Taxation Reviewer SAN BEDA

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES 6. levied for a public purpose.
REQUISITES OF A VALID TAX

POWER OF TAXATION 1. should be for a public purpose
TAXATION – power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES – enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE

 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
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Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers ASPECTS OF TAXATION
to the unlimitedness and the degree 1. Levy or imposition of the tax (tax
or vigor with which the taxing power legislation)
may be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State’s
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public purpose
2. Non-Revenue (Key: PR2EP)
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth 3. Benefits Received
e. Protectionism No special No direct A direct
or direct benefit is benefit results
benefit is received; a in the form of
POWER OF JUDICIAL REVIEW IN TAXATION received by healthy just
As long as the legislature, in the economic compensation
imposing a tax, does not violate taxpayer; standard of to the
applicable constitutional limitations or merely society is property
general attained owner
restrictions, it is not within the province
benefit of
of the courts to inquire into the wisdom protection
or policy of the exaction, the motives
behind it, the amount to be raised or the 4. Non-impairment of Contracts

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Contracts Contracts Contracts may

may not be may be be impaired b. The tax imposed on videogram
impaired impaired
establishments is not only regulatory but
5. Transfer of Property Rights a revenue measure because the earnings
Taxes paid No transfer Transfer is of such establishments have not been
become part but only effected in
subject to tax depriving the government
of public restraint in favor of the
funds its exercise State of an additional source of income. (Tio
v. Videogram Regulatory Board, 151
6. Scope
All persons, All persons, Only upon a
SCRA 208)
property and property, particular
excises rights and property c. The “coconut levy funds” were
privileges all raised under the state’s taxing and
police powers.
SYSTEMS OF TAXATION The state’s concern to make it a
Global System Schedular System strong and secure source not only in the
livelihood of the significant segment of
A system A system employed the population, but also of export
employed where where the income tax earnings, the sustained growth of which
the tax system treatment varies and is one of the imperatives of the
views is made to depend on economic growth.” Philippine Coconut
indifferently the the kind or category of
tax base and taxable income of the
Producers Federation, Inc. Cocofed v.
generally treats in taxpayer. Presidential Commission on Good
common all Government (178 SCRA 236, 252)
categories of
taxable income of CONSTRUCTION OF TAX LAWS
the individual. 1. Public purpose is always presumed.
A system which A system which 2. If the law is clear, apply the law in
taxes all itemizes the different accordance to its plain and simple
categories of incomes and provides tenor.
income except for varied percentages
3. A statute will not be construed as
certain passive of taxes, to be applied
incomes and thereto. imposing a tax unless it does so
capital gains. It clearly, expressly and
prescribes a unambiguously.
unitary but 4. In case of doubt, it is construed most
progressive rate strongly against the Government,
for the taxable and liberally in favor of the
aggregate incomes taxpayer.
and flat rates for 5. Provisions of a taxing act are not to
certain passive
be extended by implication.
incomes derived
by individuals. 6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A to give retrospective effect is
REGULATORY PURPOSE, OR COMBINED expressly declared or may be
EXERCISE OF POLICE POWER AND THE POWER implied from the language used.
OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OF TAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
the effect that motor vehicle TAXES ARE PERSONAL TO THE TAXPAYER
registration fees are regulatory 1. A corporation’s tax delinquency
exactions and not revenue measures. cannot be enforced against its

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stockholders. (Corporate Entity 3. As to purpose:

Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
the tax falls on one person but 6. Margin Fee – exaction designed to
the burden thereof can be stabilize the currency.
shifted or passed on to another.

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7. Debt – a sum of money due upon the start of a before

contract or one which is evidenced business commencement of
by judgment. business
8. Subsidy – a legislative grant of
Taxes, being the License fee may be
money in aid of a private enterprise
lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees – duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment makes
10. Revenue – a broad term that not make the the business illegal
includes taxes and income from business illegal but
other sources as well. maybe a ground for
criminal
11. Impost – in its general sense, it
prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on
TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise.
TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special
or if revenue is, at least, one of the real
Assessment
and substantial purposes, then the
Imposed on persons, Levied only on land exaction is a tax. If the purpose is
property and excises regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment
An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit
benefit Due to the May be due to the
government in its government but in
Levied and paid Exceptional both as sovereign capacity its corporate
annually to time and locality capacity
Exemption granted Exemption does not Payable in money Payable in money,

is applicable (Art. apply. property or services
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee
Not subject to Subject to
compensation or compensation or
Based on the power Emanates from
set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory
punished by case of non-payment
revenue
imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1)
Imposed only by Can be imposed by
issuing the license,
public authority private individual
and (2) inspection
and surveillance TEST IN DETERMINING IF THE IMPOSITION IS A
TAX OR A LICENSE FEE
Normally paid after Normally paid

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If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

if revenue is, at least, one of the real FOLLOWED IN THE PHILIPPINES
and substantial purposes, then the A tax presently being assessed
exaction is a tax. If the purpose is against a taxpayer which has prescribed
regulatory in nature, it is a license. may not be recouped or set-off against
(PAL v. Edu) an overpaid tax the refund of which is
also barred by prescription. It is against
Tax Debt public policy since both parties are
guilty of negligence.
An obligation Created by contract
imposed by law Tax Toll
Due to the May be due to the Enforced A sum of money for
government in its government but in proportional the use of
sovereign capacity its corporate contributions from something, a
capacity persons and property consideration which
is paid for the use of
Payable in money Payable in money, a property which is
property or services of a public nature;
e.g. road, bridge
Does not draw Draws interest if
interest except in stipulated or A demand of A demand of
case of delinquency delayed sovereignty proprietorship
No limit as to the Amount of toll

Not assignable Assignable
amount of tax depends upon the
cost of construction
Not subject to Subject to or maintenance of
compensation or compensation or the public
set-off set-off improvement used
Non-payment is No imprisonment in Imposed only by the May be imposed by:

punished by case of non- State (1) Government
imprisonment payment (Art. III, (2) Private
except in poll tax Sec. 20 1987 individuals or
Constitution) entities
Imposed only by Can be imposed by Tax Penalty

public authority private individual
Enforced Sanction imposed as
COMPENSATION OR SET-OFF proportional a punishment for
General Rule: Taxes cannot be the contributions from violation of a law
subject of compensation or set-off. persons and or acts deemed
Reasons: property injurious; violation
of tax laws may give
1. lifeblood theory
rise to imposition of
2. taxes are not contractual penalty
obligation but arise out of duty
to the government Intended to raise Designed to regulate
3. the government and the revenue conduct
taxpayer are not mutually
creditors and debtors of each May be imposed May be imposed by:
other. (Francia v. IAC) only by the (1) Government
Exception: When both obligations are government (2) Private
due and demandable as well as fully individuals or
entities
liquidated and all the requisites for a
valid compensation are present,
compensation takes place by operation Tax Tariff
of law. (Domingo v. Garlitos)
All embracing term A kind of tax
to include various imposed on articles

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kinds of enforced which are traded - refers to tax legislation

contributions upon internationally Exceptions to Non-delegability:
persons for the 1. Flexible Tariff Clause: Authority of
attainment of the President to fix tariff rates,
public purposes
import and export quotas, tonnage
and wharfage dues, and other duties
TAXPAYERS’ SUIT or imposts. (Art. VI, Sec.28(2), 1987
A case where the act complained of Constitution)
directly involves the illegal disbursement 2. Power of local government units to
of public funds derive from taxation levy taxes, fees, and charges. (Art.
(Justice Melo, dissenting in Kilosbayan, X, Sec. 5, 1987 Constitution)
Inc vs Guingona, Jr.) 3. Delegation to administrative
agencies for implementation and
TAXPAYERS AND PUBLIC OFFCIALS HAVE collection.
LOCUS STANDI - merely refers to tax administration
REQUISITES FOR TAXPAYERS’ SUIT or implementation
a. The tax money is being extracted
and spent in violation of specific
(3) SITUS OR TERRITORIALITY OF TAXATION
constitutional protections against
abuses of legislative power. The power to tax is limited only to
b. That public money is being deflected persons, property or businesses within
to any improper purpose (Pascual vs the jurisdiction or territory of the taxing
Secretary of Public Works) power.
c. That the petitioner seeks to restrain
respondents from wasting public FACTORS THAT DETERMINE THE SITUS:
funds through the enforcement of an a. Kind or classification of the tax being
invalid or unconstitutional law levied
b. Situs of the thing or property taxed
c. Citizenship of the taxpayer
LIMITATIONS ON THE TAXING d. Residence of the taxpayer
POWER e. Source of the income taxed
f. Situs of the excise, privilege,
A. INHERENT LIMITATIONS (KEY: SPINE) business or occupation being taxed
1. Territoriality or Situs of taxation
2. Public purpose of taxes Application of Situs of Taxation
3. International comity Kind of Tax Situs
4. Non-delegability of the taxing power
5. Tax Exemption of the government Personal or Residence or
Community tax domicile of the
(1) TESTS IN DETERMINING PUBLIC PURPOSE taxpayer
a. Duty Test – whether the thing to be
furthered by the appropriation of Real property tax Location of property
public revenue is something, which (Lex rei sitae)
is the duty of the State, as a
Personal property -tangible: where it is
government, to provide. tax physically located or
permanently kept
b. Promotion of General Welfare Test (Lex rei sitae)
– whether the proceeds of the tax -intangible: subject
will directly promote the welfare of to Sec. 104 of the
the community in equal measure. NIRC and the
principle of mobilia
(2) NON-DELEGABILITY OF THE TAXING sequuntur personam
POWER
General Rule: The power of taxation is
Business tax Place of business
peculiarly and exclusively exercised by
the legislature. (See Scope of Excise or Privilege Where the act is
Legislative Taxing Power, supra) tax performed or where

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occupation is As a matter of public policy,

pursued property of the State and of its
municipal subdivisions devoted to
Sales tax Where the sale is government uses and purposes is
consummated deemed to be exempt from taxation
although no express provision in the law
Income Tax Consider
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income General Rule: The Government is tax
(Sec. 42, 1997 NIRC) exempt.
- However, it can also tax itself.
Transfer tax Residence or
citizenship of the RULES:
taxpayer or location 1. Administrative Agencies
of property
a. Governmental function - tax
exempt unless when the law
Franchise Tax State which granted
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function – taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax –
and donor’s taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes – exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function
bonds have acquired a business accruing to the Government of the
situs in the Philippines; and Philippines or to any political
(5) shares or rights in any subdivision thereof is not included in
partnership, business or industry gross income and exempt from
established in the Philippines. taxation. (Sec. 32(B)(7)(b), NIRC)
(Sec. 104, 1997 NIRC). 5. Donations in favor of governmental
institutions are considered as income
(4) EXEMPTION OF THE GOVERNMENT on the part of the donee. However,

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it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS

income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor’s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken A license tax or fee constitutes a
in that capacity. Even where one enters curtailment of religious freedom if
the territory of another, there is an imposed as a condition for its
implied understanding that the former exercise. (American Bible Society
does not thereby submit itself to the vs. City of Manila, GR No. L-9637,
authority and jurisdiction of the other. April 30, 1957)

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5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

III, Sec. 10, 1987 Constitution) CONSTITUTIONAL LIMITATIONS
No law impairing the obligation
of contract shall be passed. (Sec. 1. Non-Imprisonment For Debt Or Non-
10, Art. III, 1987 Constitution) Payment Of Poll Tax (Art. III, Sec.
The rule, however, does not 20, 1987 Constitution)
apply to public utility franchises or
right since they are subject to 2. Rule Requiring That Appropriations,
amendment, alteration or repeal by Revenue And Tariff Bills Shall
the Congress when the public Originate Exclusively From The
interest so requires. (Cagayan House Of Representatives (Art. VI,
Electric & Light Co., Inc. v. Sec. 24, 1987 Constitution)
Commissioner, GR No. 60216,
September 25, 1985) 3. Uniformity, Equitability And
Progressivity Of Taxation (Art. VI,
RULES: Sec. 28(1), 1987 Constitution)
a. When the exemption is bilaterally Uniformity – all taxable articles or
agreed upon between the kinds of property of the same class
government and the taxpayer – it are taxed at the same rate.
cannot be withdrawn without Equitability – the burden falls to
violating the non-impairment those who are more capable to pay.
clause. Progressivity – rate increases as the
b. When it is unilaterally granted by tax base increases.
law, and the same is withdrawn by
virtue of another law – no violation. Q: Is a tax law adopting a regressive
c. When the exemption is granted system of taxation valid?
under a franchise – it may be A: Yes. The Constitution does not
withdrawn at any time thus, not a really prohibit the imposition of indirect
violation of the non-impairment of taxes which, like the VAT, are
contracts regressive. The Constitutional provision
means simply that indirect taxes shall be
6. Presidential power to grant minimized. The mandate to Congress is
reprieves, commutations and not to prescribe, but to evolve, a
pardons and remit fines and progressive tax system. (EVAT En Banc
forfeitures after conviction (ART. Resolution, Tolentino, et al vs Secretary
VII, SEC. 19, 1987 CONSTITUTION) of Finance, October 30, 1995)
Due Equal
Uniformity
Process Protection 4. Limitations On The Congressional
Taxpayer Taxpayers Taxable Power To Delegate To The
may not shall be articles, or President The Authority To Fix
be treated alike kinds of
Tariff Rates, Import And Export
deprived under like property of
of life, circumstances the same
Quotas, Etc. (Art. VI, Sec. 28(2),
liberty or and conditions class, shall 1987 Constitution)
property both in the be taxed at
without privileges the same 5. Tax Exemption Of Properties
due conferred and rate. There Actually, Directly And Exclusively
process of liabilities should Used For Religious, Charitable And
law. imposed. therefore, Educational Purposes. (Art. VI,
Notice be no direct Sec. 28(3) 7, 1987 Constitution)
must, double The constitutional provision
therefore taxation
, be given
(above cited) which grants tax
in case of exemption applies only to property
failure to or realty taxes assessed on such
pay taxes properties used actually, directly
exclusively for religious, charitable
and educational purposes. (Lladoc

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1
vs. Commissioner, GR No. L-19201, Educational Institutions, Including

June 16, 1965) Grants, Endowments, Donations
The present Constitution And Contributions. (Art. XIV, Sec.
required that for the exemption of 4(3) And (4), 1987 Constitution)
“lands, buildings and
improvements”, they should not only OTHER SPECIFIC TAX PROVISIONS IN
be “exclusively” but also “actually” THE CONSTITUTION
and “directly” used for religious and 1. Power of the President to veto any
charitable purposes. (Province of particular item or items in an
Abra vs. Hernando, GR No. L-49336, appropriation, revenue, or tariff bill.
August 31, 1981) (Art VI, Sec. 27(2), 1987
The test of exemption from Constitution)
taxation is the use of the property 2. Necessity of an appropriation before
for the purposes mentioned in the money may be paid out of the public
Constitution. (Abra Valley College treasury. (Art. VI, Sec. 29 (1), 1987
Inc. vs. Aquino, GR No. L-39086, Constitution)
June 15, 1988) 3. Non-appropriation of public money
or property for the use, benefit, or
EXCLUSIVE BUT NOT ABSOLUTE USE support of any sect, church, or
The term “ exclusively used” does system of religion. (Art. VI, Sec. 29
not necessarily mean total or absolute (2), 1987 Constitution)
use for religious, charitable and 4. Treatment of taxes levied for a
educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION – taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational, PHILIPPINES?
educational charitable No. There is no constitutional
institution institutions
prohibition against double taxation. It is
Taxes Income tax Property tax
not favored but permissible. (Pepsi Cola
covered Custom
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious – double taxation in the
6. Voting Requirement In Connection objectionable or prohibited sense.
With The Legislative Grant Of Tax This constitutes a violation of
Exemption (Art. VI, Sec. 28(4), substantive due process.
1987 Constitution)
7. Non-Impairment Of The Elements:
Jurisdiction Of The Supreme Court a. the same property or subject matter
In Tax Cases (Art. VIII, Sec. 2 And is taxed twice when it should be
5(2)(B), 1987 Constitution) taxed only once.
b. both taxes are levied for the same
8. Exemption From Taxes Of The purpose
Revenues And Assets Of

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1
c. imposed by the same taxing  A tax credit is granted for estate

authority taxes paid to a foreign country on
d. within the same jurisdiction the estate of citizens and resident
e. during the same taxing period aliens subject to certain limitations.
f. covering the same kind or character  The donor’s tax imposed upon a
of tax. citizen or a resident shall be
(Villanueva vs. City of Iloilo) credited with the amount of any
donor’s tax imposed by the authority
(2) Indirect Duplicate Taxation – not of a foreign country, subject to
legally objectionable. The absence certain limitations.
of one or more of the above- 4. Tax Exemptions
mentioned elements makes the 5. Principle of Reciprocity
double taxation indirect. 6. Treaties with other states
(3) Domestic- this arises when the taxes METHODS RESORTED TO BY A TAX TREATY IN
are imposed by the local or national ORDER TO ELIMINATE DOUBLE TAXATION
government (within the same state)
(4) International- refers to the FIRST METHOD: The tax treaty sets out
imposition of comparable taxes in the respective rights to tax by the state
two or more states on the same of source or situs and by the state of
taxpayer in respect of the same residence with regard to certain classes
subject matter and for identical of income or capital. In some cases, an
periods. exclusive right to tax is conferred in one
of the contracting states; however, for
REMEDIES OF DOUBLE TAXATION other items of income or capital, both
1. Tax Sparing Rule – same dividend states are given the right to tax although
earned by a NRFC within the Phil. is the amount of tax that may be imposed
reduced by imposing a lower rate of by the state of source is limited.
15% (in lieu of the 35%), on the SECOND METHOD: The state of source is
condition that the country to which given a full or limited right to tax
the NRFC is domiliced shall allow a together with the state of residence. In
credit against the tax due from the this case, the treaty makes it incumbent
NRFC, taxes deemed to have been upon the state of residence to allow
paid in the Phil. (Sec.28 B 5b) (CIR relief in order to avoid double taxation.
vs Procter & Gamble) (GR No.
66838, Dec. 2, 1991) TWO METHODS OF RELIEF ARE USED UNDER THE
2. Tax deductions SECOND METHOD:
Example: vanishing deduction under
Section 86(A)(2), NIRC 1. The exemption method- the income
3. Tax credits or capital which is taxable in the
Instances under the NIRC: state of source or situs is exempted
 For VAT purposes, the tax on in the state of residence, although in
inputs or items that go into the some instances it may be taken into
manufacture of finished products account in determining the rate of
(which are eventually sold) may be tax applicable to the tax payer’s
credited against or deducted from remaining income or capital.(This
the output tax or tax on the finished may be done using the tax deduction
product. method which allows foreign income
 Foreign income taxes may be taxes to be deducted from gross
credited against the Phil. Income income, in effect exempting the
tax, subject to certain limitations, payment from being further taxed.)
by citizens, including members of 2. The credit method- although the
general professional partnerships or income or capital which is taxed in
beneficiaries of estates or trusts the state of source is still taxable in
(pro rata), as well as domestic the state of residence. The tax paid
corporations. in the former is credited against the

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1
tax, levied in the latter. KINDS OF SHIFTING

(Commissioner of Internal Revenue a. Forward shifting- when burden of
v. S.C Johnson and Son, Inc. et al., tax is transferred from a factor of
G.R No. 127105, June 25, 1999) production through the factors of
distribution until it finally settles on
Exemption the ultimate purchaser or consumer
Credit Method b. Backward shifting- when burden is
Method
Focus is on the Focus is on the tax transferred from consumer through
income or capital factors of distribution to the factors
itself of production
c. Onward shifting- when the tax is
NOTE: Computational illustration shifted 2 or more times either
between a tax deduction and a tax forward or backward
credit:
(2) CAPITALIZATION – a mere increase in
Tax deduction method the value of the property is not
Gross income income but merely an unrealized
Less: allowable deductions increase in capital. No income until
including after the actual sale or other
foreign taxes paid disposition of the property in excess
Income subject to tax of its original cost.
Multiplied by rate EXCEPT: if by reason of appraisal, the
Income tax due cost basis of property increased and the
resultant basis is used as the new tax
Tax credit method base for purposes of computing the
Gross income allowable depreciation expense, the net
Less: allowable deductions difference between the original cost
excluding basis and new basis is taxable under the
foreign taxes paid economic benefit principle. (BIR Ruling
Income subject to tax No. 029, March 19, 1998)
Multiplied by rate
Income tax due (3) TRANSFORMATION – the manufacturer
Less: foreign taxes paid or producer upon whom the tax has
Net income tax due been imposed, fearing the loss of
his market if he should add the tax
to the price, pays the tax and
FORMS OF ESCAPE endeavors to recoup himself by
FROM TAXATION improving his process of production,
thereby turning out his units at a
(1) SHIFTING – the process by which the lower cost.
tax burden is transferred from the
statutory taxpayer (impact of (4) TAX AVOIDANCE – the exploitation by
taxation) to another (incident of the taxpayer of legally permissible
taxation) without violating the law. alternative tax rates or methods of
assessing taxable property or
IMPACT OF TAXATION – point on which tax income, in order to avoid or reduce
is originally imposed. tax liability.
Example: “estate planning”
INCIDENCE OF TAXATION – point on which (conveyance of property to a family
the tax burden finally rests or settles corporation for shares) (Delpher Trades
down. Corp. vs. IAC, 157 SCRA 349)
Illustration: Value added tax. The (5) TAX EVASION – use by the taxpayer of
seller is required by law to pay tax, but illegal or fraudulent means to
the burden is actually shifted or passed defeat or lessen the payment of the
on to the buyer. tax.

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1
FACTORS IN TAX EVASION Examples of Statutory Exemptions

1. the end to be achieved, i.e. payment Sec. 27, NIRC
of less than that known by the Sec. 105 Tariff and Customs
taxpayer to be legally due, or paying Code
no tax when it is shown that the tax Sec. 234 Local Government Code
is due; Special Laws, such as the
2. an accompanying state of mind Omnibus Investment Code of 1987
which is described as being evil, in (EO 226), Philippine Overseas
bad faith, willful, or deliberate and Shipping Act (RA 1407 as amended),
not coincidental; and Fertilizer Industry Act (RA 3050, as
3. a course of action which is unlawful. amended), Mineral Resources
Development Decree of 1974 (PD 463
INDICIA OF FRAUD IN TAX EVASION as amended), Cottage Industry Act
1. Failure to declare for taxation (RA 318, as amended) and
purposes true and actual income exemptions in “Housing for Low
derived from business for 2 Income Group” (PD 1205, as
consecutive years (Republic vs amended)
Gonzales, L-17962) c. Contractual- agreed to by the
2. Substantial under-declaration of taxing authority in contracts
income tax returns of the taxpayer lawfully entered into by them
for 4 consecutive years coupled with under enabling laws
intentional overstatement of d. Treaty
deductions (CIR vs Reyes, 104 PHIL e. Licensing Ordinance
1061) 2. As to form
(1) Express – expressly granted by
TAX TAX organic or statute law
AVOIDANCE EVASION (2) Implied – when particular
persons, property or excises are
Validity Legal and not Illegal and deemed exempt as they fall
subject to subject to outside the scope of the taxing
criminal penalty criminal provision itself.
penalty
3. As to extent
Effect Minimization of Almost (1) Total – absolute immunity
taxes always (2) Partial – one where a collection
results in of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal – granted directly in
(6) TAX EXEMPTION – a grant of favor of certain persons
immunity to particular persons or (2) Impersonal – granted directly in
corporations from the obligation to favor of a certain class of
pay taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional – immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory – those which emanate prove by convincing proof that he
from legislation is exempted.

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1
d. Taxation is the rule; tax exemption b. Adherence to form- if the tax

is the exception. exemption is granted by the
e. Tax exemption must be strictly Constitution, its revocation may be
construed against the taxpayer and effected through Constitutional
liberally in favor of the taxing amendment only
authority. c. Where the tax exemption grant is in
f. Tax exemptions are not presumed. the form of a special law and not by
g. Constitutional grants of tax a general law even if the terms of
exemption are self-executing. the general act are broad enough to
h. Tax exemptions are personal. include the codes in the general law
unless there is manifest intent to
THE FOLLOWING PARTAKE THE NATURE OF repeal or alter the special law
TAX EXEMPTION (Province of Misamis Oriental vs
1. Deductions for income tax purposes Cagayan Electric Power and Light
2. Claims for refund Co. Inc)
3. Tax amnesty
4. Condonation of unpaid tax liabilities NATURE OF TAX AMNESTY
NOTE: must be strictly construed 1. General or intentional overlooking by
against the taxpayer the state of its authority to impose
penalties on persons otherwise guilty
WHEN EXEMPTIONS ARE CONSTRUED of evasion or violation of a revenue
LIBERALLY IN FAVOR OF GRANTEE or tax law.
1. When the law so provides for such 2. Partakes of an absolute forgiveness of
liberal construction. waiver of the government of its right
2. Exemptions from certain taxes, to collect.
granted under special circumstances 3. To give tax evaders, who wish to
to special classes of persons. relent and are willing to reform a
3. Exemptions in favor of the chance to do so.
government, its political subdivisions
or instrumentalities. RULES ON TAX AMNESTY
4. Exemptions to traditional 1. Tax amnesty
exemptees, such as those in favor of a) like tax exemption, it is never
religious and charitable institutions. favored nor presumed
5. If exemptions refer to the public b) construed strictly against the
property taxpayer (must show complete
compliance with the law)
Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.
parties based on material Reason: Relates to the circumstances
consideration of a mutual nature, of a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.

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1
Tax amnesty Tax exemption c.) Local Government Code

Local Taxes, fees, or charges shall
Immunity from all Immunity from civil be assessed within five (5) years from
criminal, civil and liability only the date they became due. In case of
administrative fraud or intent to evade the payment of
liabilities arising taxes, fees or charges the same may be
from non payment
of taxes
assessed within ten (10) years from
discovery of the fraud or intent to
Applies only to past Prospective evade payment. They shall also be
tax periods, hence application collected either by administrative or
retroactive judicial action within five (5) years
application from date of assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

As a rule, taxes are imprescriptible ADMINISTRATION
as they are the lifeblood of the
government. However, tax statutes may SOURCES OF TAX LAWS (Key: SPEC2TRA
provide for statute of limitations. BLT)
The rules that have been adopted 1. Statutes
are as follows: 2. Presidential Decrees
a.) National Internal Revenue Code 3. Executive Orders
The statute of limitation for 4. Constitution
assessment of tax if a return is filed is 5. Court Decisions
within three (3) years from the last day 6. Tax Codes
prescribed by law for the filling of the 7. Revenue Regulations
return or if filed after the last day, 8. Administrative Issuances
within three years from date of actual 9. BIR Rulings
filling. If no return is filed or the return 10. Local Tax Ordinance
filed is false or fraudulent, the period to 11. Tax Treaties and Conventions
assess is within ten years from discovery
of the omission, fraud or falsity. REQUISITES OF TAX REGULATIONS
The period to collect tax is within 1. Reasonable
three years from date of assessment. In 2. Within the authority conferred
the case, however, of omission to file or 3. Not contrary to law
if the return filed is false or fraudulent, 4. Must be published
the period to collect is within ten years
from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that ‘’ when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts
fraud or protest, be final and conclusive from his return or any document
upon all parties, unless the liquidation required of him by the BIR.
of import entry was merely tentative.” 2. Where the facts subsequently
(Sec 1603,TCC) gathered by the BIR is materially

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different from the facts on which

the ruling is based. POWERS AND DUTIES OF THE BIR
3. Where the taxpayer acted in bad Assessment and collection of all
faith. national internal revenue taxes, fees,
and charges
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,
ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of decided in its favor by the Court of
the government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision 3. Give effect to and administer the
without substantial change, such action supervisory and police powers
is to some extent confirmatory that the conferred to it by the Code or other
ruling carries out the legislative laws
purpose.
ASSESSMENT – a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
Exceptions:
fair play, as where injustice will result
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
– internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate A. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs – customs law interests,
enforcement B. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers – local and C. In the establishment of tax liens,
real property taxes and
D. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the
BUREAU OF INTERNAL REVENUE (BIR) coming year. (Mamalateo,
BIR shall be under the supervision Victorino. Reviewer on Taxation,
and control of the Dept. of Finance (Sec. 2004)
2, NIRC)

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1
KINDS 4. The authority of the Commissioner

1. SELF- ASSESSMENT- one in which the to assess taxes may be delegated,
tax is assessed by the taxpayer except the power to make final
himself assessments.
2. DEFICIENCY ASSESSMENT- made by the 5. It must be directed to the right
tax assessor himself whereby the party.
correct amount of the tax is
determined after an examination or Authority of a Revenue Officer -
investigation is conducted. The pursuant to a Letter of Authority issued
liability is determined and assessed by the Regional Director
for the following reason: a. To examine taxpayers within the
a. amount ascertained exceeds that jurisdiction of the district in order
which is shown as the tax by the to collect the correct amount of
taxpayer in his return tax;
b. no amount of tax is shown in the b. To recommend the assessment of
return any deficiency tax due in the
c. taxpayer did not file any return same manner that the said acts
at all could have been performed by the
3. ILLEGAL AND VOID ASSESSMENT- Revenue Regional Director.
assessment wherein tax assessor has General Rule: income tax returns are
no power to assess at all confidential.
4. ERRONEOUS ASSESSMENT- assessor has Exception: inquiry into income tax
power to assess but errs in the returns may be authorized-
exercise thereof
1. inspection is authorized upon
BURDEN OF PROOF IN PRE-ASSESSMENT written order of the President of the
PROCEEDINGS Philippines;
There is a presumption of 2. inspection is authorized under
correctness and good faith on the part of Finance Regulations No. 33 of the
the CIR; thus, the burden lies on the Secretary of Finance;
taxpayer. Otherwise, the finding of the 3. production of the tax return is
CIR will be conclusive and he will assess material evidence in a criminal case
the taxpayer. The same is true even if wherein the government is
the CIR is wrong, if the taxpayer does interested in the result; or
not controvert. (Cagayan Robina Sugar 4. production or inspection thereof is
Milling Co. vs. Court of Appeals, GR. authorized by the taxpayer himself.
No. 122451, October 12, 2000)
Reasons: a. lifeblood theory Networth Method- inventory method of
b. presumption of regularity in income tax verification.
performance of public
functions  Applies the accounting principle:
NOTE: Assessments by the BIR must have assets – liabilities = networth
on its face the law and facts upon which Condition for its use:
the presumption is made. 1. taxpayer’s books do not clearly
reflect his income or the taxpayer
PRINCIPLES GOVERNING TAX ASSESSMENTS has no books, or if he has books, he
1. Assessments are prima facie refuses to produce them;
presumed correct and made in good 2. there is evidence of possible source
faith. or sources of income to account for
2. It should be based on actual facts. increases in networth;
3. It is discretionary on the part of the 3. there is a fixed starting point or
Commissioner. opening networth; and
4. there must be proper adjustments to
conform with the income tax laws.

