Based on UP and Ateneo Law Reviewers and PM Reyes Bar Reviewer

Estate Tax
Estate tax- graduated tax imposed upon in the privilege of the decedent to
transmit property at death and is based on net estate, considered as a unit, and
determined by subtracting allowable deductions from the gross estate.
Nature
1.
2.
3.
4.
5.

Excise of privilege tax

Imposed on right to succeed, receive, take property
Under a will or intestancy law
Deed, grant or gift
Become operative at or after death

Purpose
1. Object of estate tax- tax shifting of economic benefits and enjoyment of
property from dead to living
2. Give added income to the government
Justification
1. Benefit received
theory
2. Privilege theory or
state partnership
theory
3. Ability to pay
theory
4. Redistribution of
wealth theory

Time
Decedents interest is to
its extent at the time of
his death regardless if it
is indicated in a will that
selling or disposition of
his property should be 10
years after his death.
It should be measured by
the value of the estate as
it stood at the time of the
decedents death,
regardless if any
postponement of actual
possession or any
subsequent increase or
decrease in value.
(Lorenzo vs. Posadas

Taxable transfers
1. Transfer mortis cosa
2. Transfer inter vivos
a. Contemplation of
death
b. Transfer with
retention or
reservation of
certain rights
c. Revocable
transfers
d. Transfer of
property arising
under general
power of
appointment
e. Transfer for
insufficient
consideration

Estate tax
transfers without onerous consideration
Tax on the privilege to transfer property
upon ones death (mortis causa)
Max tax rate of 20% on net estates
exceeding P10 million and the first
P200,000 is exempt

Donor Tax
transfers without onerous consideration
Tax on the privilege to transfer property
during ones lifetime (inter vivos)
Max tax rate is 15% on the net gifts
exceeding P10 million and first P100,000
is tax exempt

Residence- permanent home

Gross estate- value of all property, real or personal, tangible or intangible, actual
and beneficial ownership of which was in the decedent at the time of his death
Net estate= gross estate all deductions
Citizen/Resident Alien
Within and without RP

Non- Resident Alien

Within RP only except:
1. Intangible personal property in the
Philippines- unless exempted on
basis of the principle of reciprocity
2. Intangible personal property
outside the RP

Intangible Properties within RP

1. Franchise exercised in RP
2. Share, obligation or bond issued by RP only
3. Share, obligation or bond issued by any foreign corporation 85% of business
in RP
4. Share, obligations or bond issued by foreign corporation with business situs in
RP
5. Share or rights in any business established in RP

Reciprocity clause (there must be total reciprocity, CIR vs Fisher)

Intangible personal property of a decedent who is a non-resident alien, with a situs
in RP shall not form part of the gross estate if:
1. The decedent at that time of his death was a citizen and resident of a foreign
country which at the time of his death
a. Did not impose a transfer tax or death tax of any character
b. In respect of the intangible personal property of citizens of the Philippines not
residing in that foreign country
2. law of foreign country which the decedent was a citizen and resident at the time
of his death:
a. allow a similar exemptions from transfer taxes or death taxes of every character
b. in respect of the intangible personal property owned by citizens of the Philippines
not residing in that foreign country.
Valuation
Real property= FMV by Commissioner of FMV by assessors whichever is higher
Personal Property= FMV at time of death
Shares of stocks
1. Listed shares= average of highest and lowest quotation date nearest to death
2. Unlisted shares= common shares book value; preferred shares= par value
3. Right to usufruct, use or habitation annuity= DOF, IC approved ; latest basic
standard maturity table
Included in the gross esate
1. Actually and physically present properties at time of death
2. Decedents interest
3. Not physically present
a. Transfer in contemplation of death
b. Transfer with retention or reservation of certain rights
c. Revocable transfers
d. Property passing under a GPA
e. Transfers for insufficient consideration
f. Proceeds of life insurance
g. Claims against insolvent persons

h. Capital of surviving spouse

Property owned actually and physically present at death- lands, buildings,
shares of stocks, vehicles, bank deposits, etc.
Decedents interest- dividends etc.
Not physically present
1. Transfers in contemplation of death
- Motivating factor or controlling motive is the thought of death
- Not applicable if bona fide sale for an adequate
2. Transfers with retention/reservation of certain rights- transfer during life but
still retain economic benefits; except bona fide sale
Illustration- X transfers his property to Y in naked ownership and to Z in usufruct
throughout Zs lifetime. It is subject to the condition that if Z predeceases X, the
property shall return to X. If X dies during Xs life, the value of the reversionary
interest of X at death is includible in his gross estate. The transfer is taxable as
intended to take effect at or after death because the possibility of reversion to X
make Zs interest conditional as long as X lives.
Revocable transfers- Decedents transfer of only interest by trust or otherwise,
where the enjoyment thereof was subject at the date of his death to any change
through the exercise of power by the decedent ALONE or by the decedent IN
CONJUNCTION WITH ANY OTHER PERSON, to ALTER, AMEND, REVOKE or TERMINATE
such transfer or where such power which would bring the property in the taxable
estate is relinquished in contemplation of the decedents death.
Except: Bona fide sale for an adequate and full consideration
Power to alter, amend or revoke exist even though:
1. Exercise of the power is subject to a precedent giving of notice or
2. Alteration, amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or before the
date of the decedents death notice has been given or the power has been
exercised.- if not given before date of death, it shall be considered as deemed
given/exercised on date of death.
GPA- appoint any person he pleases
SPA- restricted or designated class of persons other than self- property by SPA
excluded from gross estate
Gross estate includes GPA if:
1. By will

