Taxation I, Atty. Lilian C.
Baribal-Co, University of the East College of Law
PART 1: INTRODUCTION TAX
PRINCIPLES AND DOCTRINES
TAXATION
-mode of raising revenue for public purposes.
-raising of funds for the use and support of the
government
-power by which the sovereign raises revenue to
defray the necessary expenses of the government.
It is a way of apportioning the cost of government
among those who in some measure are privileged
to enjoy the benefits and must therefore bear its
burden.
LIFEBLOOD DOCTRINE
The power of taxation is important and essential
because the government can neither exist nor
endure without taxation. Taxes are the lifeblood of
the government; their prompt and certain
availability is an imperious need. The collection of
taxes must be made without hindrance if the state
is to maintain its orderly existence.
Government projects and infrastructures are made
possible through the availability of funds provided
through taxation. The governments ability to serve
and protect the people depends largely upon taxes.
Thus, taxes are what we pay for a civilized society.
Bread and Butter Principle
-to exist, the state needs lifeblood (taxes) because
there is a necessity for continuous existence.
NATURE OF TAXATION
a.) Inherent attribute of sovereignty
-taxation is an incident of sovereignty. It
belongs to a government as a matter of right.
-the constitution is not a source of the said
power. It merely imposes limitations as to its
exercise. Thus, the relinquishment of the power
is never presumed.
-the mere existence of the government is a
necessity. This is the reason why the state
collects taxes. No sovereign state can continue
to exist without means to pay its expenses.
b.) Legislative in character
-exclusively vested in the congress.
-primarily, the legislature has the discretion to
determine the nature (kind of tax), object
(purpose of tax), extent (tax rate), coverage
(subjects of taxation) and situs (place where to
impose) of taxation within its jurisdiction.
-courts have no power to inquire into or
interfere in the wisdom, objective, motive, or
expediency in the passage of a tax law;
Otherwise, it would contrary to the principle of
separation of powers.
COURTS ROLE to determine whether
the purpose is a public one and at this stage, it
is a justiciable controversy. However, once the
public purpose is determined, the courts can
make no other inquiry as to the purpose of the
tax, as it affects the power to impose it. In this
case, it will be a political question which the
courts cannot interfere.
*subject to the test of reasonableness; taxation may
also be made the implement of the states police
power.
THEORIES IN TAXATION
a.) NECESSITY THEORY
It is a necessary burden to preserve the states
sovereignty and a means to give the citizenry an
army to resist aggression; a navy to defend its
shores from invasion; a corps of civil servants to
serve; public improvements for the enjoyment of
the citizenry; and those which come within the
states territory and facilities and protection which a
government is ought to provide.
b.) BENEFITS-PROTECTION THEORY
The power of taxation is based on the power of
the state to demand and receive taxes on the
reciprocal duties of support and protection.
Doctrine of Symbiotic Relationship
Taxpayer cannot complain on the burden of
taxation because it is an obligation. It is involuntary
and compulsory, in exchange for the protection and
benefits a taxpayer receives from the state.
The government responds in the form of
tangible and intangible benefits intended to
improve the lives of the people and enhance their
material and moral values.
HOW EXTENSIVE IS THE TAXING POWER?
Taxation is said to be comprehensive, unlimited,
plenary, and supreme.
-It is comprehensive as it covers persons,
businesses, activities, professions, rights, and
privileges.
-It is unlimited because the courts scarcely venture
to declare that it is subject to any restrictions,
whatever, except as such as rest in the discretion
of the authority which exercises it.
-it is plenary as it is presumed complete.
-it is considered supreme insofar as the selection of
the subject of taxation.
*not to be understood as the strongest of all the other
inherent powers of the state; i.e. police power and
eminent domain
OBJECTIVE AND PURPOSE OF TAXATION
A.) Primary
-raise revenues for the support of the government
and for all public needs/
- to raise funds or property to enable the state to
promote the general welfare and protection of
citizens
B.) Secondary or non-revenue purposes
-taxation does not always be for the purposes of
revenues because it may include the following:
*reduction of social inequality
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law

-as depicted by the progressive tax system that or made available by the
the country has. This is a tax system wherein the government
tax rate of a tax payer increases as the tax base Payment for just
increases. compensation or fair
Eminent Domain
*encourage the growth of local industries value of the property
-the state may grant tax exemptions which serves taken
as incentives to encourage investment in our local No direct benefit, except
industries. the privilege to live in a
*protection of local industries against unfair healthy and
competition Police Power
economically and
*as an implement of police power (regulatory socially progressive
measure) society

Power of taxation to be exercised with 5. Relation to the non-impairment clause

caution Inferior to it (subject to
-to minimize injury to the propriety rights of a tax Taxation
other limitations)
payer Generally superior and
-it must be exercised fairly, equally, and uniformly, Eminent Domain
may override said clause
lest the tax collector kill the hen that lays the Generally superior and
golden eggs. Police Power
may override said clause