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1
iii. any person having in his

POWERS AND DUTIES OF THE COMMISSIONER possession/custody/care
I. SECTION 4 (power to interpret tax law -- the books of accounts,
and decide tax cases) -- accounting records of entries
relating to the business of the
1. Interpret provisions of this Code and person liable for tax or any other
other tax laws subject to review of the person
Secretary of Finance -- to produce such books,
(Quasi-legislative) papers, records, and other data
2. Decide: (Quasi-judicial) and to give testimony
a) disputed assessment 4. to take the Testimony of the person
b) refunds of internal revenue taxes, concerned, under oath as may be
fees and charges relevant to the inquiry
c) penalties imposed in relation 5. to cause revenue officers and
thereto employees to make a Canvass of any
d) other matters arising from this revenue district or region
Code or other laws or portions
thereof administered by the BIR Nothing in Section 5 shall be
subject to the exclusive appellate construed as granting the Commissioner
jurisdiction of the CTA (Sec. 4) the authority to inquire into bank
deposits other than as provided for
II. SECTION 5 (power to obtain under sec. 6 (F) of the Code.
information, summon, examine and take
testimony of persons) III. SECTION 6 (power to make
assessments, prescribe additional
3. For the Commissioner to requirements for tax administration
ascertain: and enforcement)
(a) correctness of any return or in
making a return where none has 4. Examination of returns and
been made determination of tax due
(b) liability of any person for any A. After a return has been filed the
internal revenue tax or in Commissioner or his
correcting such liability representative may authorize
(c) tax compliance i. the Examination of any
taxpayer and
The Commissioner is authorized: ii. the Assessment of the
1. to Examine any relevant Book, paper, correct amount of tax;
record or other data B. Failure to file a return shall not
2. to Obtain any information (costs, prevent the commissioner from
volume of production, receipts, sales, authorizing the examination of
gross income, etc), on a regular basis any taxpayer;
from: * Any tax or deficiency tax so
i. any person other than the person assessed shall be paid upon
under investigation or notice and demand from the
ii. any office or officer of the Commissioner or his
national/local government, gov’t representative
agencies and instrumentalities * Any return, statement or
(Bangko Sentral, gov’t owned and declaration filed in any
controlled corporations) (e.g. LTO, authorized office shall not be
Register of Deeds) withdrawn; but within three
3. to Summon years from date of filing, the
i. the person liable for tax or same may be modified,
required to file a return or changed or amended;
ii. any officer or employee of such provided that no notice for
person or audit or investigation of such
return, has in the meantime,

Cabrera, Jhundee
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1
been actually served upon the or required to be made in a

taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such information as he can b) is intending to leave the Phils.
obtain through testimony or or
otherwise which shall be prima c) to remove his property
facie correct and sufficient for therefrom or
all legal purposes d) to hide or conceal his property
or
6.Inventory-taking, Surveillance, e) is performing any act tending to
Presumptive Gross Sales obstruct the proceedings for
A. Commissioner may, at any time the collection of tax
during the taxable year
(a) order the inventory taking of 8. Prescribe Real Property Values
goods of any taxpayer or The Commissioner is authorized to:
(b) may place the business a. Divide the Phils. into different
operations of any person zones or areas and
(natural/juridical) under b. Determine the fair market value
observation or Surveillance, of real properties located in each
if there is reason to zone or area
believe that such is not
declaring his correct income, For tax purposes, the value of
sales or receipts for tax the property shall be whichever is
purposes. higher of:
The findings may be used a) Fair market value as determined
as basis for assessing the by the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by (a) a decedent to determine his gross
sec.113 (Invoice requirements estate
for VAT-registered persons) (b) a taxpayer who has filed an
and Sec. 237 (Issuance of application to compromise
Receipts or Commercial payment of tax liability by reason
Invoices) or of financial incapacity
ii. When the books of accounts
or records do not correctly The taxpayer’s application for
reflect the declarations made compromise shall not be considered
unless he waives in writing his

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privilege under RA 1405 and other

general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents provided however that the
(a) The Commissioner shall accredit regional evaluation board may
and Register, individuals and compromise:
general professional partnerships 1. assessments issued by
and their rep. who prepare and regional offices involving
file tax returns and other papers deficiency taxes of P500,000
or who appear before the BIR or less and
(b) The Commissioner shall create 2. minor criminal violations as
national and regional may be determined by the
accreditation boards. rules and regulations
3. discovered by regional and
Those who are denied district officials
accreditation may appeal the same
to the Sec. Of Finance who shall Regional Evaluation Board is
rule on the appeal within 60 days composed of:
from receipt of such appeal. Failure i. Regional Director as Chairman
to do so within the prescribed ii. Asst. Regional Director
period shall be deemed as approval iii. Heads of the Legal, Assessment
for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the distribution of forms, receipts,
powers vested in him to certificates, and appliances, and
- subordinate officials with rank the acknowledgment of payment of
equivalent to Division Chief or taxes (Sec. 8)
higher, subject to
limitations/restrictions imposed 14. Authority to administer oaths and to
under the rules and regulations take testimony (Sec. 14)
EXCEPT, (the following powers
shall NOT be delegated) 15. Authority to make arrests and
a) power to Recommend the seizures (Sec. 15)
promulgation of rules and
regulations by the Sec. of 16. Authority to employ, assign or
Finance reassign internal revenue officers
b) power to Issue rulings of first involved in excise tax functions to
impression or to Reverse, revoke establishments where articles
modify any existing rule of the subject to excise tax are produced
BIR or kept (Sec. 16)
c) power to Compromise or Abate
any tax liability 17. Authority to assign or reassign
internal revenue officers and
employees of the BIR to other or

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special duties connected with the

enforcement or administration of CAPITAL – resource of person, which can
the revenue laws (Sec. 17) be used in producing goods and
services.
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED Income Capital
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
THE PARTICIPATION OF THE SOLICITOR All wealth, which Fund or property
GENERAL? flows into the which can be used
NO. The institution or taxpayer other than in producing goods
commencement before a proper court of as a mere return of or services
civil and criminal actions and capital.
proceedings arising under the Tax
Flow of Wealth Fund or property
Reform Act which shall be conducted by
legal officers of the BIR is not in dispute. Source of wealth Wealth
An appeal from such court, however, is
not a matter of right. It is still the
Solicitor General who has the primary REQUISITES FOR INCOME TO BE TAXABLE
responsibility to appear for the 1. There must be a gain or profit.
government in appellate proceedings. 2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and received.
Cigarette Factory, GR No. 144942, July 3. The gain must not be excluded by
4, 2002) law or treaty from taxation.
SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

The following taxes, fees and 1. Flow of Wealth Test – The
charges are deemed to be national determining factor for the
internal revenue taxes. (Sec. 21, NIRC) imposition of income tax is
1. Income tax whether any gain was derived
2. Estate and donor's taxes from the transaction.
3. Value-added tax 1. Realization Test - unless the
4. Other percentage taxes income is deemed "realized,"
5. Excise taxes there is no taxable income.
6. Documentary stamp taxes 2. Economic-Benefit Principle
7. Such other taxes as are or hereafter Test
may be imposed and collected by -flow of wealth realized is
the Bureau of Internal Revenue. taxable only to the extent that
the taxpayer is economically
benefited.
II. NATIONAL TAXATION CRITERIA IN IMPOSING INCOME TAX

1. Citizenship Principle – A citizen of
A. INCOME TAXATION the Philippines is subject to Philippine
income tax (a.) on his worldwide
DEFINITIONS income, if he resides in the Philippines,
INCOME TAX – tax on all yearly profits or (b.) only on his income from sources
arising from property, possessions, within the Philippines, if he qualifies as
trade or business, or as a tax on a nonresident citizen.
person’s income, emoluments, 2. Residence Principle – resident alien
profits and the like (61 CJS 1559) is liable to pay income tax on his income
– tax on income, from sources within the Philippines but
whether gross or net. (27 Am. Jur. exempt from tax on his income from
308) sources outside the Philippines.
3. Source Principle – An alien is subject
INCOME – all wealth, which flows into the to Philippine income tax because he
taxpayer other than as a mere derives income from sources within the
return of capital. Philippines. Thus, a nonresident alien is

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liable to pay Philippine income tax on d. who is previously considered as a

his income from sources within the non-resident and who arrives in
Philippines such as dividend, interest, the Philippines at anytime during
rent, or royalty, despite the fact that he the taxable year to reside
has not set foot in the Philippines. thereat permanently shall be
CLASSIFICATION OF TAXPAYERS considered non-resident for the
taxable year in which he arrives
Individuals in the Philippines with respect to
a. citizens his income derived from sources
(1) resident citizens (RC) abroad until the date of his
(2) non-resident citizens (NRC) arrival [Sec.22 (E), NIRC]
b. aliens
(1) resident aliens (RA) NOTE: An overseas contract worker
(2) non-resident aliens (NRA) (OCW) is taxable only on income
(a) engaged in trade or derived from sources within the
business within the Philippines. [Sec. 23 (B)(C)]
Phils. (NRAETB) A seaman is considered as an
(b) not engaged in trade or OCW provided the following
business within the requirements are met:
Philippines (NRANETB) 1. receives compensation for services
rendered abroad as a member of
Corporations the complement of a vessel; and
a. Domestic (DC) 2. such vessel is engaged exclusively
b. Foreign in international trade.
(1) resident foreign corporation
(RFC) Based on the above provisions,
(2) non-resident foreign there are three (3) types of
corporation (NRFC) nonresident citizens, namely: (1)
Estates immigrants; (2) employees of a foreign
Trusts entity on a permanent basis; and
Partnerships (3) overseas contract workers.
Immigrants and employees of a foreign
A. INDIVIDUALS entity on a permanent basis are
treated as nonresident citizens from
WHO ARE TAXABLE? the time they depart from the
1. Resident Citizen Philippines. However, overseas
2. Non-resident Citizen contract workers must be physically
A non-resident citizen means, a present abroad most of the time
Filipino citizen: during the calendar year to qualify as
a. who establishes to the nonresident citizens.
satisfaction of the Commissioner 3. Resident alien - means an individual
the fact of his physical presence whose residence is within the
abroad with a definite intention Philippines and who is not a citizen
to reside therein; thereof. [Sec.22 (F, NIRC)]
b. who leaves the Philippines 4. Non-resident alien engaged in
during the taxable year to reside trade or business within the
abroad, either as an immigrant Philippines. (NRAETB)
or for employment on a A non-resident alien means an
permanent basis; individual whose residence is not
c. who works and derives income within the Philippines and who is not
from abroad and whose a citizen thereof. [Sec.22 (G)]
employment thereat requires The term trade or business
him to be physically present includes the performance of the
abroad most of the time during functions of a public office. [Sec. 22
the taxable year; (S)]

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The term trade, business or an operating or consortium

profession shall not include agreement under a service contract
performance of services by the with the Government.
taxpayer as an employee. [Sec. 22
(CC)] CORPORATIONS EXEMPT FROM INCOME
A non-resident alien individual TAXATION (FOR INCOME REALIZED AS SUCH)
who shall come to the Philippines UNDER NIRC
and stay therein for an aggregate 1. Those enumerated under Sec. 30.
period of more than 180 days during Exempt corporations are subject
any calendar year shall be deemed a to income tax on their income from
non-resident alien doing business in any of their properties, real or
the Philippines Section 22(G) personal, or from any other activities
notwithstanding [Sec. 25(A)(1)] conducted for profit, regardless of
5. Non-resident alien not engaged in the disposition made of such income.
trade or business within the 2. With respect to GOCCs, the general
Philippines. (NRANETB) rule is that these corporations are
taxable as any other corporation
ONLY RESIDENT CITIZENS are taxable except:
for income derived from sources within a. GSIS
and without the Philippines. All other b. SSS
individual income taxpayers are taxable c. PHIC
only for income derived from sources d. PCSO
within the Philippines. e. PAGCOR [Sec. 27 (C)]
3. Regional or Area Headquarters
 Tax Rates: Please refer to Annex A. under Sec. 22 (DD) – not subject to
income tax
B. CORPORATIONS
Regional operating headquarters
WHO ARE TAXABLE? under Sec. 22(EE) shall pay a tax of
1. Domestic Corporation – created or 10% of their taxable income.
organized in the Phils. or under its
law [Sec. 22(C), NIRC] ONLY DOMESTIC CORPORATIONS are
2. Resident Foreign Corporation – taxable for income derived from sources
engaged in trade or business within within and without the Philippines. All
the Philippines [Sec. 22(H), NIRC] other corporate income taxpayers are
3. Non-resident Foreign Corporation – taxable only for income derived from
not engaged in trade or business sources within the Philippines.
within the Philippines [Sec. 22(I),
NIRC]  Tax Rates: Please refer to Annex B.
A Corporation Includes:
1. Partnerships, no matter how created C. ESTATES AND TRUSTS
or organized;
2. Joint-stock companies; ESTATE – refers to the mass of properties
3. Joint accounts (cuentas en left by a deceased person.
participacion)
4. Associations; or RULES ON TAXABILITY OF ESTATE
5. Insurance companies [Sec. 22(B), When a person who owns property
NIRC]. dies, the following taxes are payable
under the provisions of the income tax
Excludes: law:
1. General professional partnerships; 1. Income tax for individual under Sec.
2. Joint venture or consortium formed 24 and 25 (to cover the period
for the purpose of undertaking beginning January to the time of
construction projects or engaging in death);
petroleum, coal, geothermal and
other energy operations pursuant to

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2. Estate income tax under Sec. 60 if divide the fruits thereof

the estate is under administration or between/among themselves, a
judicial settlement. co-ownership is created, and
individual income tax is imposed
on the income received by each
of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual
A. During the Pendency of the capacity. (Pascual vs.
Settlement Commissioner, GR No. L-78133,
General Rule: An estate under October 18, 1988; Obillos vs.
judicial settlement is subject to Commissioner, GR No. L-68118,
income tax in the same manner as October 29, 1985)
individuals. Its status is the same as
the status of the decedent prior to ESTATES NOT UNDER JUDICIAL SETTLEMENT
his death. Pending the extrajudicial
Exceptions: settlement, either of the following
1. The entitlement to personal situations may arise:
exemption is limited only to 1. If the heirs contribute money,
P20,000. property, or industry to the estate
2. No additional exemption is with the intention of dividing the
allowed. profits between/among themselves,
3. The distribution to the heirs an unregistered partnership is
during the taxable year of estate created and the estate becomes
income is deductible from the liable for the payment of corporate
taxable income of the estate. income tax; or
Such distributed income shall 2. If the heirs, without contributing
form part of the respective money, property or industry to the
heirs’ taxable income. estate, simply divide the fruits
Where no such thereof between/among themselves,
distribution to the heirs is made a co-ownership is created and
during the taxable year that the income tax is imposed on the income
income is earned, and such received by each of the heirs,
income is subjected to income payable in their separate and
tax payment by the estate, the individual capacity.
subsequent distribution thereof
is no longer taxable on the part TRUST – A right to the property, whether
of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY) 1. A trust, the income of which is to be
1. If the heirs contribute to the accumulated
estate money, property, or 2. A trust in which the fiduciary may, at
industry with intention to divide his discretion, either distribute or
the profits between/among accumulate the income.
themselves, an unregistered
partnership is created and the RULES ON TAXABILITY OF THE INCOME OF A
estate becomes liable for the TRUST
payment of corporate income 1. The income of the trust for the
tax. (Evangelista vs. Collector, taxable year which is to be
GR No. L-9996, October 15, distributed to the beneficiaries –
1957; Oña vs. Commissioner, GR filing and payment of tax lie on the
No. L-19342, May 25, 1972) beneficiaries.
2. If the heirs, without contributing 2. The income of the trust which is to
money, property or industry to be accumulated or held for future
improve the estate, simply distribution whether consisting of

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ordinary income or gain from the 4. that the trust instrument makes it
sale of assets included in the impossible for any part of the trust
"corpus" of the estate – filing of corpus or income to be used for, or
return and payment of tax become diverted to, purposes other than the
the burden of the trustee or exclusive benefit of such employees.
fiduciary. (Sec. 60B, NIRC)
Exceptions:
a. In the case of a revocable trust, Tax exemption is likewise to be
the income of the trust will be enjoyed by the income of the pension
returned by the grantor. trust; otherwise, taxation of those
b. In a trust where the income is earnings would result in a diminution of
held for the benefit of the accumulated income and reduce
grantor, the income of the trust whatever the trust beneficiaries would
becomes income to the grantor. receive out of the trust fund.
c. In the case of trust administered (Commissioner vs. Court of Appeals,
in a foreign country, the income Court of Tax Appeals and GCL
of the trust; undiminished by Retirement Plans, GR No. 95022, March
any amount distributed to the 23, 1992)
beneficiaries shall be taxed to
the trustee. D. PARTNERSHIPS
IRREVOCABLE TRUSTS (irrevocable both as KINDS OF PARTNERSHIP FOR TAX PURPOSES
to corpus and as to income) – UNDER THE NIRC
1. General Professional Partnerships
Trust itself, through the trustee or (GPP) - formed by persons for:
fiduciary, is liable for the payment of a. the sole purpose of exercising a
income tax. Taxed exactly in the same common profession and
way as estates under judicial settlement b. no part of the income of which is
and its status as an individual is that of derived from engaging in any
the trustor. It is entitled to the trade or business. [Sec. 22(B),
minimum personal exemption (P20,000) NIRC].
and distribution of trust income during 2. Taxable or Business Partnership –
the taxable year to the beneficiaries is All other partnerships except
deductible from the trust’s taxable general professional partnerships no
income. matter, how created or organized.
It includes unregistered joint
REVOCABLE TRUSTS – the trustor, not the ventures and business partnerships.
trust itself, is subject to the payment of However, joint ventures are not
income tax on the trust income. taxables as corporations when it is;
(a) undertaking construction projects
EXEMPTION OF EMPLOYEES’ TRUST (b) engaged in petroleum, coal and
Provided: other energy operation under a
1. the employee’s trust must be part of service contract with the
a pension, stock bonus or profit government
sharing plan of the employer for the General co-partnerships (GCP)
benefit of some or all of his are partnerships, which are by law
employees; assimilated to be within the context
2. contributions are made to the trust of, and so legally contemplated as,
by such employer, or such corporations. The partnership itself
employees, or both; is subject to corporate taxation. The
3. such contributions are made for the individual partners are considered
purpose of distributing to such stockholders and, therefore, profits
employees both the earnings and distributed to them by the
principal of the fund accumulated by partnership are taxable as dividends.
the trust, and The taxable income for a taxable
year, after deducting the corporate

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income tax imposed therein, shall be individual partner in his return

deemed to have been actually or of income.
constructively received by the
partners in the same taxable year
and shall be taxed to them in their c. Each partner in a general
individual capacity whether actually professional partnership shall,
distributed or not. [Sec. 73(D), report as gross income his
NIRC] distributed share in the net
income of the GPP, based on his
LIABILITY OF A PARTNERSHIP agreed ratio, whether he, avails
1. General Professional Partnership .- of itemized or optional standard
They are not subject to income tax, deduction.
but are required to file returns of
their income for the purpose of d. Payments made to a partner of a
furnishing information as to the GPP for services rendered shall
share of each partner in the net gain be considered as ordinary
or profit, which each partner shall business income subject to Sec.
include in his individual return. The 24A (Effective January 1, 1982)
partnership shall act as the
withholding agent. 2. Share of a partner in Taxable or
The net income (income for Business partnership
distribution) shall be computed in a. Share of a partner in the net
the same manner as a corporation. income of a taxable or business
Date of filing of the return is April partnership (dividend) shall be
15 of each year. subject to a final tax as follows.
2. Taxable or Business Partnership -  Resident Citizen, Non-
The income tax of this type of resident Citizen and
Partnership is computed and taxed Resident Alien (2000 and
like that of a corporation. This kind onward) – 10% (Sec. 24B2)
of partnership, like a regular  Non-resident Alien engaged
corporation, is also required to file a in trade or business – 20%
quarterly corporate income tax (Sec. 25 A2)
return. Filing and payment of  Non-resident alien not
quarterly return is within 60 days engaged in trade or business
after the end of each quarter while – 25% (Sec. 25B)
the annual return is on or before b. Share of a partner in the loss of
April 15 of the following year. a taxable or business partnership
maybe taken by the individual
LIABILITY OF A PARTNER partner in his return of income.
Rules: c. Payments made to a partner of a
1. Share of a partner in general business or taxable partnership
professional Partnership for services rendered shall be
a. Each partner shall report as considered as compensation
gross income (business income) income subject to sec. 24A.
his distributed share actually or
constructively received in the
net income of the partnership.
KINDS OF INCOME TAXES
(Sec. 26, NIRC) [The same share UNDER THE NIRC
shall be subject to creditable
withholding tax of 10%.] They 1. Net Income Tax
are liable in their separate and 2. Optional Corporate Income tax
individual capacity. 3. Minimum Corporate Income Tax
4. Improperly Accumulated Earnings
b. Share of a partner in the loss of Tax
a general professional 5. Preferential Rates or Special Rates
partnership may be taken by the of Income Tax

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6. Gross Income Tax b. From Foreign Corporations

7. Final Income Tax  RC, NRC, RA, NRAETB – 5-
8. Fringe Benefits Tax 32% (Sec. 24, 25A1)
9. Capital Gains Tax  NRANETB – 25% on gross
(1) NET INCOME TAX income (Sec. 25B)
DEFINITION: Means gross income less Corporate Taxpayer

deductions and/or personal and a. Foreign to Domestic Corp. – 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp. –
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive  Resident Foreign Corp. –
Income) Exempt (Sec. 28 [A] 7d)
Gross Income  Nonresident Foreign Corp. –
Less: Deductions (and/or additional 15% subject to the condition
exemptions, if applicable) stated in Sec. 28 [B] 5.
Net Taxable Income Otherwise, it shall be taxed
Multiply by: Tax Rate (%) at 32%. (See Commissioner
Net Income Tax Due vs. Procter and Gamble, GR
Less: Tax Credit, if any No. 66838, December 2,
1991)
Tax Still due, if any
2. Stock Dividends
GROSS INCOME General rule: Not subject to tax
because it does not constitute
DEFINITION: Means all income derived income; it represents transfer of
from whatever source, including but not surplus to capital account. (Sec.
limited to the following (Sec. 32) 73B, 1997 NIRC)
a. Compensation; Exceptions:
b. Gross income from profession, trade a. Sec. 73B, 1997 NIRC
or business; (1) there is redemption or
c. Gains form dealings in property; cancellation
d. Interests; (2) the transaction involves
e. Rents; stock dividends, and
f. Royalties; (3) the “time and manner” of
g. Dividends; the transaction makes it
h. Annuities; “essentially equivalent to a
i. Prizes and winnings; distribution of taxable
j. Pensions; dividends”. (see
k. Partner’s share in the net income of Commissioner vs. Court of
the general professional partnership Appeals, Court of Tax
Appeals & ANSCOR, GR No.
 See Annex D for detailed discussion 108576, Jan. 30, 1999)
of items. b. the recipient is other than the
shareholder (Bachrach vs.
KINDS OF DIVIDENDS Seifert, GR No. L-2659, October
1. Cash and Property Dividends 12, 1950)
Individual Taxpayer c. change in the stockholder’s
a. From Domestic Corporations equity results by virtue of the
 RC, NRC, RA – 10% (Sec. stock dividend issuance.
24A)
 NRAETB – 20% (Sec. 25A2) 3. Liquidating Dividends – When a
 NRANETB – 25% on gross corporation distributes all of its
income (Sec. 25B) assets in complete liquidation or

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dissolution, the gain realized or are exempt from taxation. No loss is

loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term “exclusions” refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioner’s capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;
2. Return of insurance premium; 6. Retirement benefits, pension,

NOTE: if such amounts (when added gratuities, etc.
to amounts already received before a. those derived under R.A. 7641
the taxable year under such (pertains to private firms
contracts) exceed the aggregate without retirement trust fund);
premiums or considerations paid b. those received by officials and
(whether or not paid during the employees of private employers
taxable year), then the excess shall in accordance with a reasonable
be included in the gross income. private benefit plan;
However, in the case of a transfer for Requisites:
a valuable consideration, by (1) in the service of the same
assignment or otherwise, of a life employer for at least 10
insurance, endowment or annuity years;
contract, or any interest therein, (2) at least 50 years old;
only the actual value of such (3) must be availed of only once
consideration and the amount of the (4) plan approved by the BIR
premiums and other sums (R.R.2-98);
subsequently paid by the transferee

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c. separation pay because of d. Prizes and awards granted to

death, sickness, or other athletes in sports competitions
physical disability or for any and sanctioned by their national
cause beyond the control of the sports association ;
official or employee (e.g. e. 13th month pay and other
retrenchment, redundancy or benefits up to P30,000.00;
cessation of business); f. GSIS,SSS, Medicare and union
“for any cause beyond the dues of individuals;
control of said official or g. Gains derived from debt
employee” – connotes securities with a maturity of
involuntariness on the part of more than 5 years;
the official or employee; h. Gains from redemption of shares
separation must not be asked or in Mutual Fund.
initiated by the official or
employee. EXCLUSIONS VS. DEDUCTIONS
d. social security benefits,
retirement gratuities, pensions Exclusions Deductions
and other similar benefits [Sec. 32(B)] [Sec. 34]
received by citizens and aliens
who come to reside permanently Refer to flow of Refer to the amounts
here from foreign sources wealth which are not which the law allows
private or public; treated as part of to be subtracted
e. benefits due to residents under gross income from gross income in
the laws of the U.S. because: order to arrive at net
(1) exempted by the income
administered by the U.S.
fundamental law; (2)
Veterans Administration exempted by statute;
f. SSS benefits; and (3) do not come
g. GSIS benefits. within the definition
of income
7. Miscellaneous items
a. Passive income derived in the Pertain to the Pertain to the
Philippines by: computation of gross computation of the
(1) Foreign governments; income net income
(2) Financing institutions
Something earned or Something spent or
owned, controlled or received by the paid in earning of
enjoying refinancing from taxpayer which do gross income
foreign governments not form part of gross
(3) International or regional income
financial institutions
established by foreign
governments DEDUCTIONS
b. Income derived from any public
utility or from the exercise of DEFINITION: Items or amounts which the
any governmental function; law allows to be deducted from gross
c. Prizes and awards made income in order to arrive at the taxable
primarily in recognition of income.
religious, charitable, scientific,
educational, artistic, literary, or BASIC PRINCIPLES GOVERNING DEDUCTIONS
civic achievement a. The taxpayer seeking a deduction
Requisites: must point to some specific
(1) recipient was selected provisions of the statute authorizing
without any action on his the deduction; and
part; and b. He must be able to prove that he is
(2) recipient is not required to entitled to the deduction authorized
render substantial future or allowed. (Atlas Consolidated
services. Mining & Dev. Corp. vs.

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Commissioner, GR No. L-26911, KINDS OF DEDUCTIONS

January 21, 1981) a. Optional standard deductions (OSD)
c. Any amount paid or payable which is –10% of the gross income.
otherwise deductible from, or taken The OSD may be availed of
into account in computing gross only by individuals (except
income or for which depreciation or nonresident alien) who are not
amortization may be allowed, shall purely compensation income
be allowed as deduction only if it is earners.
shown that the tax required to be b. Personal and additional exemptions
deducted and withheld therefrom Available only to individuals
has been paid to the BIR. [Sec. (business income and compensation
34(K), NIRC] income earners).
NOTE: Deductions for income tax NRAETB may be entitled to

purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF country allows personal
DEDUCTIONS FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);
2. Non-resident aliens not engaged in The personal exemption shall be
trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
1. Individuals
a. with gross compensation income Individuals not entitled to these
from employer-employee exemptions:
relationship only a. Non-resident Alien not engaged
(1) premium payments on health in trade or business
and/or hospitalization b. Alien individual employed by
insurance Regional or Area Headquarters
(2) personal additional of Multinational Companies
exemptions c. Alien individual employed by
b. gross income from business or Offshore Banking Units
practice of profession d. Alien individual employed by
(1) Optional Standard Deduction Petroleum Service Contractor
(OSD) and Subcontractor
(2) Itemized deductions
(3) premium payments on health c. Itemized deductions
and/or hospitalization a. ordinary and necessary
insurance expenses
(4) personal additional b. interests
exemptions c. taxes
2. Corporations d. losses
 Itemized Deductions e. bad debts
f. depreciation of property;

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1
g. depletion of oil and gas wells support because of mental or

and mines; physical defect.
h. charitable and other
contributions; Parents, brothers, sisters and senior
i. research and development; citizen with the tax payer, whether
j. pension trust contributions of relative or not, may qualify the
employees; and taxpayer, to the personal exemption of
k. premium payments on health P25,000 as head of the family but not to
and/or hospitalization insurance. the additional exemption of P8,000.
(This is the only deduction which
a compensation income earner B. Additional Exemption for
may claim as a deduction.) Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified
d. Special deductions dependent children not
a. private proprietary educational exceeding four (4) in
institutions and hospitals that number.
are non-profit (Sec. 34 A, 2) The additional exemption refers
b. insurance companies (Sec. 37) only to qualified dependent children
c. estates and trusts (Sec. 61) such as legitimate, recognized natural,
illegitimate and legally adopted.
PERSONAL EXEMPTIONS The proper claimant of the
additional exemption is the husband
A. Amounts of Personal Exemptions being the head of the family except
[Sec. 35, NIRC] under the following cases:
1. P 20,000 – Single individual or 1. Husband is unemployed
married individual judicially 2. Husband is working abroad like
decreed legally separated an OFW or a seaman
without qualified dependent 3. Husband explicitly waived his
children. right of the exemption in favor
2. P 25,000 – Head of the family or of his wife in the withholding
married individual judicially exemption certificate.
decreed legally separated
with qualified dependent A Senior Citizen is:
children. 1. any resident citizen of the
3. P 32,000 – For each legally Philippines
married individual. 2. at least sixty 60 years old,
including those who have retired
Head of the Family from both government offices
1. Unmarried or legally separated and private enterprises, and
person with one or both parents, 3. has an income of not more than
or one or more brothers or Sixty thousand pesos (60,000)
sisters, or one or more per annum subject to the review
legitimate, recognized natural or of the National Economic
legally adopted children living Development Authority (NEDA)
with and dependent upon the every three years.
taxpayer for their chief support;
and Parents and dependents qualify
“Chief support” means more the taxpayer, to the personal
than one-half of the exemption of P25,000 as head of the
requirements for support. family but not to the additional
2. Where such brother / sister or exemption of P8,000.
children are not more than 21
years of age, unmarried and not NOTE: NRAETB may deduct personal
gainfully employed, or where exemption (not additional
such dependents regardless of exemption), but only to the extent
age, are incapable of self – allowed by his country to Filipinos

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not residing therein, and shall not ORDINARY EXPENSE – normal or usual in
exceed the aforementioned relation to the taxpayer’s business and
amounts. NRANETB cannot claim the surrounding circumstance.
any personal or additional
exemptions. REQUISITES OF BUSINESS EXPENSE TO BE
DEDUCTIBLE
C. Change of Status [Sec. 35, NIRC] 1. ordinary and necessary;
1. If the taxpayer should marry or 2. paid or incurred w/in the taxable
should have additional year;
dependents during the taxable 3. paid or incurred in carrying on a
year, he may claim the trade or business;
corresponding exemptions in full 4. substantiated with official receipts
for such year. or other adequate records.
2. If the taxpayer should die during 5. if subject to withholding taxes proof
the taxable year, his estate may of payment to the Bureau of Internal
claim the corresponding Revenue must be shown.
exemptions as if he died at the 6. must be reasonable (when the
close of such year. expense is not lavish, extravagant or
3. If the spouse or any dependent excessive under the circumstances)
should die or any dependent 7. must not be contrary to law, public
should marry or become twenty- policy or morals.
one years old during the year, or
should become gainfully NOTE: While illegal income will form
employed, the taxpayer may part of income of the taxpayer,
claim the exemptions as if the expenses which constitute bribe,
spouse or dependent died or as kickback and other similar payment,
if such dependent married, being against law and public policy are
became twenty one years old or not deductible from gross income.
became gainfully employed at (Subsec. A, 1, c)
the close of such year.
4. For any other event and for CAPITAL EXPENDITURE – An expenditure
which there are no specific rules that benefits not only the current period
applicable from the above- but also future periods. It is not
mentioned, the status of the deductible but depreciable, except, if
taxpayer at the end of the year the taxpayer is a non-profit proprietary
shall determine his exemptions. educational institution which may elect
(strictly construed against the either to deduct the capital expense or
taxpayer) depreciate it.
Examples:
 became legally separated –  See Annex E – Business Expenses
can only claim P 20,000
 25 years old child became  See Annex F – Ceiling on
incapacitated – cannot claim “Entertainment, Amusement and
additional exemption Recreational Expenses”
ITEMIZED DEDUCTIONS B. INTEREST
A. ORDINARY AND NECESSARY INTEREST – shall refer to the payment for

EXPENSES the use or forbearance or detention of
money, regardless of the name it is
called or denominated. It includes the
NECESSARY EXPENSE – appropriate and
amount paid for the borrower's use of,
helpful in the development of taxpayer's
money during the term of the loan, as
business and are intended to minimize
well as for his detention of money after
losses or to increase profits. These are
the due date for its repayment.
the day-to-day expenses.