2. By deed executed in contemplation of or intended to take effect in possession

or enjoyment at, or after his death, or
3. By deed which he retained:
a. Possession or enjoyment or right to the income from, property or
b. Right, either alone or in conjunction which any person to designate the
persons who shall possess or enjoy the property or the income therefrom
Except: bona fide sale for an adequate and full consideration
Transfer for insufficient consideration will be included if: (includible amount is excess
of the FMV at the time of death over the value of the consideration received)
1. In contemplation of death
2. Revocable transfer
3. GPA property
Otherwise it will be considered for donors tax computation
Case A bonafide- no value shall be included in the gross estate
Case B not bonafide excess of FMV part of Gross estate
Case C proven fictitious/simulated- total value of property at time of death
included in gross estate
Proceeds of life insurance taxable
1. Beneficiary is the estate of the deceased, his executor or administrator,
irrespective of whether or not the insured retained the power of revocation
2. Beneficiary is other than the decedents estate, executor or administrator,
when designation of beneficiary not expressly made irrevocable
Proceeds of life insurance not taxable
1. Accident insurance proceeds
2. Proceeds of a group insurance policy (Mortgage redemption insuranceMRI) taken out by a company for its employees
3. Amount receivable by any beneficiary irrevocably designated in the policy
of insurance by the insured. The transfer is absolute and the insured did
not retain any legal interest in the insurance
4. Proceeds of insurance policies issued by the GSIS to government officials
and employees which are exempt from all taxes
5. Benefits accruing under the SSS law
6. Proceeds of life insurance payable to heirs of deceased members of
military personnel
Policy before marriage- sources of funds determine ownership of the proceeds of life
insurance
Policy taken during marriage

a. Beneficiary is estate of the insured- presumed conjugal; share of the

surviving spouse is not taxable
b. Beneficiary is 3rd person- proceeds are payable to beneficiary even if
premiums were paid out of conjugal
Prior interests
I. transfer in contemplation of death
Not a transfer in contemplation of death if:
1. desire to see his children enjoy the property while the donor is still alive
2. Save income or property taxes
3. Settle family disputes
4. Relieve donor from administrative burden
5. Reward services rendered
6. Provide independent income for dependents
II. Revocable transfers
III. Proceeds of life insurance
Resident or citizen decedent
Gross Estate (all properties within and
without RP
Less: Deductions
1. Ordinary deductions- ELIT
(expenses, losses, indebtedness,
taxes)
a. Funeral
b. Judicial
c. Claims against estate
d. Claims against insolvent person
e. Unpaid mortgage and debt
f. Taxes
g. Losses
2.
3.
4.
5.

Vanishing deductions
Transfers for public use
Amounts received under RA 4917
Special deductions
a. Family Home
b. Standard Deduction
c. Medical Expenses
6. Share in conjugal property

Non-resident alien decedent

Gross Estate located in RP property
Less: Deductions
1. Ordinary deductionsProportionate ELIT
a. Funeral
b. Judicial
c. Claims against estate
d. Claims against insolvent
persons
e. Unpaid mortgage and debt
f. Taxes
g. losses
2. vanishing deductions
3. transfers for public use
4. amount received under RA 4917
5. share in conjugal property

*NRA= Gross estate phil/gross estate world X world expenses, losses,

indebtedness, taxes, etc.
Funeral Expense-not exceed P200,000 and whichever is lower in actual
funeral expense or 5% of gross estate.
1. Mourning apparel
2. Expenses of the wake
3. Publication charges
4. Telecommunications expenses
5. Cost of burial plot, tombstones, monument or mausoleum
6. Interment and/or cremation fees and charges
7. Rites and ceremonies incident to interment
Not deductible- after interment, borne or defrayed by relatives and friends, medical
expenses
Example:
1. 5% is P220,000 and actual amount is P215,000- max deductible if P200,000
2. 5%- P100,000 and total amount is P150,000 with P20,000 still unpaid
deductible is P100,000
Judicial expenses- With receipts and invoices or sworn statement of account
1. Inventory- taking or collection of assets
2. Comprising estate, their administration
3. During the settlement of estate but not beyond the last day prescribed by law
or for filing of estate tax return
Example of Judicial expenses
1.
2.
3.
4.

Actual judicial or court expenses

Fees or executor or administrator
Attorneys fees
Expenses of administration such as:
a. Accountants fees
b. Appraisers fees
c. Clerk hire
d. Cost of preserving and distributing the estate
e. Cost of storing or maintaining property of the estate
f. Brokerage fees for selling property of the estate
5. Notarial fee
Claims against estate
1. Debts or demands of a pecuniary nature
2. Could have been enforced against the deceased in his lifetime and could
have been reduced to simple money judgment
3. Contract, tort or operation of law
4. Duly notarized except if granted by financial institutions

5. Loan was contracted within 3 years before death of decedent, administrator

or executor shall submit a statement under oath showing the disposition of
the proceeds of the loan
To be deductible it should be (PVNGF)
1
2
3
4
5

Personal obligation
Good faith
Valid in law
Enforceable in court
Non condoned or not prescribed

Claims against insolvent persons

1. Not collectible
2. Should be proven although judicial declaration not required
Unpaid mortgages
1. Gross estate must include fair market of property encumbered by such
mortgage or indebtedness
2. Deduction shall be limited to the extent that they were contracted bona fie
and for an adequate and full consideration in money or moneys worth, if
such unpaid mortgages or indebtedness were founded upon to promise or an
agreement
Taxes- accrued and unpaid at death
This deduction does not include income tax upon income received after death, or
property taxes accrued after his death, or the estate tax due from the transmission
of his estate
Losses
1.
2.
3.
4.