SIMILARITIES AND DISTINCTIONS OF THE STAGES OF TAXATION

POWERS OF TAXATION, EMINENT DOMAIN, First stage Levy, it is basically the enactment of
AND POLICE POWER a tax law by the congress.
Second stage Assessment and collection, it is
A.) Similarities the stage where taxes are administered and
-necessary attribute of sovereignty implemented.
-inherent power because the constitution only Third stage Payment, it is the act of compliance
provides limitations as to its exercise and does not of the tax payer to the tax law where he or she
confer the power and is not a source pays his or her tax dues.
-they interfere with private rights and property *The first and second stages are the impacts of
taxation while the last stage is the incident of
*as to the 3 inherent powers, taxes are always the taxation.
lifeblood of a state. Police power and Eminent Domain
cannot be effectively exercised because money and CANONS OF TAXATION
revenues are needed to exercise them. A.) Fiscal Autonomy
-sources of revenues must be adequate to meet
B.) Distinctions the expenditures and other public needs. This is
1. As to purpose consistent with the lifeblood doctrine.
For the support of the B.) Theoretical Justice
Taxation
government -a sound tax system must take into consideration
Eminent Domain For public use the tax payers ability to pay.
Property is taken or -taxes must be reasonable, just, fair, and
Police Power destroyed for public conscionable
welfare -as a rule, taxation must be uniform and equitable.
An example is the progressive tax system the
2. Authority that imposes country has
Taxation Only the government C.) Administrative Feasibility
The government, and -must be capable of effective and efficient
Eminent Domain may be granted to enforcement
public service companies -it requires that each tax should be clear and plain
Police Power Only the government to the taxpayer
-the capability to enforce tax laws efficiently
3. As to who are affected -must be convenient as to time and manner of
Taxation Upon all persons payment, and not duly burdensome upon or
A particular owner of a discouraging to business activity
Eminent Domain
property
Police Power Upon all persons INHERENT LIMITATIONS OF TAXATION
A.) Taxation must be for public purpose
4. As to compensation or benefits received -Public purpose is presumed in all tax laws
Protection, service, and -Generally, it is for the common good of the
Taxation people. This is because the power of taxation may
other benefits rendered
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
be used as an import of police power. Congress
may choose to create tax law that will benefit a
specific group of people or industry in a business.
It may also be used for regulation of certain acts.
-tax laws must be equitable
-tax laws must be reasonable
B.) International Comity
-tax immunities are granted upon other sovereign
states as courtesy to the international community.
This is consistent with the doctrine of sovereign
equality among states. According to this doctrine,
states are juridically equal, enjoy the same rights
and have equal capacity and exercise.
C.) Territoriality
-tax laws only operates within our jurisdiction.
D.) Non-delegation of the power to tax
-the power to tax is exclusively vested in the
legislative body
Exception:
-Article VI, Sec. 28(2) of the Constitution
-Article X, Sec. 5 of the Constitution; Sec. 133, R.A.
No. 7160
E.) Exemption from taxation of government
agencies/instrumentalities
-properties of the national government as well as
those of LGUs are not subject to tax. They are
ought to perform public functions for public service;
otherwise, it will result in the absurd situation of
the government taking money from one pocket
and putting it in another.
Exception to the exemption:
Government entities or instrumentalities, like
GOCCs performing proprietary functions are subject
to taxation; unless they are granted exemption by
law. Examples of these exempted GOCCs are the
GSIS, SSS, PhilHealth, PCSO.
CONSTITUTIONAL LIMITATIONS
A.) Due Process clause
No person shall be deprived of life, liberty, or
property without due process of law . . .
-this right is afforded to all citizens. A tax law may
be invalidated when it violates the inherent
limitations (public purpose, equitability,
reasonableness, etc.)
*a person may be deprived of his property as long as
due process is followed e.g. Notice ad hearing
Usual violations
-taxes that are for private purposes
-extra-territorial taxation
-arbitrary or oppressive methods used in assessing
and collecting taxes
Other violations
-tax amounts to confiscation of property
-tax law applied retroactively and imposes unjust
and oppressive taxes
-tax law is a violation of the inherent limitations
B.) Equal Protection Clause
-taxes must be uniform
-all persons similarly situated of the same class
must be taxed the same
-all persons are equal in the burden of paying taxes
but the rates are not
-there must be a valid classification
a. it must be based on substantial
distinctions
b. must apply to present and future
conditions
c. must be germane to the purpose of the
law
d. must apply equally to all
C.) Progressive Taxation
-this required by the constitution, as opposed to
the regressive system of taxation which is not
allowed
-when a persons tax base is progressing, tax rate
also increases
D.) Poll Taxes
-community tax certificates
-no person shall be imprisoned for non-payment of
poll taxes
-penalty, as opposed to imprisonment may be
imposed for non-payment of poll taxes; interests,
surcharges, and other penalties may be imposed
E.) Veto Power
-the president may either veto or approve a tax bill
-partial veto only applies to General Appropriations
Acts, revenue and tariff bills
Tax laws could either be:
-general tax law coming from congress
-tax ordinance imposed by LGUs
WHAT IS A TAX?
-it is an enforced proportional contribution from
persons and property, levied by the state by virtue
of its sovereign for the support of the government
and for its public needs
-taxes are enforced contributions because it is
an obligation created by law
-it is proportional in character since taxes are
based on ones ability to pay
*taxation is a mode of raising revenues while taxes
are enforced contributions.
SOURCES OF TAX LAWS
-The Constitution
-Tax legislations, these are tax laws that has the
effect and force of a law
-tax ordinances
DOUBT AND VAGUENESS IN TAX LAWS
-to be interpreted in favor of the tax payer and
strictly against the state
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
-however, in tax exemptions and deductions, it is
otherwise
CLASSIFICATION OF TAXES
Fixed amount imposed on
individuals, whether citizens or not,
PERSONAL residing within a specified territory,
without regard to their property or
occupation
Imposed on property, real or
PROPERTY
personal, in proportion to its value
Excise taxes a tax on the exercise of a right,
privilege, or performance of an act
A tax for which a tax payer is
DIRECT
directly liable
Primarily paid by persons who can
INDIRECT shift the burden upon someone
else
Imposed based on weight or
SPECIFIC volume capacity or any other
physical unit of measurement
AD Based on the selling price or other
VALOREM specified value of the goods
The rate increases as the tax
PROGRESSIVE
base increases
The rate decreases as the tax
REGRESSIVE
base increases
Imposed by the national
NATIONAL
government
Levied and collected by the local
LOCAL
government
Imposed solely to raise revenue for
GENERAL the government (e.g. income tax,
donors tax, estate tax, VAT)
Imposed and collected to achieve a
particular legitimate objective of
SPECIAL
the government (e.g. oil price
stabilization fund)
INTERPRETATION OF TAX LAWS
A.) Strict Construction
-tax laws are construed strictly against the state
and in favor of the tax payers
B.) Liberal Construction
-this applies on tax exemptions and deductions
-tax exemptions and deductions are liberally
construed in favor of the state but strictly
construed against the tax payer claiming exemption
or deduction.
-why? Presumption of taxability of income; burden
of proof is on the tax payer
TAX LAWS ARE PROSPECTIVE
-tax laws are civil in nature. Thus, it must be
applied facing the future. However, retroactive
application of revenue laws may be allowed if it will
not amount to denial of due process. There will be
a violation of due process when the tax law
imposes harsh ad oppressive taxes.
TAX PAYERS SUIT
-the prevailing doctrine in the taxpayers suit is to
allow taxpayers to question contracts entered into
by the national government or GOCCs allegedly in
contravention of law
-significantly, a taxpayer need not be a party to the
contract to challenge its validity
Grounds:
-illegal expenditure of public funds or money
-public money is being deflected to any improper
purpose
-wastage of public funds through the enforcement
of an invalid or unconstitutional law
-public funds are illegally disbursed
TAX EVASION versus TAX AVOIDANCE
-connotes fraud through the use
of pretenses and forbidden devices
to lessen or defeat taxes
TAX -a scheme used outside of those
EVASION lawful means and when availed of,
it subjects the taxpayer to further
or additional civil or criminal
liabilities
-a legal means used by the
TAX taxpayer to reduce taxes
AVOIDANCE -a tax saving device within the
means sanctioned by law
DOUBLE TAXATION
-allowed by the constitution, however, if the
resulting effect is confiscatory, excessive or
oppressive in nature, then the tax law must be
stricken down
Kinds:
a.) Direct Double Taxation
Elements:
1. Taxing twice (but not all that are taxed
twice is double taxation
2. Authority which imposes it could either
be the same or different (National
Government or any Political Subdivision)
3. Same purpose
4. Same taxable period
b.) Indirect Double Taxation
-one element is missing
-this is allowed
DOES THE POWER TO TAX INCLUDE THE
