received.

3.

Basic Formula in Determining the Gain or Loss (Sale or Exchange of Property)

Amount Received or Realized LESS Cost or Adjusted Basis.

4.

Determination of the Cost or Adjusted Basis, Section 40B

It depends upon the manner of acquisition:
a) If it was acquired through purchase: cost of the property
b) If the property sold was previously acquired through inheritance; the fair market value (FMV) of the
property at the time of the acquisition.
c) If the property sold was acquired through donation: the same as if it would be in the hands of the donor.
Exception to the general rule: If the basis is greater than the FMV of the property at the time of the
donation/gift then, for the purpose of determining loss, the basis shall be such FMV.
d) If the property sold was acquired for less than an adequate consideration in money or moneys worth: the
amount paid by the transferee for the property.

5. No Gain, No Loss Recognized

General Rule: In the sale or exchange of property, the gain is taxable and the loss is deductible.
Exception: No gain or loss shall be recognized
a)

Transactions made pursuant to plan of merger or consideration

Otherwise known as Tax Exempt Transactions or Transactions Solely in Kind.
i.
A corporation, party to a merger or consolidation exchanges its properties solely for stock in a
corporation, which is a party to the merger or consolidation.

ii.
b)

6.
a)
b)
c)
d)

A stockholder of a corporation party to a merger or consolidation exchanges his stock solely for stock
in another corporation, party to that merger or consolidation.
If a person, alone or together with others or not exceeding four (4), exchanges his property for stock in a
corporation and this person or persons, after this exchange, acquired controlling interest over that corporation.
This means that they acquired at least 51% of the shares of stock of such corporation.
This is also a transaction solely in kind.
Gain is Recognized, Loss is Not Recognized
Wash Sale
Illegal Transactions
Those transactions involving related taxpayers
Transactions not solely in kind

Taxation I
Part V- Accounting Periods
Methods of Accounting
Tax Returns and Tax Payments
A.

Accounting Periods

1.

Two Kinds
a) Calendar Year- January 1 to December 31
b) Fiscal Year- an accounting period of 12 months ending on the last day of any month other than December

2.

Taxable Year
-the calendar or fiscal year ending during such calendar year, upon the basis of which the net income is
computed

3.

When Calendar Year is Used

a) If the taxpayer chooses the calendar year
b) If the taxpayer has no annual accounting period
c) If the taxpayer does not keep its books
d) If the taxpayer is an individual

4.

When the Commissioner is Authorized to Terminate the Taxable Period

a) When the taxpayer retires from business subject to tax
b) When he intends to leave the Philippines
c) When he removes his property from the Philippines
d) When he hides or conceal his property
e) When he performs any act tending to obstruct the proceedings for the collection of the tax for the past or
current quarter or year
f) When he renders the collection of the tax totally or partly ineffective

B.

Methods of Accounting

1.

General Rule: The taxable income shall be computed upon the basis of the taxpayers annual accounting
period in accordance with the method of accounting regularly employed in keeping the books of such taxpayer.
Exception: Computations shall be made in accordance with such method as in the opinion of the CIR clearly
reflects the income:
a. If no such method of accounting has been so employed; or
b. If the method employed does not clearly reflect the income.

2.

Methods of Accounting
a) Cash Basis
Income, profits and gains earned by taxpayer are not included in gross income until received.
Expenses are not deducted until paid within taxable year.
b) Accrual Method
Income, gains and profits are included in the gross income when earned, whether received or not.
Expenses are allowed as deductions when incurred, although not yet paid.
c) Mixed/ Hybrid
Combination of the cash and accrual method
d) Any other method which clearly reflects the income

3.

Cash v Accrual Method of Accounting

Gains, profits, and income are to be included in the gross income for the taxable year in which they are
received by the taxpayer, unless they are included when they accrue to him in accordance with the approved
method of accounting followed by him.

4.

Tax Accounting vs. Financial Accounting

While taxable income is based on the method of accounting used by the taxpayer, it will always differ from
accounting income. This is so because of a fundamental difference in the ends the 2 concepts serve. Accounting
attempts to match cost against revenue. Tax law is aimed at collecting revenue. It is quick to treat an item as

income, slow to recognize deductions as losses. Thus, tax law will not recognize deductions for contingent
future losses except in very limited situations. Good accounting, on the other hand, requires their recognition.
5.

Allocation of Income and Deductions, Section 50

In the case of 2 or more organizations, trades or businesses (whether or not incorporated and whether or not
organized in the Philippines) owned or controlled, directly or indirectly, by the same interests, the CIR is
authorized to distribute, apportion or allocate gross income or deductions between or among such organization,
trade or business, if he determines that such distribution, apportionment or allocation is necessary in order to
prevent evasion of taxes or clearly reflect the income of any such organization, trade or business.

6.

Long-Term Contracts
Building, installation or construction contracts covering a period in excess of one year.
Treatment of income from long term contracts:
a) Percentage of completion method
b) Completed contract method
Section 48, Persons whose gross income is derived in whole or in part from such long term contracts
shall report such income upon the basis of percentage of completion.

7.

Sales of Dealers in Personal Property, Section 49

A person who regularly sells or otherwise disposes of personal property on the installment plan may return as
income in any taxable year that proportion of the installment payments actually received in that year, which the
gross profit realized or to be realized when payment is completed, bears to the total contract price.
Treatment of sales of realty and casual sales of personality:
a) Installment Basis: If the initial payments do not exceed 25% of the selling price
b) Deferred Sales Basis: If the initial payments exceed 25% of the selling price
These include casual sale or other casual disposition of personal property (other than property included in the
inventory at the close of the taxable year) for a price exceeding Php1, 000 and sale or other disposition of real
property.

8.

Termination of Leasehold
Lessor who acquires building or improvements made by the lessee after the termination of the lease has two
options in reporting said income:
a) Lessor may report as income [at the time when such buildings or improvements are completed] the fair
market value of such buildings or improvements; or
b) Lessor may spread over the life of the lease the estimated depreciated value of such buildings or
improvements at the termination of the lease and report as income for each of the lease an adequate part
thereof.

C.

Returns and Payment of Tax

1.

Individuals Required to File Returns

General Rule:
a) Every Filipino citizen residing in the Philippines
b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines
c) Every alien residing in the Philippines, on income derived from sources within the Philippines
d) Every non-resident alien engaged in trade or business or in the exercise of a profession in the Philippines

2.

Instances when Individuals are Not Required to File Returns

a) An individual whose gross income does not exceed his total personal and additional exemptions. However,
a Filipino citizen and any alien individual engaged in the business or practice of profession within the
Philippines shall file an income tax return, regardless of the amount of gross income.
b) An individual with respect to pure compensation income derived from sources within the Philippines, the
income tax on which has been correctly withheld.
HOWEVER, an individual deriving compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return. Further, an individual whose pure compensation
income derived from sources within the Philippines exceeds P60,000 shall also file an income tax return.
c) An individual whose sole income has been subjected to a final withholding tax
d) An individual who is exempt from income tax

3.