Incurred during settlement of estate

Fortuitous events like fires, storms, etc
Not compensated by insurance or otherwise
Losses not claimed as a deduction for income tax purposes in an income tax
return of the estate subject to income tax
5. Not later than the last day for payment of the estate tax (6 months after the
death of the decedent)
6. Properly previously taxed- vanishing deductions
Example: A died in December 2003, March 2003
B (As father died) and left A same properties as inheritance
Vanishing deductions applicable as long as PINID
a. Death
b. Identity of the property

c.
d.
e.
f.

Location of the property

Inclusion of the property
Previous taxation of the property
No previous vanishing deduction

Example:
A inherited
Subtract mortgage
Initial basis

P870000
70000
P800000/total amount * ordinary
expenses* multiply with vanishing
deduction rate

Vanishing deduction rate

100%

1 yr prior to the death (inheritance or

gift) of the present decedent
More than 1 yr to 2 yr
More than 2 yr to 3 yr
More than 3 yr to 4 yr
More than 4 yr to 5 yr

80%
60%
40%
20%
Special deductions
Family home- maximum of P1M
1.
2.
3.
4.
5.
6.
7.

Dwelling house
Actual residential home
Value of family home part of gross estate
FMV current not exceed P1M
Married or head of the family
Beneficiaries dwelling in family home
Owned by decedent

Beneficiaries of family home

a. Husband, wife, head of family
b. Parents, ascendants, descendants
c. Brothers and sisters

Medical expenses- max P500k

a. 1 yr prior to death
b. With receipts and documents
Net share of surviving spouse in the conjugal partnership

Property- of 50%
Transfer for Public Use
1. the disposition is in the last will and testament
2. take effect after death
3. in favor of the government of the Philippines or any political subdivision thereof
4. exclusive for public purpose
5. value of property given is included in the gross estate.
Exemptions and exclusions from gross estate
1. Capital/paraphernal of surviving spouse
2. Property outside RP of non-resident alien decedent
3. Intangible personal property in the Philippines of a non-resident alien if there
is reciprocity
4. Merger of usufruct of naked title owner
5. Transmission or delivery of inheritance or legacy by fiduciary heir to
fideicomissary
6. Transmission from 1st heir, legatee or done in favor of another beneficiary
7. Bequests, devices, legacies or transfers to social welfare, cultural and
charitable institutions, no part of the net income of which inures to the
benefit of any individuals- not more than 30% used for administration
purposes
Exclusions under special laws
1.
2.
3.
4.

Proceeds of life insurance benefits received by GSIS members

SSS
Damages from last war
US Veterans Administration

Tax Credit- remedy against international double taxation

Notice of death to BIR- within 2 months

Estate tax return

a. Estate subject to estate tax
b. Exceed P200K
c. Registered/ registrable property (AAB, RDO, collection officer)
Donors Tax

Donors tax
a.
b.
c.
d.
e.

f.

Inter vivos
Made between living persons to take effect during the lifetime of the donor
Supplements estate tax
Completed gift before application
Prevent avoidance of income tax through the device of splitting income
among numerous donees, who are usually members of a family or into many
trusts, with the donor thereby escaping effect of progressive rates of income
tax
Raise revenues, tax wealthy and reduce certain other excise taxes,
discourage inter vivos transfers, reduce incentive to make gifts in order that
distribution of future income

Valid Donation (Requisites CIDA)

a.
b.
c.
d.

Capacity to donate of donor

Intent to donate
delivery
Acceptance of done

Incomplete gift because of reserved powers become complete if donor renounces

power or right to exercise reserved power ceases
Pirovano vs. CIR doctrine-The donation is not remuneratory as A has been fully
compensated for his services. A donation made by the corporation to the heirs of a
deceased officer out of gratitude for the officers past services is considered a
donation and is subject to donees gift tax. The fact that his services contributed in
a large measure to the success of the company did not give rise to a recoverable
debt, and the conveyances made by the company to his heirs remain a gift or
donation.
Valid donation of a movable
1. oral or writing (if more than P5000, donation and acceptance in writing)
2. delivery

Valid donation of an immovable

1. public document
2. specified

3. Acceptance through a deed or similar instrument

Transfer which may be constituted as donation

a. Sale/exchange/transfer of property for insufficient consideration- property
subject to final capital gains tax but transferred for less than an adequate and
full consideration in money/moneys worth
FMV of property> value of agreed or actual consideration or selling price
Shall be deemed a gift
b. Condonation/permission of debt- debtor did not render
Service in favor of the creditor
FMV> GSP- capital gains tax
Real property considered capital assets are excepted
Examples:
1. A sold his lot to his brother for P500,000. FMV P1M. A bought it for P100,000.
Shares sold at P300,000; FMV P500,000 and bought P100,000.- Lot not subject to
donors tax it is a real property classified as capital asset and subject to 6% CGT.
Shares are subject to 30% donors tax based on the difference between the selling
price and market value.
2. Creditors A, B and C condoned debt of XYZ corporation due to restructuring- Not
subject to donors tax since condonation was not implemented with a donative
intent but only for business consideration. Restructuring not result of mutual
agreement bet debtor and creditor but through court action of debt rehab plan.
3. Transfer through special purpose vehicle (SPV)- not subject to donation
4. Renunciation of hereditary share of B in As estate for X who is a special child- Yes
donors tax. Renunciation was specifically and categorically done in favor of X and
identified heir to the exclusion or disadvantage of other heirs in the hereditary
estate. If not specifically or categorically done, not subject to donors tax.
Intangible property rules (same with that in Estate)
Classifications
a. Citizen/resident- all within and without RP
b. Non-resident alien- within RP only
Reciprocity and intangible property rules- see Estate
Determination of Gross Gift
a. Real and personal property gifts
b. Real and tangible personal property gifts