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REQUISITES FOR DEDUCTIBILITY (REV. REG. turns around and invests the loan
NO. 13-2000) proceeds in money market placements.
1. There must be an indebtedness; By imposing a limit as to the amount of
2. There should be an interest interest expense that can be deducted
expense paid or incurred upon from gross income, the previous practice
such indebtedness; of tax arbitrage was absolutely nullified.
3. The indebtedness must be that of
the taxpayer; Tax Arbitrage – is a method of
4. The indebtedness must be connected borrowing without entering into a
with the taxpayer's trade, business debtor/creditor relationship, often to
or exercise of profession; resolve financing and exchange control
5. The interest expense must have been problems. In tax cases, back-to-back
paid or incurred during the taxable loan is used to take advantage of the
year; lower of tax on interest income and a
6. The interest must have been higher rate of tax on interest expense
stipulated in writing; deduction.
7. The interest must be legally due;
8. The interest arrangement must not Illustration:
be between related taxpayers; On June 1, 2000 Company X has:
9. The interest must not be incurred to 1. Obtained a loan from ABC Financing
finance petroleum operations; and Corporation in connection with the
10. In case of interest incurred to operation of its business and its
acquire property used in trade, interest expense on the loan
business or exercise of profession, amounted to P 120,000.
the same, was not treated as a 2. Deposit account in DEF Bank and
capital expenditure. derived interest income thereof
11. The interest is not expressly amounting to P200,000 on which the
disallowed by law to be deducted final tax of P40,000 has been
from gross income of the taxpayer. withheld.
Assume that Company X’s net
RULES ON DEDUCTIBILITY OF INTEREST income before the deduction of
EXPENSE interest expense is P500,000.
General Rule - In general, the amount of
interest expense paid or incurred within The deductible expense shall be
a taxable year of indebtedness in computed as follows:
connection with the taxpayer's trade
business or exercise of profession, shall Year 2000
be allowed as a deduction from the
taxpayer's gross income. Net Income before
interest expense P500,000
Limitation - The amount of interest Less: Interest Expense P120,000
expense paid incurred by a taxpayer in Less: 38% of interest
connection with his trade, business or income from deposit
exercise of a profession from an existing (38% x P200,000) 76,000
indebtedness shall be reduced by an Deductible Interest
amount equal the following percentages Expense 44,000
of interest income earned which had Taxable Income P456,000
been subjected to final withholding
depending on the year when the interest
income earned, viz: Deductible Interest Expense
38% - beginning January 1, 2000 and 1. Interest on taxes, such as those paid
thereafter for deficiency or delinquency, since
taxes are considered indebtedness
Aim of Limitation: To discourage so- (provided that the tax is a
called “back-to-back” loans where a deductible tax, except in the case of
taxpayer secures a loan from a bank, income tax). However, fines,

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penalties, and surcharges on account capital expenditure. [Sec 34 (B)(3),

of taxes are not deductible. The NIRC]
interest on unpaid business tax shall
not be subjected to the limitation C. TAXES
on deduction.
2. Interest paid by a corporation on Taxes mean TAXES PROPER, and
scrip dividends therefore no deductions are allowed for:
3. Interest-on deposits paid by 1. interest
authorized banks of the Bangko 2. surcharges
Sentral ng Pilipinas to depositors, 3. penalties or fines incident to
if it is shown that the tax on such delinquency (Sec. 80, Rev. Reg. 2)
interest was withheld.
4. Interest paid by a corporate taxpayer REQUISITES FOR DEDUCTIBILITY
who is liable on a mortgage upon real 1. must be in connection with
property of which the said taxpayer’s business;
corporation is the legal or equitable 2. tax must be imposed by law on, and
owner, even though it is not directly payable by taxpayer (direct tax);
liable for the indebtedness. and
3. paid or incurred during the taxable
NON-DEDUCTIBLE INTEREST EXPENSE year.
1. An individual taxpayer reporting
income on the cash basis incurs an TAXES NOT DEDUCTIBLE
indebtedness on which an interest is 1. income tax;
paid in advance through discount or 2. estate and donor’s tax;
otherwise: 3. special assessments;
 allowed as a deduction in the 4. excess electric consumption tax;
year the indebtedness is paid 5. foreign income tax, war profits and
 if the indebtedness is payable excess profits tax, if the taxpayer
periodic amortization on, the makes use of tax credit; and
amount of interest which 6. final taxes, being in the nature of
corresponds to the amount of income tax.
the principal amortized or paid
during the year shall be allowed NOTE: Taxes allowed as deductions,
as deduction in such taxable when refunded or credited, shall be
year. included as part of gross income in the
2. Interest paid on indebtedness year of receipt to the extent of the
between related taxpayer income tax benefit of said deduction.
3. If the indebtedness is incurred to (Tax Benefit Rule)
finance petroleum exploration
4. Interest on preferred stock, which For NRAETB and RFC, taxes paid or
in reality is dividend incurred are allowed as deductions only
5. Interest on unpaid salaries and if and to the extent that they are
bonuses connected from income within the
6. Interest calculated for cost keeping Philippines.
on account of capital or surplus
invested in business which does not EXCEPTIONS to requirement that only
represent charges arising under such persons on whom the tax is
interest-bearing obligation. imposed by law can claim deduction
7. Interest paid when there is no thereof:
stipulation for the payment thereof. 1. Taxes of shareholder upon his
interest as such and paid by the
OPTIONAL TREATMENT OF INTEREST EXPENSE corporation without reimbursement
At the option of the taxpayer, from him, can be claimed by the
interest incurred to acquire property corporation as deduction.
used in trade or business may be 2. A corporation paying the tax for the
allowed as a deduction or treated as holder its bonds or other obligation

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containing a tax-free covenant taxes were paid, dependent upon

clause cannot claim deduction for whether the accounts of the taxpayer
such taxes paid by it pursuant to are kept and his returns filed upon the
such covenant. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer 1) The amount of credit in respect to
to deduct from income tax payable the the taxes paid or accrued to any
foreign income tax he has paid to his country shall not exceed the same
foreign country subject to limitation. proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT taxpayer’s net income from sources
1. resident citizens of the Philippines within such country taxable under
2. resident aliens under the principle of Title II (income Tax) bears to his
reciprocity entire net income for the same
3. domestic corporations which include taxable year; and
partnerships except general 2) The total amount of the credit shall
professional partnership not exceed the same proportion of
4. beneficiaries of estates and trusts the tax against which such credit is
5. members of beneficiaries of local taken, which the taxpayer’s net
partnerships income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT (Income Tax) bears to his entire net
1. non-resident citizens income for the same taxable year.
2. resident aliens, if without
reciprocity D. LOSSES
3. resident aliens whose income is
derived solely from sources within LOSSES – refer to such losses which do
the Philippines not come under the category of bad
4. foreign corporations (resident and debts, inventory losses, depreciation,
non-resident) etc., and which arise in taxpayer's
profession, trade or business.
FORMULA FOR COMPUTING LIMITATION
1. Per country limitation REQUISITES FOR DEDUCTIBILITY
Taxable 1. Actually sustained during the taxable
income from year
foreign country X Phil. = Tax Credit
2. Connected with the trade, business
Taxable income income tax Limit
or profession
from all sources
3. Evidenced by a close and completed
transaction
2. Over-all limitation
4. Not compensated for by insurance or
Taxable
income from other form of indemnity
outside sources X Phil. = Tax Credit 5. Not claimed as a deduction for
Taxable income income tax Limit estate tax purposes
from all sources 6. Notice of loss must be filed with the
Bureau of Internal Revenue within
The allowable tax credit is the “lower 45 days from the date of discovery
amount” between the tax credit of the casualty or robbery, theft or
computed under No. 1 and No. 2. embezzlement.
WHEN CREDIT FOR TAXES MAY BE TAKEN NOTE: The taxpayer’s failure to record
The credit for taxes provided by in his books the alleged loss proves that
Section 30(C)(3) to (9) may ordinarily be the loss had not been suffered, hence,
taken either in the return for the year in not deductible. (City Lumber vs.
which the taxes accrued or on which the

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Domingo and Court of Tax Appeals, GR under MCIT, or that the individual
No. L-18611, January 30, 1964) availed the 10% OSD.
CATEGORY AND TYPES OF LOSSES
 See Annex S for illustration.
1. ORDINARY LOSSES
a. Incurred in trade or business, or
b. Of property connected, with the
practice of profession
trade, business or profession, if
 Net operating loss carry-over
the loss arises from fires,
(NOLCO)
 Refers to the excess of storms, shipwreck or other
allowable deductions over gross casualties, or from robbery,
income of the business for any theft, or embezzlement.
taxable year, which had not (1) Total destruction
been previously offset as The replacement cost to
deduction from gross income. restore the property to its
 Can be carried over as a normal operating condition,
deduction from gross income for but in no case shall the
the next 3 consecutive years deductible loss be more than
immediately following the year the net book value of the
of such loss. property as a whole,
 For mines, other that oil and gas immediately before
well, net operating loss incurred casualty.
in any of the first ten years of (2) Partial Destruction
operation may be carried over The excess over the net
for the next 5 years. book value immediately
before the casualty should
be capitalized, subject to
 Requirements: depreciation over the
(1) The taxpayer was not remaining useful life of the
exempt from income tax in property.
the year of such net
operating loss; 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
(2) The loss was not incurred in ONLY TO THE EXTENT OF CAPITAL
a taxable year during the GAINS)
taxpayer was exempt from a. Losses from sale or exchange of
income tax; and capital assets
(3) There has been no b. Losses resulting from securities
substantial change in the becoming worthless and which
ownership of the business or are capital assets.
enterprise. c. Losses from short sales of
There is no substantial property.
change in the ownership of d. Losses due to failure to exercise
the business when: privilege or option to buy or sell
(a) not less than 75% in property.
nominal value of the
outstanding issued shares 3. SPECIAL KINDS OF LOSSES
is held by or on behalf of a. Wagering losses - deductible only to
the same persons; or the extent of gain or winnings. [Sec.
(b) not less than 75% of the 34 (D)(6)]; deemed to apply only to
paid up capital is held by individuals
or on behalf of the same b. Losses on wash sales of stocks - not
person. deductible because these are
considered to be artificial loss.
NOTE: The 3 year period shall
continue to run notwithstanding Wash sales – a sale or other
that the corporation paid its taxes disposition of stock or securities
where substantially identical

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securities are acquired or purchased

within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38] f. Losses from sales or exchanges of
property between related
General rule: Losses from wash sales taxpayers -losses of this nature is not
are not deductible. deductible but gains are taxable.
Exception: When the sale is made by
a dealer in stock or securities and g. Losses of farmers - if incurred in the
with respect to a transaction made in operation of farm business, it is
the ordinary course of the business of deductible.
such dealer, losses from such sale is
deductible. h. Loss in shrinkage in value of stock –
Elements of Wash Sales: if the stock of the corporation becomes
(1) The sale or other disposition of worthless, the cost or other basis may be
stock resulted to a loss; deducted by the owner in the taxable
(2) There was an acquisition or year in which the stock of its
contract or option for acquisition worthlessness is made. Any amount
of stock or securities within 30 claimed as a loss on account of shrinkage
days before the sale or 30 days in value of the stock through fluctuation
after the sale; and in the market or otherwise cannot be
(3) The stock or securities sold were deducted from gross income.
substantially the same as those
acquired within the 61-day E. BAD DEBTS
period.
BAD DEBTS – shall refer to those debts
c. Abandonment losses in petroleum resulting from the worthlessness or
operation and producing well. uncollectibility, in whole or in part, of
(1) In case a contract area where amounts due the taxpayer by others,
petroleum operations are arising from money lent or from
undertaken is partially or wholly uncollectible amounts of income from
abandoned, all accumulated goods sold or services rendered.
exploration and development
expenditures pertaining thereto REQUISITES FOR DEDUCTIBILITY
shall be allowed as a deduction. 1. Existing indebtedness due to the
(2) In case a producing well is taxpayer which must be valid and
abandoned, the unamortized cost legally demandable;
thereof, as well as the 2. Connected with the taxpayer's
undepreciated cost of equipment trade, business or practice of
directly used therein, shall be profession;
allowed as deduction in the year 3. Must not be sustained in a
the well, equipment or facility is transaction entered into between
abandoned. related parties;
4. Actually ascertained to be worthless
d. Losses due to voluntary removal of and uncollectible as of the end of
building incident to renewal or the taxable year.; and
replacements - deductible expense 5. Actually charged off in the books of
from gross income. accounts of the taxpayer as of the
end of the taxable year.
e. Loss of useful value of capital
assets due to charges in business EQUITABLE DOCTRINE OF TAX BENEFIT
conditions - deductible expense only A recovery of bad debts previously
to the extent of actual loss sustained deducted from gross income constitutes
(after adjustment for improvement, taxable income if in the year the
depreciation and salvage value) account was written off, the deduction

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resulted in a tax benefit. (Tax Benefit 1. The allowance for depreciation

Rule) must be reasonable.
2. It must be for property use or
employment in trade or business or
Illustration: out of its not being used
Case A Case B Case C temporarily during the year.
Net 3. The allowance must be charged off
income within the taxable, year.
(loss)
before 4. Schedule on the allowance must be
write off attached to the return.
for bad P10,000 (P 9,000) P 5,000
debts PROPERTY HELD BY ONE PERSON FOR LIFE
Less:
Accounts WITH THE REMAINDER TO ANOTHER PERSON
written off The deduction shall be computed as
as bad if the life tenant was the absolute owner
debts 3,000 2,000 6,000 of the property and, as such the expense
Final Net
Income shall accrue to him.
(Loss) P 7,000 (P11,000) (P1,000)
Bad debts PROPERTY HELD IN TRUST
recovery Allowable deduction shall be
in a subse-
quent year 3,000 2, 000 6, 000 apportioned between the income
TAXABLE beneficiaries, and the trustees in
INCOME accordance with the pertinent provisions
upon the of the instrument creating or in the
bad debt
recovery P3,000 P -0- P5,000 absence of such provisions, on the basis
of the trust income allowable to each.
ASCERTAINMENT OF WORTHLESSNESS
 Proof of Two Facts: METHODS OF DEPRECIATION
1. taxpayer did in fact ascertain the The term "reasonable allowance"
debt to be worthless, in the year shall include (but not limited to) an
for which deduction is sought, allowance computed in accordance,
2. that in so doing, he acted in good with the regulations prescribed by the
faith. (Collector vs. Goodrich Department of Finance, under any of the
International Rubber, GR No. L- following methods.
22265, Dec. 22, 1967) 1. Straight-line method
2. Declining-balance method
 Depends upon the particular facts and
3. Sum of the years-digit method
the circumstances of the case.
4. Any other method which may be
 Good faith does not require that the
prescribed by the Department of
taxpayer be an “incorrigible optimist”
Finance upon recommendation of
but on the other hand, he may not be
the Commissioner of Internal
unduly pessimistic.
Revenue.
F. DEPRECIATION METHODS OF DEPRECIATION
Kind Formula
DEPRECIATION – the gradual diminution in 1)Straight-line cost- salvage value
the service or useful value of tangible estimated life
property due from exhaustion, wear and 2)Declining cost – depreciation x Rate
tear and normal obsolescence. balance estimated life
3)Sum of the years nth period x cost- salvage
The term also applies to digits (SYD) SYD
amortization of intangible assets, the
use of which in trade or business i s of
limited duration. Illustration: A machine is used in the
manufacturing department of
REQUISITES FOR DEDUCTIBILITY Corporation A, compute the depreciation
per annum with the following facts:
Cost = P15,000 Salvage

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Value= P5,000 number of years between 5

years and the expected life.
3. Depreciation deductible by non-

1. Straight Line Method with estimated resident aliens engaged in
life = 5 years trade/business or non-resident
15,000 – 5,000 = P2,000 corporation
5 years a. Only when such property is
located in the Philippines.
2. Declining balance with rate of 200%
Year 1: 15,000 – 0 x 200% = P6,000 G. DEPLETION OF OIL AND GAS
5 WELLS AND MINES
Year 2:15,000–6,000 x 200% =P3,600
5 DEPLETION - exhaustion of natural
resources as in mines, oil, and gas
3. Sum of the years digits wells. The natural resources are called
SYD for 5 years = 5+4+3+2+1 or 15 “wasting assets”. As the physical units
Year 1: 5/15 x (15,000 – 5,000) representing such resources are
= P3,333.33 extracted and sold, such assets move
Year 2: 4/15 x (15,000 – 5,000) towards exhaustion.
= P2,666.67 Known as cost of depletion
allowance for mines, oil gas wells and
AGREEMENT AS TO USEFUL LIFE ON WHICH other natural deposits starting calendar
DEPRECIATION RATE IS BASED year 1976 and fiscal year beginning July
The Bureau of Internal Revenue and 1,1975
the taxpayer may agree in writing on the
useful life of the property to be
depreciated. The agreed rate may be TO WHOM ALLOWED
modified if justified by facts or Only mining entities owning
circumstances. The change shall not be economic interest in mineral deposits.
effective before the taxable year on Economic interest means interest in
which notice in writing by certified mail minerals in place investment therein or
or registered mail is served by the party secured by operating or contract
initiating. agreement for which income is derived,
SPECIAL TYPES OF DEPRECIATION and return of capital expected, from the
1. Petroleum Operations extraction of mineral.
 Depreciation of all properties Mere economic or pecuniary
directly related to production of advantage to be derived by production
petroleum shall be allowed by one who has no capital investment in
under straight-line (SL) or the mineral deposit does not amount to
declining balance (DB) method economic interest.
 May shift from DB to SL method
 Useful life: 10 years or shorter FEATURES
life as allowed by the 1. Intangible Exploration and
Commissioner development drilling cost in
 Useful life of property not petroleum exploration shall be
directly related to production: 5 treated either as:
years under straight line method a. revenue expenditures; or
2. Mining Operations b. capital expenditures
 Depreciation on all properties in 2. The total amount deductible for
mining operations other than exploration and development
petroleum operations at the expenditures shall not exceed 50% of
normal rate if expected life is net income from mining operation.
less than 10 years. The excess shall be carried forward
 If expected life is more than 10 to the succeeding year until fully
years, depreciation shall be any deducted.

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1
H. CHARITABLE AND OTHER 3) Recipient is an 3) Recipient is an

accredited non- accredited
CONTRIBUTIONS
government domestic
organization, corporation or
TAX TREATMENT organized/ operated association
for (purposes): organized/opera
A. Deductible B. Deductible ted for
In Full Subject To (purposes):
Limitation
1) Recipient is: 1) Recipient is:

(a) Government (a) Government
of the of the (a) Scientific; (a) Scientific
Philippines; Philippines; (b) Educational; (b) Educational;
(b) Any of its (b) Any of its (c) Cultural; (c) Cultural;
agencies or agencies or (d) Character (d) Youth and sports
political political building/you development
subdivisions; subdivisions th and sports (e) Charitable
or development (f) Social welfare
(c) Any fully- For a non-priority (e) Charitable (g) Religious
owned activity in any of the (f) Social (h) Rehabilitation of
government areas mentioned in welfare Veterans
corporation A, and exclusively for (g) Health
a public purpose. (h) Research If the conditions
For priority in Table A is not
activity in: And satisfying complied with:
1. Science; the following
2. Education conditions: Subject to limitation:
3. Culture 1. The donation (a) Individual -
4. Health must be 10% taxable
5. Economic utilized not income from
Development later than the trade
6. Human 15th day of business or
Settlement the 3rd month profession
7. Youth and following the before
Sports close of its contribution
Development taxable year. (b) Corporation -
2. The 5% taxable
2) Recipient is a 2) Non-government administrativ income from
foreign or organizations e expense trade
international must not business or
organization exceed 30% of profession
with an total before
agreement with expenses. contribution
the Philippine 3. Upon
Government on dissolution,
deductibility, or assets must
in accordance be distributed
with special law. to another
non-profit
domestic
corporation
or to the
state.
REQUISITES FOR DEDUCTIBILITY

1. The contribution or gift must be
actually paid.

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1
2. It must be given to the organizations J. PENSION TRUST CONTRIBUTIONS

specified in the code.
3. The net income of the institution PENSION TRUST CONTRIBUTIONS – a
must not inure to the benefit of any deduction applicable only to the
private stockholder or individual. employer on account of its contribution
to a private pension plan for the benefit
VALUATION of its employee. This deduction is purely
Charitable contribution of property business in character.
other than money shall be based on the
acquisition cost of said property.
I. RESEARCH AND DEVELOPMENT REQUISITES FOR DEDUCTIBILITY

(R&D) 1. The employer must have established
a pension or retirement plan to
TAX TREATMENT provide for the payment of
Either as: reasonable pensions to his
1. Revenue Expenditures employees;
Requisites: 2. The pension plan is reasonable and
a. Paid or incurred during the actuarially sound;
taxable year 3. It must be funded by the employer;
b. Ordinary and necessary expenses 4. The amount contributed must be no
in connection with trade longer subject to the control and
business or profession disposition of the employer;
c. Not chargeable to capital 5. The payment has not yet been
account allowed as a deduction; and
2. Deferred Expenses 6. The deduction is apportioned in
Requisites: equal parts over a period of 10
a. Paid or incurred in consecutive years beginning with the
connection with trade, business, year in which the transfer or
or profession payment is made.
b. Not treated as expense
c. Chargeable to capital account SUMMARY OF RULES ON RETIREMENT BENEFITS
but not chargeable to property PLAN / PENSION TRUST
subject to depreciation or 1. Exempt from Income Tax –
depletion. employees’ trust under Sec. 60(B)
2. Exclusion from Gross Income –
Amount deductible: amount received by the employee
Amount ratably distributed over from the fund upon compliance of
a period of 60 months beginning with certain conditions under Sec. 32(B)
the month taxpayer realized (6)
benefits from such expenditures. 3. Deduction from Gross Income –
A. Amounts contributed by the
EXCLUSION FROM RESEARCH AND employer during the taxable
DEVELOPMENT EXPENDITURES year into the pension plan to
1. Any expenditure for the acquisition cover the pension liability
or improvement of land or for the accruing during the year –
improvement of property to be used considered as ordinary and
in connection with research and necessary expenses under Sec.
development subject to depreciation 34(A)(1)
and depletion. B. 1/10 of the reasonable amount
2. Any expenditure paid or incurred for paid by the employer to cover
the purpose of ascertaining the pension liability applicable to
existence, location, extent or the years prior to the taxable
quality of any deposit of ore or other year, or so paid to place the
mineral including oil or gas. trust in a sound financial basis –
deductible under Sec. 34(J)

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1
2. Amount paid out for new buildings or

K. PREMIUM PAYMENTS for permanent improvements, or
ON HEALTH AND/OR betterment made to increase the
HOSPITALIZATION INSURANCE value of any property or estate,
Except that intangible drilling
DEFINITION: It is an amount of premium and development cost incurred in
on health and/or hospitalization paid by petroleum operations are
an individual taxpayer (head of family or deductible;
married), for himself and members of his 3. Amount expended in restoring
family during the taxable year. property or in making good the
exhaustion thereof for which an
REQUISITES FOR DEDUCTIBILITY allowance has been made;
1. Insurance must have actually been 4. Premiums paid on any life insurance
taken policy covering the life of any officer
2. The amount of premium deductible or employee, or of any person
does not exceed P2,400 per family financially interested in any trade or
or P200 per month during the business carried on by the taxpayer,
taxable ear. individual or corporate, when the
3. That said family has a gross income taxpayer is directly or indirectly a
of not more than P250,000 for the beneficiary under such policy. [Sec.
taxable year. 36]
4. In case of married individual, only 5. Losses from sales or exchanges of
the spouse claiming additional property between related
exemption shall be entitled to this - taxpayers. [S ec. 36]
deduction.
TRANSACTIONS BETWEEN RELATED PARTIES
WHO MAY AVAIL OF THE DEDUCTION 1. Between members of the family;
1. Individual taxpayers earning purely “Family” includes only the
compensation income during the brothers, sisters (whether by the
year. whole or half blood), spouse,
2. Individual taxpayer earning business ancestors, and lineal
income or in practice of his descendants of the taxpayer.
profession whether availing of 2. Except in the case of distributions in
itemized or optional standard liquidation:
deductions during the year. a. between an individual and a
3. Individual taxpayer earning both corporation more than 50% in
compensation, and business or value of the outstanding stock of
practice of profession during the which is owned, directly or
year. indirectly, by or for such
individual;
b. between two corporations more
NON-DEDUCTIBLE EXPENSES
than 50% in value of the
outstanding stock of each of
REASONS FOR NON-DEDUCTIBILITY
which is owned, directly or
1. Personal expenses
indirectly, by or for the same
2. Capital expenditures
individual, if either one of such
3. Items not normally subject to
corporations, with respect to the
income tax and therefore are not
taxable year of the corporation
deductible.
preceding the date of the sale of
4. Items taken advantage of by the
exchange was a personal holding
taxpayer to avoid payment of
company or a foreign personal
income tax.
holding company; or
3. Between the grantor and a fiduciary
SPECIFIC ITEMS (SECTION 36)
of any trust;
1. Personal, living or family expenses;
4. Between the fiduciary of a trust and
the fiduciary of another trust if the

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same person is a grantor with them to their present

respect to each trust; location and use.
5. Between a fiduciary of a trust and a
beneficiary of such trust. (3) MINIMUM CORPORATE
INCOME TAX (MCIT)
TAX CONSEQUENCES
The following are not deductible: SECTION 27 (E)
1. Interest expense [Sec. 34 (B)(2)]
2. Bad debts [Sec. 34 (E)(1)] WHO ARE COVERED?
3. Losses from sales or exchanges of MCIT is imposed on domestic and
property [Sec 36 (B)] resident foreign corporations
1. Whenever such corporation has zero
or negative taxable income; or
(2) OPTIONAL CORPORATE
2. Whenever the amount of MCIT is
INCOME TAX greater than the normal income tax
SECTION 27 (A) due from such corporation
determined under Section 27[A].
APPLIES TO:
1. Domestic corporations (DC) LIMITATIONS
2. Resident foreign corporations (RFC)
1. The MCIT shall apply only to
RATE OF TAX AND DATE OF EFFECTIVITY domestic and resident foreign
15% of the Gross Income effective corporations subject to the normal
January 1, 2000 corporate income tax (income tax
rates under Sec 27[A] of the CTRP).
CONDITIONS OR REQUIREMENTS 2. In the case of a domestic
1. A tax effort ratio of 20% of Gross corporation whose operations or
National Product activities are partly covered by the
2. A ratio of 40% income tax collection regular income tax system and partly
to total tax revenues covered under a special income tax
3. A VAT tax effort of 4% of GNP system, the MCIT shall apply on
4. A 0.9% ratio of Consolidated Public operations covered by the regular
Sector Financial Position (CPSFP) to corporate income tax system.
GNP 3. In computing for the MCIT due from
a resident foreign corporation, only
OTHER FEATURES the gross income from sources within
1. Available only to firms whose the Philippines shall be considered
ratio of: for such purpose.
Cost of sales
WHEN DOES A CORPORATION BECOME
<=55%
LIABLE UNDER THE MCIT?
Gross sales or receipts from all
sources
MCIT is imposed beginning on
the fourth taxable year immediately
2. The election shall be irrevocable
following the year in which such
for three (3) consecutive years
corporation commenced its business.
The taxable year in which the business
MEANING OF GROSS INCOME
operations commenced shall be the year
General concept –
when the corporation registers with the
Gross sales
BIR.
Less:
(1) Sales Return;
CARRY FORWARD OF THE EXCESS
(2) Discount and allowances
MINIMUM TAX
(3) Cost of goods sold - means
all business expenses
directly incurred to produce
the merchandise to bring

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1
 Any excess of MCIT over the normal (3) Cost of goods sold - means
income tax can be carried forward all business expenses
on an annual basis. directly incurred to produce
 The excess can be credited against the merchandise to bring
the normal income tax due in the them to their present
next 3 immediately succeeding location and use.
taxable years.
 Any amount of the excess MCIT KINDS OF BUSINESS
which cannot be credited against the
normal income tax due in the next A. Trading or Merchandising Concern
3-year period shall be forfeited. Gross Income = Cost of Sales =
gross sales/ 1.Invoice cost of the
receipts less sales goods sold;
RELIEF FROM MCIT returns, discounts 2.import duties;
and allowances and 3.freight in
The Secretary of Finance is cost of goods sold transporting the
authorized to suspend the imposition of goods to the place
the MCIT on any corporation which where the goods
suffers losses because of: are actually sold;
a. prolonged labor dispute; 4.insurance while
b. force majeure; or the goods are in
c. legitimate business reverses. transit.
B. Manufacturing Cost of Sales = All
“Substantial losses from a prolonged Gross Income cost of production of
labor dispute" means losses arising from a (Same) finished goods, such
strike staged by the employees which as
lasted for more than six (6) months 1.raw materials
within a taxable period and which has used;
caused the temporary shutdown of 2.direct labor;
business operations. 3.manufacturing
“Force majeure" means a cause due overhead;
to an irresistible force as by "Act of God" 4.freight cost;
like lightning, earthquake, storm, flood 5.insurance
and the like. This term shall also premiums;
include armed conflicts like war and 6.other costs
insurgency. incurred to bring
“Legitimate business reverses" shall the raw materials
include substantial losses sustained due to the factory or
to fire, robbery, theft, or warehouse.
embezzlement, or for other economic C. Services Cost of Services = All
reason as determined by the Secretary Gross Income = direct costs and
of Finance. Gross receipts less expenses necessarily
sales returns, incurred to provide
TAX RATE: 2% of gross income or allowances, the services required
taxable base pertinent to a discounts and costs by the customers and
trading/merchandising concern or a of services clients including:
service entity a. Salaries and
employee benefits
TAX BASE: Gross Income of personnel,
MEANING OF GROSS INOME consultants and
specialists directly
General concept - gross income means: rendering the
Gross sales service;
Less: b. Cost of facilities
(1) Sales Return; directly utilized in
(2) Discount and allowances providing the

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service. earnings distributed to them by

It shall not the corporation.
include interest
expense except for “IMPROPERLY ACCUMULATED TAXABLE
banks and other INCOME”
financial
institutions. Taxable income for the year
Add:
 Gross income excludes passive Income exempt from tax;
income subject to final tax. Income excluded from gross income;
 Other income and Extraordinary Income subject to final tax;
Income are included since RR 9-98 Net operating loss carry-over (NOLCO)
provides that gross sales include Total
sales contributory to income taxable Less:
under the regular corporate tax. Income tax paid/payable for the taxable
year
 See Annex T for interplay of normal Dividends actually or constructively
tax, optional corporate income tax paid/issued from the applicable year’s
and MCIT. taxable income
Amount reserved for the reasonable
needs of the business as defined in the
(4) IMPROPERLY ACCUMULATED Regulations
EARNINGS (IAE) TAX Tax base of improperly accumulated
earnings tax
SECTION 29
EXCLUSIONS
(REVENUE REGULATIONS NO. 2 – 2001)
 For corporations using the calendar
DEFINITION: “Improperly accumulated basis the accumulated earnings tax
earnings (IAE)” are the profits of a shall not apply on IAE as of Dec. 31,
corporation that are permitted to 1997.
accumulate instead of being distributed  For fiscal year basis, the tax shall
by a corporation to its shareholders for not apply to the 12-month period of
the purpose of avoiding the income tax fiscal year 1997-1998.
with respect to its shareholders or the
shareholders of another corporation. IAE as of the end of a calendar
or fiscal year period on or after Dec.
TAX RATE: 10% of the Improperly 31, 1998 shall be subject to the 10%
Accumulated Taxable Income (in tax.
addition to other taxes).
Rationale behind IAET WHO ARE COVERED?
If the earnings and profits were
distributed, the shareholders would then General Rule: The IAE tax shall apply to
be liable to income tax thereon, every corporation formed or availed
whereas if the distribution were not for the purpose of avoiding the
made to them, they would incur no tax income tax with respect to its
in respect to the undistributed earnings shareholders or the shareholders of
and profits of the corporation. Thus, a any other corporation, by permitting
tax is being imposed; earnings and profits to accumulate
a. in the nature of a penalty to the instead of being divided or
corporation for the improper distributed. These are:
accumulation of its earnings, and 1. Domestic corporations as
b. as a form of deterrent to the defined under the Tax Code;
avoidance of tax upon 2. Corporations which are classified
shareholders who are supposed as closely-held corporations.
to pay dividends tax on the

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• those corporations at least Instances indicative of purpose to

fifty percent (50%) in value avoid income tax upon
of the outstanding capital shareholders:
stock or at least fifty 1. Investment of substantial
percent (50%) of the total earnings and profits of the
combined voting power of all corporation in unrelated
classes of stock entitled to business or in stock or
vote is owned directly or securities of unrelated
indirectly by or for not more business;
than twenty (20) individuals. 2. Investment in bonds and other
 Domestic corporations not long-term securities;
falling under the aforesaid 3. Accumulation of earnings in
definition are, therefore, excess of 100% of paid-up
publicly-held corporations. capital, not otherwise
intended for the reasonable
Exception: The said tax shall not apply needs of the business as
to: defined in these Regulations.
1. Publicly held corporations (Sec. 29)
2. Banks and other non-banks Financial 2. The fact that the earnings or profits
intermediaries (Sec. 29) of a corporation are permitted to
3. Insurance companies (Sec. 29) accumulate beyond the reasonable
4. Taxable partnerships (deemed to needs of the business shall be
have actually or constructively determinative of the purpose to
received the taxable income under avoid the tax upon its shareholders
Sec. 73D) or members unless the corporation,
5. General professional partnerships by the clear preponderance of
(exempt; taxable against the evidence, shall prove the contrary.
partners)
6. Non- taxable joint ventures and “Reasonable needs of the
7. Enterprises duly registered with the business” includes the reasonably
Philippine Economic Zone Authority anticipated needs of the business
(PEZA) under R.A. 7916, and such as:
enterprises registered pursuant to a. Allowance for the increase in the
the Bases Conversion and accumulation of earnings up to
Development Act of 1992 under R.A. 100% of the paid-up capital of
7227, as well as other enterprises the corporation as of Balance
duly registered under special Sheet date, inclusive of
economic zones declared by law accumulations taken from other
which enjoy payment of special tax years;
rate on their registered operations b. Earnings reserved for definite
or activities in lieu of other taxes, corporate expansion projects or
national or local. programs as approved by the
8. Foreign corporations [RR No. 02- Board of Directors or equivalent
2001] body;
c. Reserved for building, plants or
EVIDENCE OF PURPOSE TO AVOID equipment acquisition as
INCOME TAX approved by the Board of
Directors or equivalent body;
1. The fact that any corporation is a d. Reserved for compliance with
mere holding company or investment any loan covenant or pre-
company shall be prima facie existing obligation established
evidence of a purpose to avoid the under a legitimate business
tax upon its shareholders or agreement;
members. e. Earnings required by law or
applicable regulations to be
retained by the corporation or in