POWER TO DESTROY?
-the general purpose of taxation is to raise
revenues for public purpose. The power of taxation
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
is an ever evasive power such that the state may
choose to impose taxes arbitrarily upon a tax
subject. However, this power must be exercised
with caution to minimize injury to the propriety
rights of tax payers.
-While it is believed that taxation includes the
power to destroy, it is by no means unlimited. If a
tax law is so great that an abuse is manifested as
to destroy natural and fundamental rights which no
free government could consistently violate, it is the
duty of the judiciary to hold such tax law
unconstitutional.
PART 2: INCOME TAX LAWS
PREVAILING CODE OF TAX LAWS
-R.A. 8424, National Internal Revenue Code of
1997, effective January 1, 1998
*as amended by R.A. 9504, effective July 2008
-P.D. 1464 Tariffs and Customs Code of 1978
INCOME TAXATION
-Involves the kind of taxpayers ought to comply
with the provisions of the tax laws.
-Income may be derived within or outside the
Philippines; the nature and kind of income subject
of taxation depends on the classification of the tax
payer
I. TAXPAYERS
INDIVIDUAL TAXPAYERS
A.) RESIDENT CITIZENS (RC)
-citizens of the Republic of the Philippines (RP)
residing in the Philippines for a period of 180 days
for a complete taxable year
-their income from all sources derived within and
outside (without) the Philippines are taxable
B.) NON-RESIDENT CITIZENS (NRC)
-citizens of RP acquiring contracts or jobs outside
the Philippines for a period of more than 180 days
-their works requires the physical presence outside
the RP
-their income derived within RP is taxable
C. RESIDENT ALIENS (RA)
-aliens residing and staying in RP who abandons his
own country and has no intentions of returning
-who are deemed to be RAs: foreign individuals
staying for a period of more than 1 year from date
of arrival
-taxable within and without
D. NON-RESIDENT ALIENS ENGAGED IN
TRADE OR BUSINESS (NRA-ETB)
-those aliens not permanently residing in RP; their
intention being here is done habitually for profit.
-they are engaged in trade or business in RP
-taxable within
E. NON-RESIDENT ALIENS NOT ENGAGED IN
TRADE OR BUSINESS (NRA-NETB)
-Q: Is it possible that a NRA receives income while
he or she does not engage himself in trade or
business?
A: Yes. NRAs may derive income in RP when he is
commercially engaged but the same is not
habitually done for profit in RP (best examples:
Concerts of foreign artists
-taxable at a flat rate of 25% and with no
deductions at gross
F. SPECIAL ALIENS
-these are aliens having preferential income tax
rate of 15% on their gross compensation income
from sources within RP
-These employees are aliens employed by
a.) regional or area headquarters and regional
operating headquarters of multinational companies
in RP
b.) offshore banking units established in RP
c.) foreign service contractor or sub-contractor
engaged in petroleum operations in RP
CORPORATIONS AS TAXPAYERS
For purposes of income taxation, the tax code also
includes partnerships as corporations who are
subject of taxation.
XPN:
General Professional Partnership (GPP)
-these are individuals exercising their profession
who pull their resources for profit and distribute
their income among themselves
-GPPs are not subject to Income tax as
Corporations because it is the individual who is
liable to pay their own income tax
A.) DOMESTIC CORPORATIONS
-created under Philippine laws
-taxable within and without
B.) FOREIGN CORPORATIONS
-corporations organized or formed under laws of a
foreign country even if wholly owned by Filipino
citizens
1.) Resident Foreign Corporations (RFC)
-a foreign corporation engaged in trade or business
within RP. They are not actually residing in RP but
it only happens that they have business operations
in the Philippines. (e.g., Philippine branch of a
Foreign Corporation)
a.) RFC Not Engaged in Trade or Business
-regional or area headquarters pursuant to E.O.
226, as amended by R.A. No. 8756
-representative offices and regional warehouses of
multinational corporations in RP
-exempted from income tax because they are
supposed not to engage in trade or business in RP
and thus do not derive income from the Philippines
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
b.) RFC Engaged in Trade or Business
GENERAL RULE:
subject to 30% Normal Corporate Income Tax
(NCIT) based on their net taxable income from
sources within, unless 2% of Minimum
Corporate Income Tax (MCIT) [computed at
2% of their gross income within] is higher than the
NCIT
XPN:
a.) regional or area headquarters and regional
operating headquarters of multinational companies
in RP 10% preferential income tax
b.) offshore banking units established in RP taxed
on their onshore interest income at 10% final
withholding tax
2.) Non-Resident Foreign Corporations
-foreign corporations not engaged in trade or
business within the RP but deriving income from
sources within the Philippines
-unless otherwise provided by the Tax Code, the
amount paid to as income by a NRFC is subject to
30% withholding tax by the Philippine payor
3.) International Air Carriers
-subject to a flat rate of 2.5% at gross income
4.) Educational Institutions (EI)
-they are special corporations
a.) Non-stock, non-profit EIs
-exempted from income tax
b.) Proprietary EIs
-for Proprietary EIs deriving income from unrelated
business activities or transactions which do not
exceed 50% their gross income from all sources,
their income tax rate is 10%, otherwise, they are
subject to NCIT (the predominance test)
II. EXEMPTIONS
Q: What are the two kinds of exemptions?
A: 1.) Personal Exemptions
2.) Special Additional Exemptions
1.) Under R.A. 8424 (effective Jan. 1, 1998)
a.) Personal
Married P32,000.00
Single P20,000.00
Head of the Family P25,000.00
-an unmarried or legally separated individual
who has the following dependents:
-with 1 or both parents
-with 1 or more sibling, legitimate child,
recognized natural child, or legally adopted
child who are not more than 21 years of
age, unmarried and not gainfully employed,
or if older than 21, he or she is incapable of
self-support because of mental or physical
defect.
-a senior citizen receiving an annual income
not more than P60,000.00
-dependent/s is/are living with and
dependent upon him for his/their chief
support
b.) Special Additional Exemptions
P8,000.00 per child up to 4 children only
2.) Under R.A. 9504 (effective July 2008)
a.) Personal Exemption
P 50,000.00, without regard to status
b.) Special Additional Exemptions
P 25,000.00 per child up to 4 children only
Q: Are aliens allowed to claim exemptions?
A: Yes, provided that the country of the alien also
grants exemptions to Filipino taxpayers in their
country. This is consistent with the reciprocity
principle
Q: In taxable year 2008, how should be the
exemptions applied?
A: from January to June 2008, half of the value of
exemptions granted under RA 8424; likewise, in
July to December 2008, half of the value
exemptions granted under RA 9504.
Q: Among married couples, who can claim
Special Additional Exemptions?
A: Generally, the husband
Q: Under what circumstances can the wife
claim SAEs?
A: -when the husband executes a waiver as signed
by the his employer, if employed
-when the husband is not gainfully employed or
do not have any income
-husband is living abroad
Q: How about if the spouses are legally
separated or annulled?
A: the award of custody of children must be
invoked. If there is no custody of children awarded
in the decree of legal separation or annulment, the
best procedure is to talk with the former spouse as
to who shall claim the deduction so a single child
will not be covered twice by an exemption
*analysis: the status of an individual who is annulled
from his or her former spouse becomes single. Thus,
they may live on each others lives and create two
separate households. They may take advantage of
having 4 dependents each provided that the effect of
annulment in the status of children is legitimate.
However, in legal separation, the marriage is not
severed. Thus, only up to 2 dependents each may be
claimed by each of the former spouses.
Q: Can Exemptions be applied if a person
changes his status and/or acquire
dependents in the same taxable yea?
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
A: Yes. The general rule is that whatever may be
favorable to the taxpayer can be availed of as to
the application of exemptions. The change of
status and/or the acquisition of new dependents
will have a retroactive effect from the start of the
taxable year even if the change of status and/or
acquisition of new dependents happen at the last
day of the taxable year.
III. TAX BASE
Taxable Income
When is Income Taxable? (Conditions)
a.) There is income, gain or profit;
b.) The income, gain or profit is received or
realized during the taxable year;
c.) The income, gain or profit is not exempt
from income tax.
-requisites of a taxable income are important to
determine what kind of tax is an income (i.e.,
taxable base that could either be passive,
compensation or business) as well as the correct
tax rate to impose
Rule of thumb: every income from whatever
source (legal or illegal) is taxable
-for individual tax payers, Calendar year is followed
for income tax purposes
Income Realized
Illustration:
A contract of lease was executed on November
2005. The payment for lease is P5,000.00 per
month to be paid on the termination of the contract
on March 2006. Thus, the total income realized in
taxable year 2005 is P10,000.00 albeit being
actually received on March 2006.
If an income, gain or profit is realized but
was not declared by the tax payer
-the taxpayer is guilty for under declaration of
income tax which may subject him to assessment
by the BIR
PASSIVE INCOME
-subject to final withholding tax