Substituted Filing of Income Tax Returns

Individual taxpayers receiving purely compensation income, regardless of amount, from only one employer in
the Philippines for the calendar year, the income tax of which has been withheld correctly by the employer (tax
due= tax withheld) shall not be required to file the Individual Income Tax Return.
A senior citizen who is a compensation income earner deriving from only one employer an annual taxable
income exceeding the poverty level or the amount determined by the NEDA thru the NSCB on a particular year,
but whose income had been subjected to the withholding tax on compensation, shall, although not exempt
from income tax, be entitled to the substituted filing of income tax return under Revenue Regulations No. 2-98,
as amended.

4.

Individuals Not Qualified for Substituted Filing

a) Individuals deriving compensation from 2 or more employers concurrently or successively at anytime during
the taxable year.
b) Employees 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, resulting to
collectible or refundable return.
c) Employees whose gross compensation income do not exceed the statutory minimum wage or five thousand
pesos (Php5,000.00) per month (sixty thousand pesos [php60,000.00] a year), whichever is higher,
including employees of the government of the Philippines, or any of its political subdivisions, agencies or
instrumentalities, with salary grades 1 to 3.
The statutory minimum wage of minimum wage earners, including overtime pay, holiday pay, night shift
differential and hazard pay, are exempt from income tax.
d) Individuals deriving other non-business, non-profession-related income in addition to compensation income
not otherwise subject to a final tax.
e) Individuals receiving purely compensation income from a single employer, although the income tax of
which has been correctly withheld, but whose spouse falls under a), b), c) and d) above.
f) Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income,
or compensation income and other non-business, non-profession-related income.
Employees not qualified for substituted filing but are required to file the Income Tax Return shall file
the same not later than April 15 of the year immediately following the taxable year. Provided, that
employees with previous/successive employer/s within the taxable year shall furnish their new employer
with BIR Form No. 2316 issued by the previous employer/s.

5.

Husband and Wife

Married individuals, whether citizens, residents or non-resident aliens, who do not derive income purely from
compensation, shall file a return for the taxable year to include the income of both spouses. However, if it is
impracticable for the spouses to file one return, each spouse may file a separate return of income but the
returns so filed shall be consolidated by the BIR for purposes of verification for the taxable year.
Return of parent to include the income of children
The income of unmarried minors derived from property received from a living parent shall be included in the
return of the parent, except when the donors tax has been paid on such property or when the transfer of such
property is exempt from donors tax.

6.

Self-Employed Individuals
Every individual subject to income tax, who is receiving self-employment income, whether it constitutes the sole
source of his income or in combination with salaries, wages and other fixed or determinable income, shall make
and file a declaration of his estimated income for the current taxable year on or before April 15 of the same
taxable year.
Non-resident Filipino citizens with respect to income from without the Philippines and non-resident aliens not
engaged in trade or business in the Philippines are not required to render a declaration of estimate income tax.

7.

When to File Returns

a) On or before April 15 of each year covering income from the preceding taxable year
b) Thirty (30) days from each transaction and a final consolidated return on or before April 15 covering all
stock transactions of the preceding year in case of sale or exchange of shares of stock not traded through
a local stock exchange
c) Thirty (30) days following each sale or other disposition in case of sale or disposition of real property

8.

9.

Payment of Estimated Income Tax by Individuals

Four (4) Installments
Estimated tax- the amount which the individual declared as income tax in his final adjusted and annual income
tax return for the preceding taxable year minus the sum of the credits allowed against the said tax. If, during
the current taxable year, the taxpayer reasonably expects to pay a bigger income tax, he shall file an amended
declaration during any interval of installment payment dates.
a)

Quarterly income tax return; and

-the tax computed shall be decreased by the amount of tax previously paid or assessed during the
preceding quarters and shall be paid not later than 45 days from the close of each of the first 3
quarters of the taxable year, whether calendar or fiscal year.

b)

Final or adjustment return

-if the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:
i. pay the balance of tax still due; or
ii. carry-over the excess credit;
iii. be credited or refunded with the excess amount paid

Return and Payment of Estimated Income Tax by Corporations

Every corporation subject to income tax, except foreign corporations not engaged in trade or business in the
Philippines shall render in duplicate, a true and accurate:
c) Quarterly income tax return; and
-the tax computed shall be decreased by the amount of tax previously paid or assessed during the
preceding quarters and shall be paid not later than 60 days from the close of each of the first 3 quarters of
the taxable year, whether calendar or fiscal year.
d)

Final or adjustment return

-if the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:
iv. pay the balance of tax still due; or
v. carry-over the excess credit; or
vi. be credited or refunded with the excess amount paid.
a.

Installment Payments
A taxpayer, other than a corporation, may opt to pay the tax in 2 equal instalments when the tax due
in excess of Php2,000. In such cases, the first installment shall be paid at the time the return is filed
and the second installment on or before July 15 following the close of the calendar year.

b.

Payment of Capital Gains Tax

It shall be paid on the date the return is filed. In case the taxpayer elects and is qualified to reprt the
gain by instalments, the tax due from each installment payment shall be paid within 30 days from the
receipts of such payments.
Every corporation deriving capital gains from the sale or exchange of shares of stock not traded
through a local stock exchange shall file a return within thirty (30) days after each transaction and a
final consolidated return of all transactions during the taxable year on or before the 15 th day of the 4th
month following the close of the taxable year.

c.

Where to File Returns

a) Authorized agent bank
b) Revenue district officer
c) Collection agent
d) Duly-authorized treasurer of the city or municipality in which such person has his legal residence
or principal place of business in the Philippines
e) Office of the CIR if there be no legal residence or place of business in the Philippines.

ESTATE TAX
(Sections 84 to 97 of the Tax Code, as amended)
Course Outline
I.

Nature and Purposes of Estate Tax

II.

Applicable Law in Estate Taxation

III.

Kinds of Decedent
A. Resident Citizen
B. Non-resident Citizen
C. Resident Alien
D. Non-resident Alien

IV.

Withdrawal of Tax Exemption Privileges

A. Real Property
B. Personal Tangible Property
C. Personal Intangible Property

Exemption to Non-resident Aliens, when available

V.

Valuation of the Gross Estate

VI.

Estate Tax Formula, in brief

VII.

Composition of the Gross Estate

A. Decedents Interest
B. Transfer in Contemplation of Death
C. Revocable Transfer
D. Property passing under General Power of Appointment
E. Proceeds of Life Insurance
F. Prior Interests
G. Transfers for Insufficient Considerations
H. Capital of the Surviving Spouse

VIII.

Acquisitions and Transmissions Not Subject to Estate Tax

A. Merger of Usufruct in the Owner of the Naked Title
B. Transmission by the Fiduciary Heir or Legatee to the Fideicommissary
C. Transmission from the First Heir, Legatee or Donee in favor of another Beneficiary (in accordance with
the desire of the predecessor)
D. Bequests, Devises, Legacies or Transfers to Social Welfare, Cultural and Charitable Institutions,
E.