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respect of which there is legal Net Income Tax Due

prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and
earnings intended or reserved 2. Non-resident foreign corporation.
for investments within the (32%)
Philippines as can be proven by
corporate records and/or  Tax Rates: Please refer to Annex A
relevant documentary evidence. and B.
The controlling intention of the (7) FINAL INCOME TAX

taxpayer is that which is manifested at
the time of accumulation, not GENERAL PRINCIPLES
subsequently declared intentions, which
are merely the product of afterthought. 1. It is constituted as a full and final
A speculative and indefinite purpose will payment of the income tax due from
not suffice. the payee on a particular type of
Definiteness of plan/s coupled with income subject to final withholding
action/s taken towards its tax (FWT).
consummation is essential. The finality of the withholding
tax is limited only to the payee’s
PERIOD FOR PAYMENT OF DIVIDEND/ income tax liability and does not
PAYMENT OF IAET extend to other taxes that may be
Dividends must be declared and paid imposed on said income.
or issued not later than one year 2. The income subjected to final
following the close of the taxable year, income tax is no longer subject to
otherwise, the IAET, if any, should be the net income tax; otherwise, there
paid within fifteen (15) days thereafter. would be a violation of prohibited
double taxation.
3. The liability for the payment of the
(5) INCOME SUBJECT TO tax rests primarily on the payor as
PREFERENTIAL OR SPECIAL withholding agent.
4. The payee is not required to file an
RATES
income tax return for the particular
income subjected to FWT. It is the
Pertains to income derived by a
withholding agent who files the
particular individual or corporation
return.
belonging to a class of income taxpayer
5. The rate of the final tax is
that is subject to either a preferential or
multiplied to the gross income.
special rate.
Thus, deductions and/or personal
and additional exemptions are not
 Tax Rates: Please refer to Annex C.
allowed.
(6) GROSS INCOME TAX (GIT) (8) FRINGE BENEFIT TAX (FBT)
GROSS INCOME TAX (GIT) FORMULA
FRINGE BENEFIT TAX is a final income
tax on the employee which shall be
Entire Income withheld and paid by the employer on a
Less: Exclusions and Income subject quarterly basis.
to Final Tax (e.g. Passive
Income) FRINGE BENEFIT means any good,
Gross Income service, or other benefit furnished or
Multiply by: Tax Rates (%) granted by an employer, in cash or in
kind, in addition to basic salaries, to an

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1
individual employee (except rank and 2. The amount of fringe benefit tax
file employees) such as, but not limited thereon otherwise due from the
to the following: employee but paid by the employer
1. Housing for and in behalf of the employee.
2. Expense Account
3. Vehicle of any kind “GMV” of the fringe benefit
4. Household personnel, such as maid, shall be determined by dividing the
driver and others monetary value of the fringe benefit by
5. Interest on loan at less than market the Grossed up divisor. The Grossed up
rate to the extent of the difference divisor is the difference between 100%
between the market rate and actual and the applicable rates.
rate granted.
6. Membership fees, dues and other GROSSED UP
YEAR RATE
expenses borne by the employer for DIVISOR
the employee in social and athletic 1998 66% 34% FWT
clubs and similar organizations 1999 67% 33% FWT
7. Expenses for foreign travel 2000
68% 32% FWT
8. Holiday and vacation expenses onwards
9. Educational assistance to the
employee or his dependents; and FRINGE BENEFITS NOT SUBJECT TO FBT
10. Life or health insurance and other
non-lire insurance premiums or 1. Fringe benefits not considered as
similar amounts on excess of what gross income –
the law allows. a. if it is required or necessary to
the business of employer
PERSONS LIABLE b. if it is for the convenience or
advantage of employer
The EMPLOYER (as a withholding 2. Fringe Benefit that is not taxable
agent), whether individual, professional under Sec. 32 (B) – Exclusions from
partnership or a corporation, regardless Gross Income
of whether the corporation is taxable or 3. Fringe benefits not taxable under
not, or the government and its Sec. 33 Fringe Benefit Tax:
instrumentalities a. Fringe Benefits which are
authorized and exempted under
TAX RATE: 32% (from January 1, 2000 special laws, such as the 13th
onwards) of the Grossed up Monetary month Pay and Other Benefits
Value (GMV) of fringe benefits. with the ceiling of P30,000.
In the case of aliens, the tax rates to b. Contributions of the employer
be applied on fringe benefit shall be as for the benefit of the employee
follows: to retirement, insurance and
1. NRANEBT 25% hospitalization benefit plans;
2. Aliens employed by regional HO c. Benefits given to the Rank and
15 % File Employees, whether granted
3. Aliens employed by OBU 15% under a collective bargaining
4. Aliens employed by Petroleum agreement or not; and
Service Contractors and d. The De minimis benefits –
Subcontractors 15% benefits which are relatively
small in value offered by the
“GMV” OF THE FRINGE BENEFIT employer as a means of
REPRESENTS promoting goodwill,
contentment, efficiency of
1. The whole amount of income Employees
realized by the employee which The term “Rank and File
includes the net amount of money or Employees” shall mean all
net monetary value of property employees who are holding
which has been received; plus neither managerial nor

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supervisory position as defined 5. Actual yearly medical benefits not

in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,
DEDUCTIBILITY TO THE TAXABLE with an annual monetary value of
INCOME OF THE EMPLOYER not exceeding P10,000 received by
the employee under an established
General Rule: The amount of taxable written plan which does not
fringe benefit and the fringe benefits tax discriminate in favor paid
shall constitute allowable deductions employees;
from gross income of the employer. 8. Gifts given during Christmas and
Exception: major anniversary celebrations not
If the basis for computation of the exceeding P3, 000 per employee per
fringe benefits tax is the depreciation annum;
value, the zonal value or the fair market 9. Flowers, fruits, books or similar
value, only the actual fringe benefits tax items given to employees under
paid shall constitute a deductible special circumstances
expense for the employer. The value of 10. Daily meal allowance for overtime
the fringe benefit shall not be work not exceeding 25% of the basic
deductible and shall be presumed to minimum wage.
have been tacked on or actually claimed
as depreciation expense by the Time for filing of quarterly remittance
employer. Provided, however, that if the return of final income taxes withheld
aforesaid zonal value or fair market The tax imposed under Sec. 33 shall
value of the said property is greater be treated as a final income tax on the
than its cost subject to depreciation, the employee that shall be withheld and
excess amount shall be allowed as a paid by the employer, whether a large
deduction from the employer's gross taxpayer or non-large taxpayer, on or
income as fringe benefit expense. (Sec. before the 10th day of the month
2.33[D], Rev. Reg. No. 3-98) following the calendar quarter in which
the fringe benefits were granted (RR 04-
EXAMPLE OF DE MINIMIS BENEFITS NOT 2002).
SUBJECT TO FBT (RR NO. 8-2000 AND
10-2000)  For Additional Rules on Fringe
Benefits, refer to Annex H.
1. Monetized unused vacation leave
credits of PRIVATE employees not (9) CAPITAL GAINS TAX
exceeding (10) days during the year
and the monetized value of leave SUMMARY OF TAX RATES
credits paid to government officials
and employees 1. Individuals
2. Medical cash allowance to a. On sale of shares of stock of a
dependents of employees not domestic corporation not listed
exceeding P750.00 per employee per and traded thru a local stock
semester or P125 per month; exchange, held as capital asset
3. Rice subsidy of P1,000.00 or one (1) On the Net Capital Gain
sack of 50kg. rice per month Not over P100,000 – FT
amounting to not more than of 5%
P1,000:00, Amount in excess of P100,000 – FT
4. Uniform and clothing allowance not of 10%
exceeding P3,000 per annum;

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1
b. On sale of real property in the

Philippines held as capital asset
On the gross selling price, or the CAPITAL GAIN CAPITAL LOSS
current fair market value at the
time of sale, whichever is higher – The gain derived The loss incurred
FT of 6% from the sale or from the sale or
2. Corporations exchange of capital exchange of capital
a. On sale of shares of stock of a assets. assets.
domestic corporation not listed
and traded thru a local stock
exchange, held as capital asset
On the Net Capital Gain –
Not over P100,000 – FT of NET CAPITAL NET CAPITAL
5% GAIN LOSS
Amount in excess
of P100,000 – FT of 10%
The excess of the The excess of the
b. On sale of land/building held as gains from sales/ losses from sales or
capital asset exchanges of capital exchanges of capital
On the gross selling price, or the assets over the assets over the gains
current fair market value at the gains from such from such sales or
time of sale, whichever is higher sales/ exchanges. exchanges.
– FT of 6%
(Reyes, Virgilio. Income Tax Law and
Accounting – A New Approach, 2002)
 TRANSACTION RESULTING IN TAXABLE
GAINS BUT NON-RECOGNITION OF LOSSES
CAPITAL GAINS AND LOSSES –
a. Sale or exchange between
IN GENERAL related parties;
b. Wash sales by non-dealers of
CONCEPT OF CAPITAL ASSETS securities and when not subject
to the stock transfer tax;
Under the tax code, there is no c. Exchanges not solely in kind in
definition for the term "capital assets". merger and consolidation; and
What it gives is the meaning of ordinary d. Sales or exchanges that are not
assets: at arms length.
a. Ordinary assets (Sec. 39, NIRC)
a. Stock in trade of the taxpayer or REQUISITES FOR RECOGNITION OF
other properties of a kind which CAPITAL GAIN/LOSS
would properly be included in
the inventory of the taxpayer; 1. The transaction must involve
property classified as capital
b. Property held by the taxpayer asset; and
primarily for sale to customers in
the ordinary course of business; 2. The transaction must be a sale
or exchange or one considered as
c. Property used in trade or equivalent to a sale or exchange.
business and subject to
depreciation; and RULES ON THE RECOGNITION OF
CAPITAL GAINS OR LOSSES
d. Real property used in trade or
business.
INDIVIDUAL CORPORATION
b. Capital Assets include all property 
held by the taxpayer whether or not  Holding Period Capital gains and
connected in trade or business but The percentages losses are
not including those enumerated of gain or loss to be recognized to the
above (#1) as ordinary assets. taken into account extent of 100%.
shall be the (There is no

Cabrera, Jhundee
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1
following: holding period) The following are considered as sale

a.100% - if the or exchange of capital assets:
capital assets has 1. Retirement of bonds
been held for 12 2. Short sales of property
mos. or less; and 3. Failure to exercise privilege or
b.50% - if the option to buy or sell property
capital asset has 4. Securities becoming worthless
been held for 5. Distribution in liquidation of
more than 12 corporations
mos.
6. Readjustment of interest in a
general professional partnership.
Non- TAX FREE EXCHANGES
  Capital losses
deductibility of are allowed only Sales or exchanges resulting in non-
Net Capital to extent of the recognition of gains or losses:
losses capital gains; 1. Exchange solely in kind in legitimate
 Capital losses hence, the net mergers and consolidation;
are allowed only capital loss is includes:
to extent of the not deductible. a. Between the corporations which
capital gains; Exception: If any are parties to the merger or
hence, the net domestic bank or consolidation (property for
capital loss is trust company, a
stocks);
not deductible. substantial part of
whose business is b. Between a stockholder of a
the receipt of corporation party to a merger or
deposits, sells any consolidation and the other
bond, debenture, party corporation (stock for
note or certificate stock);
or other evidence c. Between a security holder of a
of indebtedness corporation party to a merger or
issued by any consolidation and the other
corporation
party corporation (securities for
(including one
issued by a securities)
government or
political 2. Transfer to a controlled corporation
subdivision) – exchange of property for stocks
resulting in acquisition of corporate
 Net Capital Loss  Not allowed control by a person, alone or
Carry –Over together with others not exceeding
 Allowed four.
The net capital loss “Control” means ownership of
(in an amount not in
stocks in a corporation amounting to
excess of the taxable
income before at least 51% of the total voting
personal exemption for power of all classes of stocks
such year) shall be entitled to vote.
treated in the
succeeding year (but SALE OR EXCHANGE OF ORDINARY ASSETS
not beyond 12 months)
as a deduction as General rules of income taxation
short-term capital loss apply to both gain and loss.
(at 100%) from the net
capital gains.
 See Annex D (Gross Income – Gains
from dealings in property)
 See Annex U for illustration.
SUMMARY OF TAX TREATMENT OF
SALE OR EXCHANGE OF CAPITAL ASSETS GAINS/LOSSES IN THE EXCHANGE OF
PROPERTIES

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General Rule: Upon the sale or

exchange of property, the entire gain or 1. Shares of stock not traded through
loss, as the case may be, shall be a local stock exchange – Net capital
recognized. [Sec. 40 (C, 1)] gains derived during the taxable
year from sale, exchange, or
Exceptions: transfer shall be taxed as follows (on
1. Transactions where gains and losses a per transaction basis):
are not recognized – Not over P 100,000 - 5%
a. Exchange solely in kind in Over P 100,000 - 10%
legitimate mergers and 2. Shares of stock listed through a
consolidation local stock exchange – ½ of 1% of
b. Transfer to a controlled the gross selling price of the stock.
corporation [Sec. 40(C, 2)] EXCEPTIONS TO THE TAX
1. Transactions where 1. Gains derived by dealers in
gain is recognized securities.
but not the loss – 2. All other gains which are specifically
A. Transactions between related exempt from income tax under
taxpayers [Sec. 36] existing investment incentives and
B. Illegal transactions [Sec. 96, other special laws.
Rev. Reg. 2]
C. Exchanges of property, not BASIS FOR COMPUTING GAIN OR LOSS (BIR
solely in kind, in pursuance of RULING 146-98)
corporate mergers and
consolidations [Sec. 40, (C, 3)]  The fair market value (FMV) of the
sale of shares not traded but listed
IMPORTANT DISTINCTION in the stock exchange is the highest
If it is an ordinary asset, the closing price on the day the shares
ordinary gains and losses are considered were sold, transferred or exchanged.
in determining income or loss from  When no sale is made in the stock
trade, business or profession. (See Secs. exchange, the FMV shall be the
32A, 34D) highest selling price on the day
If it is a capital asset, determine nearest to the day of sale, transfer
further whether or not it is a real or exchange.
property located in the Philippines. If it  For shares not listed in the
is, then it is subject to capital gains tax. exchange, the FMV shall be the book
(See Secs. 24D, 27D5) (See also Sec s. value nearest the valuation date
24C, 27D2) If not, the capital gains and
losses are considered in determining the The above rules shall be used in
taxable income. (Sec. 39) computing for the net capital gain/loss
for disposition of shares.
CAPITAL GAINS AND LOSSES –
SHARES OF STOCK IMPORTANT FEATURES
The taxation of shares of stock 1. Sale of shares of stock of a domestic

whether or not listed and traded in the corporation listed and traded in a
stock exchange is subject to final tax. local stock exchange and that of
initial public offering shall be subject
WHO ARE LIABLE TO THE TAX to Percentage tax (Business Tax)
1. Individual taxpayer, citizen or alien 2. Capital losses sustained during the
2. Corporate taxpayer, domestic or year (not listed and traded in a local
foreign stock exchange) shall be allowed as
3. Other taxpayers such as estate, a capital loss deductible on the same
trust, trust funds and pension among taxable year only (no carry-over)
others. 3. The entire amount of capital gain
and capital loss (not listed and
RATES OF TAX traded in a local stock exchange)

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shall be considered without taking  See Annex G – Guidelines in

into account holding period Determining Whether a Real
irrespective of who is the taxpayer Property is a Capital or an Ordinary
(all 100%) Asset.
4. Non-deductibility of losses on wash
sales. EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
CAPITAL GAINS TAX ON THE SALE OR
FILING AND PAYMENT OF TAX DISPOSITION OF A PRINCIPAL RESIDENCE
1. Listed and Traded in the Stock Conditions:

Exchange - The stockbroker shall a. Sale or disposition of the old
turn over the tax collected to the principal residence;
B.I.R. within five (5) banking days b. By natural persons - citizens or aliens
from the date of collection. provided that they are residents
taxable under Sec. 24 of the Code
2. Not traded through the stock exchange (does not include an estate or a
- It shall be paid by the seller on a per trust);
transaction basis upon filing of the c. The proceeds of which is fully
required return within 30 days utilized in (a) acquiring or (b)
following each sale or other constructing a new principal
disposition of shares of stock. residence within eighteen (18)
calendar months from date of sale or
CAPITAL GAINS AND LOSSES disposition;
d. Notify the Commissioner within
(REAL PROPERTY) thirty (30) days from the date of sale
or disposition through a prescribed
PERSONS LIABLE AND TRANSACTIONS return of his intention to avail the
AFFECTED tax exemption;
e. Can only be availed of only once
1. Individual taxpayers, estates and every ten (10) years;
trusts f. The historical cost or adjusted basis
Sale or exchange or other of his old principal residence sold,
disposition of real property exchanged or disposed shall be
considered as capital assets. carried over to the cost basis of his
The said sale shall include "pacto new principal residence
de retro sale" and other conditional g. If there is no full utilization, the
sale. portion of the gains presumed to
2. Domestic Corporation have been realized shall be subject
Sale or exchange or disposition to capital gains tax.
of lands and/or building which are
not actually used in business and are GROSS INCOME FROM DIFFERENT SOURCES
treated as capital asset. (SEC. 42)
 Please refer to Annex I.
 EXCEPTIONS TO THE TAX
1. Gains derived by dealers in real ACCOUNTNG PERIODS AND METHODS OF
estate ACCOUNTING
RATE AND BASIS OF TAX I. ACCOUNTING PERIODS

A final tax of 6% is based on the A. General rule (Sec. 43)
gross selling price or fair market value Taxable income is computed
or zonal value whichever is higher. upon the basis of taxpayer’s
Note: Gain or loss is immaterial, annual accounting period (fiscal or
there being a conclusive presumption of calendar year) in accordance with
gain. the method of accounting
employed.

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 If no method of accounting  In case of death of taxpayer:

employed or method does not deductions allowed for the
clearly reflect the income, taxable period in which falls the
computation shall be made in date of his death, amounts
accordance w/ such method as accrued up to the date of his
the opinion of the Commissioner death if not otherwise properly
clearly reflects the income. allowable in respect of such
 Taxable income is computed period or a prior period.
based on calendar year if:
1. accounting period is other D. Change of accounting period
than a fiscal year (Sec.46)
2. taxpayer has no accounting  Kinds of changes:
period - from fiscal year to calendar
3. taxpayer does not keep year
books - from calendar year to fiscal
4. taxpayer is an individual year
 Fiscal year: accounting period of - from one fiscal year to
12 months ending on the last day another
of any month other than  Effect of change: Net income,
December shall, with the approval of the
 Calendar year: accounting period Commissioner, be computed on
from January 1 to December 31 the basis of the new accounting
period, subject to Sec. 47.
B. Periods in which items of gross
income included (Sec. 44) E. Final or adjustment returns for a
 Amount of all items of gross period of less than 12 months
income shall be included in the (1) Returns for short period
gross income for the taxable resulting from change of
year in which received by the accounting period
taxpayer, unless, any such  taxpayer is other than an
amounts are to be properly individual
accounted for in a different  with the approval of the
period under methods of Commissioner
accounting permitted  If change is from fiscal year to
 In case of death of taxpayer: calendar year:
include for the taxable year in - separate final or adjustment
which falls the date of his death, return be made for the
all amounts which accrued up to period between the close of
the date of his death; if not the last fiscal year for which
otherwise properly includible in return was made and the
respect of such period or a prior following December 31
period  If change is from calendar year
to fiscal year:
C. Period for which deduction and - separate final or adjustment
credits taken (Sec. 45) return be made for the
 Deductions provided in this Title period between the close of
shall be taken for the taxable the last calendar for which
year in which ‘paid or incurred, return was made and the
dependent upon the method of date designated as the close
accounting upon the basis of of the fiscal year
which the net income is  If change is from one fiscal year
computed, unless, in order to to another:
reflect the income, deductions - separate final or adjustment
should be taken as of a different return be made for the
period. period between the close of

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the former fiscal year and  Long-term contracts:

the date designated as the building, installation or
close of the new fiscal year construction contracts
(2) Income computed on basis of covering a period in excess
short period of 1 yr
 In what cases?  Persons whose gross income
a. Where a separate final or is derived in whole or in part
adjustment return is made from such contracts shall
on account of a change in report such income upon the
accounting period basis of percentage of
b. In all other cases where a completion
separate final or  The return is accompanied
adjustment return is by a return certificate of
require or permitted by architects or engineers
R&R prescribed by Sec. of showing the percentage of
Finance. upon completion during the
recommendation of taxable year of the entire
Commissioner work performed under the
 Both shall be made for a contract
fractional part of a year.  Deductions from gross
 Then income is computed on the income: all expenditures
basis of the short period for made during the taxable
which separate final or year on account of the
adjustment return is made. contract: account being
taken of the material and
II. METHODS OF ACCOUNTING supplies on hand at the
beginning and end of the
A. Cash method taxable period for use in
Recognition of income connection with the work
and expense dependent on under the contract but not
inflow or outflow of cash. yet so applied.
 Amended return may be
1. Accrual method permitted /required by the
Method under which Commissioner: if upon
income, gains and profits are completion of contract,
included in gross income when taxable income has not been
earned whether received or not, clearly reflected for any
and expenses are allowed as year(s).
deductions when incurred:
although not yet paid. It is the 3. Installment basis
right to receive and not the (1) Sales of dealers in personal
actual receipt that determines property
the inclusion of the amount in Under rules and
gross income regulations prescribed by
 Examples: the Sec. of Finance, a person
1. interest or rent income who regularly sells or
earned but not yet otherwise disposes of
received personal property on the
2. rent expense accrued installment plan may return
but not yet paid as income there from in any
3. wages due to workers taxable year that proportion
but remaining unpaid of the installment payments
actually received in that
2. Accounting for long-term year, which the gross profit
contracts realized or to be realized

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when payment is completed, property, considered as

bears to the contract price. capital asset and is
otherwise qualified to
Example: Sale in 2000 report the gain under (2)
Contract price (CP) above may pay the
(installments capital gains tax in
receivable) P200, 000 installments under rules
Cost 150,000 and regulations to be
Gross profit (GP) 50,000 promulgated by the Sec.
of Finance.
Installments payable in 2
equal annual installments (4) Change from accrual to
GP/CP ratio installment basis
= 50,000/200,000 = 25%
Collections in 2000=P100,000  taxpayer must be
Income for 2000 entitled to benefits
= P100,000 x 25% = P25,000 under (1) hereof sales of
dealers in personal
(2) Sales of realty and casual property
sales of Personalty  in computing income for
 In cases of: the year of change or
a. casual sale or other any subsequent year:
casual disposition of amounts actually
personal property received during any such
(other than year on account of sales
inventory on hand of or other dispositions of
the taxpayer at the property made in any
close of the taxable prior year shall not be
year) for a price > excluded.
P1,000, or
b. sale or other 4. Allocation of income and
disposition of real deductions
property, if in either  Applicable to: cases of 2 or
case the initial more organizations, trades
payments do not or businesses (incorporated
exceed 25% of the and organized within the
selling price Philippines) owned or
 How may income be controlled directly
returned: same as in /indirectly by the same
sales of dealer in interest
personal property above  Commissioner is authorized
 Initial payments: to distribute, apportion or
payments received in allocate gross income or
cash or property other deductions between or
than evidences of among such organization,
indebtedness of the trade or business, if he
purchaser during the determines that such
taxable period in which distribution, apportionment
the sale or other or allocation is necessary in
disposition is made. order to prevent evasion of
taxes or to clearly reflect
(3) Sales of real property the income of any such
considered as capital asset organization, trade or
by individuals business.
 Individual who sells of
disposes of real FILING OF TAX RETURN AND PAYMENT OF TAX

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3. Individual whose sole income has

TAX RETURN – This is a report made by been subjected to final withholding
the taxpayer to the BIR of all gross income tax;
income received during the taxable 4. Individual who is exempt from
year, the allowable deductions including income tax.
exemptions, the net taxable income, the
income tax rate, the income tax due, SUBSTITUTED FILING – is when the
the income tax withheld, if any, and the employer’s annual return may be
income tax still to be paid or considered as the “substitute” Income
refundable. Tax Return (ITR) of employee inasmuch
as the information provided in his
income tax return would exactly be the
same information contained in the
PERSONS REQUIRED TO FILE INCOME TAX employer’s annual return.
RETURN
HOW IS “SUBSTITUTED FILING” DIFFERENT
a. Individual FROM “NON-FILING”?
1. Resident citizen;
2. Non-resident citizen on income  Substituted Filing – an individual
from within the Phil.; taxpayer although required
3. Resident alien on income from under the law to file his income
within the Phil.; tax return, will no longer have
4. NRAETB on income from within to personally file his own income
the Phil. tax return.
5. An individual (citizens / aliens) – but instead the
engaged in business or practice employer’s annual information
of a profession within the Phil. return filed is the considered
regardless of the amount of “substitute” income tax return
gross income; of the employee inasmuch as the
6. Individual deriving compensation information in the employer’s
income concurrently from two or return is exactly the same
more employers at any time information contained in the
during the taxable year; employee’s return.
7. Individual whose pure
compensation income derived  Non-filing – applicable to
from sources within the Phil. certain types of individual
exceeds P60,000. taxpayers who are not required
b. Taxable Estate and Trust under the law to file an income
c. General Professional Partnership tax return.
d. Corporation Example: employee whose
1. Not exempt from income tax; pure compensation income does
2. Exempt from income tax under not exceed P60,000 and has only
Sec. 30 of NIRC but has not one employer for the taxable
shown proof of exemption. year and whose tax withheld is
equivalent to his tax due.
INDIVIDUALS EXEMPT FROM FILING INCOME TAX
RETURN SUBSTITUTED FILING OF INCOME TAX RETURNS
BY EMPLOYEES RECEIVING PURELY
1. Individual whose gross income does COMPENSATION INCOME. [SECTION 4, RR 3-
not exceed total personal and 2002; RMC 01-03]
additional exemptions;
2. Individual with respect to pure Requisites:
compensation income derived from 1. The employee receives purely
sources within the Philippines, the compensation income (regardless of
income tax on which has been amount) during the taxable year.
correctly withheld;

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2. The employee receives the income

only from one employer during the NOTE: Non-filing of ITR, for employees
taxable year. who are qualified for the substituted
3. The amount of tax due from the filing shall be OPTIONAL for the taxable
employee at the end of the year year 2001, the returns for which shall be
equals the amount of tax withheld filed on or before April 15, 2002.
by the employer. Thereafter, substituted filing where
4. The employee's spouse also complies applicable shall be MANDATORY. [Sec 5
with all three (3) conditions stated RR 3-2002)
above.
5. The employer files the annual
information return (BIR Form No.
1604-CF) REQUIREMENT OF BANKS FOR SUBMISSION OF
6. The employer issues BIR Form 2316 AN ITR FOR LOAN O R CREDIT CARD
(Oct 2002 ENCS) version to each APPLICATIONS
employee
Banks may require the submission of
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED BIR Form No. 1700 (for employees not
FILING (STILL REQUIRED TO FILE) entitled to substituted filing of ITR).
However, for employees entitled to
1. Individuals deriving compensation substituted filing of ITR, the submission
from two or more employers of the Joint Certification will suffice.
concurrently or successively during
the taxable year. JOINT CERTIFICATION - It is a sworn
2. Employees deriving compensation statement made by the employer and
income, regardless of the amount, employee, which serve the following
whether from a single or several purposes:
employers during the calendar year, 1. It contains the employee's consent
the income tax of which has not that BIR Form No. 1604CF may be
been withheld correctly (i.e. tax due considered his substituted return, in
is not equal to the tax withheld) lieu of BIR Form No. 1700, which the
resulting to collectible or refundable employee no longer filed.
return. 2. It contains the employer's
3. Employees whose monthly gross certification that he has reported
compensation income does not the employee's income to the BIR
exceed P5,000 or the statutory and that he has remitted the taxes
minimum wage, whichever is higher, on the employee's income, as
and opted for non-withholding of tax indicated in BIR Form No. 1604-CF.
on said income. 3. It serves as proof of financial
4. Individuals deriving other non- capacity in case the employee
business, non-profession-related decides to apply for a bank loan or a
income in addition to compensation credit-card, or for any other
income not otherwise subject to purpose, as if he had in fact filed a
final tax. BIR Form No. 1700.
5. Individuals receiving purely
compensation income from a single INDIVIDUALS REQUIRED TO FILE AN
employer although the income tax of INFORMATION RETURN
which has been correctly withheld,
but whose spouse falls under 1 to 4 Individuals not required to file an
above. income tax return may nevertheless be
6. Non-resident aliens engaged in trade required to file an information return
or business in the Philippines pursuant to rules and, regulations
deriving purely compensation prescribed by the Secretary of Finance
income, or compensation income upon recommendation of the
and other non-business, non- Commissioner.
profession-related income.