-income is taxed before the taxpayer received the
said income
Q: Is Passive Income Taxable?
A: Yes, because it is subject to final withholding tax
which is paid before the taxpayer receives the said
income
KINDS OF PASSIVE INCOME
1.) Interests earned from bank deposits
a.) gross interest from foreign currency
deposits with an Offshore Banking Unit or
Foreign Currency Deposit Unit : 7.5%
b.) local currency deposits : 20%
2.) Royalties on books, literary works, and
musical compositions : 10%
3.) Prizes
a.) If amount is more than P10,000.00, 20%
final tax
Who shall pay? The person who gave the prize
b.) If amount is less than P10,000.00, it is only
subject to income tax
4.) Winnings
-20% final tax regardless of amount
Who shall pay? The person who gave the winnings
5.) Cash and Property Dividends
Requirements:
Cash dividend or property dividend
Received by an individual tax payer
From a domestic corporation
6.) Capital gains from shares of stock (not
listed or traded)
Primary considerations:
if there is income - taxable
o greater than P100,000.00, 10%
o less than P100,000.00, 5%
no income - not taxable
7.) Capital gains from sales or exchange of
real property located in the Philippines
6% capital gains tax, based on the
selling price or zonal value of the property,
whichever is higher
regardless whether there is no income
realized, gain is presumed
who shall pay generally, the seller; unless
otherwise stipulated by the parties in the
contract
8.) Gain on sale of Capital Asset
It falls under Non-Compensation Tax
Losses are also paid the capital gains tax
However, if there loss on sale of capital
asset, it can be included in the deductions
of the tax payer
COMPENSATION INCOME
-This is included in the taxable income
-These are the income received by an individual out
of an employer-employee relationship
-Services rendered where there is income
derived
-Salaries, whether received monthly or periodically
-Wages, whether paid by hour or daily
-Commissions, where there is a certain
percentage received by an individual from sales or
a certain quota
Transportation allowance/ Lunch Meeting
-it depends:
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
If subject to liquidation in pursuit of the
business of the employer, not part of CI
If the expenditure is discretionary, part of
CI
Tips received in restaurants, hotels, etc.
Theoretically, this is included in CI.
However, there is no paper trail since most
of the tips are given secretly as an act of
gratitude to services rendered. Thus opens
the tendency not to declare them
Tip Box visible in the establishment - with
much reason to declare
Individuals receiving income from purely
compensation income
-need not file an Income Tax return (ITR) because
it is the employer that pays for you (this is called
substituted filing of ITR)
FRINGE BENEFITS
-any benefit granted to an employee in addition to
their basic salaries
-this can be claimed as deductions by the employer
-prior to 1997, there is no tax provisions
recognizing fringe benefits
-this is subject to final tax to be paid by the
employer
-if the FB is given in cash, there is no problem as to
its declaration
FB received by Managerial or Supervisorial
employees are not part of the CI
However, FB received by rank and file
employees are part of their CI
FB paid to Managerial or Supervisorial
employees by employers can be claimed as
deductions under the following formula:
Grossed-up Monetary Value (GUMV) x (32)%,
where GUMV = FB/(68)%
Vehicles bought for the employee
FB Valuation is 100%
If paid in installment: Acquisition Cost / 5
Years; 5 years is a generally accepted period of
installment
Driver provided to the employee or for the
business
the wage of the driver is a business expense
that can be included in the deductions of the
employer for purposes of income tax
Housing
If acquired by the employer for the employee,
5% of the zonal value x 50% is subject to final
tax
Rentals paid for the employee, 50% of the
rental fee can be claimed by the employer as
deduction
Household expenses for the employee - FB
Expense Account or Sign Cheat
if given in pursuit of the business of the
Employer to the Employee, not considered FB
Q: Are all FB subject to Taxation?
A: Yes, because there is a need to identify FB to
determine whether it falls under the classification
of FB received as an Income or FB received by an
employee that can be added to the deductions of
the employer for purposes of income taxation.
Q: When is FB not subject to tax?
A: General Rule: FB is subject to Compensation
Income Tax
XPN:
given in pursuit of the business of the
employer
FB is for the advantage or convenience of
the employer
If the benefit is classified as deminimis
(relatively small valued benefits)
Q: What are the kinds of Deminimis Fringe
Benefits?
rice allowance of up to P1,500.00 per
month
conversion of leave benefits to cash not
exceeding 10 days
uniform allowances of up to P4,000.00 per
annum
awards or service awards during
anniversaries not exceeding P10,000.00
meritorious benefits not exceeding half of
the salary received by the employee
Bonuses not exceeding P82,000.00
BUSINESS INCOME
Income derived from trade or business. This
encompasses all kinds of business for purposes of
profit, whether legal or illegal. Income derived from
business is subjects of taxation
Examples
Service Business, where the tax payer is not an
employee (Barbershop, Spa, etc.)
Food Businesses
Merchandising purchasing commodities in
final form but sells the products to the public
with a mark-up price
Manufacturing making of a product and
selling it to people
Professional fees/Practice of profession
Construction businesses reporting of income
is required for income tax purposes
Income from farming this includes income
derived from livestock and poultry; sale of
crops, trees, fruits; as well as farming
equipment
Interests or compensation fee derived from
lending money, regardless if it is against the
usury laws or is an illegal business of lending
Rental or Lease Fees for the use of properties
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
However, improvements introduced by
the lessor should be identified whether
it would remain as the property of the
lessor at the end of a contract.
If it is a permanent improvement, then
it is subject to income tax choosing
between:
o Outright method
o Spread out method
Illustration:
A lessee introduced an improvement in
the property of the Lessor (fence that is
worth P80,000.00). the rental of the
property is P120,000.00 per annum for
a period of 5 years. The said
improvement was introduced on the
second year.
A.) Outright Method
1.) P120,000.00
2.) P200,000.00 (120k + 80k)
3.) P120,000.00
4.) P120,000.00
5.) P120,000.00
B.) Spread-out Method
1.) P120,000.00
2.) P140,000.00
3.) P140,000.00
4.) P140,000.00
5.) P140,000.00
Dividend Income, this could fall under passive
income if it passes the requirement stated in
#5 under passive income section above.
GAIN ON SALE OF CAPITAL ASSETS
-this is different from the 6% capital gains tax
which is considered as Passive income
-this is to be treated as compensation income
Asset Sold
Ordinary Asset assets of taxpayer which are
ordinarily sold in the operation of its business.
Capital Asset not primarily intended to be
sold because the asset is essential to the use
and operation of the business
Examples:
1.) Car Dealing - showroom cars are ordinary
assets; cars owned by the car dealers are
capital assets.
2.) Selling of Computers printers, laptops,
and other computer gadgets intended to be
sold are ordinary assets; computers used in
the business operation for its use and
convenience are considered capital assets
Income from trade or business -100% taxable
-if what has been sold is a Capital Asset, and there
is gain, it is taxable
Determination of Taxability
HOLDING PERIOD the time of purchase to
the time of selling
o If sold within 12 months from the date
of purchase (short term) 100%
taxable
o Sold more than 12 months from date of
purchase (long term) gain declared is
50% taxable
The presumption for the sale of capital asset is
always sold within 12 months (short-term)
HOW TO DETERMINE GAIN
Acquisition Cost - Selling Price
If the gain in sale of capital asset does not equate
a gain but a loss, it can be considered as a
deduction in the taxable income
Rule of thumb: every income from whatever source
(legal or illegal) is taxable
Receivables money expected by a taxpayer
from his debtors
Payables money to be paid by a taxpayer to his
creditors because of a debt he owes to them
Presumption: not all receivable will be
collected. If a receivable from a debt owed to
by a debtor, for any reason, cannot be collected
they are called BAD DEBTS
BAD DEBTS are those receivables that cannot be
collected. They are allowed deductions for
purposes of income tax. This happens when a
taxpayers exhausted his efforts as well available
legal remedies in collecting his credit from his
debtor/s.
However, bad debts recovered, after the
said deduction were declared should be
considered income on the part of the tax payer
which will be subject to tax.
ITEMS EXCLUDED AS GAINS (Sec. 32, NIRC)
1.) Proceeds from life insurance
Conditions:
Insurance is to be paid for the debt of an
insured person
The tax payer is the beneficiary (as
distinguished from the deceased person who is
insured)
Insurance is payable upon the debt of the
insured
However, if the proceeds of the insurance were
invested (e.g. proceeds were invested in a mutual
fund), and the investment incurred a gain, the
income is subject to taxation
2.) Proceeds from insurance, but beneficiary
is the insured
-on due date, the tax payers return of premium is
exempted from income tax
3.) Bequests and Devices
-a share in the inheritance of a taxpayer, whether
cash or in kind: exempted from income tax
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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law