IX.

requisites
Others

Deductions Allowed to a Citizen or a Resident, Requisites

A. Expenses, Losses, Indebtedness and Taxes
1. Funeral expenses
2. Judicial expenses

CIR vs. CA, CTA and Josefina P. Pajonar, as Administratix of the Estate of
Pedro P. Pajonar, SC GR No. 123206, March 22, 2000

B.
C.
D.
E.
F.

3. Losses
4. Claims against the estate
5. Claims against the insolvent
6. Unpaid mortgages or indebtedness
7. Unpaid taxes
Medical Expenses
Family Home, define (Articles 152 & 153 of the Family Code)
Property Previously Taxed (Vanishing Deductions)
Amount Received by Heirs under RA 4917
Standard Deduction

G.
H.

Transfers for Public Use

Share of Surviving Spouse in Conjugal Property

X.

Deductions Allowed to a Non-resident Alien, Special Requisites

A. Expenses, Losses, Indebtedness and Taxes
B. Property Previously Taxed (Vanishing Deductions)
C. Transfers for Public Use
D. Share of Surviving Spouse in Conjugal Property

XI.

Gross/Net Estate of a Decedent

A. Single Decedent
B. Married Decedent

Rules in Property Ownership between spouses

XII.

Net Estate and Estate Tax Rates

A. Exemption from Estate Tax
B. Estate Tax Credits

XIII.

Administrative Matters
A. Notice of Death
B. Bank Deposits of a Decedent
C. Filing of Estate Tax Return
D. Payment of the Estate Tax Due
1. Person primarily liable to pay the estate tax
2. Extension of time to pay estate tax
3. Motion files with Probate Court
4. When to pay the estate tax
5. Where to pay the estate tax
E. Penalties for Non-compliance

DONORS TAX
(Sections 98 to 104 of the Tax Code, as amended)
Course Outline
I.

Nature and Purposes of Donors Tax

II.

Applicable Law in Donors Taxation

III.

Kinds of Donors
A. Individual Persons
1. Resident Citizen
2. Non-resident Citizen
3. Resident Alien
4. Non-resident Alien
B.

Juridical Persons
1. Corporation
2. Partnership

IV.

Kinds of Donees, as to relationship to Donor

A. Stranger
B. Non-stranger

V.

Requisites of a Taxable Gift

A. Donative Intent, in general
B.
C.
D.
E.
F.
G.

VI.

Estate of Fidel F. Reyes and Estate of Teresita R. Reyes vs. CIR, CTA Case No. 6747, January 16, 2006
Capacity of the Donor
Reduction in the Patrimony of the Donor
Actual or Constructive Delivery of the Gift
Acceptance by the Donee during Lifetime
Increase in the Patrimony of the Donee
Forms to Effect Donation

Properties Covered as Gifts, in general

What is meant by Gross Gift?

Whether the transfer is in trust or otherwise
A.
B.
C.

Real Property
Personal Tangible Property
Personal Intangible Property

Exemptions to Non-resident Aliens, when available

VII.

Transfers for Less than Adequate Consideration

A. Ordinary Asset
B. Capital Asset

VIII.

Exemptions of Certain Gifts vs. Deductions from Gross Gift

IX.

Exemptions of Certain Gifts Allowed to a Citizen or Resident

A. Dowries or Gifts on account of marriage
B. Gifts made to or for the use of the National Government, its agencies or political subdivisions
C. Gifts in favour of an educational and/or charitable, religious, cultural or social welfare corporation, etc.,
requisites [Section 101(A)(3) of the Tax Code]

X.

Exemptions of Certain Gifts Allowed to a Non-resident Alien

A. Gifts made to or for the use of the National Government, its agencies or political subdivisions
B. Gifts in favour of an educational and/or charitable, religious, cultural or social welfare corporation, etc.,

requisites [Section 101(B)(2) of the Tax Code]

XI.

Deductions from Gross Gift

A.
B.

Encumbrances
Diminutions

XII.

Net
A.
B.
C.

Gift and Donors Tax Rates

Principle of Accumulation
Exemption from Donors Tax
Donors Tax Credits

XIII.

Manner of Computing the Donors Tax

A. Capital Property
B. Conjugal or Community Property

XIV.

Administrative Matters
A. Filing of Donors Tax Return
B. Payment of Donors Tax
1. When to pay the donors tax
2. Where to pay the donors tax
C. Penalties for Non-compliance

BIR ORGANIZATION, FUNCTIONS AND TAX ADMINISTRATION

(Section 1 to 21 of the Tax Code, as amended)
I.

Officials of the Bureau of Internal Revenue

A. Commissioner of Internal Revenues
B. Deputy Commissioners
C. Regional Directors
D. Revenue District Officers
E. Revenue Enforcement Officers or Examiners

II.

Powers and Duties of the BIR

A. Assessment and collection of NIRC taxes, fees and charges
B. Enforcement of all forfeitures, penalties and fines
C. Execution of judgments in all cases decided in its favour by the CTA & regular courts

III.

General Powers of the Commissioner of Internal Revenue

A. Interpret the Tax Code and other tax laws (exclusive and original jurisdiction)
Subject to review by the Secretary of Finance
B. Power to decide disputed assessments, refunds, penalties and other matters
Subject to the exclusive appellate jurisdiction of the CTA
C. Obtain information and to summon, examine and take testimony of persons
3rd party information
D. Make assessments
1. Examination of returns and determination of tax dues
2. Assess the proper tax on the best evidence obtainable
3. Conduct inventory-taking, surveillance and to prescribe presumptive gross sales and receipts
4. Issue jeopardy assessments and terminate the taxable period
E. Prescribe real property values
F. Inquire into bank deposits
G.
H.

Republic Act No. 10021, March 2010

Accredit and register tax agents

Prescribe additional procedural or documentary requirements

IV.

Authority of the Commissioner to Delegate Power

A. General Rule The Commissioner may delegate powers vested powers vested in him to subordinate
officials (with a rank equivalent to division chief or higher)
B. Exception non delegable power are:
1. Power to recommend the promulgation of rules and regulations by the Sec. of Finance
2. Power to issue rulings of first impression or to reverse, revoke, modify any existing ruling
3. Power to compromise or abate any tax liability, except assessments issued by the regional offices
involving basic deficiency taxes of Php500,000 or less, and minor criminal violations
4. Power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.

V.

Other Matters
A. Duties of the Revenue Regional Director (within the Region and District Offices under his Jurisdiction)
B. Duties of Revenue District Officers and Other Internal Revenue Officers
C. Agencies and Deputies for Collection of NIRC Taxes
1. Commissioner of Customs and his subordinates, with respect to NIRC taxes in imported goods
2. Head of appropriate government office and his subordinates, with respect to energy tax
3. Banks duly accredited by the Commissioner of Internal Revenue, with respect to payments of

NIRC taxes authorized to be made through banks

VI.

Rule on Estoppel
A. Estoppel Against the Government
B.

VII.

PNOC vs. Court of Appeals, et. al., SC GR. Nos. 109976 & 112800, April 26, 2005
Estoppel Against the Taxpayer

Sources of National Internal Revenues Taxes

VIII.