Composition of gross gift- inter vivos donations

1. Transfer is in trust or otherwise
2. Gift is direct or indirect
3. Real, personal, tangible or intangible
Valuation of gifts; amount of gift= FMV at time of donation
Real property= zonal value or latest schedule of values of the provincial and city
assessor- whichever is higher
Improvement- construction cost per building permit and/or occupancy permit plus
10% per year after year of construction of FMV per latest tax declaration
Computation of donors tax
Gross gift made
-deductions from gross gifts
Net gifts made
*multiplied by applicable rate
Donors tax on the net gifts
If several gifts
Gross gifts made or this date
Less: Deductions from gross gifts
Net gifts made on this date
Add: all prior net gifts during the year
Aggregate net gifts
Multiplied by applicable rate
Donors tax on the aggregate net gifts
Less: donors tax paid on prior net gifts
Donors tax due on the net gifts to date
Tax rate applicable= graduated, however if stranger, then 30% of net gifts
Stranger is
1. Not a brother, sister (whole/half-blood), spouse, ancestor or lineal descendant
2. Not a relative consanguinity in the collateral line within 4 th degree of
relationship
Limitations on tax credit:
1. Net gift (foreign country)/ entire net gifts * Philippine donors tax
2. Net gift (all foreign countries)/ entire net gifts * Philippine donors tax
Exemptions

1. Dowries or donations made (max P10k)

a. On account of marriage
b. Before its celebration or within 1 yr
c. By parents to each of their legitimate, recognized, natural or adopted
children
d. To the extent of the 1st P10k
e. Not be availed by non-resident alien
If both parents donated= to each donor spouse (separate filing)
2. National government use
3. Educational, charitable, religious, cultural or social welfare (not more than
30% for administration purpose)
File within 30 days- donors tax return

VAT
Concept
1. Percentage tax on sale, barter, exchange or lease of goods, properties,
services
2. Output- input tax= VAT

3. Excise tax= privilege tax

4. Ad valorem tax= gross value or GSP in money of goods and services
Characteristics
1. Tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goofs into RP
2. Indirect tax
3. Not oppressive, arbitrary and confiscatory
4. Uniform
5. Equitable
6. Regressive
Impact of taxation- statutory payer, seller or importer, one whom government
collects
Incidence of taxation- bears burden; final consumer
Tax credit method- input taxes shifted by the sellers to the buyer are credited
against the buyers output taxes when he in turn sells the taxable goods, properties
or services
Destination Principle- jurisdictional reach of VAT, where country they are consumed
Cross Border Doctrine- no VAT shall be imposed to form part of the cost of the goods
destined for consumption outside the territorial border of the taxing authority
Persons liable:
1. sells, barters, or exchanges goods or properties (seller or transferor)
2. leases goods or properties (lessor)
3. Renders services (service provider)
4. Import goods (importer), whether or not made in the course of trade or business
Absence of this will not be subject to VAT reimbursable (CIR vs Sony)
Sale of parking lot not included in sale of condominium unit (RR 13-2012)

Ecozones
1.
2.
3.
4.

Separate customs authority

Legal fiction of foreign territory
Zero-rated
Same treatment with customs territory- also 0% VAT

2 types of Zero-rated transactions

1. Automatic- refers to export sale of goods, properties and supply of services by a
VAT-registered person
2. Effective- refers to local sale of goods and properties by a VAT-registered person
to a person or entity who was granted direct and indirect tax exemption under
special laws or international agreements
To be entitled to refund as in the case of Sitel vs CIR:
1. zero-rated or effectively zero-rated sales
2. input taxes were incurred or paid
3. such input taxes are directly attributable to zero-rated or effectively zero-rated
sales
4.input taxes were not applied against any output VAT liability and
5. claim for refund was filed within the 2-year prescriptive period
Customs territory- national territory of the Philippines outside of the proclaimed
boundaries of the ECOZONEs except those areas specifically declared by other laws
and/or presidential proclamations to have the status of special economic zones
and/or free ports
a. Sale of services by ecozone enterprise, to another ecozone enterprise (intraecozone), enterprise (sale of service)
- PEZA registered subject to 5% special tax regime (exempt from VAT)
- If PEZA registered subject to tax under NIRC= 0% VAT under CROSS
BORDER DOCTRINE
b. VAT-Exempt supplier from customs territory to a PEZA registered enterpriseexempt from VAT
c. PEZA registered enterprise- technical importation, imposed with
corresponding VAT
d. Sale of Services by a PEZA registered enterprise to a buyer from the customs
territory- 12% VAT
e. Sale of Goods by a PEZA registered enterprise to another PEZA registered
enterprise-exempt from VAT
In the course of trade or business- regular conduct or pursuit of a commercial or
any economic activity including transactions incidental thereto
-

Non-residents who perform service in RP deemed making sales in the

course of trade or business
Membership fees and association dues collected by clubs, condominium
corporations (subject to VAT)

Except if:
1. Gross annual sales and/or receipts do not exceed P1,919,500
2. Taxpayer is not a VAT- registered person
-taxpayer should by 3% tax equivalent of his gross monthly sales/receipts
-marginal income earners- not subject to business taxes because they are not
considered as engaged in trade or business
-not exceeding P100,000 gross sales or receipts per year
IMPORTERS SHOULD PAY VAT
VAT ON SALE OF GOODS OR PROPERTIES (12% VAT)
Goods or Properties
1.
2.
3.
4.
5.

Real properties
Patent copyright et.al.
Right to use RP of any industrial, commercial, or scientific equipment
Right or privilege to use motion picture films, film tapes/discs
Radio, tv, satellite transmission and cable tv time

Requisites
1.
2.
3.
4.