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PLACE OF FILING  If impracticable to file one return:

each spouse file a separate return of
1. Legal residence - authorized agent income but the return so filed shall
bank; Revenue District Officer; be consolidated by the Bureau for
Collection agent or duly authorized the purposes of verification for the
treasurer year.
2. Principal place of business
3. With the Office of the Commissioner UNMARRIED MINOR
 Income of unmarried minors derived

from property received by the living
Time For Filing (Pay as you file system) parent shall be included in the
return of the parent, except:
April 15 – for those earning sole a. when donor’s tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donor’s tax
RETURN AND PAYMENT OF ESTIMATED INCOME PERSONS UNDER DISABILITY

TAX BY INDIVIDUAL (SELF-EMPLOYED OR
PRACTICE OF PROFESSION) If a taxpayer is unable to make his
own return, it may be made by his
1. First quarter - April 15 of current year 1. duly authorized agents;
2. Second quarter -August 15 of current 2. representative;
year 3. by guardian;
3. Third quarter – November 15 of current 4. other person charged with the care
year of his person or property;
4. Final quarter - April 15 of the following  who will assume the responsibility of
year. making the return and incurring
penalties provided for erroneous,
Note: When the tax due is in excess of P2, false or fraudulent return.
000 - the taxpayer may elect to pay in two
(2) equal installments: RETURN OF ESTATE, TRUST AND PARTNESHIP
1st installment - April 15
2nd installment - on or before July 15 Estate and Trust with gross income
of P20,000 or more and partnership
EXTENSION OF TIME TO FILE RETURN (whether professional or business) shall
file their income tax return on or before
The Commissioner may on April 15.
meritorious cases grant a reasonable
extension of time for filing income tax TAX RETURNS OF GENERAL PROFESSIONAL
return and may subject the imposition of PARTNERSHIPS (GPP)
twenty (20) percent interest per annum  Each GPP shall file in duplicate, a
from the original due date. return of its income (except those
income exempt)
Return Of Husband And Wife
 Shall set forth:
a. items of gross income and
 File one (1) return for the taxpayer
deductions allowed
year if following requisites b. names of partners
complied; c. TIN
a. Married individuals (citizens, d. address and share of each
resident or nonresident aliens) partner
b. Do not derived income purely
from compensation. Tax Return of a Corporation

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Those required to file:

1. Corporation subject to tax having The liability for The income
existed during the taxable year, payment of the tax recipient is still
whether with income or not. rests primarily on required to file an
the payor or the income tax return
2. Corporation in the process of
withholding agent. and/or pay the
liquidation or receivership. The payee is not difference between
3. Insurance company doing business in required to file an the tax withheld and
the Philippines or deriving income income tax return the tax due on the
therein for the particular income. [Sec.
4. Foreign corporation having income income. 2.57(B), Rev. Regs.
from within the Philippines 2-98]
Filing of return (Pay as you file system) Time to Withhold Tax at Source
Quarterly returns for the first three
(3) quarters on a strictly sixty (60) day - arises at the time an income is paid
basis and the final or adjusted return on or payable, whichever comes first. The
the 15th day of the fourth (4th) month term “payable” refers to the date the
following the close of either a-fiscal on obligation becomes due, demandable or
calendar year. legally enforceable. (Sec. 2.54.4 Rev.
Regs. 2.98)
 See Annex V for Illustration.
Nature of Withholding Agent’s Liability
Who shall file? The withholding agent is directly
The return shall be filed by the and independently liable for the correct
president, vice-president, or other amount of the tax that should be
principal officer, and shall be sworn to by withheld from the dividend remittance.
such officer and by the treasurer or (Commissioner vs. Procter and Gamble,
assistant treasurer. GR No. 66838, December 2, 1991)
WITHHOLDING TAXES CONSEQUENCES FOR FAILURE TO WITHHOLD:

1. liable for surcharges and
Withholding Taxes penalties;
Kinds: 2. liable upon conviction to a penalty
1. Withholding Tax at Source: equal to the total amount of the
a. Final Withholding Tax tax not withheld, or not accounted
b. Creditable Withholding Tax for and remitted. (Sec. 251, 1997
(Expanded withholding tax) NIRC)
2. Withholding Tax on Compensation 3. any income payment which is
(Wages) otherwise deductible from the
3. Withholding Tax on Creditable payor’s gross income will not be
Value-Added Tax allowed as a deduction if it is
4. Withholding of Percentage Tax shown that the income tax
required to be withheld is not paid
FINAL CREDITABLE to the BIR. (Sec. 2.58.5, Rev. Reg.
WITHHOLDING WITHHOLDING 2-98)
TAX SYSTEM TAX SYSTEM
Withholding Tax On Compensation
The amount of Taxes withheld on Every employer must withhold
income tax withheld certain income from compensation paid, an amount
by the withholding payments are computed in accordance with the
agent is constituted intended to equal or regulations.
as a full and final at least approximate
payment of the the tax due from the
Exception:
income due from the payee on the said
payee on the said income.
Where such compensation
income. [Sec. 2.57 income of an individual:
(a), Rev. Reg. 2-98]

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1. Does not exceed the statutory obligor may be required/permitted

minimum wages; or to pay or to retain therefrom.
2. Five thousand (P5,000) monthly
(P60,000 a year)  Obligor shall deduct and withhold a
 whichever is higher. tax = 30% of the interest and other
payments whether interest or other
ELEMENTS OF WITHHOLDING ON payments are payable annually or at
COMPENSATION a shorter period; whether bonds,
1. There must be an employer- securities, obligations had been/will
employee relationship be issued/ marketed and the
2. There must be payment of interest and other payments paid
compensation or wages for services within and without the Philippines if
rendered the interest or other payment is
3. There must be a payroll period. payable to a non-resident alien or a
COMPENSATION EXEMPTED citizen or resident of the Philippines
Income of Recipient [Sec. 58 (d)]
1. Remunerations received as an
incident of employment  Income which any creditable tax is
2. Remunerations paid for agriculture required to be withheld at source
labor shall be included in the return of its
3. Remunerations paid for domestic recipient.
services  The excess of the amount of tax
4. Remunerations for casual not in the withheld over the tax due on his
course of an employer's trade or return shall be refunded to him,
business. subject to Section 204 (abatement,
5. Compensation for services of a refund/credit taxes).
citizen, resident of the Philippines,  If amount withheld at source is less
for a foreign government or an than the tax due on his return, the
international organization difference is paid in accordance with
6. Damages Section 56 (payment and assessment
7. Life insurance of income tax).
8. Amount received by the insured as  All taxes withheld shall be
return of premium considered as trust funds and
9. Compensation for injuries and maintained in a separate account
sickness and not commingled with any other
10. Income exempt under treaty funds of the withholding agent.
11. Thirteenth (13th) month pay and
other benefits B. TRANSFER TAXES
12. GSIS; SSS; Philhealth and other
contributions,
TRANSFER TAX INCOME TAX
Tax-Free Covenant BOND [Sec. 57(C)]
Tax on transfer of Tax on income
COVENANT BONDS – bonds, mortgages, property.
deeds of trust and other similar
obligations of domestic/resident foreign Rates are lower Rates are higher
corporation, which contain a --5% to 20% - -- 5% to 32%
contract/provision by which the obligor estate tax
agrees; -- 2% to 15 % or
1. to pay any portion of the tax 30% - donor’s
tax
imposed upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the

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(1) ESTATE TAXES The statute in force at the time of

death of the decedent shall govern
DEFINITION: an excise tax on the right of estate taxation.
transmitting property at the time of
death and on the privilege that a person Intangible personal properties with a
is given in controlling to a certain extent situs in the Phil. (Sec. 104, 1997
the disposition of his property to take NIRC)
effect upon death.
1. Franchise which must be exercised
Estate Tax Formula in the Philippines;
2. Shares, obligations or bonds issued
Gross Estate (Sec. 85) by any corporation or sociedad
Less: (1) Deductions (Sec. 86) anonima organized or constituted in
(2)Net share of the SS in the CPP the Philippines in accordance with
Net Taxable Estate its laws;
Multiply by: Tax rate (Sec. 84) 3. Shares, obligations or bonds issued
by any foreign corporation eighty-
Estate Tax due
five per centum (85%) of the
Less: Tax Credit [if any] (Sec. 86[E] or
business of which is located in the
110[B]
Philippines;
Estate Tax Due, if any 4. Shares, obligations or bonds issued
by any foreign corporation, if such
shares, obligations or bonds have
GROSS ESTATE acquired a business situs in the
Philippines;
A decedent’s gross estate includes 5. Shares or rights in any partnership,
(Sec. 85) business or industry established in
the Philippines.
RESIDENT & NON-
RESIDENT
NON-RESIDENT
CITIZEN, Intangible personal property, with a
ALIEN DECEDENT
RESIDENT ALIEN situs in the Philippines, of a decedent
DECEDENT who is a non-resident alien shall not
form part of the gross estate if
1. Real property 1. Real property (reciprocity clause) (Sec. 104)
wherever situated in the
situated Philippines.
1. the decedent at the time of his
2. Personal 2. Personal property death was a citizen and resident of a
property a) Tangible foreign country which at the time of
wherever property his death
situated situated in the a. did not impose a transfer tax or
a) Tangible, Philippines death tax of any character
and b) Intangible 1. in respect of intangible personal
b) Intangible personal property of citizens of the
property with Philippines not residing in that
a situs in the
foreign country; or
Philippines
unless 2. the laws of the foreign country of
exempted on which the decedent was a citizen
the basis of and resident at the time of his death
reciprocity. a. allow a similar exemption from
transfer taxes or death taxes of
The law that governs the imposition of every character
estate tax b. in respect of intangible personal
property owned by citizens of
the Philippines not residing in

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1
that foreign country 2. TRANSFER IN CONTEMPLATION OF

(Reciprocity). DEATH
1. A transfer motivated by the thought
Valuation of the gross estate of impending death although death
may not be imminent; or
The properties comprising the gross
estate shall be valued based on their fair 2. A transfer by which the decedent
market value as of the time of death. retained for his life or for any period
which does not in fact end before his
PROPERTY VALUATION death:
a. the possession or enjoyment of,
1) Real Property - fair market value or the right to the income from
a) as determined by the the property, or
Commissioner or b. the right, either alone or in
b) as shown in the conjunction with any person, to
schedule of values
fixed by the
designate the person who shall
provincial and city possess or enjoy the property or
assessors the income therefrom.
WHICHEVER IS HIGHER
Exception: bona fide sale for an
2) Shares of Stock adequate and full consideration in
Unlisted money or money’s worth.
Common Shares -book value
Preferred -par value 3. REVOCABLE TRANSFER
Shares -arithmetic mean
A transfer whereby the terms of
between the highest and
Listed lowest quotation at a enjoyment of the property may be
date nearest the date of altered, amended, revoked or
death, if none is terminated by the decedent alone or in
available on the date of conjunction with any other person, or
death itself. where any such power is relinquished in
contemplation of the decedent’s death.
3)Right to - shall be taken into It is enough that the decedent had the
usufruct, use or account the probable power to alter, amend or revoke though
habitation, as life of the beneficiary in he did not exercise such power.
well as that of accordance with the
annuity latest basic standard
mortality table, to be Exception: bona fide sale for an
approved by the adequate and full consideration in
Secretary of Finance, money or money’s worth.
upon recommendation of
the Insurance 4. TRANSFER UNDER GENERAL POWER
Commissioner. OF APPOINTMENT
A power of appointment is the right
4) Personal - whether tangible or to designate the person or persons who
property intangible, appraised at
will succeed to the property of the prior
FMV. “Sentimental
value” is practically decedent.
disregarded. The general power of appointment
may be exercised by the decedent:
1. by will; or
Inclusions in the Gross Estate (Sec. 85) 2. by deed executed in contemplation
of his death; or
1. DECEDENT’S INTEREST 3. by deed under which he has retained
To the extent of the interest in for his life or for any period not
property of the decedent at the time of ascertainable without reference to
his death. his death or for any period which
does not in fact end before his
death:

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1
a. the possession or enjoyment of,

or the right to the income from In the absence of such contract, or if
the property; or the contract is void:
b. the right, either alone or in On marriages contracted before August
conjunction with any person, to 3, 1988, the system of conjugal
designate the persons who shall partnership of gains shall govern;
possess or enjoy the property or On marriages contracted on or after
the income therefrom. August 3, 1988 (effectivity of the
Family Code of the Philippines), the
Exception: bona fide sale for an system of absolute community of
adequate and full consideration in property shall govern.
money or money’s worth.
Exempt Transmissions (Sec. 87)
5. PROCEEDS OF LIFE INSURANCE 1. The merger of usufruct in the owner
Proceeds of life insurance taken by of the naked title;
the decedent on his own life shall be 2. Fideicommisary substitution;
included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross DEDUCTIONS ON GROSS ESTATE
estate is the excess of the fair market APPLICABLE TO
value of the property at the time of the RESIDENT ALIENS AND CITIZENS
decedent’s death over the consideration (REVENUE REGULATIONS 2-2003)
received. This is applicable in cases of
transfer in contemplation of death, The following are deductible from
revocable transfer and transfer under the gross estate of citizens and resident
general power of appointment made for aliens:
a consideration but is not a bona fide 1. Expenses, losses, indebtedness,
sale for an adequate and full taxes, etc. (ordinary deductions)
consideration in money or money’s 2. Transfer for public use
worth. 3. Vanishing deduction
4. Family home
7. PRIOR INTERESTS 5. Standard deduction equivalent to
All transfers, trusts, estates, one million pesos (P1,000,000)
interests, rights, powers and 6. Medical expenses
relinquishment of powers made, 7. Amounts received by heirs under RA
created, arising, existing, exercised or 4917 (Retirement Benefits)
relinquished before or after the 8. Net share of the surviving spouse in
effectivity of the NIRC. the conjugal or community property
Property relations between Husband
1. ORDINARY
and Wife
The property relations between the DEDUCTIONS
spouses shall be governed by contract
(marriage settlement) executed before A. Funeral Expenses
the marriage.

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The amount deductible is the lowest CLAIMS AGAINST THE ESTATE

among the following: The word "claims" is generally
1. actual funeral expenses construed to mean debts or demands of
2. 5% of the gross estate a pecuniary nature which could have
3. P200,000. been enforced against the deceased in
his lifetime and could have been
It includes the following: reduced to simple money judgments.
1. Mourning apparel of the surviving
spouse and unmarried minor children Claims against the estate or
of the deceased, bought and used in indebtedness in respect of property may
the occasion of the burial. arise out of:
2. Expenses of the wake preceding the 1. Contract;
burial including food and drinks. 2. Tort; or
3. Publication charges for death 3. Operation of Law.
notices.
4. Telecommunication expenses in
informing relatives of the deceased. Requisites:
5. Cost of burial plot. Tombstone 1. The liability represents a
monument or mausoleum but not personal obligation of the
their upkeep. In case deceased deceased existing at the time of
owns a family estate or several his death except unpaid
burial lots, only the value obligations incurred incident to
corresponding to the plot where he his death such as unpaid funeral
is buried is deductible. expenses (i.e., expenses
6. Interment fees and charges. incurred up to the time of
7. All other expenses incurred for the interment) and unpaid medical
performance of the ritual and expenses which are classified
ceremonies incident to the under a different category of
interment. deductions;
Expenses incurred after the 2. The liability was contracted in
interment, such as for prayers, masses, good faith and for adequate and
entertainment, or the like are not full consideration in money or
deductible. money's worth;
Any portion of the funeral and burial 3. The claim must be a debt or
expenses borne or defrayed by relatives claim which is valid in law and
and friends of the deceased are not enforceable in court;
deductible. 4. The indebtedness must not have
been condoned by the creditor
JUDICIAL EXPENSES OF THE TESTAMENTARY or the action to collect from the
OR INTESTATE PROCEEDINGS decedent must not have
Expenses allowed as deduction under prescribed.
this category are those:
1. incurred in the inventory-taking CLAIMS AGAINST INSOLVENT PERSONS
of assets comprising the gross
estate, Requisites:
2. administration, 1. The amount thereof has been
3. payment of debts of the estate, initially included as part of his gross
as well as the distribution of the estate (for otherwise they would
estate among the heirs. constitute double deductions if they
In short, these deductible items are were to be deducted)
expenses incurred during the settlement 2. The incapacity of the debtors to pay
of the estate but not beyond the last day their obligation is proven.
prescribed by law, or the extension
thereof, for the filing of the estate tax UNPAID MORTGAGE
return.  In case unpaid mortgage payable is
being claimed by the estate,

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verification must be made as to who 3. In favor of the government of the

was the beneficiary of the loan Phil., or any political subdivision
proceeds. thereof
 If the loan is found to be merely an 4. For exclusive public purposes.
accommodation loan where the loan
proceeds went to another person, Note: This should also include bequests,
the value of the unpaid loan must be devices, or transfers to social welfare,
included as a receivable of the cultural and charitable institutions.
estate.
 If there is a legal impediment to 3. VANISHING DEDUCTION
recognize the same as receivable of
the estate, said unpaid obligation/ DEFINITION: The deduction allowed from
mortgage payable shall not be the gross estate for properties that were
allowed as a deduction from the subject to donor’s or estate taxes. It is
gross estate. called vanishing deduction because the
 In all instances, the mortgaged deduction allowed diminishes over a
property, to the extent of the period of five years. The rate of
decedent's interest therein, should deduction depends on the period from
always form part of the gross the date of transfer to the death of the
taxable estate. decedent, as follows:
TAXES PERIOD DEDUCTION

Taxes which have accrued as of the  1 year or less 100%
death of the decedent which were  1 year – 2 years 80%
unpaid as of the time of death.  2 years – 3 years 60%
 3 years – 4 years 40%
The following are not deductible:
 4 years – 5 years 20%
1. income tax on income received
after death
2. property taxes not accrued Requisites:
before death 1. the present decedent died within 5
3. estate tax years from transfer of the property
from a prior decedent or donor.
LOSSES 2. The property must be located in the
Requisites: Phils.
1. It should arise from fire, storm, 3. The property formed part of the
shipwreck, or other casualty, taxable estate of the prior decedent,
robbery, theft or embezzlement; or of the taxable gift of the donor.
2. Not compensated by insurance 4. The estate tax or donor’s tax on the
or otherwise; gift must have been finally
3. Not claimed as deduction in an determined and paid.
income tax return of the taxable 5. The property must be identified as
estate; the one received from the prior
4. Occurring during the settlement decedent, or something acquired in
of the estate; and exchange therefor.
5. Occurring before the last day for 6. No vanishing deduction on the
the payment of the estate tax property was allowable to the estate
(last day to pay: six months after of the prior decedent.
the decedent’s death).
4. FAMILY HOME
2. TRANSFER FOR PUBLIC USE
Conditions:
Requisites: 1. The family home must be the actual
1. The disposition is in a last will and residential home of the decedent
testament and his family at the time of his
2. To take effect after death death, as certified by the Barangay

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Captain of the locality where the 8. NET SHARE OF THE

family home is situated; SURVIVING SPOUSE IN THE
2. The total value of the family home CONJUGAL PARTNERSHIP OR
must be included as part of the gross COMMUNITY PROPERTY
estate of the decedent; and
3. Allowable deduction must be in an
amount equivalent to After deducting the allowable
1. the current fair market value of deductions (only the ordinary
the family home as declared or deductions) appertaining to the conjugal
included in the gross estate, or or community properties included in the
2. the extent of the decedent's gross estate, the share of the surviving
interest (whether spouse must be removed to ensure that
conjugal/community or exclusive only the decedent's interest in the
property), whichever is lower, estate is taxed.
but not exceeding P1,000,000
5. STANDARD DEDUCTION DEDUCTIONS ON GROSS
ESTATE APPLICABLE TO
A deduction in the amount of One NON-RESIDENT ALIENS
Million Pesos (P1,000,000) shall be
allowed as an additional deduction The following are deductible from the gross
without need of substantiation. estate of non-resident aliens:
The full amount of P1,000,000 shall 1. Expenses, losses, indebtedness and
be allowed as deduction for the benefit taxes (ELIT) (ordinary deductions)
of the decedent.
Formula:
6. MEDICAL EXPENSES Tax = Phil. Gross
Credit Estate X World
 Any amount of medical expenses Limit World Gross ELIT
incurred within one year from death Estate
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be 2. Transfer for public use
allowed as a deduction under this
subsection. 3. Vanishing deduction on property in
 Neither can any unpaid amount the Philippines.
thereof in excess of the P500,000
threshold nor any unpaid amount for 4. Conjugal share of the surviving
medical expenses incurred prior to spouse
the one-year period from date of
death be allowed to be deducted ESTATE TAX CREDIT
from the gross estate as claim
against the estate. A tax credit is granted for estate
taxes paid to a foreign country on the
7. AMOUNT RECEIVED BY HEIRS estate of citizens and resident aliens
UNDER REPUBLIC ACT NO. subject to the following limitations
4917
1. One foreign country only
Any amount received by the heirs The tax credit is whichever is
from the decedent's employer as a lower between:
consequence of the death of the 4. Estate tax paid to the foreign
decedent-employee in accordance with country
Republic Act No. 4917 is allowed as a 5. Tax Credit Limit =
deduction provided that the amount of NTE, foreign country X Phil. estate
the separation benefit is included as NTE, world Tax
part of the gross estate of the decedent.
(NTE - Net Taxable Estate)

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ownership thereof in the name of

2. More than one foreign country the transferee.
The credit shall be that which is
the lower amount between Limit A Time for Filing of the estate tax return
and Limit B. The estate tax return shall be filed
within six (6) months after the death of
Limit A. Whichever is lower the decedent.
between:
 Estate tax paid to a foreign Extension: The BIR may, in meritorious
country cases, grant an extension of not
 Tax Credit Limit = exceeding thirty (30) days for the filing
NTE, foreign country X Phil. estate of the estate tax return.
NTE, world Tax
When The Gross Estate Exceeds
Limit B. Whichever is lower P2,000,000, The Estate Tax Return
between: Shall Be Accompanied By A Statement
 Total of estate taxes paid to all Which Is Certified By An Independent
foreign countries Certified Public Accountant Stating
 Tax Credit Limit = 1. the itemized assets of the decedent
NTE outside Phil. X Phil. estate with its corresponding gross value at
NTE, world Tax the time of his death, or in the case
of a non-resident, not citizen of the
Philippines, that part of his gross
SETTLEMENT OF THE estate situated in the Philippines;
2. the itemized deductions from the
ESTATE TAX gross estate;
3. the amount of tax due, whether paid
A. FILING or still due and outstanding.
Notice Of Death To Be Filed Place Where to File the Estate Tax

In all cases of transfers subject to Return
tax, or where, though exempt from tax,
the gross value of the estate exceeds 1. Resident Citizen
P20,000, the executor, administrator or - with the Accredited Agent Bank
any of the legal heirs, within two (AAB), Revenue District Officer,
months after the decedent’s death, or Collection Officer or duly authorized
within a like period after qualifying as Treasurer of the city or municipality
such executor or administrator, shall where the decedent was domiciled at
give a written notice thereof to the the time of his death.
Commissioner. (Sec. 89)
2. Non-resident (citizen or alien)
An Estate Tax Return Is Required To Be a. has registered executor or
Filed administrator
1. when the estate is subject to estate - with the Revenue District
tax; or Office where such executor or
2. when the estate is not subject to administrator is registered
estate tax but the gross estate b. executor or administrator is not
exceeds P 200,000; or registered
3. regardless of the amount of the - with the Revenue District
gross estate, where the gross estate Office having jurisdiction over
consists of registered or registrable the executor’ or administrator’s
property such as motor vehicle or residence
shares of stock or other similar c. no executor or administrator
property for which clearance from - with the Office of the
the BIR is required as a condition Commissioner (Sec. 9C, Rev. Reg.
precedent for the transfer of 2-2003)

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the decedent may, upon authorization

B. PAYMENT by the Commissioner, withdraw an
amount not exceeding twenty thousand
Payment of the estate tax due pesos (P20,000) without the said
The estate tax due shall paid at the certification.
time when the estate tax return is filed.
When the Commissioner finds that
the payment of the estate tax on the
due date would impose undue hardships
upon the estate or any heir:
a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if There is nothing in the Tax Code and
there is a judicial settlement of in the pertinent remedial law that
the estate; or implies the necessity of the probate
b. the payment of the estate tax court or estate settlement of court’s
may be extended for a period approval of the State’s claim for estate
not to exceed two (2) years if taxes before the same can be enforced
there is an extra-judicial and collected by the BIR. On the
settlement of the estate. contrary, under Section 94, it is the
NOTE: In case the available cash is not probate or settlement court which is
sufficient to pay its total estate tax bidden not to authorize the delivery of
liability, the estate may be allowed to the distributive share to any interested
pay tax by installment. (Sec. 9F, Rev. party without a certification from the
Reg. 2-2003) CIR showing the payment of the estate
tax. (Marcos II vs. Court of Appeals, GR
Liability for Payment No. 120880, June 5, 1997)
The estate tax shall be paid by the
executor or administrator before delivery COLLECTION OF TAX FROM THE HEIRS
to any beneficiary of his distributive share An estate or inheritance tax,
of the estate. whether assessed before or after the
Such beneficiary to the extent of his death of the deceased, can be collected
distributive share of the estate shall be from the heirs even after the
subsidiarily liable for the payment of distribution of the properties of the
such portion of the estate tax as his decedent. (Palanca vs. Commissioner of
distributive share bears to the value of Internal Revenue, GR No. 16661,
the total net estate. (Sec. 9G, Rev. Reg. January 31, 1962)
2-2003)
No judge shall authorize the The Government has two ways of
distribution of the estate unless a collecting taxes due from the estate.
certification from the Commissioner that a. By going after all the heirs and
tax has been paid is shown. (Sec. 94) collecting from each one of
No shares or other forms of securities them the amount of the tax
shall be transferred in the books of any proportionate to the inheritance
corporation, partnership, business or received, or
industry organized in the Philippines, b. Pursuant to the lien created by
unless a similar certification by the Section 219 of the Tax Code
Commissioner is shown. (Sec. 97) upon all property and rights to
When a bank has knowledge of the property belonging to the
death of a person who maintained a taxpayer for unpaid income tax,
joint account, it shall not allow any is by subjecting said property of
withdrawal by the surviving depositor the estate which is in the hands
without the above certification. (Sec. of an heir or transferee to the
97) payment of the tax due the
Provided: that the administrator of estate. (Commissioner of
the estate or any one (1) of the heirs of Internal Revenue vs. Pineda, GR

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1
No. L –22734, September 15, moment the donor knows of the

1967) acceptance by the donee; it is
completed by the deliver, either
actually or constructively, of the
donated property to the donee. Thus,
the law in force at the time of the
perfection/completion of the donation
shall govern the imposition of the
donor’s tax.
A gift that is incomplete because of

reserved powers, becomes complete
(2) DONOR’S TAXES when either:
1. the donor renounces the power; or
DEFINITION: A tax on the privilege of 2. his right to exercise the reserved
transmitting one’s property or property power ceases because of the
rights to another or others without happening of some event or
adequate and full valuable contingency or the fulfillment of
consideration. some condition, other than because
of the donor's death.
Coverage Of The Tax (SEC. 104)  Renunciation by the surviving
spouse of his/her share in the
RESIDENT & NON- conjugal partnership or absolute
RESIDENT CITIZEN, NON-RESIDENT community after the dissolution
RESIDENT ALIEN ALIEN DONOR of the marriage in favor of the
DONOR heirs of the deceased spouse or
any other person/s is subject to
1. Real property 1. Real property donor's tax.
wherever situated situated in the  Whereas general renunciation
Philippines. by an heir, including the
surviving spouse, of his/her
2. Personal property 2. Personal property share in the hereditary estate
wherever situated a. Tangible property left by the decedent is not
a. Tangible, and situated in the subject to donor's tax, unless
Intangible Philippines
specifically and categorically
b. Intangible personal
property with a done in favor of identified heir/s
situs in the to the exclusion or disadvantage
Philippines unless of the other co-heirs in the
exempted on the hereditary estate. (Sec. 11, Rev.
basis of Reg. 2-2003)
reciprocity.
STRANGER - a person who is not a
Requisites brother, sister, spouse, ancestor and
lineal descendant, or of a relative by
1. Capacity of the donor consanguinity in the collateral within the
2. Donative Intent 4th civil degree.
3. Delivery, whether actual or  A legally adopted child is entitled to
constructive, of the subject gift all the rights and obligations
4. Acceptance by the donee provided by law to legitimate
children, and therefore, donation to
Law that governs the imposition of him shall not be considered as
Donor’s Tax donation made to stranger.
 Donation made between business
The donor’s tax shall not apply organizations and those made
unless and until there is a completed between an individual and a business
gift. The transfer is perfected from the

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organization shall be considered as b. Gifts made to or for the use of

donation made to a stranger. the National Government or any
entity created by any of its
Valuation of gifts of property agencies which is not conducted
The fair market value of the for profit, or to any political
property given at the time of the gift subdivision of the said
shall be the value of the gift. government.
c. Gifts in favor of educational,
charitable, religious, cultural or
social welfare corporation,
Intangible personal properties with a institutions, foundations, trust
situs in the Phil. (same as in estate tax or philanthropic organization,
subject to the reciprocity rule) (Sec. research institution or
104) organization, accredited non-
government organization (NGO).
Formula: (On a cumulative basis over a Provided, that no more than 30%
period of one calendar year) of said gifts shall be used by
such donee for administration
1. On the 1st donation of a year purposes.
2. Gifts made by a non-resident not
Gross gifts xxx a citizen of the Phil.
Less: Deductions from gross xxx a. same as (b)
gifts b. same as (c) except accredited
Net gifts xxx non-government organization
Multiply by: Tax Rate xxx (NGO)
Donor’s tax on the net gifts xxx
A non-profit educational and/or
2. On donation of a subsequent charitable corporation, institution,
date during the year accredited non-government
organization, trust or philantrophic
Gross gifts made on this date XX organization, research institution or
Less: Deductions from gross gifts XX organization is
Net gifts XX
Add: All prior net gifts within the XX 1. one incorporated as a non-stock
year entity
Aggregate net gifts XX 2. paying no dividends
Multiply by: Tax Rate XX 3. governed by trustees who receive no
compensation, and
Donor’s tax on aggregate net gifts XX
4. devoting all its income whether
Less: Donor’s tax on all prior net XX
students’ fees or gifts, donations,
gifts
subsidies or other forms of
Donor’s tax on the net gifts on this XX
philantrophy to the accomplishment
date
and promotion of the purposes
enumerated in its Articles of
Exemption of certain gifts Incorporation.
1. Gifts made by a resident Tax credit for donor’s taxes paid to a

a. Dowries or gifts made on foreign country
account of marriage and before
its celebration or within one 1. Donor was a Filipino citizen or
year thereafter by parents to resident alien
each of their legitimate, 2. At time of foreign donation
illegitimate or adopted children 3. Donor’s taxes of any character and
to the extent of the first P10, description
000. 4. Are imposed and paid by the
authority of a foreign country.

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1
3. Any previous net gifts made during

Limitations on tax credit the same calendar year;
4. The name of the donee;
1. The amount of the credit in respect 5. Relationship of the donor to the
to the tax paid to any country shall donee; and
not exceed the same proportion of 6. Such further information as may be
the tax against which such credit is required by rules and regulations
taken, which the decedent’s net made pursuant to law.
gifts situated within such country
taxable under the NIRC bears to his NOTE: The filing of a notice of donation
entire net gift; and is not required, unlike in estate tax
2. The total amount of the credit shall where notice of death is required.
not exceed the same proportion of
the tax against which such credit is Place for Filing of Return and payment
taken, which the decedent’s net gift of the Donor’s Tax
situated outside the Philippines
taxable under the NIRC bears to his 1. Resident
entire net gift.  With an authorized agent bank, the
Revenue District Officer, Revenue
Formula of Tax Credit Limit Collection Officer or duly
authorized Treasurer of the city or
1. For donor’s taxes paid to one municipality where the donor was
foreign country domiciled at the time of the
transfer, or if there be no legal
NG situated Tax residence in the Philippines, with
in a foreign country X PDT = Credit the Office of the Commissioner.
Entire net gift Limit 2. Non-resident
 Filed with the Philippine Embassy
(NG - Net Gifts; PDT - Phil. Donor's Tax) or Consulate in the country where
he is domiciled at the time of the
2. For donor’s taxes paid to two or transfer, or directly with the
more foreign country Office of the Commissioner.
NG outside the Phil. X PDT = Tax Tax rate

Entire net gifts Credit
Limit If the donee is a stranger, the rate of
tax shall be 30% of the net gifts.
The allowable tax credit is the If the donee is not a stranger,
lower amount between the tax credit the rate shall be from 2% to 15% of the
limit under (a) and (b). net gifts.
 See Annex W - Donor’s Tax

SETTLEMENT OF THE DONOR’S TAX
Time for Filing of Return and payment C. TAX REMEDIES

of the Donor’s Tax UNDER THE NIRC
The donor’s tax return is filed and
the donor’s tax due is paid within thirty
(30) days after the date the gift is made. I. TAX REMEDIES OF THE
The return shall be under oath in GOVERNMENT
duplicate setting forth:
1. Each gift made during the calendar
Importance
year which is to be included in
computing net gifts;
1. They enhance and support the
2. The deductions claimed and
government’s tax collection.
allowable;

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2. They are safeguards of taxpayer’s 1. Compromise (Sec. 204)

rights against arbitrary action. 2. Distraint (Actual and Constructive)
(Secs. 205-208)
Tax collection cannot be restrained by 3. Levy (Sec. 207B)
court injunction (Sec. 218, 1997 NIRC) 4. Tax Lien (Sec. 219)
5. Civil Action (Sec. 221)
Justification: Lifeblood Theory 6. Criminal Action (Secs. 221, and 222)
7. Forfeiture of Property (Sec.
Exception: Injunction may be issued by 224-225)
the CTA in aid of its appellate 8. Suspension of business
jurisdiction under RA 1125 (as amended operations in violation of VAT
by RA 9282). (Sec. 115)
9. Enforcement of Administrative
Conditions for the Issuance of an Fine
Injunction by the Court of Tax Appeals
The CTA may enjoin collection of The remedies of distraint and levy as
taxes: well as collection by civil and criminal
a. If in its opinion the same may actions may, in the discretion of the
jeopardize the interest of the Commissioner, be pursued singly or
government and/or the taxpayer. independently of each other, or all of
b. In this instance, the court may them simultaneously.
require the taxpayer either to deposit
the amount claimed or file a surety bond
for not more than double the amount (1) COMPROMISE
with the court.
DEFINITION: A contract whereby the
* Before enforcement of remedies, parties, by reciprocal concessions, avoid
assessment is necessary to trigger the litigation or put an end to one already
process. If no return is filed, the commenced (Art. 2028, New Civil Code).
Commissioner is empowered to obtain
information, and to summon/examine, Requisites
and take testimony of persons to 1. The taxpayer must have a tax
determine the amount of tax due. (Sec. liability.
5, 1997 NIRC) 2. There must be an offer (by the
taxpayer of an amount to be paid by
TAX REMEDIES UNDER THE 1997 TAX CODE: the taxpayer)
3. There must be an acceptance (by
1. Summary – remedies at the the Commissioner or taxpayer as the
administrative level or regulation that case may be) of the offer in the
are executed without ceremony or settlement of the original claim.
delay; short or concise
2. Substantive – remedies provided for Officers authorized to compromise
by law or regulation; an essential part or
constituent or relating to what is 1. The Commissioner of Internal
essential Revenue (CIR) with respect to
3. Procedural – remedies involving law of criminal and civil cases arising from
pleading, evidence, jurisdiction, etc. violations of the Tax Code [Secs.
4. Administrative – remedies available at 7(C) and 204, 1997 NIRC]. This
the administration (BIR) level power of the CIR is discretionary and
5. Judicial – remedies that are once exercised by him cannot be
enforced through judicial action, reviewed or interfered with by the
which may be civil or criminal Courts. (Koppel, Philippines vs.
Commissioner, GR No. L-1977,
tax remedies of the government to September 21, 1950)
effect collection of taxes 2. By the Regional Evaluation Board
composed of:

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a. the Regional Director as Commissioner may compromise the