Agencies Involved in Tax Administration

A. Bureau of Internal Revenue
B. Bureau of Customs
C. Local Government Units (Assessors and Treasurers)

NIRC REMEDIES
(Section 202 to 252 and 282 of the Tax Code, as amended)
Course Outline
REMEDIES OF THE TAXPAYER
IX.

Kinds of Remedies
A. Administrative Remedies
1. Before payment
a. Petition or Request for Reinvestigation
b. Entering into a Compromise
2. After payment
a. Claim for tax refund
b. Claim for tax credit
B. Judicial Remedies
1. Civil action
a. Appeal to the CTA, SC
b. Action to contest forfeiture of chattel
c. Action for damages
2. Criminal action
a. Filing of criminal complaint against erring BIR officials

X.

Tax Assessments by the BIR

A. Assessments, kinds
1. Self Assessment
2. Deficiency Assessment
Constructive means and methods of income determination
Tax Deficiency
Tax Delinquency
3. Jeopardy Assessment, instances
4. Disputed Assessment
5. Illegal & Void Assessment

Australasia Cylinder Corp. vs. CIR, CTA Case No. 6014, August 14, 2002

B.

6. Erroneous Assessment
Assessment Process
1. Tax Audit
a. Letter of Authority, effect of receipt

CIR vs. Sony Philippines, Inc. SC GR No. 178697, November 17, 2010

b. Letter Notice, effect of receipt

2. Notice of Informal Conference
3. Pre-assessment Notice (PAN) & Post-Reporting Notices

CIR vs. Metro Star Superama, Inc. GR. No. 185371, December 8, 2010
CIR vs. Dominador Menguito, SC GR. No. 167560, September 17, 2008

4.

XI.

- Exceptions to the issuance of PAN

Formal Letter of Demand and Assessment Notice or Final Assessment Notice (FAN)

CIR vs. Hon. Raul M. Gonzalez, Secretary of Justice, LM Camus Engineering Corporation, SC GR
No. 177279, October 13, 2010

C.
D.

Governing Principles on Tax Assessments

Requisites of Valid Assessment

E.

When Assessment is Deemed Made

CIR vs. Enron Subic Power Corporation, C GR. No. 166387, January 19, 2009
Australasia Cylinder Corp. vs. CIR, CTA Case No. 6014, August 14, 2002
Lucas G. Adamson, et. al., SC GR Nos. 120935 & 124557, May 21, 2009
Precision Electronics Realty Corp. vs. CIR, CTA Case No. 6013, November 16, 2002
Barcelon, Roxas Securities, Inc. vs. CIR, SC GR. No. 157064, August 7, 2006
CIR vs. United International Pictures AB, CA GR SP No. 73200, June 22, 2006

Period of Limitation Upon Assessment

A. General Rule

Within 3 years after the last day prescribed by law for filing of the return or from the day the return
was filed, in case the return was filed beyond the period prescribed by law
Different reckoning points for different taxes, amended returns, wrong returns

B.

CIR vs. Mirant Navotas Corp., CA GR SP No. 78126, June 17, 2005

Exceptions
1. Within 10 years after the discovery of the falsity, fraud or omission
2.

CIR vs. Arturo Tulio, GR No. 139858, October 25, 2005

where there is a waiver of the statute of limitations

requirements of a valid waiver

CIR vs. FMF Development Corp., SC GR No. 167765, June 30, 2008
CIR vs. Mirant Navotas Corp., CA GR SP No. 78126, June 17, 2005
CIR vs. Kudos Metal Corporation, SC GR No. 178087, May 5, 2010
XII.

Suspension of the Running of the Statute of Limitations for Making Assessments

XIII.

Administrative Protest to the Assessment

A. Kinds
1. Request for Reconsideration
2. Request for Reinvestigation

Manotok Realty, Inc. vs. CIR, CA GR SP No. 56745, February 22, 2001
Estate of the Late Juliana Diez vda de Gabriel vs. CIR, SC GR No. 155541, January 27, 2004

B.

CIR vs. Philippine Global Communication, Inc. SC GR No. 167146, October 31, 2006

Process of the Administrative Protest

1. Protest of Assessment by the Taxpayer
Failure to Protest, effect
2.
3.

4.
5.
XIV.

Allied Banking Corporation vs. CIR, SC GR. No. 175097, February 5, 2010
Submission of Relevant Supporting Documents

Unique Dyeworks, Inc. vs. CIR, CTA Case No. 5931, June 6, 2002
CIR vs. First Express Pawnshop Company, Inc. SC GR. No. 172045-46, June 16, 2009
Denial of Protest
a. CIRs denial or actions equivalent to denial of protest
Filing of criminal action against the taxpayer
Issuing a warrant of distraint and levy
b. Inaction by the CIR

Philam Plans, Inc. vs. CIR, CTA EB No. 222, July 3, 2007

Appeal to the Court of Tax Appeals, separate discussion on judicial remedies

Failure to Appeal, effect

RCBC vs. CIR, SC GR No. 168498, April 24, 2007

Appeal to the Supreme Court, separate discussion on judicial remedies

Period of Limitation Upon Collection

A. General Rule
Within 5 years following the assessment of the tax
B. Exceptions
1. Within 10 years after the discovery of the falsity, fraud or omission
2. Where there is a waiver of the statute of limitations
3. Revised assessment of the government (prescriptive period for the collection is counted from the

last or revised assessment)

C.
XV.

4. Within 10 years from the right of action accrues if the action is brought to enforce a compromise
Governments Right to Recover Erroneously Refunded Tax
Within the 3 year prescriptive period for making the assessment

When is a Ta Deemed Collected

A. Summary Remedies
Distraint, garnishment or levy
B. Judicial Remedies
Filing of complaint or answer to petition for review

Can a taxpayer enjoin the collection of taxes?

XVI.

Suspension of the Running of the Statute of Limitations for Making Tax Collections

XVII.

Administrative Remedy After Payment

A.
B.

XVIII.

Definition of Terms
1. Claims for Refund
2. Claims for Tax Credit
When Claims for Tax Refund or Credit is allowed
What should be established?

CIR v. Philippine National Bank, SC GR. No. 161997, October 25, 2005
CIR vs. Alltel Intl Resource Mgt., Inc., CA GR SP No. 65875, April 16, 2002

C.

Proper Party to File a Claim for Refund/Credit

D.

Requisites to Make a Claim

May the period be suspended?

CIR vs. Procter & Gamble Phils., et. al., SC GR No. 66838, December 2, 1991
Silkair (Singapore) Pte. Ltd. vs. CIR, SC GR No. 184398, February 25, 2010
ExxonMobil Petroleum and Chemical Holdings, Inc. Phil. Branch vs. CIR, SC GR. No. 180909, January
19, 2011
CIR vs. PERF Realty Corporation, SC GR. No 163345, July 4, 2008
CIR vs. Far East Bank & Trust Company (now BPI), SC GR. No. 173854, March 15, 2010
CIR vs. Arturo V. Parcero vs. Primetown Property Group, Inc., SC GR No. 162155, August 28, 2007

E.
F.

Process of the Administrative Claim for Tax Refund or Credit

Process of the Judicial Claim for Tax Refund or Credit

G.
H.

Interest on Tax Refund

Forfeiture of Tax Refund and Tax Credit

Atlas Consolidated Mining & Devt Corp. vs. CIR, SC GR No. 145526, March 16, 2007
CIR vs. Aichi Forging Company of Asia, Inc., SC GR No. 184823, October 6, 2010

Judicial Remedies
A. Civil Action
1. Appeal to the CTA
2. Action to contest forfeiture
3. Action for damages
B. Criminal Action
1. Filing of criminal complaint against erring BIR officials

REMEDIES OF THE GOVERNMENT

XIX.