Actual or deemed sale

In the course of trade or business
RP consumption
Not exempt from VAT

GSP
1. If real property- sales document or FMV
a. CIR zonal value
b. Assessor real property tax declaration
2. Sale of residential lot> P1,919,500
3. House and lot/other residential dwelling> P3,199,200
4. Lease of residential until > P12,800/mo or P1,919,500/year
Exclusive of VAT and also if not billed separately, exclusive of VAT as well
Not taxable
1.
2.
3.
4.
5.
6.
7.
8.
9.

Not primarily for sale

Low cost or socialized housing
Residential lot < P1,919,500
House and lot/dwelling< P3,199,200
Lease < P12,800/mo or P1,919,500 per year
Transmission of a trustee
Transfer to corporation in exchange of stocks
Advance payment by lessee
Security deposits for lease agreements

1. Installment plan- initial payments before execution of sale, including

downpayments, etc

- Do not exceed 25% of GSP

- Taxable only or payment actually or constructively received
2. Deferred Payment- initial payments exceeds 25% of GSP
-treated as cash sale and the entire selling price is taxable on the month of
sale
Zero-rated goods
a. A zero-rated sale by a VAT-registered person is a taxable transactions for VAT
purposes, but shall not result in any output tax
b. However, input tax on purchases of goods, properties or services related to such
zero-rated shall be available as tax credit or refund
Export sales
a. Sale and actual shipment of goods from RP to other country
b. Sale of raw materials or packaging materials to a nonresident buyer for
delivery to a resident local export oriented enterprise
c. Sale of raw material/packaging materials whose export sales exceed 70% of
annual production
d. Sale of gold to BSP
e. Those considered export sales under the Omnibus Investment Code of 1987
Constructive Exports
1.
2.
3.
4.
5.

Sales to bonded manufacturing warehouses of export-oriented manufacturing

Sales to export processing zones
Sale to registered export traders
Sale to diplomatic mission and other agencies
Sale of goods, supplies equipment fuels- another export sale

Foreign Currency Denominated Sales (FCDS)

1. Sale to a nonresident of goods, except those mentioned in Sections 149 and
150 for delivery to a resident in the Philippines paid in acceptance foreign
currency and accounted for in accordance with the rules and regulations of
the BSP
2. Sales of locally manufactured or assembled goods for household and personal
use to Filipino abroad and other non-resident of RP

Transactions deemed sale= 12% VAT, fair market value and acquisition
cost (applicable in San Roque vs CIR)

1. Consignment of goods if actual sale not made within 60 days- not deemed sold
2. Distribution or transfer to shareholders, investors, or creditors
3. transfer, use or consumption not in the course of business of goods/properties
originally intended for sale or use in the course of business
4. Retirement or cessation of person or business= 12%
Exempt:
1. Change or control of a corporation
2. Merger or consolidation
3. Change in the trade or corporate name
Gross receipts- total amount of money or its equivalent representing the contract
price, compensation, service fee et.al. actually or constructively received
Constructive receipts- money consideration or its equivalent is placed at the control
of the person who rendered service without restrictions by the payor
-

Deposits in banks, issuance by debtor of notice to accept, transfer of

amounts retained by contractee to account of the contractor

Requisites for a taxability

1.
2.
3.
4.

Performed in the course of trade or business in RP

Valuable consideration actually or constructively received
Service is not exempt under Tax Code, special law or international agreement
Person selling or rendering service is liable to VAT

Meaning of sale/exchange of services

1. Contractors
2. lessors
3. brokers
4. warehousing services
5. cinematographic films
6. milling, processing, manufacturing
7. movie houses
8. eating places
9. dealers in securities
10.lending
11.transportation
12.common carriers
13.electricity
14.franchise grantees
15.non-life insurance
16.others
17.copyright et.al.
Zero-rated sale of services

1.
2.
3.
4.
5.
6.
7.
8.
9.

VATable
But no output tax
Input tax for tax credit or refund
For other persons doing business outside RP
Person engaged in business conducted outside the RP or a nonresident
person not engaged in RP
Exemption under special laws or international agreements
Subcontractors and/or contractors
Transport of passenger and cargo
Sale of power or fuel generated through renewable sources of energy

VAT exempt (see previous pages for not taxable)

1. Agricultural
2. Fertilizers
3. Percentage tax services
4. Medical, dental, hospital
5. Employer-employee
6. International agreement
7. Agri coop
8. Educational
9. CDA
10.Non-agri CDA
11.Low cost housing
12.Social housing
13.> P1,919,500 or P3,199,200
Input tax- VAT due on or paid by a VAT-registered person or importation of goods
or local purchases of goods, properties or services including lease or use of
property in course of his trade or business

Sources of input tax:

a. Transitional input tax-2% of value of beginning inventory on hand or actual
VAT paid on such goods, material and supply whichever is higher
b. Purchase or importation of goods
1. for sale

2. for conversion into or intended to form part of a finished product for sale,
including packaging materials
3. supplied in the course of business
4. use of raw materials supplied in the sale of services or
5. use in trade or business for which deduction for depreciation or
amortization is allowed under the Tax Code
c. Purchase of real properties for which VAT has actually been paid
d. Transactions deemed sale
e. Presumptive Input tax
-

4% of gross value in money of their purchases of primary agricultural

products which are used as input to their production

Engaged in processing of sardines, mackerel and milk, refined sugar,

cooking oil, packed noodle-based instant meals

f. Transitional input tax credits allowed under the transitory and other provisions of
these Regulations
g. Creditable Withholding VAT on payments to non-residents
h. Purchases of services in which a VAT has been actually paid
Taxpayer
Importer
Purchaser of domestic goods or
properties
Purchaser of services or the lessee or
licensee
To the purchaser of real property under:
Cash/Deferred payment basis
Installment basis

Time to claim input tax

Upon payment of VAT prior to the release
of goods from customs custody
Upon consummation of sale
Upon payment of the compensation,
rental, royalty or fee
Upon consummation of sale
Upon every installment payment

Output tax- VAT due on sale or lease of taxable goods or properties or services by
any person registered or required to register under Sec 236 of Code.
Creditable against output tax

Tax Remedies
Assessment (self, deficiency and jeopardy)
-

Computation of tax liabilities and demand for payment within the

prescriptive period

Law and facts on which the assessment is made; otherwise, the

assessment shall be void

Constructive receipt- if credited or segregated in favor of a person.