(Note: that part of the share of the inheritance is MINIMUM CORPORATE INCOME
exempted; however, the Testate/Intestate Estate is
subject to taxation)
TAX (MCIT); GROSS CORPORATE
INCOME TAX (GCIT)
4.) Gift Tax
-these are gifts presumed to be given gratuitously MCIT - Rate: 2% at gross
Donors Tax paid by the donor. In effect, Q: When is MCIT applicable?
the done is exempted A:
it is applicable upon Domestic Corporations and
5.) Compensation for injuries or sickness
Foreign Corporations Engaged in Trade or
-in cash or in kind, exempted
Business
However, if what has been given is an equivalent
in the 4th year of business operations or more
of a taxpayers compensation income (as if may
there is net loss or zero taxable income or NCIT
sweldo) TAXABLE
is less than MCIT
6.) Inherent Limitation: for international
comity ILLUSTRATION:
-same tax rate as to other countries with respect to 4th Year 5th Year 6th Year
aliens in RP and Filipinos in other countries
Gross Income P1.5M P 2M P2.5M
7.) Pensions Deductions P1.4M P1.9M P2.3M
-example: return of premium from GSIS and Net Income P100k P100k P200k
SSS Pensions are not taxable under the law NCIT ([35]% of NI) P35,000 P35,000 P70,000
Requirements for exemptions upon in-house MCIT (2% of GI) P30,000 P40,000 P50,000
retirement plan given by private companies: *highlighted values means that the specified amount is
Retirement plan must be approved by the BIR the tax due
Retiring tax payer must at least be 50 years old Carry over of losses: excess of payment is valid
Service in the company for at least 10 years for 3 consecutive taxable years
*Absence of one requisite will render the receivable
income taxable
GCIT rate: 15%
8.) Separation Pay due to sickness, death, or -this is only an option. Election of the GCIT needs
disability to be approved by the Secretary of Finance
-if separation is beyond the control of the taxpayer, Applicability of GCIT
separation pay is exempted -Corporations whose ratio of cost of sale to sale
-VOLUNTARY RESIGNATION, taxable does not exceed 55%
Illustration:
9.) Prizes and awards in Recognition Sale 1Million 1Million
there must be no action on the part of the Less: Cost of 400k 750k
taxpayer to enter the religious, charitable Sale
scientific, education, artistic, or literary contest. _____________________________________________