Kinds of Remedies
A. Tax Lien
B. Compromise and Abatement
C. Civil Action
D. Criminal Action
E. Distraint
F. Levy
G. Forfeiture
H. Suspension of Business Operations in Violation of VAT Laws
I. Additions to the Tax Due
J. Others

XX.

Tax Lien
A. Nature and Extent
B. Effectivity Against Third Persons

XXI.

Compromise and Abatement

A. Definition of Terms
1. Compromise
2. Abatement
3. Compromise Penalty
B. Grounds for Compromise
1. Reasonable doubt as to validity of the claim against the taxpayer exists

C.
D.
E.
F.

G.
XXII.

2. Financial position of the taxpayer demonstrates a clear inability to pay assessed tax
Cases which may be compromised
See Revenue Regulations 7-01
Cases which may not be compromised
See Revenue Regulations 7-01

PNOC vs. Court of Appeals, et. al., SC GR No. 109976 & 112800, April 26, 2005

Remedies in case the Taxpayer Refuses to Abide by the Compromise

Grounds for Abatement
1. Tax or any portion appears to be unjustly or excessively assessed
2. Administration and collection costs involved do not justify the collection of the amount due
3. Other meritorious circumstances
Distinction between Compromise and Abatement

Civil Action
A. Features
1. Actions or proceedings instituted in behalf of the Government under the authority of the Tax Code
or other law enforced by the BIR shall be brought in the name of the Government of the
Philippines and shall be conducted by the legal officers of the BIR.
2. BUT no civil action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture
shall be filed without the approval of the CIR
3. The filing of a civil case is tantamount to a denial of the request for reinvestigation (remedy is to
file with the CTA)
B. When the CIR is not required to rule of a pending protest before filing a collection case

Republic vs. Liam Tan Teng Sons, Inc. 16 SCRA 584

XXIII.

Criminal Action

Lucas G. Adamson, et. al., SC GR No. 120935 & 124557, May 21, 2009
A.

B.
C.

Features
1. Actions or proceedings instituted in behalf of the Government under the authority of the Tax
Code or other law enforced by the BIR shall be brought in the name of the Government of the
Philippines and shall be conducted by the legal officers of the BIR.
2. BUT no criminal action for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture shall be filed without the approval of the CIR
3. The acquittal of the taxpayer in a criminal action does not necessarily result in the exoneration of
the said taxpayer from his civil liability to pay taxes.
4. Subsidiary imprisonment in cases of non-payment of the fine dues to taxpayers insolvency BUT
not for the failure to pay the tax due.
Civil Liability in Criminal Cases
Section 105 The judgment shall not only impose the penalty but shall also order the payment of the
taxes subject of the criminal case as finally decided by the CIR.

XXIV.

Distraint
A. Definition
B. Features
1. Summary administrative enforcement remedy enforced on personal property
2. Amount of tax involved must exceed Php100
3. No forfeiture is allowed to the government
4. No right of redemption is allowed to the taxpayer
5. The remedy may be repeated if necessary until the full amount of tax delinquency due and all
expenses is/are collected
C. Kinds of Distraint (and its requisites)
1. Actual Distraint
2. Constructive Distraint, see Revenue Memorandum Circular No. 5-01
D. Procedure in Effecting Distraint

XXV.

Levy
A. Definition
B. Features
1. Summary administrative enforcement remedy enforced on real property
2. Amount of tax involved must exceed Php100

3.
4.
5.
6.
C.
D.

Forfeiture is allowed to the government

Right of redemption is allowed to the taxpayer
May be made before, simultaneously or after distraint
The remedy may be repeated if necessary until the full amount of tax delinquency due and all
expenses is/are collected
Procedure in Effecting a Levy
Redemption of the Property

CIR vs. United Coconut Planters Bank, SC GR No. 179063, October 2, 2009

XXVI.

Forfeiture
A. Definition
B. Property Subject of Forfeiture
C. Manner of Enforcement
D. Effect of Forfeiture
E. Action on the Forfeited Property

XXVII.

Suspension of Business Operations in Violation of the VAT Laws

A. Extent of the Power of the CIR
B. Violations
1. Of a VAT-registered person
a. Failure to issue receipts or invoices
b. Failure to file a VAT return
c. Understatement of taxable sales r receipts by 30% or more of his correct taxable sales or
receipts for the taxable quarter
2. Failure to register under Section 230 of the Tax Code, as amended

XXVIII. Additions to the Tax Due

A. Kinds of Additions to the Tax
1. 25% civil penalty or surcharge
2. 50% civil penalty or surcharge
3. 20%interest (per annum)
a. Deficiency interest
b. Delinquency interest
c. Interest on extended payment
4. Compromise penalty
5. Other civil penalties and administrative fines
B. Kinds of Non-compliance which will Entail Increments to the Basic Tax Due
1. Refusal to pay taxes
2. Failure to pay full amount of taxes
3. Failure to pay taxes on time
4. Filing a return in the wrong venue
5. Violations of taxing provisions
6. others
XXIX.

Other Matters
A. Crimes and Offenses
B. Prescription violations of the Code shall prescribe after 5 years, which shall begin to run from the
commission or violation of the law (or if the same is not known at the time, from the discovery thereof)
and the institution of judicial proceedings for its investigation and punishment
C. Informers Reward
1. Requisites
2. Monetary award for:
a. Discovery of violations of the Tax Code
b. Discovery and seizure of smuggled goods
3. Taxability of the reward

PNOC vs. Court of Appeals, et. al., SC GR Nos. 109976 &112800, April 26, 2005

COURT OF TAX APPEALS

Course Outline
I.

Applicable Law
A. Republic Act No. 1125
The Law Creating the Court of Tax Appeals
B. Republic Act No. 9282
An Act Expanding the Jurisdiction of the Court of Tax Appeals, Elevating its Rank to the Level of a
Collegiate Court with Special Jurisdiction and Enlarging its Membership
C. Republic Act No. 9503
An Act Enlarging the Organizational Structure of the Court of Tax Appeals

II.

Republic Act No. 1125

A. Creation of the CTA
1. To have a centralized body well-versed in tax matters, a regular court forming part of the judicial
system which could exclusively hear and determine tax cases
2. To prevent delay in the disposition of tax cases in view of the backlog of civil criminal cases in
the regular courts
B. Nature of the CTA
1. It is a judicial, not merely an administrative body
2. It is a court of special jurisdiction & can only take cognizance of such matters as are clearly within
its jurisdiction
3. It is not governed strictly by the technical rules of evidence

TFS, Inc. vs. Commissioner of Internal Revenue, SC GR No. 166828, April 19, 2010

III.