Constructive methods of income determination
1. percentage method
2. net worth method
3. bank deposit method
4. cash expenditure method
5. unit and value method
6. 3rd party information or access to records method
7. surveillance and assessment method
Tax deficiency- amount by which tax imposed exceeds the amount shown as the tax
by the taxpayer upon his return
Tax delinquent- self-assessed tax per return filed by the taxpayer on the prescribed
date was not paid at all or only partially paid or deficiency tax assessed by the BIR
became final and executory.
Powers of CIR
1. Examination of returns and determination of tax due
2. Use of best evidence obtainable
3. Authority to conduct inventory-taking, surveillance, and to prescribe additional
procedural or documentary requirements and presumptive gross sales and receipts
4. terminate taxable period
5. real estate values
6. inquire into bank deposits
7. accredit and register tax agents
Period of assessment and collection
General rule: 3 years from last day of filing of return
1. If return filed before last day- 3years counted from last day of filing
2. If return filed after the last day- 3 yrs counted from last day of actual (late)
filing
Exceptions- 10 years from date of discovery of:
a. Non-filing of return
b. Filing of false or

c. Filing of fraudulent return with intent to evade tax

April 15- count of 3 yrs
Period of collection
1. 5 yrs from assessment
2. 10 yrs without assessment, in case of false or fraudulent return with intent to
evade tax or failure to file return
BIR 2 options
1. Assess correct tax liability within 10 yrs from discovery and collect on said
assessment within 5 yrs from assessment
2. File a proceeding in court for collection within 10 years from date of discovery
of falsity, fraudulent or omission without assessment
Fraud
1. Question of fact that cannot be presumed but must be sufficiently established
2. Understatement not tantamount to fraud; should be at least 30%
underdeclaration of income prove intention and substantial understatement
of tax liability
3. Fictitious expenses
4. Alleged and proved in court
5. Actual and not constructive, wrong doing with sole object of avoiding tax
Suspension
3 years- not fixed
-extended or suspended
-If TP and BIR execute waiver
- CIR prohibited from collecting on the tax, such as when TP appeals the decision of
the CIR on disputed assessment on CTA
-TP requests for reinvestigation granted by CIR
-TP cannot be located
-warrant of distraint or levy is duly served and no property could be located
-TP is out of the Phil.
-Taxpayers remedies- administrative protest, refund, CTA appeal

RMO 12-99
1. Filing of return

2.
3.
4.
5.
6.
7.
8.
9.

LOA
Informal conferece
PAN
FAN
Administrative protest
Final decision
Appeal to CIR
Judicial appeal

New Rule
1.
2.
3.
4.
5.
6.

PAN
FLD/FAN within 3 yr period
Administrative protest
FDDA
Appeal
Judicial

15 days to respond from receipt

PAN not required (MDECP)
1.
2.
3.
4.

Mathematical error
Discrepancy between tax withheld and account actually remitted
Excise tax not paid
Taxpayer who opted to claim refund or tax credit of excess CWT carried over
the amount
5. Article locally purchased or imported by an exempt person has been sold or
traded to non-exempt persons
Claim for excess and unutilized creditable withholding tax
1.
2.
3.
4.

Within 2 yr
Copies of the certificate of tax withheld
Part of gross income of taxpayer
Excess and unutilized CWT not carried over

FAN
1.
2.
3.
4.
5.
6.

In writing
Name, address, TIN, basic tax, period, penalties, date tax must be paid
Facts, laws, rules, regulations or jurisprudence
Personal delivery or registered mail
Signed by CIR or authorized representative
Covered by LOA

Administrative Protest
1. Within 30 days

2.
3.
4.
5.
6.

Reconsideration
Re-evaluation
Reinvestigation- with new evidence and within 60 days
Appeal to Commission CTA within 30 days
Judicial appeal- 30 days or 30 days from last 180

Government Taxation Remedies- tax being final

A. Administrative
1. Tax Lien
-legal claim or charge on property in favor of government
- not valid against any mortgagee, purchaser or judgment creditor
-government lien superior to mortgage in good faith generally
2. Actual distraint- enforced on goods, chattels, effects other than personal
property
3. Constructive distraint
-retiring any business subject to tax
-intending to leave Philippines
-removing his property
-intending to perform to obstruct proceeding
4. Levy of real property- seizure
5. Forfeiture to government- no bidder/insufficient bid to pay taxes, penalties
and costs
6. An injunction not available to restrain collection of tax- CIR decision as an
exception
B. Judicial/Civil & Criminal
1. Approved of CIR in case of fraud and filing of tax evasion
2. Can file criminal case immediately
3. 25% surcharge- failure to file any return late payment
4. 50% surcharge- willful neglect to file and return/filing fraud
Compromise- reasonable doubt to the validity of the claim against the TP exists and
financial position of TP demonstrates clear inability to pay the assessed tax; CIR
discretionary power to compromise court cannot interfere
Abatement- tax or any portion thereof appears to be unjustly or excessively
assessed and administrative and collection costs involved does not justify the
collection of the amount due
Cannot be compromised:
1. Withholding tax cases
2. Criminal tax fraud cases confirmed as such by the CIR/duly authorized
representative
3. Criminal violation already filed in court
4. Delinquent accounts with duly approved schedule of installment payments
5. Cases where final report of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and TP is agreeable
to such decision by signing the required agreement form
6. Cases which become final and executor after final judgment of court where
compromise is requested on basis of doubtful validity

7. Estate tax cases where compromise is requested on the ground of financial

incapacity of the TP.
Local Government Taxation
Fundamental Principles (UEPIP)
1.
2.
3.
4.
5.