Net Sale 600k 250k

He must also be not required to render
Cost of Sale
substantial future services as a condition to _______________________________________________
400k/1Million 750k/1Million
receiving the prize or award. excluded from Sale
taxation =40% =75%
qualified not qualified
10.) Deminimis Benefits
11.) Inter-corporate Dividends GCIT must be applied for 3 consecutive
When: dividends are transferred from a domestic taxable years
corporation to another domestic corporation
Improperly accumulated earnings tax is
subject to a penalty of 10%
NORMAL CORPORATE INCOME TAX -why improper: because the same should be
(NCIT) distributed as dividends
XPNs (justified reasons for retaining earnings):
Gross Income due to expansion
acquisition of another related business
Less: Deductions additional working capital
_______________________________________________

= Net Income
X (fixed or graduated rate) %
_________________________________________

=Taxable income

Mario Fidel U. Danao 03/17/2016

 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law

COMPUTATIONS IV. DEDUCTIONS

1.) Purely Compensation Income
Q: Why does the tax code allow deductions?
Compensation Income A: to be fair to the taxpayer. The tax code
Less: exemptions (personal or recognizes that as a person receives income he or
she also spends or incur expenses.
special additional) *Deductions made by a taxpayer should always be
_______________________________________________
within the limits provided by law Authorized
= Net Income deductions
X (fixed or graduated rate) %
_________________________________________
Kinds of Deductions
=Taxable income Itemized Deduction
Optional Standard Deduction (OSD)
2.) MIX INCOME o this is without regard to the
expenditure of the tax payer
Business Income o based on gross sales/receipts of the
+ Other Income taxpayer; a taxpayer may deduct up
- to 40%
-
-
_______________________________________________________________________________________________________________________________________________
Q: Can a taxpayer claim OSD lower than 40%
=Total Income A: Yes, because theoretically, the tax code allows
it. However, this is almost impossible because a
Less: Exemptions taxpayer would always want to claim higher
personal deductions so as to pay lower taxes.
special additional
_________________________________________________
Who can Claim OSD?
Less: Deductions Citizens
-
-
Resident Aliens
- Corporation subject to Regular Corporate
Or OSD
______________________________________________________________________________________________________________________________________________
Income Tax
Who cannot claim OSD?
= Net Income NRA NETB
X (fixed or graduated rate) % Citizens/RAs whose income are coming purely
_________________________________________
from compensation income
=Taxable income
Election of OSD is irrevocable such that once
3.) Purely Business Income the option is chosen, it can no longer be
withdrawn.
Compensation Income
ITEMIZED DEDUCTIONS
+ Business Income Listing one by one the expenses incurred when
+ Other Income earning the income
Rental XPN: income coming purely from compensation
Interests on bank deposits income
Gain on sale of Capital Asset
-
A.) GENERAL BUSINESS EXPENDITURES
-
_______________________________________________________________________________________________________________________________________________
-the ordinary and necessary expenditures directly
=Total Income connected with or pertaining to the taxpayers
Less: Exemptions trade or business
personal CONDITIONS:
special additional It must be paid or incurred during the
_________________________________________________
taxable year (the same principle on income
=Income after XMPS realized is included here)
Less: Deductions The expenses must be ordinary and
- necessary
- o Ordinary payment which is
Itemized OSD
______________________________________________________________________________________________________________________________________________
normal in relation to business of the
= Net Income taxpayer and the surrounding
X (fixed or graduated rate) % circumstances
_________________________________________ o Necessary expenditure is
appropriate or helpful in the
=Taxable income development of the taxpayers
Mario Fidel U. Danao 03/17/2016
 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
business or that the same is proper
for the purpose of realizing profit or
minimizing loss
Must be substantiated by documentary
evidence
-if there is none, sorry.
XPN: bad debts
Engagement in business is the act of being in a
commercial activity which is habitually done for
profit
B.) UTILITIES
-as to payment of water, electric bill, and others
C.) SUPPLIES
-this must be supported by adequate invoices or
receipts
-best evidence: a VALID Official Receipt (O.R.)
D.) NECESSARY REPAIRS
-includes major repairs
-if it adds value to the property, the improvements
would be capitalized (either outright or spread out)
for purposes of taxation
D.) INTEREST EXPENSE
Requirements:
There must be a debt
An interest expense was paid or incurred by
reason of the debt
Indebtedness is connected with the
taxpayers trade
Interest expense is stipulated in writing
It must be legal
However, even if all the requirements are met but
the interest expense are paid to a related
taxpayer, this deduction cannot be claimed
Related taxpayers are as follows:
Between family members
o Brothers and sisters
o Spouse
o Ancestors and lineal descendants
Between an individual or a corporation more
than 50% in value of the outstanding stock
of which is owned, directly and indirectly,
by or for such individual
Between two corporations more than 50%
in value of the outstanding stock of each of
which is owned, directly and indirectly, by
or for such individual
Between the grantor and a fiduciary of any
trust
Between the fiduciary of a trust and the
fiduciary of another trust if the same person
is a grantor with respect to each trust
Between a fiduciary of a trust and a
beneficiary of such trust
If a taxpayer has passive income for interest in
bank deposits, a taxpayer must reduce it to 38%
How to claim Interest Expense:
Outright Method claim entirely as
interest expense on the year of purchase
Capitalization or Spread-out Method
depending on the period the expense is
made
E.) BAD DEBTS
-receivables of a tax payer may or may not be
collected
-these are debts that can no longer be recovered
Proof of worthlessness of the receivables must
be ascertained. The BIR may disallow the
deduction if the receivable is not related to the
trade and business; the said bad debt is not
deductible.
Generally, it is undisputed that there is a
useful period for every asset or resource. The
acquisition cost of an asset depreciates as time
goes by
F.) Depreciation It is the gradual diminution in
the useful (service) value of tangible property used
in trade, profession or business resulting from
exhaustion, ordinary wear and tear, and
obsolescence.
Importance: by using the property, a gradual sale
is made out of it, and the depreciation change is a
measure of the cost which has been sold
Requisites:
The allowance for depreciation must be
reasonable
o Depreciation is a question of fact and is
not measured by theoretical yardstick.
Reasonableness depends upon the
conditions known to exist at the end of
the period for which the return is made
It must be for the property used in trade or
business or profession
Kinds
Tangible property used in Trade or business
allowance
Intangible property like patents, copyrights and
franchises
G.) Depletion exhaustion of natural resources
like mines and oil and gas wells as a result of a
production or severance from such mines or wells.
Importance: as the product of the mine is sold, a
gradual sale is being made of the taxpayers capital
interest in the property. The purpose is then, to
enable a taxpayer to recover that capital interest
free of income tax at its cost or on some other
basis
Requisites
Depletible asset natural resources: mines,
gas and oil wells
Charged off within the taxable year
For Domestic Corporations oil, gas wells
or mines located within and without
Resident Corporations gas wells and
mines located within the Philippines
Mario Fidel U. Danao 03/17/2016
 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law

H.) TAX CREDIT K.) LOSS ON SALE OF CAPITAL ASSET

-This is applicable to taxpayers within and without: -as previously discussed, this is a deductible
Domestic Corporations and Resident Citizens expense
-paying of taxes must be imposed only once on a -Holding period
single source of income; otherwise, there would be More than 12 months : 100% deductible
double taxation Less than 12 months: 50% deductible
-this applies to income from sources without and Capital Loss Carry Over
taxes was paid in the country where it was -also applicable for 3 consecutive years
obtained.
Requirements: L.) LOSSES ON WASH SALES
Documentation of tax that was paid -This is not deductible, but gain on wash sale is
Clear indication in the tax return that he is taxable
claiming tax credit Wash Sale involves shares of stock that is
bought or sold (period: within 60 days)
Limitation of Tax Credit Presumption: if this is the case, then the business
involved by the tax payer is buy and sell of shares
Taxable Income W/in of stocks
___________________________________________________________________________________________________________ X Phil. Income Tax
M.) CHARITABLE CONTRIBUTIONS
Taxable Income w/in Requirements:
Taxpayer must be engaged in trade, business
and w/o
or practice of profession
*The obtained result will be compared with the tax Actual payment or proof of payment is
being claimed as a credit. Whichever would be the lower presented
value, the said lower amount can be claimed as tax Recipient must be listed by the tax code
credit. The net income asset of which shall belong
solely for the benefit of any member,
I.) LOSSES organization, officer or any specific person
Ordinary Business Losses
-because of force majeure N.) RESEARCH AND DEVELOPMENT
Casual Business Losses EXPENSES
-casualties, etc -continuous development of a business products,
Requirements for claiming as deductions: goods, and others
Incurred within the taxable year -this is common among pharmaceuticals, food
Not compensated by insurance industries and liquor industries
o If partially compensated, that part which -since R&D is a huge chunk on the expenses of
was not covered by the insurance can these businesses, they are allowed to use the
be claimed as deductions Outright and Spread-out Expense Methods.
Losses is reported to the BIR in a sworn
statement within 45 days from the date of PART 3: ADMINISTRATIVE
discovery PROVISIONS
o Other necessary attachments includes
(but not limited to) Police report, NBI
report Q: What is an Income Tax Return (ITR)?
A: It is a document which evinces a declaration
J.) Operating Loss under oath of a taxpayers income and its
-this happens when income from operation is less necessary computation in arriving to the income
than the income incurred tax due to be paid
Q: Does operating Loss automatically equate Q: What is the end result of filing an ITR?
to Net loss? A: Tax payable by the tax payer. The BIR being so
A: No, because a tax payer may still have other interested with what the taxpayer will pay
sources of income
Q: Are all individual taxpayers required to file
A taxpayer cannot declare a net loss because and ITR?
the tax code already allowed a tax payer to A: As a general rule, all individual taxpayers must
deduct operating losses. file and ITR
XPN:
NET OPERATING LOSS CARRY OVER When the individuals income is lower than
-this is allowed for 3 consecutive taxable year the allowable deductions
-to discourage business to incur losses because no Minimum wage earners
one would want to lose their business Taxes already withheld by employers