Republic Act Nos. 9282 & 9503

A. The Court of Tax Appeals and its Justices
1. Same level as the Court of the Appeals
2. Possesses all the inherent powers of a Court of Justice
3. Consists of
a. 1 Presiding Justice
b. 8 Associate Justices
Holds office during good behaviour
Until they reach the age of 70, or
Become incapacitated to discharge the duties of their office,
Unless sooner removed
4. Disqualifications
a. No justice or other officer or employee of the CTA shall intervene, directly or indirectly, in the
management and control of any private enterprise which in any way be affected by the
functions of the Court.
b. Justices shall be disqualified from sitting in any case on the same grounds under Rule 137,
ROC
c. No person who has once served in the CTA in a permanent capacity, shall be qualified to
practice as counsel before the court for a period of 1 year from his retirement or resignation
5. Places of Office: Manila
B. Hearing the Cases
1. En banc; or
Quorum: 5 justices
Decision or resolution: affirmative votes of majority of Justices present OR affirmative votes of 5
members for the reversal of a decision of the division
2. In 3 divisions (each consisting 3 justices)
Quorum: 2 justices
Decision or resolution: affirmative votes of 2 members

IV.

Jurisdiction of the CTA

A. Exclusive Appellate Jurisdiction (to review by appeal):
1. Decision of the Commissioner of Internal Revenue in cases involving
2. Inaction by the Commissioner of Internal Revenue in cases involving
3. Decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved by
them in the exercise of their original jurisdiction

4.
5.
6.
7.

B.

C.

Decisions of the Commissioner of Customs in cases involving

Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided by
the provincial or city board of assessment appeals
Decisions of the Secretary of Finance on customs cases elevated to him automatically for review
from decisions of the Commissioner of Customs which are adverse to the Government
Decisions of the Secretary of Trade and Industry in the case of non-agricultural product,
commodity or article, involving dumping and countervailing duties under the Tariff and Customs
Code, and safeguard measures under RA No. 8800, where either party may appeal the decision to
impose or not impose said duties

Jurisdiction over the following Criminal cases:

Govt may directly file said cases with the CTA covering amounts within its exclusive & original
jurisdiction
1. Exclusive Original Jurisdiction over all criminal offenses arising from
a. Violations of the Tax Code and other laws administered by the BIR
Provided that, where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than Php1, 000,000 or where there is no specified amount claimed
original jurisdiction is with the regular courts, and jurisdiction of the CTA is appellate.
b. Violations of the Tariff and Customs Code and other laws administered by the BOC
Provided that, where the principal amount of taxes and fees exclusive of charges and
penalties, claimed is less than Php 1,000,000 or where there is no specified amount claimed
original jurisdiction is with the regular courts, and jurisdiction of the CTA is appellate.
2. Exclusive Appellate Jurisdiction in criminal offenses:
a. Over appeals from the judgments resolutions or orders of the RTC in tax cases originally
decided by them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of
their appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts
Municipal Trial Courts
Municipal Circuit Trial Court, in their respective jurisdiction
Jurisdiction over the following Tax Collection cases:
1. Exclusive Original Jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties
Provided that, where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than Php1, 000,000 original jurisdiction is with the proper
municipal trial court, metropolitan trial court and RTC.
1. Exclusive Appellate Jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the RTC in tax collection cases
originally decided by them, in their respective territorial jurisdiction
b. Over petitions for review of the judgment, resolutions or orders of the RTC in the exercise of
their appellate jurisdiction over tax collection cases originally decided by the metropolitan
trial courts, municipal trial courts, in their respective jurisdiction.

V.

Injunction in Tax Collection

A. General Rule: No court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the Tax Code.
B. Exception: The CTA may suspend or restrain the collection of the tax when in its opinion, the collection
of the tax jeopardize the interest of the government and/or the taxpayer
C. Requisites for injunction

VI.

Appeal
A. Appealable Decision
1. The final action taken by the Commissioner or his deputies with respect to the taxpayers liability
2. The letter of denial where the Commissioner not only demanded payment of the amount assessed
but wherein he also gave the warning that in the event the taxpayer failed to pay the same, the
Commissioner would be constrained to enforce the collection thereof by means of remedies
prescribed by law
3. The filing of a judicial action for collection (i.e., criminal and civil action) during the pendency of
an administrative protest, constitutes a denial of the protest

B.

C.

D.

E.

F.

G.

4. Inaction by the Commissioner of a protest or claim for refund/credit

Who may appeal?
Any party (person, association or corporation) adversely affected by a decision, ruling or inaction
of the
i. Commissioner of Internal Revenue
ii. Commissioner of Customs
iii. Secretary of Finance
iv. Secretary of Trade and Industry
v. Secretary of Agriculture
vi. Central Board of Assessment Appeals
vii. Regional Trial Courts
Period to file an appeal
1. Within 30 days
a. After the receipt of such decision or ruling; or
b. After the expiration of the period fixed by law for action
2. The 30 day period is jurisdictional
Mode of Appeal
1. General Rule Petition for Review under a procedure analogous to that under Rule 42 of the 1997
ROC
a. Within 30 days from the receipt of the decision or ruling or
b. Within 30 days from the expiration of the period fixed by law to act thereon, in case of
inaction
Cases shall be decided by division
2. Exception Petition for Review under a procedure analogous to that under Rue 43 of the 1997
ROC
Cases shall be heard en banc
Effect of an Appeal
1. General Rule within 15 days from notice, a party adversely affect by a ruling, order or decision
of a Division of the CTA may file a Motion for Reconsideration or New Trial before the same
Division
2. Exception in criminal cases, the general rule applicable in regular courts on matters of
prosecution and appeal shall likewise apply
3. Appeal taken to the CTA from the decisions of the following:
i. Commissioner of Internal Revenue
ii. Commissioner of Customs
iii. Regional Trial Courts
iv.
Provincial, City or Municipal Treasurers
v. Secretary of Finance
Shall NOT suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the
satisfaction of his liability
EXC: HOWEVER, when in the opinion of the Court, the collection by the above govt agencies may
jeopardize the interest of the Government and/or the taxpayer, the Court, at any stage of the
proceeding, may suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount with the Court.
4. Section 16, RA No, 1125 where an appeal is found to be frivolous or that proceedings have
been instituted merely for delay, the CTA may assess damages against the appellant in an amount
not exceeding Php500 which shall be collected in the same manner as fine or other penalties
authorized by law.
Appeal to the Court of Tax Appeals, En Banc
1. A party adversely affect by a resolution of a Division of the CTA on a motion for reconsideration or
new trial, may file a petition for review with the CTA en banc
2. No civil proceeding involving matters arising under the Tax Code, Tariff and Customs Code or the
Local Government Code shall be maintained, except as provided, until and unless an appeal has
been previously filed with the TA Division and disposed of
Appeal to the Supreme Court
Rule 45 of the 1997 ROC
1. A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme
Court a verified petition for review on certiorari
2. Interlocutory orders of the CTA are not applicable

VII.