Chairman, payment of any internal revenue tax
b. Assistant Regional Director, when
the heads of the Legal,
Assessment and Collection 1. A reasonable doubt as to the
Divisions, and validity of the claim against the
c. the Revenue District Officer taxpayer exists; or
having jurisdiction over the a. The delinquent account or
taxpayer, as members; disputed assessment is one
 on assessments issued by the resulting from a jeopardy
regional offices involving basic assessment.
taxes of P500,000 or less, and b. The assessment seems to be
minor criminal violations. arbitrary in nature, appearing
to be based on presumptions,
Cases which may be compromised and there is reason to believe
that its is lacking in legal
1. Delinquent accounts and/or factual basis; or
2. Cases under administrative protests c. The taxpayer failed to file an
3. Civil tax cases being disputed before administrative protest on
the courts account of the alleged failure
4. Collection cases filed in courts to receive notice of assessment
5. Criminal violations, other than those or preliminary assessment and
already filed in court or those there is reason to believe that
involving criminal tax fraud; and, its is lacking in legal and/or
6. Cases covered by pre-assessment factual basis; or
notices but taxpayer is not agreeable d. The taxpayer failed to file a
to the findings of the audit office as request for
confirmed by the review office. reinvestigation/reconsideration
(Sec.2, Rev. Reg. 7-2001) within 30 days from receipt of
final assessment notice and
Exceptions there is reason to believe that
its is lacking in legal and/or
1. Withholding tax cases; factual basis; or
2. Criminal tax fraud cases; e. The taxpayer failed to elevate
3. Criminal violations already filed in to the CTA an adverse decision
court; of the Commissioner, or his
4. Delinquent accounts with duly authorized representative, in
approved schedule of installment some cases, within 30 days from
payments; receipt thereof and there is
5. Cases where final reports of reason to believe that its is
reinvestigation or reconsideration lacking in legal and/or factual
have been issued resulting to basis; or
reduction in the original assessment f. The assessment were issued on
and the taxpayer is agreeable to or after Jan. 1, 1998, where the
such decision. demand notice allegedly failed
6. Cases which become final and to comply with the formalities
executory after final judgment of a prescribed under Sec. 228 of
court, where compromise is the 1997 NIRC; or
requested on the ground of doubtful g. Assessments made based on the
validity of the assessment (RR. 30– “Best Evidence Obtainable
2002); Rule” and there is reason to
7. Estate tax cases where compromise believe that the same can be
is requested on the ground of disputed by sufficient and
financial incapacity of the taxpayer. competent evidence.
(RR. 30–2002) h. The assessment was issued
within the prescriptive period

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for assessment as extended by taxpayer has no sufficient liquid

the taxpayer's execution of asset to satisfy the tax liability; or
Waiver of the Statute of
Limitations the validity or
authenticity of which is being
questioned or at issue and there
is strong reason to believe and
evidence to prove that it is not c. The taxpayer is suffering from a
authentic. (RR. 30– 2002) networth deficit (total liabilities
i. The assessment is based on an exceed total assets) computed by
issue where a court of deducting total liabilities (net of
competent jurisdiction made an deferred credits and amounts
adverse decision against the payable to stockholders/owners
Bureau, but for which the reflected as liabilities, except
Supreme Court has not decided business-related transactions)
upon with finality. (RR. 08- from total assets (net of prepaid
2004). expenses, deferred charges, pre-
operating expenses, as well as
2. The financial position of the appraisal increases in fixed
taxpayer demonstrates a clear assets), taken from the latest
inability to pay the assessed tax audited financial statements,
[Sec. 204(A), 1997 NIRC). In such provided that in the case of an
case, the taxpayer should waive the individual taxpayer, he has no
confidentiality privilege on bank other leviable properties under
deposits under RA No. 1405 [Sec. the law other than his family
6(F)(2), NIRC]. home; (Sec. 3, RR. 30–2002).
Financial Incapacity. — The offer
to compromise based on financial c. The taxpayer is a compensation
incapacity may be accepted upon earner with no other source of
showing that: income and the family’s gross
a. The corporation ceased operation monthly compensation does not
or is already dissolved. Provided, exceed (P10,500/month if single;
that tax liabilities corresponding P21,000/month if married), and
to the Subscription Receivable or that it appears that the taxpayer
Assets distributed/distributable to possesses no other leviable/
the stockholders representing distrainable assets, other than his
return of capital at the time of family home; or
cessation of operation or
dissolution of business shall not be d. The taxpayer has been granted by
considered for compromise; or the SEC or by any competent
tribunal a moratorium or
b. The taxpayer, as reflected in its suspension of payments to
latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all pertinent
which are properly includible in information, including but not
the regular "accounts payable" are limited to industry audits,
by fiction of law considered as collection performance data,
part of capital and not liability, status reports on criminal
and provided further that the

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actions initiated against permitted to compromise with or

persons; and without the consent of the
2. The submission of taxpayer Prosecutor. (People vs. Magdaluyo,
returns. GR No. L-16235, April 20, 1961)
This is more so, when the court
has rendered a final judgment. As a
mere agent of the Government, the
Minimum Compromise Rates (MCR) of Commissioner is not authorized to
any tax liability accept anything less than what is
a. In case of financial incapacity: adjudicated in favor of the
MCR = 10% of the basic assessed tax Government. By virtue of such final
b. Other cases: judgment, the Government has
MCR = 40% of the basic assessed tax already acquired a vested right.
[Sec. 204(A), 1997 NIRC]
Nature of a Compromise in
Approval of the compromise by the Extrajudicial Settlement of the
Evaluation Board is required when Taxpayer’s Criminal Liability for his
a. the basic tax involved exceeds Violation
P1,000,000.00, or
b. the settlement offered is less than It is consensual in character, hence,
the MCR. may not be imposed on the taxpayer
without his consent. The BIR may only
NOTE: The MCR may be less than the suggest settlement of his tax liability
prescribed rates of 10% or 40%, as the through a compromise. The extra-
case may be, provided it is approved by judicial settlement and the amount of
the Evaluation Board (composed of the the suggested compromise penalty
BIR Commissioner and the four BIR should conform with the schedule of
Deputy Commissioners). compromise penalties provided under
the relevant BIR regulations or orders.
Compromise of Criminal Violations
General Rule: All criminal violations Remedy in case the taxpayer refuses
under the CTRP may be compromised. or fails to abide the tax compromise
Exceptions: 1. Enforce the compromise

1. Those already filed in court a. If it is a judicial compromise, it
2. Those involving fraud [Sec. 204(B), can be enforced by mere
1997 NIRC]. execution. A judicial compromise
is one where a decision based on
Extent of the Commissioner’s the compromise agreement is
Discretion to Compromise Criminal rendered by the court on request
Violations of the parties.
b. Any other compromise is
1. Before the complaint is filed with extrajudicial and like any other
the Prosecutor’s Office: The CIR contract can only be enforced by
has full discretion to compromise court action.
except those involving fraud. 2. Regard it as rescinded and insist
upon original demand (Art. 2041,
2. After the complaint is filed with Civil Code).
the Prosecutor’s Office but before
the information is filed with the Compromise Penalty
court: The CIR can still compromise
provided the prosecutor must give It is an amount of money that the
consent. taxpayer pays to compromise a tax
violation. This is paid in lieu of criminal
3. After information is filed with the prosecution. A taxpayer cannot be
court: The CIR is no longer compelled to pay a compromise penalty.

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If he does not want to pay, the CIR must 2. The administration and collection
institute a criminal action. costs involved do not justify the
collection of the amount due [Sec.
COMPROMISE VS. ABATEMENT 204(B), 1997 NIRC].
a. Abatement of penalties on
Compromise involves a reduction of assessment confirmed by the
the taxpayer’s liability, while lower court but appealed by the
abatement means that the entire tax taxpayer to a higher court
liability of the taxpayer is cancelled. b. Abatement of penalties on
ABATEMENT withholding tax assessment under
meritorious circumstances
The Commissioner may abate or cancel c. Abatement of penalties on
a tax liability when delayed installment payment
under meritorious circumstances
1. The tax or any portion thereof d. Abatement of penalties on
appears to be unjustly or assessment reduced after
excessively assessed; [Sec. 204(B), reinvestigation but taxpayer is
1997 NIRC]. still contesting reduced
a. When the filing of the assessment; and
return/payment is made at the e. Such other circumstances which
wrong venue; the Commissioner may deem
b. When the taxpayer’s mistake in analogous to the enumeration
payment of his tax is due to above. (Sec. 3, Rev. Reg. 13-2001)
erroneous written official advice
of a revenue officer; 3. The Commissioner may also, even
c. When the taxpayer fails to file the without a claim therefor, refund or
return and pay the tax on time credit any tax where on the face of
due to substantial losses from the return upon which payment was
prolonged labor dispute, force made such payment appears clearly
majeure, legitimate business to have been erroneously paid
reverses, provided, however, the (Sec. 229, 1997 NIRC)).
abatement shall only cover the
surcharge and the compromise
penalty and not the interest (2) DISTRAINT
imposed under Sec. 249 of the
Code; DEFINITION: It is the seizure by the
d. When the assessment is brought government of personal property,
about or the result of taxpayer’s tangible or intangible, to enforce the
non-compliance with the law due payment of taxes. The property may be
to a difficult interpretation of said offered in a public sale, if taxes are not
law. voluntarily paid. It is a summary remedy.
e. When the taxpayer fails to file the
return and pay the correct tax on Nature of the Warrant of Distraint or
time due to circumstances beyond Levy
his control, provided, however,
the abatement shall only cover The warrant is a summary procedure
the surcharge and the compromise “forcing” the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001)  Duties of the officer serving the
warrant of distraint:

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1. Make an account of the personal ACTUAL CONSTRUCTIVE

properties distrained; DISTRAINT DISTRAINT
2. Sign the list of personal
properties distrained to which
shall be added, a statement of
the sum demanded and note of
the time and place of sale; Both
Are summary remedies for the collection of
3. Leave either with the owner or
taxes;
person from whose possession NOTE: Refer only to personal property; and
such personal properties were cannot be availed of where the amount of
taken, or at the dwelling or the tax involved is not more than P100
place of business of such person
with someone of suitable age
and discretion (Sec. 208, CTRP) Requisites for the exercise of the
remedy of distraint
Two types of Distraint
1. The taxpayer must be delinquent
1. Actual: there is taking of (except in constructive distraint) in
possession of the personal the payment of tax;
property from the taxpayer by 2. There must be a subsequent demand
the government. Physical for its payment (assessment);
transfer of possession is not 3. The taxpayer must fail to pay the tax
always required. This is true in at the time required; and
the case of intangible property 4. The period within which to assess or
such as stocks and credits. collect the tax has not yet
2. Constructive: the owner is prescribed.
merely prohibited from disposing
of his property. Persons who shall seize and distraint
personal property (actual distraint)
Actual vs. Constructive Distraint
1. Amount of delinquent tax is more
ACTUAL CONSTRUCTIVE than P1,000,000 – Commissioner or
DISTRAINT DISTRAINT his duly authorized representatives.
2. Amount of delinquent tax is
Made only on the Made on the property P1,000,000 or less – Revenue District
property of a of any taxpayer, Officer. (Sec. 207(A), 1997 NIRC)
delinquent taxpayer whether delinquent
or not
AUTHORITY OF THE COMMISSIONER TO
There is taking of The taxpayer is INQUIRE INTO BANK DEPOSIT ACCOUNTS
possession merely prohibited
from disposing of his Distraint includes garnishment of
property money even in bank deposits because RA
1405 (Bank Secrecy Law) covers only
Effected by leaving a Effected by requiring divulging of information of deposits. No
list of distrained the taxpayer to sign inquiry is made on garnishment for it
property or by a receipt of the only earmarks a portion of the deposits.
service of a warrant property or by the Notwithstanding any contrary
of distraint or revenue officer
provision of RA 1405, the Commissioner
garnishment preparing and leaving
a list of such is authorized to inquire into the bank
property deposits of:
1. a decedent to determine his gross
An immediate step Not necessarily so estate
for collection of 2. a taxpayer who waives his right by
taxes reason of financial incapacity to pay his
tax liability (Sec.5, NIRC)

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Note: The warrant of distraint shall be

Procedures for the Actual Distraint or sufficient authority to the person owing
Garnishment the debts or having in his possession or
under his control any credits belonging
I to the taxpayer to pay to the
Commencement of distraint Commissioner the amount of such debts
proceedings or credits.
Either by the CIR or his duly authorized

representative; or by the Revenue
District Officer Taxpayer must sign
receipt
II
Service of Warrant of Distraint
(Sec. 208)
III
Posting of Notice
With respect to: (Sec. 209, NIRC)
1. Personal property –
(a) upon the owner of the goods, Notice specifying the time and place
chattels, or other personal of sale and the articles distrained. The
property; or posting shall be made in not less than
(b) upon the person from whose two (2) public places in the city or muni-
possession such properties are cipality where the distraint is made.
taken. One place for posting of such notice is at
2. Stocks and other securities the Office of the Mayor of such city or
(a) upon the taxpayer; and municipality.
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which
issued the said stock and IV
securities. Sale of Property Distrained
3. Bank accounts shall be garnished by
serving a warrant of distraint –
(a) upon the taxpayer; and
(b) upon the president, manager, The taxpayer’s property may be placed
treasurer, or other responsible under constructive distraint when he
officer of the bank.
Note: Upon receipt of the warrant of 1. is retiring from any business subject
distraint, the bank shall turn over to the to tax;
Commissioner so much of the bank 2. is intending to –
accounts as may be sufficient to satisfy a. leave the Philippines,
the claim of the government. b. remove his property therefrom,
4. Debts and credits – c. hide or conceal his property,
(a) persons owing or having in his 3. is performing any act tending to
possession the debts; obstruct the proceeding for
(b) or under his control such credits; collecting the tax due or which may
or be due from him (Sec. 223, 1997
(c) upon his agent. NIRC).

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Procedure for the Constructive When may Levy be Effected?

Distraint of Personal Property
Real property may be levied upon
Taxpayer’s obligation to preserve before, simultaneously, or after the
distraint of personal property belonging
to the delinquent [Sec. 207(B), 1997 NIRC];
and the remedy by distraint and levy
CIR shall require the taxpayer or any
may be repeated if necessary until the
person having possession or control of
full amount, including all expenses, is
such property to
collected (Sec. 217, 1997 NIRC).
(a) sign a receipt covering the property
distrained and
Procedure of Levy on Real Property
(b) obligate himself to
1. preserve the same intact and
unaltered and I
2. not to dispose of the same in any Prepare Certificate of Levy
manner whatsoever without the I
express authority of the Preparation of a duly authen-ticated
Commissioner of Internal certificate containing:
Revenue. (a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due
from him. This certificate shall
operate with the force of a legal
Remedy when taxpayer didn’t sign execution throughout the Philippines
receipt (Sec. 207B, 1997 NIRC).
If the taxpayer or person in possession of

the property refuses or fails to sign the
receipt referred to, the revenue officer II
effecting the constructive distraint shall Service of Notice
(a) proceed to prepare a list of such
property and
(b) in the presence of two (2) witnesses Service of written notice to:
leave a copy thereof in the premises (a) the delinquent taxpayer; or
where the property distrained is located, (b) if he is absent from the Philippines,
after which the said property shall be to his agent or manager of the business
deemed to have been placed under in respect to which the liability arose; or
constructive distraint. c. to the occupant of the property.
d. the proper Register of Deeds shall
(3) LEVY also be notified of the levy (Sec.
207B, 1997 NIRC).
DEFINITION: It refers to the act of seizure
of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid. III
Advertisement of the Time and
REQUISITES FOR THE EXERCISE OF THE REMEDY Place of Sale
OF LEVY
The advertisement shall contain:

Same as in the remedy of distraint.
1. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;

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3. short description the property to be delinquency to the date of sale,

sold. together with interest on purchase price
at 15% per annum from the date of sale
The advertisement shall be made to the date of redemption. (Sec. 214,
within 20 days after the levy, and the NIRC).
same shall be for a period of at least 30
days. It shall be effectuated by: Forfeiture to the Government
a. posting a notice at the main entrance
of the municipal building or city hall If there is no bidder in the public
and in a public and conspicuous sale or if the amount of the highest bid
place in the barrio or district in which is insufficient to pay the taxes, penalties
the real property lies; and and costs, the real property shall be
b. by publication once a week for 3 forfeited to the Government.
weeks in a newspaper of general
circulation in the municipality or city Further Distraint and Levy
where the property is located (Sec.
213, CTRP). The remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever
IV taxpayer who is able to conceal most of
Sale the valuable part of his property would
escape payment of his tax liability by
sacrificing an insignificant portion of his
holdings.
Distraint vs. Levy
(4) TAX LIEN
DISTRAINT LEVY
DEFINITION: It is a legal claim or charge
Refers to personal Refers to real on property, either real or personal,
property property established by law as a security in
default of the payment of taxes (51
Forfeiture by the Forfeiture is
government is not authorized AmJur 881). Generally, it attaches to
provided the property irrespective of ownership
or transfer thereof.
The taxpayer is not The right of
given the right of redemption is Extent and nature
redemption with granted in case of
respect to distrained real property levied The tax, together with interests,
personal property. upon and sold, or penalties, and costs that may accrue in
forfeited to the
addition thereto is a lien upon all
government.
property and rights to property
Both belonging to the taxpayer.
 Are summary remedies for the collection of
taxes; and The lien shall not be valid against
 Cannot be availed of where the amount of any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
Redemption of Property Sold Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of When does it Attach?

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Not only from the service of the Where to file

warrant of distraint but from the time
tax became due and payable. 1. Court of Tax Appeals – where the
principal amount of taxes and fees,
Lien vs. Distraint exclusive of charges and penalties
claimed is One million pesos and
LIEN DISTRAINT above.
2. Regional Trial Court, Municipal
Directed against Need not be Trial Court, Metropolitan Trial
the property directed against the Court – where the principal amount
subject to the tax property subject to of taxes and fees, exclusive of
tax charges and penalties claimed is less
than One million pesos. (Sec. 7, RA
Regardless of the Property seized
No. 9282)
owner of the must be owned by
property the taxpayer
THE APPROVAL OF THECIR IS ESSENTIAL IN
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate
(5) CIVIL ACTIONS such power to a Regional Director.
DEFINITION: For tax remedy purposes, Defenses which are precluded by final
these are actions instituted by the and executory assessments
government to collect internal revenue
taxes. It includes filing by the 1. Invalidity or illegality of the
government with the probate court assessment; and
claims against the deceased taxpayer. 2. Prescription of the government’s
right to assess.
When resorted to?
(6) CRIMINAL ACTIONS
1. When a tax is assessed but the
assessment becomes final and The judgment in the criminal case
unappealable because the taxpayer shall not only impose the penalty but
fails to file an administrative shall also order the payment of taxes
protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
rendered but the said decision Where to file
becomes final, executory, and
demandable for failure of the 1. Court of Tax Appeals – on criminal
taxpayer to appeal the decision to offenses arising from violations of
the CTA within 30 days from the NIRC or TCC and other laws
receipt of the decision. administered by the BIR and the
BOC, where the principal amount of
NOTE: Judicial action may be resorted taxes and fees, exclusive of charges
to even before assessment although and penalties claimed is One million
impractical, as stated in Sec. 203, 1997 pesos and above.
NIRC, “… and no proceeding in court 2. Regional Trial Court, Municipal
without assessment for the collection of Trial Court, Metropolitan Trial
such taxes shall be begun after the Court – on criminal offenses arising
expiration of such (3year) period.” from violations of the NIRC or TCC
It should be noted that no civil and other laws administered by the
or criminal action for the recovery of BIR and the BOC, where the principal
taxes shall be filed in court without the amount of taxes and fees, exclusive
approval of the Commissioner. of charges and penalties claimed is

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less than One million pesos or where It is not a requirement for the
there is no specified amount filing thereof that there be a precise
claimed. (Sec. 7, RA No. 9282) computation and assessment of the tax,
since what is involved in the criminal
IMPORTANT CONSIDERATIONS action is not the collection of tax but a
criminal prosecution for the violation
1. No criminal action shall be begun of the NIRC. Provided, however, that
without the approval of the there is a prima facie showing of a
Commissioner. (Sec. 220, 1997 NIRC) willful attempt to evade taxes. (See
2. It shall be brought in the name of Ungab vs. Cusi, GR Nos. L-41919-24, May
the Government and shall be 30, 1980 in relation to Commissioner vs.
conducted by the legal officers of Court of Appeals, GR No. 119322, June
the BIR. 4, 1996)
EFFECT OF ACQUITTAL OF THE (7) FORFEITURE

TAXPAYER IN A CRIMINAL ACTION
DEFINITION: divestiture of property
It does not necessarily result in the without compensation, in consequence
exoneration of said taxpayer from his of a default or offense.
civil liability to pay taxes.
Rationale: The duty to pay tax is ENFORCEMENT OF THE REMEDY OF
imposed by statute prior to and FORFEITURE
independent of any attempt on the part
of the taxpayer to evade payment. It is a. In case of personal property – The
not a mere consequence of the felonious forfeiture of chattels and removable
acts charged, nor is it a mere civil fixtures of any sort is enforced by
liability derived from a crime. (Republic seizure and sale or destruction of
vs. Patanao, GR No. L-14142, May 30, the specific forfeited property.
1961) b. In case of real property – The
forfeiture of real property is
EFFECT OF SUBSEQUENT SATISFACTION enforced by a judgment of
OF CIVIL LIABILITY condemnation and sale in a legal
action or proceeding, civil or
The subsequent satisfaction of civil criminal, as the case may require.
liability by payment or prescription does c. In case of distilled spirits, liquors,
not extinguish the taxpayer’s criminal cigars, cigarettes manufactured,
liability. products of tobacco and apparatus
used for their production – Upon
NO SUBSIDIARY IMPRISONMENT forfeiture, may be destroyed by
order of the Commissioner where the
In case of insolvency on the part of sale may be injurious to public
the taxpayer, subsidiary imprisonment health or prejudicial to law
cannot be imposed as regards the tax enforcement.
which he is sentenced to pay.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED d. Other articles subject to excise tax

DURING THE PENDENCY OF AN which have been manufactured or
ADMINISTRATIVE PROTEST IN THE BIR removed in violation of the Code,
dies for printing or making fake

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1
revenue stamps and labels – Upon

forfeiture may be sold or destroyed * This does not apply to all public
at the discretion of the officials whether incumbent or retired,
Commissioner. Forfeited property who acquired the information in the
shall not be destroyed until at least course of performance of their duties
20 days from seizure. during their incumbency.
EFFECT OF THE FORFEITURE OF

PROPERTY PRESCRIPTIVE PERIODS FOR
The effect is to transfer the title to
THE ASSESSMENT AND
the specific thing from the owner to the COLLECTION OF TAXES
government. All the proceeds in case of
a sale go to the coffers of the
government (U.S. vs. Surla, GR No. RATIONALE OF PRESCRIPTIVE PERIODS
6536, September 2, 1911). In seizure for
the enforcement of a tax lien, the Such periods are designated to
residue, after deducting the tax liability secure the taxpayers against
and expenses will go to the taxpayer unreasonable investigation after the
(Bank of the Phil. Island vs. Trinidad, lapse of the period prescribed. They are
GR No. 16014, October 4, 1941). also beneficial to the government
because tax officers will be obliged to
INFORMER’S REWARD (Sec 282) act promptly.
A. For violations of the NIRC, a reward
of 10% of the revenues, surcharges, RULES ON PRESCRIPTION
or fees recovered and/or fine or
penalty imposed and collected or P 1 1. When the tax law itself is silent
M per case, whichever is lower shall on prescription, the tax is
be given to: imprescriptible;
1. any person who voluntarily gives 2. When no return is required, tax
definite and sworn information is imprescriptible;
not yet in the possession of the Note: Remedy of taxpayer is to file a
BIR leading to the discovery of return.
fraud upon the Internal Revenue 3. Defense of prescription is
Laws and/or any violations thereof waivable;
2. an informer where the offender
has offered to compromise the WHAT CONSTITUTES ASSESSMENT?
violation of law comiited by him
and his offer has been accepted An assessment contains not only
and collected by the CIR . This a computation of tax liabilities but also
excludes an Internal Revenue a demand for payment within a
Officer/employee or other public prescribed period.
official/employee, or his relative
within the sixth degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods.

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1
discovery of the omission to file b. Sale of a real property for a price

the return (Sec.222[A]); less than its fair market value is
2. False or fraudulent return with not necessarily a false return
intention to evade the tax: ten (Commissioner vs. Ayala
(10) years from the date of the Securities)
discovery of the falsity or fraud c. Fraud is a question of fact and the
(Sec.222 [A]); circumstances constituting fraud
Note: Nothing in Section 222(A) must be alleged and proved in the
shall be construed to authorize the trial court (Commissioner vs.
examination and investigation or Ayala Securities)
inquiry into any tax return filed in d. Fraud is never imputed and the
accordance with the provisions of courts never sustain findings of
any tax amnesty law or decree. fraud upon circumstances that
only create suspicion
 Fraud must be alleged and (Commissioner vs. Javier)
proved as a fact. It must be the e. Mistakes of revenue officers on
product of a deliberate intent to three different occasions remove
evade taxes. It may be element of fraud (Aznar vs. CTA
established by the: and Collector)
a. Intentional and substantial
understatement of tax 3. Agreement in writing to the
liability by the taxpayer; extension of the period to assess
b. Intentional and substantial between the CIR and the
overstatement of deductions taxpayer before the expiration
of exemptions; and/or of the 3-year period. NB: The
c. Recurrence of the above extended period agreed upon
circumstances can further be extended by a
 Falsity constitutes a deviation subsequent written agreement
from the truth due to mistake, made before the expiration of
carelessness or ignorance. the extended period previously
agreed upon (Sec. 222[b]).
There is fraud in the following decided 4. Written waiver of renunciation
cases: of the original three (3) year
1. Fraud must be the product of a limitation, signed by the
deliberate intent to evade taxes taxpayer (Sambrano vs. Court of
(Jalandoni vs. Republic) Tax Appeals, GR No. L-8652,
2. Simple statement that return filed March 30, 1957).
was not fraudulent does not disprove
existence of fraud (Tayengco vs. Note: Notice of the assessment is
Collector) released, mailed or sent to the taxpayer
3. Substantial under-declarations of also within the 3 year period. It is not
income for six consecutive five years required that the notice be received by
demonstrate fraudulence of return the taxpayer within the prescribed
(Perez vs. CTA) period. But the sending of the notice
4. Presence of fictitious expenses, with must clearly be proven. (Basilan Estate,
no evidence presented, proves Inc. vs. Commissioner, GR No. L-22492,
existence of fraud (Tan Guan vs. September 5, 1967)
Commissioner)
AMENDMENT OF RETURN
However, the courts did not consider
the tax returns filed as false or If the amended return is
fraudulent with intent to evade payment substantially different from the original
of tax in the following cases: return, the prescriptive period shall be
a. Mere understatement in the tax counted from the filing of the amended
return will not necessarily imply return. But the said period shall run
fraud (Jalandoni vs. Republic) from the filing of the original return if

Cabrera, Jhundee
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1
the same is sufficiently complete to him in the return, unless he

enable the Commissioner to make a informs the CIR of any change in
proper assessment. (Commissioner vs. his address.
Phoenix Assurance Co., GR No. L-19727, d. When the warrant of distraint or
May 20, 1965) levy is duly served, and no
When Substantive: property is located; and
a. substantial under declaration e. When the taxpayer is out of the
(exceeding 30% of that Philippines (Sec. 223, 1997
declared) of taxable sales, NIRC).
receipts or income,
b. or a substantial overstatement A TAX RETURN IS CONSIDERED FILED
(exceeding 30% of deductions) FOR PURPOSES OF STARTING THE
(Sec. 248) RUNNING OF THE PERIOD OF
LIMITATIONS IF
PRESCRIPTIVE PERIOD FOR THE
COLLECTION OF TAXES a. The return is valid – it has complied
substantially with the requirements
General Periods: of the law; and
Five (5) years – from assessment
or within period for collection agreed b. The return is appropriate – it is a
upon in writing before expiration of the return for the particular tax required
5-year period (Sec. 222, 1997 NIRC). by law.
Ten (10) years – without
assessment in case of false or fraudulent Note: A defective tax return is the
return with intent to evade or failure to same as if no return was filed at all.
file return (Sec. 222, 1997 NIRC).
WHAT IS THE PRESCRIPTIVE PERIOD PRESCRIPTIVE PERIOD FOR THE

WHERE THE GOVERNMENT’S ACTION IS VIOLATION OF ANY PROVISION OF THE
ON A BOND WHICH THE TAXPAYER TAX CODE (SEC. 281, 1997 NIRC)
EXECUTES IN ORDER TO SECURE THE
PAYMENT OF HIS TAX OBLIGATION? 1. Should be filed within five (5) years
from the (a) day of the commission
Ten (10) years under Art. of the violation of the law, and if
1144(1) of the Civil Code and not three the same be not known, from the (b)
(3) years under the NIRC. In this case, discovery thereof and the
the Government proceeds by court institution of the judicial
action to forfeit a bond. The action is proceedings for its investigation and
for the enforcement of a contractual punishment.
obligation. (Republic vs. Araneta, GR
No. L-14142, May 30, 1961) 2. Illustrative case: (Lim vs. Court of
Appeals GR Nos. 48134-37, Ocober
GROUNDS FOR SUSPENSION OF THE 18 , 1990)
RUNNING OF THE STATUTE OF a. charge is failure or refusal to
LIMITATIONS pay deficiency income tax –
committed only after the finality
a. When the CIR is prohibited from of the assessment coupled with
making the assessment or the taxpayer’s willful refusal to
beginning the distraint or levy or pay the taxes within the allotted
a proceeding in court, and for period. (i.e. cannot be
sixty (60) days thereafter; committed upon filing the
b. When the taxpayer requests for return)
a reconsideration which is b. charge is filing of false or
granted by the CIR; fraudulent return with intent
c. When the taxpayer cannot be to evade the assessment – in
located in the address given by addition to the fact of discovery,

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1
there must be a judicial It can be used in court in

proceeding for the investigation case administrative remedies
and punishment of the tax have been exhausted. It is
offense before the 5 year also the formal act of the
prescriptive period begins to taxpayer questioning the
run. official actuation of the CIR.
This is equivalent to a
pleading.
II. TAX REMEDIES OF THE b. Entering into a compromise
(Sec. 204, 1997 NIRC).
TAXPAYER After Payment
Filing of claim for refund
or tax credit within 2 years from
General Remedies date of payment regardless of
any supervening cause (Sec. 229,
A. ADMINISTRATIVE 1997 NIRC).
Before Payment
a. Protest – filing a petition for B. JUDICIAL
reconsideration or Civil Action
reinvestigation within 30 a. Appeal to the Court of Tax
days from receipt of Appeals – within 30 days from
assessment Within 60 days receipt of decision on the protest
from filing of protest, all or from the lapse of 180 days due
relevant supporting to inaction of the Commissioner
documents should have been (Sec. 228, 1997 NIRC).
submitted, otherwise, the b. Action to contest forfeiture of
assessment shall become chattel, at any time before the
final – cannot be appealed sale or destruction thereof, to
(Sec. 228, 1997 NIRC). recover the same, and upon giving
proper bond, enjoin the sale; or
Note: Submission of documents after the sale and within 6
within the 60 day period is months, an action to recover the
optional to the taxpayer. net proceeds realized at the sale
(Sec. 231, 1997 NIRC); and
"That the relevant c. Action for damages against a
supporting documents revenue officer by reason of any
mentioned in the law refers act done in the performance of
to such documents which the official duty (Sec. 227, 1997
taxpayer feels would be NIRC).
necessary to support his Criminal Action
protest and not what the a. Filing of criminal complaint
Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction – when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations

Cabrera, Jhundee
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1
2. Non-retroactivity of rulings (Sec.246, b. Referral by the Commissioner of

NIRC) request for reinvestigation to
3. Failure to inform the taxpayer in the Solicitor General (Republic
writing of the legal and factual bases vs Lim Tian Teng Sons)
of assessment makes it void (Sec. c. Reiterating the demand for
228, NIRC) immediate payment of the
4. Preservation of books of accounts and deficiency tax due to taxpayer’s
once a year examination (Sec. 235, continued refusal to execute
NIRC) waiver (Commissioner vs. Ayala
Securities Corp.)
ASSESSMENT AND PROTEST d. Preliminary collection letter may
 Assessment serve as assessment notice
General rule: Taxes are self assessing (United International Pictures
and thus, do not require the issuance of vs. Commissioner)
an assessment notice in order to
establish the tax liability of a taxpayer. ACTS OF BIR COMMISSIONER
Exceptions: CONSIDERED AS DENIAL OF PROTEST
1. Tax period of a taxpayer is WHICH SERVE AS A BASIS FOR APPEAL
terminated (Sec. 6(D), NIRC) TO THE COURT OF TAX APPEALS
2. Deficiency tax liability arising
from a tax audit conducted by 1. filing by the BIR of a civil suit for
the BIR (Sec. 56(B), NIRC) collection of the deficiency tax
3. Tax lien (Sec. 219, NIRC) (Commissioner vs. Union Shipping
4. Dissolving Corporation (Sec. Corporation, GR No. 66160, May 21,
52(c), NIRC) 1990)
2. indication to the taxpayer by the
 Protest Commissioner “in clear and
1. Direct denial of protest unequivocal language” of his final
Admnistrative decision on a disputed denial. (Commissioner vs. Union
assessment - The decision of the Shipping Corporation, GR No. 66160,
Commissioner or his duly authorized May 21, 1990)
representative shall (a) state the facts, 3. BIR demand letter reiterating his
the applicable law, rules and regulation previous demand to pay, sent to the
or jurisprudence on which such decision taxpayer after his protest of the
is based otherwise, the decision shall be assessment. (Surigao Electric Co.,
void, in which case the same shall not be Inc. vs. CTA, GR No. L-25289, June
considered a decision a disputed 28, 1974; Commissioner vs. Ayala
assessment and (b) that the same is his Securities Corporation, GR No. L-
final decision (Sec. 3.1.5, Rev. Regs. No. 29485, March 31, 1976)
12-99) 4. The actual issuance of a warrant of
distraint and levy in certain cases
2. Indirect denial of protest cannot be considered a final decision
a. Commissioner did not rule on the on a disputed settlement.
taxpayer’s motion for (Commissioner vs. Union Shipping
reconsideration of the Corporation, GR No. 66160, May 21,
assessment – it was only when 1990)
respondent received the
summons on
the civil action for the

collection of deficiency income FILING OF CLAIM FOR
tax that the period to appeal TAX REFUND OR TAX CREDIT
commenced to run
(Commissioner vs. Union GROUNDS FOR FILING A CLAIM FOR TAX
Shipping Corp.) REFUND OR TAX CREDIT