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 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
Individuals receiving purely compensation
income which is less than the deduction at
gross
Individuals receiving purely passive income
As an inherent limitation, giving due respect
to international comity
Q: is the XPN applicable to Corporations?
A: No, Corporations incurring net losses should still
file an ITR. The presumption is that corporation are
already in the fourth year of operation. Thus, they
are required to pay using the MCIT.
SUBSTITUTED FILING
-The filing of ITR was done by the employer
because his taxes are presumed to be properly
withheld.
WHERE TO FILE:
Filing only:
Regional District Offices of BIR
Electronic filing system
WHERE TO PAY
Authorized banks
-for Corporations, they may elect their principal
place of business or the place of the legal residence
of the corporation. Generally, a corporation elects
his principal place of business (Main branch)
-if taxpayer as no Main branch: Central office of the
BIR
-if there is no authorized bank: to the local
treasurers office
-rural banks are not allowed to receive payment of
taxes
-in the past, it is the District offices which receive
payment of taxes
RULE OF THUMB: Pay as you file
File and pay if there is payment
Corporations may one of the two following
taxable years:
Calendar Year
-when to pay: every first quarter of the year
-to be paid on or before April 15
Fiscal Calendar
-begins on the day of the first operation of the
business
-when to pay: on or before the 15th day of the
fourth month following the closing of the fiscal
year
Individual tax payers: Calendar year
Individual taxpayers who are self-employed
or in practice of a profession are required to
file and pay estimated ITR every quarter
1st on or before April 15
2nd - on or before August 15
3rd on or before November 15
4th within 60 days after the close of the quarter
*this is because the next filing of ITR will be for
annual income taxes
How should payment of taxes be made?
-through cash
-can be paid in installments: when the tax due is in
excess of P2,000.00, the taxpayer (other than a
corporation) may elect to pay in 2 equal
installments
First at the time when the return is filed
Second on or before July 15 following the close
of the calendar year
Minors Earning Income
-required to declare subject to the consolidation
with the parents ITR; if there is no parent,
authorized agents
In the case of Spouses
-the default property regime is Absolute
Community of Property
-consolidated filing with separate computations
Capital Gains Tax
-payable within 30 days from the date of
transaction (generally, it is when the document was
notarized)
DOCUMENTS, FINANCIAL STATEMENTS
REQUIRED TO BE ATTACHED
-if gross income is not more than P50,000.00 a
quarter: simple statement of net worth of operation
-if gross income is from P50,000.00 to P150,000.00
a quarter: no need to submit a financial statement
-if gross income exceed P150,000.00: taxpayer
needs an accountant
SUBSTITUTED FILING
Form 2416 : the copy of the individual
Individuals receiving a purely Compensation
Income: employer needs to summarize the
compensation income paid to his employees
including the tax withheld
Conditions
Personnel must only be receiving purely
compensation income
Received from only one employer (otherwise,
the taxpayer must file a return)
-in the case of spouses, they may qualify under this
if they meet the requirements/conditions
CONSEQUENCES OF NOT PAYING OR PAYING
AFTER DUE DATE
Imposition of surcharges
Civil penalties (but it does not make the tax
laws penal in character), imposed in addition to
or on top of the tax due because of 2 reasons:
o Delinquency: failure to pay the tax
due on the due date fixed by law
o Misrepresentation: declaration of
false information or fraudulent returns
done in Bad Faith because the ITR is a
declaration under oath
Surcharges: percentage on top of the tax due
Mario Fidel U. Danao 03/17/2016
 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
o 25%: failure to file the ITR on due
date, or is filed at a wrong venue
o after assessment: there is more
surcharges to be paid
o 50%: because of misrepresentation or
willful neglect on the defect of the ITR
or in representation of a false or
fraudulent return
There is a Fraudulent Return when:
There is under declaration of income
Over declaration of deduction or
expenses
How much: (The BIR Standard)
-substantial of over or under declaration if
there is a failure to report an amounting to
30% of the actual over or under declaration
Interests
-discretion of the BIR, other than the required
surcharges
-period of interest: from the date the law requires
an individual to pay taxes to the date of actual
payment
-basis: tax which was not paid
DEFICIENCY INTEREST
-Is imposed for failure to pay on the date due in
the notice after investigation or audit
DELINQUENCY INTEREST
-is imposed for the failure to pay the tax due on
the date imposed by law
Other Penalties:
o Fine
o Imprisonment
o Or both
ASSESSMENT
It is a written notice and demand made by the BIR
on the taxpayer for the settlement of a tax due
liability
It contains the following:
Computation of tax liabilities
Demand for payment within a prescribed period
Time when penalties or interests begin to
accrue against the tax payer
For purposes of Income taxes, only the BIR
can issue an assessment
-the ITR plus its attachments is the document that
can be assessed by the BIR
What should a taxpayer do when he receives
an assessment?
-pay the amount stated plus the surcharges,
interests, fines, and other charges stated therein
May an assessment be issued even when the
BIR does not receive an ITR?
-as a general rule, an assessment is prima facie
presumed correct and made in good faith. Absence
of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed.
Verily, failure to present proof of error in
assessments will justify judicial affirmance of said
assessment
After audit, examination, or investigation,
the BIR may issue an assessment against a
taxpayer
Can an assessment be questioned in court?
-No because it is appealable to the BIR, after
which, the Court of Tax appeals may assume
jurisdiction upon lapse of a certain period of
inaction by the BIR or the decision of the latter is
appealed before them.
Assessment made by the BIR is jurisdictional
-if made by the Regional District Office (RDO): valid
within the district
-if made by the main office of BIR: valid all over
the RP
*otherwise, an assessment may be erroneous
Is amendment of ITR filed allowed?
-yes, but never to ask the BIR to return his original
ITR filed
-an amended ITR may be filed within 3 years from
the time the original return was filed
Basis or grounds for deficiency assessment:
No ITR filed: resolution will go to the best
evidence obtainable
There was no amount declared as tax payable
If a taxpayer failed to file an ITR but the
taxpayer is not among those who are not
required to file the same
VOID ASSESSMENT
Issued by a person not authorized by the BIR; the
same is done to defraud or harass a taxpayer
A tax return is a public record because it is filed
with the BIR
-it is a confidential document because any
person cannot inquire into its details except those
officers who have the power to assess a taxpayer
-in fact, any public personnel divulging details of an
ITR may be held administratively liable
XPN: when confidentiality is set aside
-waiver on the part of the taxpayer as authorized
by the secretary of finance
-generally, there is an implied waiver if the
assessment protested in court
BEST EVIDENCE OBTAINABLE
-The BIR is empowered to access all relevant or
material records and dates pertaining to the tax
liability
Record, data, information, papers,
evidence, etc. in order to determine the
proper income tax
-this applies when a taxpayer failed to file
an ITR or the ITR is fraudulently filed
Mario Fidel U. Danao 03/17/2016
 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
Declaration of presumptive gross income
-meaning, the BIR disregards the ITR
-if there is a reason to believe that the
records of the business does not reflect the
true income of the taxpayer
-generally, because the taxpayer does not
issue pertinent receipts of expenses
Income from similar businesses of the same
place
-the average income of the tax payer lags
behind from the other similar businesses
JEOPARDY ASSESSMENT
-if the taxpayer absconds or tries to conceal
properties, encumbrances, or performing any act of
which the intention is to prevent a proceeding for
tax assessment
-this is the worst assessment that a taxpayer may
receive
SURPRISE AUDIT OF FINANCIAL
STATEMENTS
-books of accounts may be audited by the BIR by
reason of assessment only
-surveillance of businesses
*in other words, the State may employ all possible
measures to ensure that an assessment is done
properly. However, only legal means to employ it
must be exercised
The BIR has the power to implement tax
laws and enforce fines, and others
-no court may validly intervene an assessment
ASSESSMENT OF TAX LIABILITY, WHEN:
A.) Three (3) Years commences to run after
the last day prescribed by law for the filing of
the return. This means that if the return is filed
before the due date, the prescriptive period
begins to run only after said due date, but if
the return is filed beyond the period fixed by
law or beyond the due date, the 3 year period
shall be counted from the day the return was
filed
-but if the ITR was amended substantially, the
period starts from the filing of the amended
return
B.) Ten (10) Years
When no return is filed
The ITR is false or fraudulent with intent to
evade the tax, the prescriptive period
commences from the date of discovery
ACCREDITATION OF TAX AGENTS
-To give financial recognition to those engaged in
tax practice
Duties of a tax practitioner
self-assessment of tax
representation as to filing
appearance for the taxpayer
Why the need for accreditation? Because taxpayers
are easily deceived by people pretending to be
employees of the government in order to solicit
money from them.
Who are qualified?
Natural/juridical persons
Those who have a law degree provided they
have 18 units of accounting subjects or
taxation
Certificate of good moral character from 2
CPAs or 1 member of the IBP
If the taxpayer itself appears, no need for a tax
agent
Members of the Philippine Bar need not
apply for accreditation
Tax assessment can be challenged
-check validity as to who issued it (jurisdictional
matters)
-if a taxpayer believes that his self-assessment is
correct, then he may challenge the assessment
REMEDIES
A.) AVAILABLE TO THE TAXPAYER
What to do:
Be sure it is a valid assessment, it must not
be void or erroneous
No court may TRO a tax assessment
Challenge the Assessment
the taxpayer may choose or has the option
to do this if he believes that his self-
assessment is correct
MOTION FOR RECONSIDERATION OR
REINVESTIGATION
-if this is availed, then an assessment becomes a
disputed assessment
Reconsideration: based on existing records
Reinvestigation: presentation of additional
evidence or documents
Initial Remedy; When:
-within 30 days from receipt of the assessment
-it stops the clock of the period to collect the tax
WHERE: from where it was issued
RDO- can be appealed to the central office of BIR
Appeal: within 30 days from receipt of the
decision to the Court of Tax Appeals (CTA)
-or within 30 days from the expiration of the 180
days from the time of filing because the BIR did not
act on the appeal: elevation to the CTA
-once filed before the CTA, the taxpayer
needs a counsel because the case becomes
judicial; in effect, the rules of court applies
TAX COMPROMISE
-entering into a settlement or consensual
agreement of compromise
-proving to the BIR that the taxpayer is financially
incapable of paying assessed tax (clear and
convincing evidence)
Mario Fidel U. Danao 03/17/2016
 Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law