Order of the CTA

A. CTA ruling, order or decision favourable to the national government
1. The Court shall issue an order authorizing the BIR, through the Commissioner, to seize 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
2. The Court shall issue an order authorizing the BIR, through the Commissioner, to levy the
real property of such persons in sufficient quantity to satisfy the tax or charge together with
any increment incident to delinquency
B. The remedies of seizure, distraint and levy shall not be exclusive and shall not preclude the Court
from availing of other means under the Rules of Court

LOCAL TAX
(Sections 128 to 16 of the Republic Act No. 7160)
Course Outline
I.

Local Government Units & Scope of Local Taxation

II.

Power to Create Sources of Revenue

Limitations on the Residual Taxing Power

A.
B.
C.
D.
E.

Constitutional Limitations
Fundamental Principles
Public Hearing Requirement
Principle of Pre-emption or Exclusionary Rule
Section 133 Common Limitations on the Taxing Power of LGUs

III.

Authority to Grant Tax Exemption Privileges

A. Grant of Tax Exemptions
B. Grant of Tax Reliefs

IV.

Withdrawal of Tax Exemption Privileges

V.

Fundamental Principles

VI.

Local Taxing Authority

VII.

Local Tax Ordinance Procedure for Approval and Effectivity

A. Mandatory Public Hearings
B. Publication of Ordinances
C. Furnishing of Copies
D.
E.
F.

Coca-Cola Philippines, Inc. vs. City of Manila, SC GR No. 156252, June 27, 2006
Question of Constitutionality and Legality
Void or Suspended Tax Ordinances
Penalties for Violations of Tax Ordinances

VIII.

Common Limitations on the Taxing Power of the LGUs

IX.

Common Revenue-Raising Power of LGUs

A. Service Fees and Charges
B. Public Utility Charges
C. Toll Fees or Charges

X.

Scope of the Power to Tax

Land Transportation Office vs. City of Butuan, SC GR No. 131512, January 20, 2000
Petron Corporation vs. Mayor Tobias M. Tiangco, et. al. SC GR No. 158881, April 16, 2008

A.

Province
1. Tax on Transfer of Real Property Ownership
2. Tax on Business of Printing and Publication
3. Franchise Tax
4.
5.
6.
7.

B.

PLDT vs. Province of Laguna, et al, SC GR No. 1518, August 16, 2005
National Power Corp. vs. Province of Isabela, SC GR No. 165827, June 16, 2006
Tax on Sand, Gravel and Other Quarry Resources

Lepanto Consolidated Mining Co. vs. Hon. Mauricio Ambanloc, CTA AC No. 13, February 27, 2006
Professional Tax
Amusement Tax

Republic Act No. 9640

Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers/Producers/Wholesalers

Municipality
1. Fees and Charges

2.
3.
4.

Fees for Sealing and Licensing of Weights and Measures

Fishery Rentals, Fees and Charges
Tax on Business
a. Tax rates within Metro Manila Area
b. Tax period
c.
d.
e.
f.
g.
h.
i.
j.

Mobil Phils., Inc. vs. City Treasurer of Makati, SC GR No. 154092, July 14, 2005
Accrual of tax
Time and manner of payment
Payment of business taxes, multiple business establishment/lines
Situs of the tax
Collecting authority
Examination of books of accounts
Surcharges and penalties on unpaid taxes
Retirement of business

C.

City

D.

Barangays
1. Taxes on Stores or Retailers
2. Service Fees or Charges
3. Barangay Clearance
4. Other Fees and Charges

Same as that of the provinces and municipalities

Tax rates allowed to cities

XI.

Authority of LGUs to Adjust Rates of Tax Ordinances

XII.

Community Tax
A. Covered Taxpayers
1. Individuals
2. Juridical Persons
B. Exemptions Granted
C. Place of Payment
D. Time of Payment
E. Penalties for Delinquency
F. Other Matters

XIII.

Government Remedies for Collection of Tax Delinquencies, Fees, Charges and Other Revenues
A. Local Governments Lien
B. Assessment Period
C. Collection Period
D.

Suspension of the running of the periods of prescription

Civil Remedies
1. Administrative Action
a. Distraint
b. Levy
2.

XIV.

Properties exempt from distraint or levy

Judicial Action

Taxpayers Remedies
A. Protest by means of Appeal to the Secretary of Justice
B. Protest Against Assessment
C. Claim for Refund and Tax Credit

REAL PROPERTY TAX

(Sections 197 to 283 of the Republic Act No. 7160)
Course Outline
I.
II.

Local Government Units

Definition of Terms
A. Real Property
B. Improvement
C. Machinery
D. Real Property Tax

III.

Characteristics of Real Property Tax

IV.

Power to Levy Real Property Tax

V.
VI.

Sta. Lucia Realty & Devt., Inc. vs. City of Pasig, et. al., SC GR No. 166838, June 15, 2011
Local Taxing Authority
Exemptions from Real Property Tax, Proof of Exemptions
A. Section 234, LGC

B.
C.
VII.
VIII.
IX.

X.

City of Pasig vs. Republic of the Philippines, SC GR No. 185023, August 24, 2011
Philippine Fisheries Devt Auth. vs. CBAA, et al, SC GR No. 178030, December 15, 2010
Manila International Airport Auth. vs. CA, et al, SC GR No. 155650, July 20, 2006
Lung Center of the Phils. vs. Quezon City, et al, SC GR No. 144104, June 29, 2004
National Power Corporation vs. CBAA, LBAA, et al, SC GR No. 171470, January 30, 2009
NPC vs. Province of Quezon & Mun. of Pagbilao, SC GR No. 171586, July 15, 2009
Condonation or Reduction of Real Property Tax and Interest
Condonation or Reduction of Tax by the President of the Philippines

Fundamental Principles
Basis for Assessment of Real Property Tax
Types and Rates of Real Property Tax
A. Basic Real Property Tax
B. Special Education Fund
C. Ad Valorem Tax on Idle Lands
a. Idle lands, coverage
b. Exempt idle lands
D. Special Levy
a. Ordinance & its publication
b. Remedies of taxpayer against special levy
c. Fixing the amount
d. Exemption
Classes of Real Property

Fortich vs. Corona, SC GR No. 131457, November 17, 1998

Patalinghug vs. CA, SC GR No. 104786, January 27, 1994
A.
B.
C.
D.
E.
F.
G.

Commercial Land
Agricultural Land
Residential Land
Mineral Land
Industrial Land
Timberland
Special Class (lands, buildings and other improvements)
a. Hospitals
b. Cultural purpose
c. Scientific purpose

d.
e.

XI.

Those owned and used by local water districts

GOCCs rendering essential public services in the:
1. supply and distribution of water
2. generation and transmission of electric power

Procedure in the Administration of Real Property Tax

A. Declaration of Real Property
a. by the owner, duties
b. by the assessor
B.

C.