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1
1. Tax is collected erroneously or Garment vs. Collector, CTA Case No.

illegally. 416, November 17, 1958)
2. Penalty is collected without - Merely making a deposit is not
authority. equivalent to payment until the
3. Sum collected is excessive. amount is actually applied to the
specific purpose for which it was
TAX REFUND VS. TAX CREDIT deposited.
4. Tax has been withheld from source
TAX REFUND TAX CREDIT (through the withholding tax
system)
The taxpayer asks for The taxpayer asks - counted from the date it falls due
restitution of the that the money so at the end of the taxable year
money paid as tax paid be applied to his - A taxpayer who contributes to the
existing tax liability withholding tax system does not
really deposit an amount to the
Two-year period to Two-year period
file claim with the starts from the date government, but in truth, performs
CIR starts after the such credit was and extinguishes his tax obligation
payment of the tax allowed (in case for the year concerned. (Gibbs vs.
or penalty credit is wrongly Commissioner, GR No. L-17406,
made). November 29, 1965)
5. End of taxable year vs. date of the
REQUISITES OF TAX REFUND OR TAX filing of the final adjusted return
CREDIT - from the date when the final
adjusted return was filed.
1. Claim must be in writing; - the rationale in computing this
2. It must be filed with the period is the fact that it is only then
Commissioner within two (2) years the corporation can ascertain
after the payment of the tax or whether it made profits or incurred
penalty. losses in its business operations.
Note: No suit or proceeding shall be (ACCRA Investments vs. Court of
begun after the expiration of the Appeals, GR No. 96322, December
said two (2) years regardless of any 20, 1991)
supervening cause that may arise 6. Date when quarterly income tax
after payment. was paid vs. date when final
3. Show proof of payment. adjusted return was filed
- from the date when final adjusted
COMMENCEMENT OF THE TWO (2) YEAR return was filed
PERIOD (JURISPRUDENCE) - The filing of the quarterly income
tax return (Sec. 68) and payment of
1. Tax sought to be refunded is quarterly income tax should only be
illegally or erroneously collected considered mere installments of the
- from the date the tax was paid. annual tax due. (Commissioner vs.
(Commissioner vs. Victorias Milling, TMX Sales, GR No. 83736, January
GR No. L-24108, January 31, 1968) 15, 1992)
2. Tax is paid only in installments or 7. Date when the final adjustment
only in part return was actually filed (ex. Apr.
- from the date the last or final 2) vs. Last day when the
installment or payment because for adjustment return could still be
tax purposes, there is no payment filed (ex. Apr. 15)
until the whole or entire tax liability - from the date the final adjustment
is fully paid. (Collector vs. Prieto, return was actually filed.
GR No. L-11976, August 29, 1961) (Commissioner vs. Court of Appeals,
3. Taxpayer merely made a deposit GR No 117254, January 21, 1999)
- counted from the conversion of 8. Tax was not erroneously or illegally
the deposit to payment (Union paid but the taxpayer became

Cabrera, Jhundee
Guillermo
1
entitled to refund because of (Commissioner vs. Victorias Milling,

supervening circumstances GR No. L-19667, Nov. 29, 1966)
- from the date the taxpayer 2. Under Sec. 79(C)(2) with respect to
becomes entitled to refund and not income taxes withheld on the wages
from the date of payment. of the employees.
(Commissioner vs. Don Pedro
Central Azucarera, GR No. L-28467, TAX CREDIT CERTIFICATE
Feb. 28, 1973)
PAYMENT UNDER PROTEST IS NOT 1. May be applied against any internal
NECESSARY UNDER NIRC revenue tax except withholding
taxes,
A suit or proceeding for tax refund 2. Original copy is surrendered to the
may be maintained “whether or not such revenue office,
tax, penalty or sum has been paid under 3. No tax refund will be given resulting
protest or duress” (Sec. 229, NIRC). from availment of incentives granted
by law where no actual payment was
Note: Similarly, payment under protest made (Sec. 204C, 1997 NIRC).
is not necessary in refund for local
taxes. (See Sec. 196, LGC). FORFEITURE OF CASH REFUND/TAX
CREDIT
However, payment under protest is
necessary in claim for refund for real 1. Forfeiture of refund in favor of the
property taxes (Sec. 252, LGC) and for government when a refund check or
customs duties (Sec. 2308, TCC). warrant remains unclaimed or
uncashed within five (5) years from
SUSPENSION OF THE TWO-YEAR date of mailing or delivery.
PRESCRIPTIVE PERIOD 2. Forfeiture of Tax Credit – a tax
credit certificate which remains
1. There is a pending litigation unutilized after five (5) years from
between the Government and the date of issue, shall be invalid, unless
taxpayer; and revalidated (Sec. 230, 1997 NIRC).
2. CIR in that litigated case agreed to
abide by the decision of the SC as to
the collection of taxes relative REGLEMENTARY PERIODS
thereto (Panay Electric Co. vs. IN INCOME TAX IMPOSED
Collector, GR No. L-10574, May 28,
1958). BY LAW UPON THE TAXPAYER
(PURSUANT TO REV. REG. NO. 12-99,
INTEREST ON TAX REFUNDS SEC. 228 OF THE 1997 NIRC, AND RA
NO. 1125 AS AMENDED BY RA NO.
General Rule: 9282)
Government cannot be required
to pay interest on taxes refunded to the BIR makes a tax assessment
taxpayer in the absence of a statutory 
provision clearly or expressly directing If taxpayer is not satisfied with the
or authorizing such payment. assessment file a protest within 30 days
(Commissioner vs. Sweeney, GR No. L- from receipt thereof
12178, August 29, 1959) 
Submit supporting documents within
60 days from date of the filing of the
Exceptions: protest
1. When the CIR acted with patent
arbitrariness. Arbitrariness 
presupposes inexcusable or obstinate If protest is denied, elevate the matter
disregard of legal provisions. to the Commissioner of Internal Revenue
(CIR) within 30 days from receipt of the

Cabrera, Jhundee
Guillermo
1
decision of the CIR’s duly authorized of the succeeding taxable year;

representative officer or
 4. When the excise tax due on
Appeal to the Division of the Court of excisable articles has not been
Tax Appeals (CTA) within 30 days from paid;
receipt of final decision of CIR or his 5. When an article locally
duly authorized representative (the purchased or imported by an
taxpayer has the option to appeal exempt person, such as, but not
straight to the CTA upon receipt of the limited to, vehicles, capital
decision of the CIR’s duly authorized equipment, machineries and
representative) spare parts, has been sold,
traded or transferred to non-
 exempt persons.
If the CIR or his duly authorized
representative fails to act on the Notes:
protest within 180 days from date of  As a general rule, payment
submission by taxpayer, the latter may under protest is not required
appeal within 30 days from lapse of the under the NIRC, except when
180-day period with the CTA Division partial payment of
 uncontroverted taxes is
The Party adversely affected by the CTA required under RR 12-99.
Division’s decision may file one motion The Commissioner may, even
for reconsideration/new trial within 15 without a written claim
days from receipt of decision. If the MR therefor, refund or credit
is denied file a petition for review with any tax, where on the face
the CTA en banc of the return upon which
 payment was made, such
Appeal to the Supreme Court within 15 payment appears clearly to
days from receipt of the CTA en banc have been erroneously paid.
decision under Rule 45 of the Rules of  In case of the CIR’s final
Court denial of the claim for
refund, the 30-day period to
Pre-Assessment Notice, When Not appeal with the CTA must be
Required (Sec. 228, NIRC) within the 2-year peremptory
period for instituting judicial
1. When the finding for any action.
deficiency tax is the result of
mathematical error in the  See Annex N – Assessment
computation of the tax as Process and Appeal
appearing on the face of the
return; or
2. When a discrepancy has been ADDITIONS TO THE TAX
determined between the tax (SECS. 247-252 NIRC)
withheld and the amount
actually remitted by the DEFINITION: increments to the basic tax
withholding agent; or incident due to the taxpayer’s non-
3. When a taxpayer who opted to compliance with certain legal
claim a refund or tax credit of requirements.
excess creditable withholding 1. CIVIL PENALTY / SURCHARGE
tax for a taxable period was 1. 25% surcharge
determined to have carried over a. Failure to file any return and
and automatically applied the pay the tax due thereon as
same amount claimed against required under the
the estimated tax liabilities for provisions of this Code or
the taxable quarter or quarters

Cabrera, Jhundee
Guillermo
1
rules and regulations on the  or a substantial

date prescribed; or overstatement (exceeding
b. Unless otherwise authorized 30% of actual deductions) of
by the Commissioner, filing a deductions (Sec. 248)
return with an internal
revenue officer other than 2. INTEREST
those with whom the return - 20% per annum or such higher rate
is required to be filed; or as may be prescribed by the rules
c. Failure to pay the deficiency and regulations
tax within the time
prescribed for its payment in a. Deficiency interest (Sec. 249B)
the notice of assessment; or b. Delinquency interest (Sec. 249C)
d. Failure to pay the full or c. Interest on Extended Payment
part of the amount of tax (Sec. 249D)
shown on any return
required to be filed under 3. OTHER CIVIL PENALTIES OR
the provisions of this Code ADMINISTRATIVE FINES
or rules and regulations, or
the full amount of tax due A. Failure to file certain
for which no return is information returns (Sec. 250)
required to be filed, on or B. Failure of a withholding agent to
before the date prescribed collect and remit tax (Sec. 251)
for its payment. (Sec. 248) C. Failure of a withholding agent of
2. 50% surcharge refund excess withholding tax
a. in case of willful neglect to (Sec. 252)
file the return within the
period prescribed by the
Code, or
 will not apply in case a
III. LOCAL TAXATION
taxpayer, without notice
from the Commissioner, POWERS AND LIMITATIONS
or his duly authorized
representative, NATURE AND SOURCE OF LOCAL
voluntarily files the said TAXING POWER (SEE. SEC 5, ART. X,
return (only 25% shall be 1987 CONSTITUTION AND SEC. 129,
imposed) LGC)
 50% surcharge shall be
The Local Government Unit has the
imposed in case the
power:
taxpayer files the return
a. to create its own sources of
only after prior notice in
revenue and
writing from the
b. to levy taxes, fees and charges.
Commissioner or his duly
authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
Congress cannot enact laws

b. in case a false or fraudulent
depriving LGU from exercising such
return is willfully made
power to tax but it may set guidelines
Prima Facie evidence
and limitations for the exercise.
 substantial underdeclaration
Such taxes, fees, and charges
(exceeding 30% of that
shall accrue exclusively to the local
declared) of taxable sales,
government units.
receipts or income,

Cabrera, Jhundee
Guillermo
1
Shall be exercised by the Sanggunian

Nature of the Taxing Power of the LGU concerned through an
a. Not inherent; appropriate ordinance.
b. Exercised only if delegated to
them by law or Constitution; Power to prescribe Penalties for Tax
c. Not absolute; subject to Violations and Limitations thereon
limitations provided for by law. (Sec. 516, lgc)
1. The Sanggunian is authorized to
Under the present constitutional prescribe fines or other penalties
rule, “where there is neither a grant nor for violations of tax ordinances.
a prohibition by statute, the tax power a. in no case shall fines be less
must be deemed to exist although than P1,000 nor more than
Congress may provide statutory P5,000
limitations and guidelines. The basic b. nor shall the imprisonment be
rationale for the current rule is to less than one (1) month nor
safeguard the viability and self- more than six (6) month.
sufficiency of local government units by 2. Such fine or other penalty shall be
directly granting them general and broad imposed at the discretion of the
tax powers.” (Manila Electric Co. vs. court.
Province of Laguna, G.R. No. 131359) 3. The Sangguniang Barangay may
prescribe a fine of not less than
Aspects of Local Taxing Power P100 nor more than P1,000.
a. local taxation
b. real property taxation Power to Adjust Local Tax Rate (Sec.
191, lgc)
Fundamental Principles governing Adjustment of the tax rates as
Local Taxation (Sec. 130, lgc) prescribed herein should not be oftener
a. Shall be uniform in each local than once every five (5) years, and in no
sub-unit case shall such adjustment exceed ten
b. Shall be equitable and based as percent (10%) of the rates fixed under
much as possible on the the LGC.
taxpayer’s ability to pay
c. Levied for public purposes Power to Grant Local Tax Exemptions
d. Shall not be unjust, excessive, (Sec. 192, lgc)
oppressive, or confiscatory Local government units may,
e. Shall not be contrary to law, through ordinances duly approved,
public policy, national grant tax exemptions, incentives or
economic policy, or in restraint reliefs under such terms and conditions,
of trade as they may deem necessary.
f. Collection of local taxes and
other impositions shall not be Tax Exemptions Existing Before the
let to any person Effectivity of the LGC has been
g. The revenues collected under Abolished (Sec. 193, lgc)
the Code shall inure solely to Unless otherwise provided in this
the benefit of, and subject to Code, tax exemptions or incentives
disposition by, the LGU levying granted to, or presently enjoyed by all
the tax or other imposition persons, whether natural or juridical,
unless otherwise specifically including government-owned or
provided therein controlled corporations are hereby
h. Each LGU shall, as far as withdrawn upon the effectively of the
practicable, evolve a LGC
progressive system of taxation. except the following:
8. local water districts,
Local Taxing Authority (Sec. 132, lgc) 9. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
profit hospitals and

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10. educational institutions. LEVYING OF LOCAL TAXES (LOCAL TAX

ORDINANCE)
The power to grant tax exemptions, Requisites:
tax incentives and tax reliefs shall not 1. The procedure applicable to local
apply to regulatory fees which are government ordinances in general
levied under the police power of the should be observed (Sec. 187, LGC)
LGU. 2. Procedural details (Secs. 54, 55, and
Tax exemptions shall be conferred 59, LGC):
through the issuance of a non- a. necessity of a quorum
transferable tax exemption certificate. b. submission for approval by the
local chief executive
Guidelines for the Granting of Tax c. he matter of veto and overriding
Exemptions, Tax Incentives and Tax the same
Reliefs (Art. 282[b], Rules and d. the publication and affectivity
Regulations Implementing the Lgc) 3. Public hearings are required before
any local tax ordinance is enacted
1. On the grant of tax exemptions or (Sec.187, LGC)
tax reliefs: 4. Within 10 days after their approval,
a. the same may be granted in publication in full for 3 consecutive
cases of natural calamities, civil days in a newspaper of general
disturbance, general failure of circulation. In absence of such
crops, or adverse economic newspaper in the province, city or
conditions such as substantial municipality, then the ordinances
decrease in prices of agricultural may be posted in at least 2
or agri-based products. conspicuous and publicly accessible
b. The grant shall be through an places (Sec. 189, LGC)
ordinance.
c. Any exemption or relief granted Residual Taxing Powers of the Local
to a type or kind of business shall government units (Sec. 186, lgc)
apply to all business similarly To levy taxes, fees or charges on any
situated. base or subject NOT:
D. The same shall take effect only 1. Specifically enumerated in LGC
during the next calendar year for 2. Taxed under the provisions of
a period not exceeding 12 the NIRC, as amended, and
months as may be provided in 3. Other applicable laws
the ordinance.
E. In the case of shared revenues, Conditions:
the exemption or relief shall only 1. That the taxes, fees, or charges shall
extend to the LGU granting such not be unjust, excessive, oppressive,
exemption or relief. confiscatory or contrary to declared
2. On the grant of tax incentives: national policy
a. The same shall be granted only
to new investments in the 2. The ordinance levying such taxes,
locality and the ordinance shall fees or charges shall not be enacted
prescribe the terms and without any prior public hearing
conditions therefore. conducted for the purpose.
b. The grant shall be for a definite
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance LIMITATIONS OF THE RESIDUAL POWER
passed prior to the 1 st day of 1. Constitutional limitations on
January of any year. taxing power
d. Any grant to a type or kind of 2. Common limitations prescribed
business shall apply to all in Sec. 133 of the LGC
businesses similarly situated. 3. Fundamental principles
governing the exercise of the

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taxing power of the LGUs into or out of, or passing

prescribed under Sec. 130 of through, the territorial
the LGC jurisdictions of local government
4. The ordinance levying such units in the guise of charges for
residual taxes shall not be wharfage, tolls for bridges or
enacted without any prior otherwise.
public hearing conducted for 6. Taxes, fees or charges on
the purpose and agricultural and aquatic products
5. The principle of preemption. when sold by marginal farmers
or fishermen;
Principle of Preemption or 7. Taxes on business enterprises
Exclusionary doctrine certified by the Board of
Where the National Government Investments as pioneer or
elects to tax a particular area, it non-pioneer for a period of 6
impliedly withholds from the local and 4 years, respectively, from
government the delegated power to tax the date of registration;
the same field. This doctrine principally 8. Excise taxes on articles
rests on the intention of the Congress. enumerated under the NIRC, as
amended, and taxes, fees or
Excluded impositions (pursuant to the charges on petroleum products;
doctrine of preemption): 9. Percentage or value-added tax
a. Taxes which are levied under the (VAT) on sales, barters or
NIRC, unless otherwise provided exchanges or similar transactions
by LGC of 1991; on goods or services except as
b. Taxes, fees, etc. which are otherwise provided herein;
imposed under the Tariffs and 10. Taxes on the gross receipts of
Customs Code; transportation contractors and
c. Taxes, fees, etc., the imposition persons engaged in the
of which contravenes existing transportation of passengers or
governmental policies or which freight by hire and common
violates the fundamental carriers by air, land or water,
principles of taxation; except as provided in the Code;
d. Taxes, fees and other charges 11. Taxes on premiums paid by way
imposed under special law. of Reinsurance or retrocession;
12. Taxes, fees or charges for the
COMMON LIMITATIONS ON LOCAL registration of motor vehicles
TAXING POWER (SEC. 133, LGC) and for the issuance of all kinds
Local government units cannot levy: of licenses or permits for the
1. Income tax, except on banks and driving thereof, except tricycle;
other financial institutions; 13. Taxes, fees or other charges on
2. Documentary stamp tax; Philippine products actually
3. Estate tax, inheritance, gifts, exported, except as otherwise
legacies and other acquisitions provided in the Code;
mortis causa except as 14. Taxes, fees or charges on
otherwise provided Countryside and barangay
4. Customs duties, registration fees business enterprises and
of vessels and wharfage on cooperatives duly registered
wharves, tonnage dues and all under R.A. 6810 and R.A. 6938,
other kinds of customs fees, (Cooperatives Code of the
charges and dues except Philippines) ; and
wharfage on wharves 15. Taxes, fees or charges of any
constructed and maintained by kind on the National
the local government unit Government, its agencies and
concerned; instrumentalities, and local
5. Taxes, fees, charges and other government units.
impositions upon goods carried

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CLASSIFICATION OF COMMON spirits, and wines or

LIMITATIONS manufacturers of any article of
1. Taxes which are levied under the commerce of whatever kind or
NIRC unless otherwise provided by b. On wholesalers, distributors, or
the LGC dealers in any article of
 Numbers 1, 2, 3, 8, 9, 10 commerce of whatever kind or
2. Taxes, fees, etc. which are imposed c. On exporters, and on
under the Tariffs and Customs Code manufacturers, millers,
 Number 4 producers, wholesalers,
3. Taxes, fees and charges where the distributors, dealers or retailers
imposition of which contravenes of essential commodities
existing governmental policies or d. On retailers
which are violative of the e. On contractors and other
fundamental principles of taxation independent
 Numbers 5, 6, 7, 11, 13, 14, 15 f. On banks and other financial
4. Taxes, fees, and charges imposed g. On peddlers engaged in the sale
under special laws. of any merchandise or article of
 Number 12 commerce
h. On any business, not otherwise
TAXES AND OTHER IMPOSITIONS THAT specified in the preceding
THE LOCAL GOVERNMENT MAY LEVY paragraphs, which the
sanggunian concerned may deem
PROVINCES proper to tax.
(SECS. 134-141, LGC)
1. Tax on Transfer of Real Property 2. Municipal non-revenue fees and
2. Tax on Business of Printing and charges
Publication The municipality may impose
3. Franchise Tax and collect such reasonable fees and
4. Tax on Sand, Gravel and other charges on business and occupation
Quarry Resources extracted from except professional taxes reserved for
Public Land provinces. (Sec. 147. LGC)
5. Professional Tax
6. Amusement Tax Rates of Tax within the Metropolitan
7. Annual Fixed Tax for every Manila Area (sec. 144, lgc)
Delivery Truck or Van of
Manufacturers or Producers, - Not to exceed by 50% the
Wholesalers of, Dealers, or maximum rates prescribed in the
Retailers in, certain products preceding Section.
 See Annex J for the rates and

details.
(B) MUNICIPALITIES Payment of Business Taxes

(SEC. 143, LGC) a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the establishment or place where
businesses of the following: business subject to the tax is
a. On manufacturers, assemblers, conducted and one line of
repackers, processors, brewers, business does not become
distillers, rectifiers, and exempt by being conducted with
compounders of liquors, distilled

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1
some other business for which c. Service Fees or Charges – For

such tax has been paid. services rendered in connection
b. The tax on a business must be with the regulation or the use of
paid by the person conducting barangay-owned properties or
the same. service facilities such as palay,
c. In cases where a person copra or tobacco dryers
conducts or operates 2 or more d. Barangay Clearance – No city or
of the businesses mentioned in municipality may issue any
Section 143 of LGC license or permit fee for any
- which are subject to the business or activity unless a
same rate of tax, the tax shall be clearance is first obtained from
computed on the combined total the barangay where such
gross sales or receipts of the said 2 business or activity is located or
or more related businesses. conducted.
- which are subject to e. Other Fees and Charges – The
different rates of tax, the gross barangay may levy reasonable
sales or receipts of each business fees and charges:
shall be separately reported for the 1. On Commercial breeding of
purpose of computing the tax due fighting cocks, cockfights
from each business. and cockpits;
2. On places of Recreation
 See Annex K for the rates and which charge admission fees;
details. and
3. On Billboards, signboards,
CITIES neon signs and outdoor
(SEC. 151, LGC) advertisements.
 The city may levy the taxes, fees, SITUS OF LOCAL TAXATION
and charges which the province or
municipality may impose. A. Situs According to the Cases
 The tax rates that the city may levy With respect to excise tax, the
may exceed the maximum rates tax is upon the performance of an act,
allowed for the province or enjoyment of a privilege or the engaging
municipality by not more than 50% in an occupation. The power to levy such
except the rates of professional and tax is not dependent on the domicile of
amusement taxes. the taxpayer, but on the place in which
the act is performed or the occupation is
(D) BARANGAYS engaged in; not upon the location of the
(SEC. 152, LGC) office, but the place where the sale is
perfected. (Allied Thread Co., Inc. v.
Barangays may levy the following taxes, City Mayor of Manila, L-40296)
fees, and charges which shall accrue
exclusively to them: With respect to sale, it is the
place of the consummation of the sale,
associated with the delivery of the
a. Taxes – On stores or retailers things which are the subject matter of
with fixed business the contract that determines the situs of
establishments with the gross the contract for purposes of taxation,
sales or receipts for the and not merely the place of the
preceding calendar year of perfection of the contract. (Shell Co.,
P50,000 or less (for barangays in Inc. v. Municipality of Sipocot,
the cities) and P30,000 or less Camarines Sur 105 Phil 1263)
(for barangays in municipalities)
b. Rate = not exceeding 1% of such B. Situs According to Sec. 150, LGC
gross sales or receipts.

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Branch or sales office – a fixed place in and constructed by the local

the locality which conducts the government unit concerned
operation of the business as an extension Exceptions:
of the principal office a. Officers and enlisted men of the
AFP and PNP;
Principal office- the head or the main b. Post office personnel delivering
office of the business; the city or the mail; and
municipality specifically mentioned in c. Physically handicapped and
the Articles of Incorporation or official disabled citizens who are
registration papers as being the official sixty-five (65) years or older.
address of said principal office shall be (Sec. 152, LGC)
considered the situs thereof.
When public safety and welfare so
1. Place of sale (with branch or sales requires, the sanggunian concerned may
outlet therein): discontinue the collection of the tolls,
 Municipality or city where the and thereafter the said facility shall be
branch or outlet is located. free and open for public use.
2. Place of sale (no branch or sales
outlet): COMMUNITY TAX
 Municipality or city of principal Cities or municipalities may levy a
office (not in the place of sale) community tax.
3. If manufacturer, assembler,
contractor, producer, or exporter Individuals Liable (Sec. 157)
(MACPE) with factory, project office, a. every inhabitant of the
plant or plantation (FPPP) Philippines;
4. 30% of recorded sales in the principal b. eighteen (18) years of age or
office: city or municipality where over;
the principal office is located c. under any of the following
5. 70% of recorded sales in the instances:
principal office: city or municipality d. who has been regularly
where the FPPP is located employed on a wage or salary
 pro rata if FPPP are located in basis for at least thirty (30)
different municipalities or cities consecutive working days
in proportion to their respective during any calendar year; or
volumes of production. e. who is engaged in business or
6. If plantation is located in some other occupation; or
place than where the factory is f. who owns real property with
located, the foregoing 70% shall be an aggregate assessed value
subdivided as follows: of P1,000 or more; or
 60% to the city or municipality g. who is required by law to file
where the factory is located an income tax return
 40% to the city or municipality
where the plantation is located. Tax Rate = P5.00 and an annual
additional tax of P1.00 for every
COMMON REVENUE-RAISING POWERS P1,000 of income regardless of
OF LGUs (SEC. 153 TO 155) whether from business, exercise of
1. Service fees and charges for services profession or from property which in
rendered no case shall exceed P5,000.
2. Public Utility Charges for the In case of husband and wife,
operation of public utilities owned, the additional tax herein imposed
operated and maintained by LGUs shall be based upon the total
within their jurisdiction. property owned by them and the
3. Toll fees or charges for the use of total gross receipts or earnings
any public road, pier or wharf, derived by them.
waterway, bridge, ferry or
telecommunication system funded B. Juridical Persons (Sec. 158)

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Every corporation no matter how community tax upon payment of P1.00

created or organized, whether (Sec. 162, LGC).
domestic or resident foreign,
engaged in or doing business in the Presentation of Community Tax
Philippines shall pay an annual Certificate on Certain Occasions – (Sec.
community tax. 163)
A. Individual
Tax Rate = P500 and an annual 1. When an individual subject to
additional tax which in no case shall the community tax
exceed P10,000 in accordance with the acknowledges any document
following schedule: before a notary public;
1. For every P5,000 worth of real 2. takes the oath of office upon
property owned by it during the election or appointment to
preceding year based on the any position in the
valuation used for the payment government service;
of the real property tax - P2.00; 3. receives any license,
and certificate or permit from any
2. For every P5,000 of gross public authority; pays any tax
receipts or earnings derived by or fee;
it from its business in the 4. receives any money from any
Philippines during the preceding public fund;
year - P2.00. 5. transacts other official
business; or
The dividends received by a 6. receives any salary or wage
corporation shall, for the purpose of the from any person or
additional tax, be considered as part of corporation.
the gross receipts or earnings of said The presentation of the community tax
corporation. certificate shall not be required in
connection with the registration of a
THE FOLLOWING ARE EXEMPT FROM voter.
THE COMMUNITY TAX (SEC. 159)
1. Diplomatic and consular B. Corporation
representatives; and 1. receives any license,
2. Transient visitors when their stay in certificate or permit from any
the Philippines does not exceed public authority;
three (3) months. 2. pays any tax or fee;
3. receives money from public
PLACE OF PAYMENT: place of residence funds; or
of the individual, or in the place where 4. transacts other official
the principal office of the juridical business.
entity is located. The city of municipal treasurer
deputizes the barangay treasurer to
TIME OF PAYMENT: accrues on the 1st collect the community tax in their
day of January of each year which shall respective jurisdictions. (Sec. 164, LCG)
be paid not later than the last day of
February of each year. The proceeds of the community tax
actually and directly collected by the
PENALTIES FOR DELINQUENCY: an city or municipal treasurer shall accrue
interest of 24% per annum from the due entirely to the general fund of the city or
date until it is paid shall be added to the municipality concerned.
amount due.
Proceeds of the community tax
collected through the barangay
A community tax certificate may
treasurers shall be apportioned as
also be issued to any person or
follows:
corporation not subject to the

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 50% accrues to the general fund date it is due until it is paid, but in no
of the city or municipality case shall the total interest on the
concerned; and unpaid amount or portion thereof
 50% accrues to the barangay exceed thirty-six (36) months.
where the tax is collected.
Collection of Local Revenues by the
Collection Of Local Taxes Treasurer – (Sec. 170 LGC)
All local taxes, fees and charges
Tax Period and Manner of Payment – shall be collected by the provincial, city,
(Sec. 165, LGC) municipal or barangay treasurer, or their
Unless otherwise provided, the duly authorized deputies.
tax period shall be the calendar The provincial, city or municipal
year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or
Accrual of Tax – (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first LOCAL TAX REMEDIES
day of the quarter next following
UNDER THE LGC
the effectivity of the ordinance
imposing such new levies or rates.
Time of Payment – (Sec. 167, LGC) 1. TAX REMEDIES OF THE

Unless otherwise provided shall LOCAL GOVERNMENT UNITS (LGUs)
be paid within the first twenty (20)
days of January or of each Civil Remedies Of The Local
subsequent quarter as the case may Government Units (LGU) To Effect
be. Collection Of Taxes
May, for a justifiable reason or (1) Local Government’s Lien – Local
cause, be extended without taxes, fees, charges and other
surcharges or penalties, but only for revenues constitute a lien, superior
a period not exceeding six (6) to all liens, charges or
months. encumbrances in favor of any
person, enforceable by any
Surcharges and Penalties on Unpaid appropriate administrative or
Taxes, Fees or Charges – (Sec. 168, judicial action.
LGC)
Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues – Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.