Uniform
Equitable for public purpose, not unjust and not contrary to law
Inure to benefit of local government unit
Shall not be let any private person
Progressive

Nature and Source of Taxing Power-Each LGU can:

1.
2.
3.
4.

Create its own sources of revenue pursuant to ordinance

Levy, taxes, fees and charges
Accrue solely/exclusively to the LGU
Can also grant tax exemptions, incentive or reliefs

Penalties
1. Surcharge not exceeding 25% of amount of taxes, fees or charges not paid on
time
2. Interest not exceeding 2% per month of the unpaid taxes, fees or charges,
until such amount is fully paid but in no case shall the total interest on the
unpaid amount or portion thereof exceed 36 months
Exemptions are withdrawn unless otherwise provided
Adjust local tax rates- LGU can adjust rates not oftener than 1 every 5 years
-

Not exceed 10%

Scope of Taxing Power

Provinces
1.
2.
3.
4.
5.
6.
7.

Transfer of real property ownership

Business of printing and publication
Franchise tax
Tax on sand, gravel and other quarry resources
Professional tax
Amusement tax
Annual fixed tax for every delivery truck or van

Municipalities- ceiling is 50%

1. Business-based on gross receipts not gross revenue and does not include
condominiums
2. Licensing/regulation of business and occupation
3. Sealing and licensing of weights and measures
4. Fishery rentals, fees and charges

5. Community tax
6. Real Property Tax (RPT) within Metro Manila

Cities
1. Same with provinces and municipalities
2. Levied and collected by highly urbanized and independent component cities
shall accrue to them and distributed in accordance with the provisions of LGC
3. Rates on levy made by the City may exceed the maximum rates allowed for
the province or municipality by not more than 50%
Exceptions- rates of professional and amusement taxes
Barangays
1.
2.
3.
4.

Taxes on stores or retailers

Service fees or charges
Barangay clearance
Other fees and charges

Community tax cities or municipalities may levy to

Individuals
1.
2.
3.
4.
5.
6.

Inhabitants of the Philippine

18 y.o. or over
Regularly employed or salary basis
Business or occupation
Owns real property with an aggregate assessed value of P1K or more
Required by law to file an income tax return

Juridical
1. Every corporation no matter how created or organized
2. Whether domestic or resident foreign
3. Engaged in or doing business in the Philippines
Persons Exempt
1. Diplomatic and consular representatives
2. Transient visitors who stay in the Philippines for not more than 3 months
Place where individual resides where principal office is located
Accrue on 1st January of each year to be paid not later than February
24% interest if unpaid

Common limitations on the taxing powers of LGUs (IDEC-GAPEP-GRR-ECN)

1.
2.
3.
4.

Income tax except when levied on banks and financial institutions

Documentary stamp tax
Estate tax
Customs duties, except wharfage on wharves constructed and maintained by
the LGU concerned
5. Goods carried into or out of, or passing through, the territorial jurisdictions of
local government units in the guise of charges for wharfage, tolls for bridges
or otherwise, or other taxes, fees or otherwise
6. Agricultural and aquatic products when sold by marginal farmers and
fishermen
7. Pioneer or non-pioneer business enterprises for 6 and 4 years respectively
from dates of registration and certified by Board of Investments
8. Excise taxes or articles enumerated under NIRC as amended, taxes, fees and
charges on petroleum products
9. Percentage or VAT on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein.
10.Gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air,
land or water, except as provided in the Code
11.Taxes on premiums paid by way or reinsurance or retrocession
12.Motor vehicle registration except tricycles
13.Philippine product exported
14.Cooperatives
15.National Government
Remedies
Taxpayers Remedies
1. Assessment within 5 years from date they become due
2. In case of fraud- 10 years from discovery of fraud or intent to evade payment
3. Collection: 5 yrs from the date of assessment by administrative or judicial
action
Prescription period suspended
1. Treasurer- legally prevented
2. Reinvestigation
3. Out of the country or cannot be located
Protest- within 60 days from receipt of Notice of Assessment
Claims for refund of tax credit for erroneously or illegally collected tax, fee
or charge
1. Written claim
2. Within 2 years

Civil Remedies by LGU

1. Non-payment of a tax, fee or charge creates a lien superior to all liens or
encumberances in favor of any other person, enforceable by administrative
or judicial action
2. Lien may only be extinguished upon full payment of the delinquent local
taxes, fees and charges including related surcharges and interests
Criminal Remedies
1. Administrative Action
2. Judicial Action
Distraint of personal property
1.
2.
3.
4.
5.
6.

Seizure of personal property

Accounting of distrained goods
Publication of time and place of sale and articles
Release of distrained property upon payment prior to sale
Procedure of sale
Disposition of proceeds

Levy of real property

1.
2.
3.
4.

Duly authenticated certificate

Written notice of levy
Connotation of levy
Advertisement and sale

Exceptions (TOB-CUPLA)
1.
2.
3.
4.
5.
6.

Tools and implements necessary for trade or employment

One horse, cow, carabao or other beast
Clothing and that of his family
Furniture and fixtures and utensils used in household not exceeding P10000
Provisions, including crops sufficient for 4 months
Libraries of doctors, engineers, one fishing boat and net not exceeding
P10000
7. Any material or article for house or improvement of any real property
Judicial Action
1. Local government may institution or ordinary civil action with regular courts
of proper jurisdiction for the collection of delinquent taxes, fees, charges or
other revenues
2. The civil action shall be filed by the local treasurer.