D.

property declared for the first time

Listing of Real Property in the Assessment Rolls

Notification of transfer of real property ownership

1. Duty of any person transferring real property

2. Duty of Register of Deeds to appraise assessor
3. Duty of official issuing building permit or certificate of registration of machinery
4. Duty of Geodetic Engineers
Appraisal and Valuation of Real Property
a. parcel of land
b. building and improvement
c. machinery

depreciation and allowance

Determine the Assessed Value

a. valuation of real property

Allied Banking Corp., vs. Quezon City Govt., SC GR No. 154126, October 11, 2005

b. assessment levels
a. effectivity of assessment of reassessment
b. general revision of assessment and property classification
c. notification of new or revised assessment
E.

XII.

Government Remedies for Collection of Tax Delinquencies, Fees, Charges and Other Revenues
A. Local Governments Lien
B. Assessment Period
C. Collection Period
D.

XIII.

Callanta vs. Office of the Ombudsman, SC GR No. 115253-74, January 30, 1998

Payment and Collection of Tax

a. accrual of tax
a. real property tax and special education fund
b. special levy
b. collection of tax, notice of time
c. time and manner of payment
a. full payment
b. installment
d. tax discounts
a. advance payment
b. prompt payment
e. payment of delinquent taxes

Suspension of the running of the periods of prescription

Civil Remedies
1. Administrative Action
a. Distraint
b. Levy
2. Judicial Action

Taxpayers Remedies
A. Protest by means of Appeal to the Secretary of Justice
B. Protest Against Real Property Tax Deficiency
payment under protest
C.

City Govt of QC vs. Bayan Telecommunications, Inc., SC GR No. 162015, March 6, 2006
NPC vs. Province of Quezon and Mun. of Pagbilao, SC GR No. 171586, January 25, 2010
Protest Against Assessment

D.
E.

Claim for Refund and Tax Credit

Redemption of Property

F.

Judicial Remedy assailing the validity of the sale

Estate of the Late Mercedes Jacob vs. CA, SC GR No. 120435, December 22, 1997

QC Mayor, City Treasurer, City Assessor vs. RCBC, SC GR No. 171033, August 3, 2010

TARIFF AND CUSTOMS DUTIES

(Selected Sections in the Tariff and Customs Code)
Course Outline
I.

Scope of Tariff and Customs Laws, Section 3514

II.

Division of the TCC

Book I Tariff Laws
Book II Customs Laws

III.

Administration, who is in-charge?

B. The Tariff Commission
1. Functions of the Tariff Commission
C. The Bureau of Customs
a. Functions of the Bureau of Customs
b. Jurisdiction of the Collector of Customs Over Importation of Articles, Section 1206
Territorial Jurisdiction of the Bureau of Customs
Jurisdiction Over Premises Used for Customs Purposes, Section 604
Doctrine of Hot Pursuit
Doctrine of Primary Jurisdiction: RTC vs. BOC

IV.

Tariff and Customs Duties

A. Tariff
B. Customs Duties

Goods for Customs Duty Purposes

Kinds of Goods/Merchandise or Classes of Importations
1.
2.

3.
V.

Articles subject to duty

Prohibited importations
a. Absolutely prohibited
b. Qualified prohibited where such conditions as to warrant a lawful importation do not
exist, the legal effects of the importation of qualifiedly prohibited articles are the same as
those of absolutely articles
Conditionally free importations

Importation
A. When are Tariff and Customs Applied?
B. When Importation Begins and When Deemed Terminated, Section 1202
C.
D.
E.

F.
G.

Commissioner of Customs vs. CTA, et. al., SC GR. No. 171516-17, February 13, 2009
Government Importations
Owner of Imported Articles
Entry through Customhouse, Section 1201
1. Cargo Manifest
2. Import Entry
a. Person Authorized to make and Import Entry
b. Import Entry filed by Person Other than Importer
c. Period of filing of Import Entry
Disposition of Imported Articles
Abandonment
1. Kinds
2. Effects

Chevron Philippines, Inc. vs. Comm of Customs, SC GR. No. 178759, August 11, 2008

VI.

Classification of Customs Duties

A. Ordinary or Regular Customs Duties, Section 104
1. Ad Valorem
a. Basis of Dutiable Value, Section 201, as amended by RA No. 8181
b. Transaction Value
c. Export Value
d. Home Consumption Value
e. Procedure for Determination of Dutiable Value

f. Sequence in Determination of Value

Specific
Basis for Dutiable Weight for Specific Customs Duties, Section 202
Special Customs Duties
1. Dumping duty
2. Countervailing duty
3. Marking duty
4. Retaliatory or Discriminatory duty
Other Customs Fees, Dues or Charges Payable
1. Harbor Fees
2. Wharfage dues
3. Berthing fees
4. Storage fees
5. Arrastre charges
6. Tonnage dues
7. Other fees and charges
2.

B.

C.

VII.

Flexible Tariff Clause, Section 401

VIII.

Liability for Customs Duties

A. General Rule and Exceptions
B. Extent of Importers Liability
C. Drawbacks, when allowed

IX.

Liquidation, Section 1601-1603, as amended

X.

Failure to Pay Duties and Taxies; Fraudulent Practices

A. Failure to Pay Correct Duties and Taxes
B. Fraudulent Practices
1. Smuggling or Unlawful Importation, etc.
2. Evidence for Conviction
C. Three (3) Degrees of Culpability
1. Negligence
2. Gross Negligence
3. Fraud

XI.

Kinds of Proceedings in Customs Cases

A. Customs Protest Cases
1. Nature
a. When applicable
b. When not applicable
2. Requirements
3. Procedure

Limitations Imposed

Automatic Review & Supervisory Authority of Customs & Secretary of Finance

B.

4. Burden of Proof
Seizure and Forfeiture Cases
1. Nature
2. Authority to Enforce
3.

Doctrine of Primary Jurisdiction

Articles Subject to Confiscation

a. Smuggling or Unlawful Importation
Evidence for Conviction
b.

4.
5.

El Greco Ship Manning & Mgt. Corp. vs. CoC, SC GR. No. 177188, December 4, 2008

Port of Entry
Meaning of Entry
c. Forfeiture of Common Carriers
d. Properties Not Subject to Forfeiture
Requirements
Places where Search and Seizure may be conducted

6.
7.
8.
9.
XII.

Goods in Customs Custody not subject to attachment

Settlement of Forfeiture Cases

Acquittal in Criminal Charge Not Res Judicata

Abatement
Procedure
Burden of Proof

Tax Remedies
A. Government
1. Administrative
a. Tax Lien, Section 1508
b. Seizures and Forfeiture, Section 2205
c. Administrative Fines
d. Reduction of Customs Duties/Compromise
2. Judicial
a. Civil Action
b. Criminal Action
B.

Taxpayer
1. Administrative
a. Protest, Section 2308 to 2309, 2312
b. Refund, Sections 1707 to 1708
c. Settlement of any seizure by payment of fine or redemption
d. Appeal
2. Judicial
a. Appeal
b. Action to question the legality of seizure
c. Abandonment, Section 1801 to 1803