-still there is a 10% surcharge of the basic
assessed tax (as opposed to the misconception that
there is nothing to pay)
-proof of incapacity or incapability or hard to prove
the misrepresentation or fraud
However, any fraud to the said attestation will
make the tax assessment plus the surcharges and
fines immediately demandable
Taxpayer may avail to prove that a tax
collector is illegally disclosing the
assessment or any act of graft or corrupt
practices
-RA 3019 administrative, criminal, civil liability on
the part of the collector or personnel of the BIR
TAX REFUND
-Doctrine of equitable recoupment (however, this is
not applicable in the Philippines): this is a mode of
extinguishing tax liability wherein a tax refund is
set-off against a tax credit
*in the Philippines these two cannot be set-of:
payment first before refund!!!!
When to avail:
-within 2 years from the date the tax was paid
-there must be proof of actual payment to the tax
as evidenced by receipts
-declaration of erroneous or illegal assessment
-attestation to the reason of illegality and actual
payment
-difference with distraint and levy: the bidder
awarded the property cannot encumber the same
because of the one year redemption period in favor
of the taxpayer (if it is a real property)
3.) The state may file Criminal cases or civil
penalties against the tax payer
-it does not make tax law penal
-exoneration on the civil liability does not terminate
the criminal liability
Books of accounts proof of the financial
statement of the taxpayer: must be maintained in
English, Filipino, Spanish, or the local dialect
Prescriptive period to collect
-if there was assessment: 5 years from date of
assessment; this stops when the assessment is
disputed
-if there was no assessment but there was ITR, 5
years from the date fixed by law
-if no return filed, if there was return but the same
was fraud, 10 years from the date of discovery
-if the decision became final, the prescriptive
period will start to run; with respect to the filing of
the suit, the prescriptive period is suspended

B.) AVAILABLE TO THE STATE

Taxes are paid generally in money. Thus, it

can be paid in kind but this is not principally
done as it will create problems as to its
administration (contrary to the Canon of
Taxation: Administrative Feasibility)

1.) Distraint of Personal Property

-this can be availed if a taxpayer has no
available cash to settle the tax and the taxpayer
has personal properties that can be auctioned
-property to be auctioned must be equal to the
tax liability, surcharges, etc. plus the expenses
of the auction
-excess will be returned to the taxpayer
-notice of sale shall be informed or delivered to
the taxpayer to give chance to the taxpayer to
purchase the property
-during auction, the taxpayer may bid
-if in any case, the proceeds of the auction is
not equal to the liabilities, taxpayer is still not
cleared
2.) Constructive Distraint
-the BIR will require the taxpayer to sign a
document stating that the property should be
preserved and to remain unaltered or encumbered
Procedure: by public auction
-notify the Register of Deeds where the property is
registered
Mario Fidel U. Danao 03/17/2016