Real Property Taxation

Principles (CAPUE)
1. Current fair market value basis for assessment
2. Actual use
3. Private person cannot be left to appraisal, assessment, levy and collection of
real property tax
4. Uniform classification within each local government unit
5. Equitable appraisal and assessment
Nature (DAPSA)
1.
2.
3.
4.
5.
6.

Direct tax
Ad valorem tax
Proportionate
Single/ indivisible obligation
Attaches on the property
Levied through/thru a delegated power

Coverage
1.
2.
3.
4.

Land
Building
Machinery
Other improvements

If province 1% of assessed value of real property, city or municipality within Metro

Manila- 2% of real property
If idle lands- 5% of assessed value of property+ basic tax
Covered idle lands
Agricultural lands- more than 1 ha suitable for cultivation, dairying, inland, fishery
and other agricultural uses one-half of which remain unutilized or unimproved.
Other than agricultural- more than 1000 sqm in area of which
unutilized/unimproved
Exempt idle lands
1.
2.
3.
4.

Force majeure
Civil disturbance
Natural calamity
Or any cause or circumstance which physically or legally prevents improving,
utilizing or cultivating the same

Special levy for public works

-

With reasonable accuracy the nature, extent and location of the public
works to be undertaken, the estimated costs, the metes and bounds by
monuments and lines and the number of annual installments which should
not be less than 5 nor more than 10 years
Sanggunian may fix different rates for different parts or sections thereof,
depending on whether such land is more or less benefited by the
proposed work

Special Education Fund (SEF)

-

Province, or city of municipality within Metro Manila may levy and collect
an actual tax of one percent on the accessed value of real property which
shall be in addition to the basic real property tax

Exemption from real property tax (RPT)- RCWCE

1. Owned by Republic of the Philippines
2. Charitable institutions, churches et al actually, directly or exclusively used for
religious, charitable or educational purposes
3. Local water utilities- actually, directly and exclusively machineries and
equipment
4. Cooperatives- real property owned by Cooperative
5. Machinery and equipment used for pollution control and environmental
protection
Proof of Exemption (DA30T)
1. Documentary evidence
2. Give to local assessor
3. Within 30 days from date of declaration
4. Failure to file will be listed as taxable
GOCC- not covered by exemption since exemption only refers to
instrumentalities without personalities distinct from the government (MIAA and
PPA cases)
Lung Center vs QC- charitable institution/hospital use for its patients, paying or
non-paying, are exempt
-property leased to private entities are not exempt because it is not actually,
directly and exclusively used for charitable purposes

Administration of Real Property Tax

1. Declaration of real property by owner or administrator
-sworn statement
-sufficient description
-1 every 3 years- January 1 to June 30
2. Declaration by any person acquiring real property or making improvement
-sworn statement of true value of property
-to provincial, city and municipal assessor within 60 days after acquisition or
improvement
3. Declaration by the provincial or city or municipal assessor
4. Notice of transfer within 60 days; includes mode of transfer, description of
the property alienated and name and address of the transferee
5. Listing of Real Property in the Assessment Rolls
a. Real Property- name of owner, administrator or anyone having interest in
the property; same with corporation, partnership or association
b. Undivided real property- estate, heirs, devisees or one/more co-owners
and same with corporation, partnership or association
c. Real property owned by RP, instrumentalities, political subdivision,
beneficial use has been granted to a taxable person. In the name of the
possessor, grantee or the public entity if such property has been acquired
or held for resale or lease
Classes of Real Property
1. Residential
2. Agricultural
3. Commercial
4. Industrial
5. Mineral
6. Timberland
7. Special- all lands, buildings and other improvements actually, directly
and exclusively used for hospital, cultural or scientific purposes, and
those owned and used by local water districts and GOCCs rendering
essential public services in the supply and distribution of water and/or
generation and transmission of electric power

Machinery- FMV is acquisition cost

-

If imported- includes freight, insurance, bank and other charges,

brokerage, arrastre ad handling, duties and taxes, plus cost of inland
transpo, handling and installation charges at the present site
Estimated economic life * replacement or reproduction cost
Depreciation= 5% of original cost or replacement cost per year
Remaining value fixed at not less than 20% of such original, replacement
or reproduction costs as long as useful and in operation

Assessment level- FMV taxable value of property, ordinance, every 3 years

and every 1 January except:
1.
2.
3.
4.
5.
-

Partial or total deduction

Major change in actual use
Great and sudden inflation or deflation or real property values
Gross illegality of the assessment when made
Any other abnormal cause shall be made within 90 days from the date of
any cause and shall take effect at the beginning of the quarter next ff. the
reassessment
Subject to back taxes= 10 yrs prior
Notification- within 30 days

Collection
1. 1 January accrual
2. Notice 1 wk for 2 consecutive weeks by local treasurer on or before 31
January
3. Local treasurer= collecting authority
Prescription:
a. Within 5 years from date they become due
b. Within 10 years from discovery of fraud
Suspension of Prescriptive Period
1. Legally prevented
2. Reinvestigation
3. Out of country or cannot be located
Unpaid real property tax interest= 2% per month
Condonation- Sanggunian, President of the Philippines
Remedies of LGU for RPT Collection

1. Lien
2. Levy
3. Judicial 5-10 years by local treasurer

Purchase by LGU forward of bidder

1. Local treasurer- within 2 yrs
2. Redemption- within 1 yr from date of forfeiture
Redemption of taxpayer
1. Protest- administrative
2. Judicial- 30/60 days