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a. The treasurer is legally

JURISDICTION OF COURTS OVER LOCAL prevented from the assessment
TAXATION CASES or collection of the tax;
b. The taxpayer requests for a
a. With the amendment brought by reinvestigation and executes a
RA No. 9282, the Court of Tax waiver in writing before the
Appeals now has appellate expiration of the period within
jurisdiction over local taxation which to assess or collect; and
cases decided by the Regional c. The taxpayer is out of the
Trial Court in the exercise of its country or otherwise cannot be
appellate or original jurisdiction. located (Sec. 194, LGC).
b. Regular judicial courts are not
prohibited from enjoining the 2. TAX REMEDIES OF
collection of local taxes, subject THE TAXPAYER
to Rule 58 (Preliminary
Injunction) of the Rules of Court. Remedies Of The Taxpayer In Local
Taxation
Note: Unlike the NIRC, the Local Tax
Code does not contain any specific ADMINISTRATIVE
provision prohibiting courts from Before assessment
enjoining the collection of local taxes. a. Appeal – any question on
Such statutory lapse or intent may have constitutionality or legality of tax
allowed preliminary injunction where ordinance within 30 days from
local taxes are involved. But it cannot effectivity thereof to Secretary of
negate the procedural rules and Justice (Sec. 187 LGC)
requirements under Rule 58 of the Rules b. Declaratory relief whenever
of Courts. (Valley Trading Co. vs. CFI of applicable.
Isabela, GR No. 49529, March 31, 1989)
After assessment
a. Protest – within 60 days from receipt
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT of assessment (Sec. 195 LGC).
AND COLLECTION Payment under protest is not
OF LOCAL TAXES necessary.
PRESCRIPTIVE PERIODS OF ASSESSMENT
1. Local taxes, fees, or charges – five b. Payment & subsequent refund or
(5) years from the date they became tax credit – within 2 years from
due. (Sec. 194, LGC). payment of tax to local treasurer
2. When there is fraud or intent to (Sec. 196 LGC). It is to be noted
evade the payment of taxes, fees that, unlike in internal revenue
or charges – ten (10) years from taxes, the supervening cause applies
discovery of the fraud or intent to in local taxation because the period
evade the payment (Sec. 194, LGC). for the filing of claims for refund or
credit of local taxes is counted not
PRESCRIPTIVE PERIOD OF COLLECTION necessarily from the date of
Local taxes, fees, or charges payment but from the date the
may be collected within five (5) years taxpayer is entitled to a refund or
from the date of assessment by credit.
administrative or judicial action. No
such action shall be instituted after the c. Right of redemption – 1 year from
expiration of such period (Sec. 194, the date of sale or from the date of
LGC). forfeiture (Sec. 179, LGC).
GROUNDS FOR THE SUSPENSION OF
THE RUNNING OF THE PRESCRIPTIVE B. JUDICIAL
PERIODS 1. Court action

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 within 30 days after receipt of CHARACTERISTICS OF REAL PROPERTY

decision or lapse of 60 days of TAX
Secretary of Justice’s inaction 1. Direct tax on the Ownership of
(Sec. 187 LGC) real property
 within 30 days from receipt 2. Ad valorem tax. The value is
when protest of assessment is based on the tax base.
denied (Sec. 195 LGC) 3. Proportionate – the tax is
 if no action is taken by the calculated on the basis of a
treasurer in refund cases and the certain percentage of the value
two year period is about to lapse assessed.
(Sec. 195 LGC) 4. Indivisible single obligation
 if remedies available does not 5. Local tax
provide plain, speedy and
adequate remedy. TAXING AUTHORITIES (SEC. 233, LGC)
2. Action for declaratory relief
3. Injunction – if irreparable damage Rate of Basic Real
LGU
would be caused to the taxpayer and Property Tax
no adequate remedy is available.
1. Province not exceeding 1% of
assessed value
IV. REAL PROPERTY 2. City not exceeding 2%

TAXATION 3. Municipality not exceeding 2%.
within Metro
Manila
Definitions:
REAL PROPERTY TAXATION – A direct
tax on ownership of lands and FUNDAMENTAL PRINCIPLES GOVERNING
buildings or other improvements REAL PROPERTY TAXATION (SEC. 198,
thereon payable regardless of LGC)
whether the property is used or 1. Real property shall be appraised at
not, although the value may vary its current and Fair market value;
in accordance with such factor. 2. Real property shall be classified for
Under the LGC, it covers assessment purposes on the basis of
the administration, appraisal, actual Use.
assessment, levy and collection 3. Real property shall be assessed on
of Real Property Tax, i.e. tax on the basis of Uniform classification
land and building and other within each LGU
structures and improvements on 4. The appraisal, assessment, levy and
it, including machineries. collection of RP Tax shall not be let
to any Private person
REAL PROPERTY – subject to the 5. The appraisal and assessment of real
definition given by Art. 415 of property shall be Equitable.
the Civil Code.
EXTENT OF THE POWER TO LEVY
IMPROVEMENT – valuable addition made  Basic real property tax;
to a property or amelioration in  1% additional real estate tax to
its condition amounting to more finance the Special Education
than a mere replacement of Fund; (Sec. 236)
parts involving capital
 5% additional ad valorem tax on
expenditures and labor.
Idle lands; (Sec. 236, LGC) and
 Special levy or special
assessments (may be imposed
even by municipalities outside
NATURE AND CLASSES Metro Manila) on lands comprised

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1
within its territorial jurisdiction improving, utilizing or

specially benefited by public cultivating the same.
works, projects or improvements
funded by the local government CLASSIFICATION OF LANDS FOR PURPOSES
unit concerned. OF ASSESSMENT SEC. 218 (A)
Provided:
 Special levy shall not exceed a. Commercial
60% of the actual cost of b. Agricultural
such projects and c. Residential
improvements, including the d. Mineral
costs of acquiring land and e. Industrial
such other real property in f. Timberland
connection therewith g. Special
 not apply to lands exempt
from basic real property tax SPECIAL CLASSES OF REAL PROPERTY
and the remainder of the (SEC. 216, LGC)
land have been donated to
the local government unit 1. Hospitals
concerned for the 2. Cultural and Scientific purposes
construction of said 3. owned and used by Local water
projects. (Sec. 240, LGC). districts
4. GOCCs rendering essential public
FOR PURPOSES OF REAL PROPERTY services in the supply and
TAXATION IDLE LANDS SHALL INCLUDE: distribution of water and/or
(SEC. 237, LGC) generation or transmission of
1. Agricultural lands more than one electric power.
hectare in area one-half of which
remain uncultivated or unimproved by PROPERTIES EXEMPT FROM REAL
the owner of the property or person PROPERTY TAX (SEC. 234, LGC)
having legal interest therein. Exemption is limited only to the
Agricultural lands planted to following:
permanent or perennial crops with 1. Real property owned by the
at least 50 trees to a hectare shall government except when the
not be considered idle lands. beneficial use thereof has been
Lands actually used for grazing granted to a taxable person;
purposes shall likewise not be 2. Charitable institutions,
considered idle lands; and churches, personages or
2. Lands other than agricultural convents appurtenant thereto,
located in a city or municipality mosques, non-profit or religious
more than one thousand square meters cemeteries and all lands,
in area one-half of which remain buildings and improvements
unutilized or unimproved by the actually, directly and
owner of the property or person exclusively used for religious,
having legal interest therein. charitable or educational
purposes (Art. VI, Sec. 28,
IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC) 3. Machineries and equipment that
are actually, directly and
By reason of: exclusively used by local water
1. force majeure utilities and GOCC’s engaged in
1. civil disturbance the supply and distribution of
2. natural calamity water and/or electric power;
3. or any cause which physically or
legally prevents the owner of
the property or person having
legal interest therein from

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4. Real property owned by duly DECLARATION BY PROVINCIAL / CITY /

registered cooperatives as MUNICIPAL ASSESSOR (SEC. 204)
provided for in RA 6938; and
5. Machinery and equipment used WHEN: Only when the person under Sec.
for pollution control and 202 refuses or fails to make a
environmental protection. declaration within the prescribed time.
ACTUAL USE OF PROPERTY AS BASIS No oath by the assessor is required.

FOR ASSESSMENT (SEC. 217 LGC)
Notes: Proof of Exemption of Real
Real property shall be classified, Property from Taxation - (Sec. 206)
valued and assessed on the basis of
actual use regardless of where located, WHO: By any person or for whom real
whoever owns it, and whoever uses it. property is declared.
Unpaid realty taxes attach to the  Claim for exemption must be filed
property and is chargeable against the with the assessor together with
person who had actual or beneficial use sufficient documentary evidence to
and possession of it regardless of support claim
whether or not he is the owner. To
impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST
would not only be contrary to law but TIME – (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
date of initial assessment
PROCEDURE Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR PROPERTY IN THE ASSESSMENT
(SEC. 202-203) ROLLS (SECS. 205, 207)
 File a sworn declaration with the
assessor
 All declarations shall be kept and
- once every 3 years during
filed under a uniform
the period from January 1
classification system to be
to June 30.
established by the provincial, city
 For newly acquired property –
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
 For improvement on property
WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the  Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions

Cabrera, Jhundee
Guillermo
1
concerning the property, its 2. provided in no case shall the

ownership, amount, nature and total interest exceed thirty-six
value (Sec. 213, LGC) (36) months.
 Assessor prepares a schedule of
FMV for different classes of (d) For Advance and Prompt Payment
properties. 1. Advance payment – discount not
 Sanggunian enacts an ordinance exceeding 20% of annual tax (Sec.
 The schedule of FMV is 251, LCG)
published in a newspaper of 2. Prompt payment – discount not
exceeding 10% of annual tax due
general circulation in the (Art 342 IRR)
province, city or municipality
concerned or in the absence Collection of Tax (Sec. 247)
thereof, shall be posted in the It shall be the responsibility of the
provincial capitol, city or city or municipal treasurer concerned.
municipal hall and in two other The city or municipal treasurer may
conspicuous public places deputize the barangay treasurer to
therein (Sec. 212, LGC) collect all taxes on real property located
in the barangay; provided, the barangay
For machinery treasurer is properly bonded.
1. For Brand new machinery: FMV is the
acquisition cost Period to Collect (Sec. 270)
2. In all other cases: FMV 1. within five (5) years from the
= Remaining eco. life X Replacement
date they become due
Estimated Eco.Life Cost
2. within ten (10) years from
discovery of fraud, in case there
STEP 4: DETERMINE ASSESSED is fraud or intent to evade
VALUE (SEC. 218)
Suspension of Prescriptive Period (Sec.
Determine Assessed Value 270)
Procedure 1. local treasurer is legally
1. Take the schedule of FMV prevented to collect tax.
2. Assessed Value = FMV x 2. the owner or property requests
Assessment level for reinvestigation and writes a
3. Tax = Assessed value x Tax rate waiver before expiration of
period to collect.
STEP 5: PAYMENT AND COLLECTION 3. the owner of property is out of
OF TAX the country or cannot be
located.
(a) Accrual of Tax: January of every
year and such will constitute as REAL PROPERTY TAX
a superior lien. (Sec. 246) REMEDIES UNDER THE LGC
(b) Time and Manner of Payment: 1. TAX REMEDIES OF THE LOCAL
(Sec. 250) GOVERNMENT TO EFFECT
1. basic real property tax in 4 equal COLLECTION OF TAXES
installments (March 31, June 30,
September 30, December 30)
A. ADMINISTRATIVE
2. special levy – governed by
1. Real Property tax lien (Secs. 257,
ordinance
LGC) – superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255)
2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month
3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the
4. Purchase of property by local
delinquent amount is paid
treasurer for want of bidder (Sec.
263, LGC).

Cabrera, Jhundee
Guillermo
1
B. JUDICIAL b) in case of denial of refund or

Civil Action ( Sec. 266, 270 LGC) credit, appeal to LBAA as in
protest case.
PRESCRIPTIVE PERIODS FOR THE
COLLECTION OF REAL Redemption of real property (Sec. 261
PROPERTY TAXES LGC)
Remedy against the Assessment/Appeal

1. Basic real property tax and any
1st: within 60 days from notice of
other tax levied under the title on
assessment of provincial, city or
Real Property Taxation– five (5)
municipal assessor to LBAA (Sec. 226
years from the date they became
LGC)
due. (Sec. 270, LGC).
2nd: within 30 days from receipt of
2. When there is fraud or intent to decision of LBAA to CBAA (Sec. 230
evade the payment of taxes – ten LGC)
(10) years from discovery of the 3rd: within 30 days from receipt of
fraud or intent to evade the decision of CBAA to Court of Tax
payment (Sec. 270, LGC). Appeals en banc
4th: within 15 days from receipt of
GROUNDS FOR THE SUSPENSION OF decision of Court of Tax Appeals en
THE RUNNING OF THE PRESCRIPTIVE banc to the Supreme Court
PERIODS
APPEALS IN REAL PROPERTY
1. The treasurer is legally prevented
TAXATION
from the assessment or collection of
the tax;
2. The taxpayer requests for a PROVINCIAL, CITY OR MUNICIPAL
reinvestigation and executes a ASSESSOR
waiver in writing before the
expiration of the period within within 60 days
which to assess or collect; and Owner/Person with legal interest
3. The taxpayer is out of the country or must file:
otherwise cannot be located (Sec. 1) Written Petition under Oath
270, LGC). 2) With Supporting Documents
2. TAX REMEDIES OF THE

LOCAL BOARD OF ASSESSMENT APPEALS
TAXPAYER (LBAA should decide within 120 days
from receipt of petition)
A. ADMINISTRATIVE
within 30 days
Protest – payment under protest is
required within 30 days to provincial,
city, or municipal treasurer. No protest CENTRAL BOARD OF ASSESSMENT
shall be entertained unless the tax is APPEALS
first paid. (Sec. 252 LGC)
within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written
claim for refund or credit with COURT OF TAX APPEALS (EN BANC)
the provincial or city treasurer
within two years from the date within 15 days
the taxpayer is entitled to such
reduction or adjustment.
SUPREME COURT

Cabrera, Jhundee
Guillermo
1
B. JUDICIAL 3. Berthing fee

1. Court Action – appeal of CBAA’s 4. Harbor fee
decision to Court of Tax Appeals en 5. Tonnage due
banc.
2. Suit assailing validity of tax; Meaning and Scope of the Tariff and
recovery of refund of taxes paid Customs Laws
(Sec. 64 PD 464). Include not only the provisions of the
3. Suit to declare invalidity of tax due Tariff and Customs Code (TCC) and
to irregularity in assessment and regulations pursuant thereto, but all
collection (Sec. 64 PD 464) other laws and regulations that are
4. Suit assailing the validity of tax sale subject to the Bureau of Customs (BOC)
(Sec. 83 PD 464) (Sec. 267 LGC) or otherwise within its jurisdiction.
As to its scope, therefore, tariff and
Condonation of Real Property Taxes customs laws extend not only to the
1. By the Sanggunian provisions of the TCC but to all other
Real property taxes may be laws as well, the enforcement of which
condoned wholly or partially in a is entrusted to the BOC.
given local government unit when:
a. There is general failure of crops;
b. There is substantial decrease in THE BUREAU OF CUSTOMS
the price of agricultural or agri-
based products; or FUNCTIONS OF THE BUREAU OF
c. There is calamity. CUSTOMS
2. By the President of the Philippines
1. Assessment and collection of
 when public interest so requires.
revenues from imported articles and
all other impositions under the tariff
and customs laws;
V. TARIFF AND 2. Control smuggling and related
CUSTOMS CODE frauds;
3. Supervision and control over the
entrance and clearance of vessels
DEFINITIONS and aircraft engaged in foreign
TARIFF: Customs duties, toll or tribute commerce;
payable upon merchandise to the 4. Enforcement of TCC and related
Government. laws;
5. Supervision and control over the
CUSTOM DUTIES: Tax assessed upon handling of foreign mails arriving in
merchandise from or exported to, a the Philippines;
foreign country. (Garcia v. Executive 6. Supervise and control all import and
Sec., GR No. 101273, July3, 1992)) export cargoes for the protection of
government revenue;
Note: Customs and tariffs are 7. Exclusive original jurisdiction over
synonymous with one another. They seizure and forfeiture cases under
both refer to the taxes imposed on the tariff and customs laws.
imported or exported wares, articles, or
merchandise. JURISDICTION OF COLLECTOR OF
CUSTOMS OVER IMPORTATION OF
Other Types of Fees Charged by the ARTICLES
Bureau of Customs 1. Cause all articles for importation to
be entered in the customhouse,
1. Arrastre charge 2. Cause all such articles to be
2. Wharfage due – counterpart of appraised and classified,
license, charged not for the use of 3. Assess and collect the duties, taxes
any wharf but for a special fund and other charges thereon, and
known as the Port Works Fund.

Cabrera, Jhundee
Guillermo
1
4. Hold possession of all imported prepared edible fats; animal or

articles until the duties, taxes and vegetable waxes;
other charges are paid thereon. d. Prepared foodstuffs; beverages,
(Sec. 1206, TCC) spirits and vinegar; tobacco and
manufactured tobacco
TERRITORIAL JURISDICTION OF THE substitutes;
BOC e. Mineral products;
1. All seas within the jurisdiction of the f. Products of chemical or allied
Philippines industries;
2. All coasts, ports, airports, harbors, g. Plastics and articles thereof;
bays, rivers and inland waters rubber and articles thereof;
whether navigable or not from the h. Raw hides and skins; leather,
sea. (1st par, Sec. 603, TCC) etc.;
i. Wood and articles of wood, etc.;
CUSTOMS DUTIES j. Pulp of wood, etc.;
k. Textiles and textile articles;
l. Articles of stone; plaster,
WHEN TARIFF AND CUSTOMS APPLIED
cement, etc.;
Only after importation has begun but
m. Footwear, headgear, etc.;
before importation is terminated.
n. Natural or cultured pearls
precious/semi-precious stones;
Importation begins:
o. Base metals and articles of base
1) when the conveying vessel or
metals;
aircraft
p. Machinery and mechanical
2) enters the jurisdiction of the
appliances; electric equipment;
Phil.
sound recorders, etc;
3) with intention to unload therein
q. Vehicles, aircraft, vessels and
associated transport equipment;
Importation is deemed terminated:
r. Optical, photographic, medical,
surgical instruments, etc.;
(a) upon payment of the duties, taxes
s. Arms, ammunition, parts and
and other charges due upon the articles.
accessories;
t. Miscellaneous manufactured
(b) and legal permit for withdrawal
articles; and
shall have been granted.
u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1,
 In case the articles are free of
TCC).
duties, taxes and other charges, until
they have legally left the jurisdiction of
2. Prohibited from being imported
the customs (Sec. 1202, TCC)
(Prohibited importation)
a. Absolutely prohibited such as:
INTENTION TO UNLOAD
weapons of war; gambling
Even if not yet unloaded, and there is
devices; narcotics or prohibited
unmanifested cargo, forfeiture may take
drugs; immoral, obscene or
place because importation has already
insidious articles; and those
begun.
prohibited under special laws
(Sec.102, TCC).
ARTICLES UNDER TCC
b. Qualifiedly prohibited
May either be:
Where such conditions as to
1. Subject to duty –
warrant a lawful importation do
a. Live animals and animal
not exist, the legal effects of the
products;
importation of qualifiedly
b. Vegetable products;
prohibited articles are the same
c. Animal or vegetable fats; oils
as those of absolutely prohibited
and their cleavage products;
articles. (Auyong Hian vs. CTA,

Cabrera, Jhundee
Guillermo
1
GR No. L-28782, September 12, LIABILITY OF IMPORTER FOR CUSTOM DUTIES

1974)  A personal debt which can be
discharged only by payment in
3. Conditionally-free from tariff and full thereof;
customs duties (conditionally-free  A lien upon the imported articles
importation) while they are in custody or
 Those provided in Sec. 105, TCC; subject to the control of the
 Those granted to government government. (Sec. 1204, TCC).
agencies, GOCCs with
agreements with foreign Extent Of Importer’s Liability
countries; The liability of an importer is
 Those given to international limited to the value of the imported
institutions entitled to merchandise. In case of forfeiture of
exemption by agreement or the seized material, the maximum civil
special laws; and penalty is the forfeiture itself.
 Those that may be granted by (Mendoza vs. David, GR No. L-9452,
the President upon NEDA’s March 27, 1961)
recommendation.
Drawback
4. Free from TC duties (duty-free) A device resorted to for enabling a
Imported goods must be commodity affected by taxes to be
entered in a customhouse at their exported and sold in foreign markets
port of entry otherwise they shall be upon the same terms as if it had not
considered as contraband and the been taxed at all. (Uy Chaco Sons vs.
importer is liable for smuggling (See Collector of Customs, GR No. 7618,
Sec. 101, TCC). March 27, 1913)
All articles when imported from
any country into the Philippines shall Import Entry
be subject to duty upon each It is a declaration to the BOC
importation, even though previously showing particulars of the imported
exported from the Philippines, article that will enable the customs
except as otherwise specifically authorities to determine the correct
provided for in the TCC or other duties. An importer is required to file an
laws. import entry. It must be accomplished
from disembarking of last cargo from
Liability for Customs Duties vessel.
General Rule: All importations /
exportations of goods are subject to Transaction value under RA NO. 8181
customs duties (Sec. 105, TCC). It is the invoice value of the
goods plus freight, insurance, costs,
Exceptions: expenses and other necessary expenses.
(1) Exemptions under the TCC; This replaces the Home Consumption
(2) Exemptions granted to Value as basis of valuation of goods.
government agencies,
instrumentalities or GOCCs with CLASSIFICATION OF CUSTOM DUTIES
existing contracts, Regular Duties – those which are
commitments, agreements, or imposed and collected merely as a
obligations with foreign source of revenue.
countries; 1. Ad valorem duty: This is a duty
(3) Exemptions of international based on the value of the
organizations pursuant to imported article.
agreements or special laws; and 2. Specific duty: This is a duty
(4) Exemptions granted by the Pres. based on the dutiable weight of
of the Phil. upon goods (either the gross weight,
recommendation of NEDA (Sec. legal weight, or net weight).
105, TCC).

Cabrera, Jhundee
Guillermo
1
3. Alternating duties: This is a 3. Marking duty

duty which alternates ad 4. Discriminatory duty
valorem and specific.
4. Compound Duty: This is a duty NATURE OF SPECIAL CUSTOMS DUTIES
consisting of ad valorem and Special customs duties are
specific duties. additional import duties imposed on
specific kinds of imported articles under
B. Special duties – those which are certain conditions.
imposed and collected in addition to
the ordinary customs duties usually PURPOSE OF SPECIAL CUSTOMS DUTIES
to protect local industries against The special customs duties are
foreign competition. imposed for the protection of consumers
and manufacturers, as well as Phil.
1. Dumping duty products from undue competition posed
2. Countervailing duty by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

Difference between bounty, subsidy, or of articles exceeding 100% ad
the actual price subvention. valorem of the
and the normal subject articles
value of the article.
3. Imposing Authority
Special committee on Anti-Dumping (composed of the Secretary of Finance as Chairman;
Members: the Secretary of DTI, and either the Secretary of Agriculture if article in question is
agricultural product or the Secretary of labor if non-agricultural product
Secretary of Finance Commissioner of Customs President of the

Philippines

Cabrera, Jhundee
Guillermo
FLEXIBLE TARIFF CLAUSE THE TARIFF COMMISSION (TC)
The President may fix tariff rates,
import and export quotas, etc. under FUNCTIONS OF THE TARIFF
TCC (See Sec. 28, Art. VI, Constitution COMMISSION
and Sec. 401, TCC) 1. Investigative Powers (Sec. 505,
1. to increase, reduce or remove TCC)
existing protective rates of import a. the administration of and the
duty (including any necessary change fiscal and industrial effects of
in classification). the tariff and customs laws of
The existing rates may be this country now in force or
increased or decreased to any level, which may hereafter be
on one or several stages but in no enacted;
case shall the increased rate of b. the relations between the rates
import duty be higher than a of duty on raw materials and the
maximum of one hundred (100%) per finished or partly finished
cent ad valorem products;
2. to establish import quota or to ban c. the effects of ad valorem and
imports of any commodity, as may specific duties and of compound
be necessary; and specific and ad valorem duties;
3. to impose an additional duty on all d. all questions relative to the
imports not exceeding ten (10%) per arrangement of schedules and
cent ad valorem whenever classification of articles in the
necessary: several schedules of the tariff
law;
LIMITATIONS IMPOSED REGARDING THE e. the tariff relations between the
FLEXIBLE TARIFF CLAUSE Philippines and foreign
countries, commercial treaties,
a. Conduct by the Tariff Commission of preferential provisions,
an investigation in a public hearing. economic alliances, the effect of
The Commission shall also hear export bounties and preferential
the views and recommendations of transportation rates;
any government office, agency or f. the volume of importations,
instrumentality concerned. compared with domestic pro-
The Commission shall submit duction and consumption;
their findings and recommendations g. conditions, causes, and effects
to the NEDA within thirty (30) days relating to competition of
after the termination of the public foreign industries with those of
hearings. the Philippines, including
The NEDA thereafter submits its dumping and cost of production;
recommendation to the President. and
1. The power of the President to h. in general, to investigate the
increase or decrease the rates of operation of customs and tariff
import duty within the laws, including their relation to
abovementioned limits fixed in the the national revenues, their
Code shall include the modification effect upon the industries and
in the form of duty. labor of the country and to
In such a case the corresponding submit reports of its
ad valorem or specific equivalents of investigation as provided.
the duty with respect to the imports
from the principal competing foreign 2. Administrative Assistance to the
country for the most recent President and Congress (Sec. 506,
representative period shall be used TCC)
as bases (Sec. 401, TCC).
 subject to approval of Sec.
TAX REMEDIES UNDER THE of Finance (Sec. 709, 2316
TCC)
TARIFF AND CUSTOMS CODE
(TCC) 4. Seizure, Search, Arrest (Sec.
2205, 2210, 2211 TCC)
TAX REMEDIES OF THE
GOVERNMENT B. JUDICIAL
1. this remedy is normally
A. ADMINISTRATIVE availed of when the tax lien
1. Tax Lien (Sec. 1204 TCC) is lost by the release of the
 attaches on the goods, goods
regardless of ownership, while  Civil Action (Sec. 1204,
still in the custody or control TCC)
of the Government  Criminal Action
 availed of when the
importation is neither TAX REMEDIES OF THE TAXPAYER
prohibited nor improperly
made A. ADMINISTRATIVE
2. Administrative Fines and 1. Protest
Forfeitures a. Any importer or interested
 applied when the party if dissatisfied with
importation is unlawful, published value within 15
 and it may be exercised even days from date of
where the articles are not or publication, or within 5 days
no longer in Custom’s from the date the importer
custody is entitled to refund if
- unless the importation is payment is rendered
merely attempted in which erroneous or illegal by
case it may be effected only events occurring after the
while the goods are still payment.
within the Customs b. Taxpayer – within 15 days
jurisdiction or in the hands from assessment. Payment
of a person who is aware under protest is necessary.
thereof (Sec. 2531 & 2530, (Sec. 2308, 2210 TCC)
TCC) 2. Refund
 under Sec. 2530(a) of the a. A written claim for refund
TCC, in order to warrant may be submitted by the
forfeiture, it is not necessary importer in abatement cases
that the vessel or aircraft on missing packages,
must itself carry the deficiencies in the contents
contraband. The of packages or shortages
complementary if collateral before arrival of the goods in
use of the Cessna plane for the Philippines, articles lost
smuggling operation is or destroyed after such
sufficient for it to be arrival, dead or injured
deemed to have been used animals, and for manifest
in smuggling. (Llamado vs. clerical errors; and
Commissioner of Customs, b. Drawback cases where the
GR No. L-28809, May 16, goods are re-exported (Sec.
1983) 1701-1708 TCC).
3. Reduction of customs duties / 3. Settlement of any seizure by
compromise payment of fine or redemption
 But this shall not be allowed
in any case where
importation is absolutely
prohibited, or the release
would be contrary to law, or Note: Before filing a protest, there
when there is an actual and must first be a payment under protest.
intentional fraud (Sec. 2307
TCC). When customs protest applicable
4. Appeal The customs protest is required to be

 Within 15 days to the filed only in case the liability of the
Commissioner after taxpayer for duties, taxes, fees and
notification by Collector of other charges is determined and the
his decision (Sec. 2313 taxpayer disputes said liability.
TCC).
When Customs protest NOT required
B. JUDICIAL
1. Appeal Where there is no dispute, but the
 Within 30 days from receipt claim for refund arises by reason of the
of decision of the happening of supervening events such as
Commissioner or Secretary of when the raw material imported is
Finance to the division of the utilized in the production of finished
CTA (Sec. 2403 TCC, Sec. 7 products subsequently exported and a
RA 1125, as amended by Sec. duty drawback is claimed.
9 RA 9282)
 Since Sec.11 of RA 1125 as Requirements for making a protest
amended by RA 9282
empowers the Tax Court to 1. Must be in writing
issue injunctions, it would 2. Must point out the particular
appear that an importer may decision or ruling of the Collector of
appeal without first paying Customs to which exception is taken
the duties, such as in or objection made;
seizure, but not in protest 3. Must state the grounds relied upon
cases. for relief;
2. Action to question the legality 4. Must be limited to the subject
of seizure matter of a single adjustment;
3. Abandonment (Sec. 1801 TCC) 5. Must be filed when the amount
a. expressly (Sec. 1801 TCC) claimed is paid or within 15 days
b. impliedly – after the payment;
c. failure to file an import 6. Protestant must furnish samples of
entry within 30 days goods under protest when required.
from the discharge of
goods or PROCEDURE IN CUSTOMS PROTEST
d. having filed an entry CASES
fails to claim within 15
days but it shall not be The Collector acting within his
so effective until so jurisdiction shall cause the imported
declared by the goods to be entered at the customhouse
collector. (Sec. 1801, as 
amended by RA 7651) The Collector shall assess, liquidate, and
collect the duties thereon, or detain the
TWO KINDS OF PROCEEDINGS IN said goods if the party liable does not
THE BUREAU OF CUSTOMS (BOC) pay the same

A. CUSTOMS PROTEST CASES The party adversely affected (the
protestant) may file a written protest on
DEFINITION: These are cases which deal his foregoing liability with the Collector
solely with liability for customs duties, within 15 days after paying the
fees, and other charges.
liquidated amount (the payment under Thus, It is of no defense that the
protest rule applies) owner of the vessel sought to be
 forfeited had no actual knowledge that
Hearing within 15 days from receipt of his property was used illegally. The
the duly presented protest. Upon absence or lack of actual knowledge of
termination of the hearing, the Collector such use is a defense personal to the
shall decide on the same within 30 days owner himself, which cannot in any way
absolve the vessel from the liability of
forfeiture. (Commissioner of Customs
  vs. Manila Star Ferry, Inc., GR Nos.
If decision is adverse to If decision is adverse to 31776-78, October 21, 1993)
the protestant the government
  SMUGGLING
Appeal with the Automatic Review by 1. An act of any person who shall:
Commissioner within the Commissioner a. Fraudulently import any article
15 days from notice contrary to law, or
 b. Assist in so doing, or
 Automatic review by c. Receive, conceal, buy, sell,
Appeal with the Court the Secretary of facilitate, transport, conceal or
of Tax Appeals Division Finance sell such article knowing its
within 30 days from  illegal importation (Sec. 3601,
notice TCC)
d. Export contrary to law. (Sec.
 If decision of 3514, TCC)
Appeal with the Commissioner or
CTA en banc Secretary of Finance is 2. The Philippines is divided into
adverse to the various ports of entry – entry other
 protestant, he may
Appeal by certiorari than port of entry, will be
appeal to the CTA and SMUGGLING.
with the Supreme SC under the same
Court within 15 days procedure on the left.
from notice PORT OF ENTRY
A domestic port open to both
foreign and coastwise trade including
“airport of entry”. (Sec. 3514, TCC)
ALL articles imported into the
Philippines whether subject to duty or
Reasons for the automatic review of
not shall be entered through a
decisions adverse to the Government
customshouse at a port of entry.
ENTRY: in Customs law means-
1. To protect the interest of the
1. the documents filed at the
Government
Customs house
2. A favorable decision will not be
2. the submission and
appealed by the taxpayer and
acceptance of the
certainly a Collector will not
documents
appeal his own decision.
3. the procedure of passing
3. Lifeblood Theory
goods through the customs
house (Rodriguez vs. Court
B. SEIZURE AND FORFEITURE CASES
of Appeals, GR No. 115218,
September 18, 1995)
DEFINITION: These refer to matters
involving smuggling. It is administrative
CONTRABAND: Articles of prohibited
and civil in nature and is directed
importations or exportations. (Sec. 3514,
against the res or imported articles and
TCC)
entails a determination of the legality of
their importation. These are actions in
rem.
EVIDENCE FOR CONVICTION IN agent in charge of the means of
SMUGGLING CASES conveyance used as aforesaid has no
Mere possession of the article in knowledge of or participation in the
question - unless defendant could unlawful act:
explain that his possession is lawful to Provided, however, that a prima
the satisfaction of the court (Sec. 3601, facie presumption shall exist against the
TCC). Payment of the tax due after vessel, vehicle or aircraft under any of
apprehension is not a valid defense the following circumstances:
(Rodriguez vs. Court of Appeals, GR No. 1. If the conveyance has been used
115218, September 18, 1995) for smuggling at least twice
before;
THINGS SUBJECT TO CONFISCATION IN 2. If the owner is not in the
SMUGGLING CASES business for which the
Anything that was used for conveyance is generally used;
smuggling is subject to confiscation, like and
the vessel, plane, etc. (Llamado vs. 3. If the owner is financially not in
Commissioner of Customs, GR No. L- a position to own such
28809, May 16, 1983). conveyance.
Exception: Common carriers that are DOCTRINE OF HOT PURSUIT

not privately chartered cannot be Requisites:
confiscated. 1. Over Vessels
a. An act is done in Phil. Waters
RIGHT OF CUSTOMS OFFICERS TO which constitutes a violation of
EFFECT SEIZURE & ARREST (SEC. 2205) the tariff and customs laws
1. May seize any vessel, aircraft, cargo, b. a pursuit of such vessel began
article, animal or other movable within the jurisdictional waters
property when the same is subject to which
forfeiture or liable for any time as (i) may continue beyond the
imposed under tariff and customs maritime zone, and
laws, rules & regulations (ii) the vessel may be seized on
2. May exercise such powers only in the high seas.
conformity with the laws and
provisions of the TCC 2. Over Imported Articles
a. There is a violation of the tariff
COMMON CARRIERS; FORFEITURE and customs laws
1. Common carriers are generally not b. As a consequence they may be
subject to forfeiture although if the pursued in the Phil.
owner has knowledge of its use in c. With jurisdiction over them at
smuggling and was a consenting any place therein for the
party, it may also be forfeited. enforcement of the law. (2nd
2. If a motor vehicle is hired to carry par. Sec. 603, TCC)
smuggled goods but it has no
Certificate of Public Convenience
(CPC), it is not a common carrier. It REGIONAL TRIAL COURTS (RTC)
is thus subject to forfeiture, and VS.
lack of personal knowledge of the BUREAU OF CUSTOMS (BOC)
owner or the carrier is not a defense
to forfeiture.  The RTCs do not have jurisdiction
over seizure and forfeiture
PROPERTIES NOT SUBJECT TO proceedings conducted by the BOC
FORFEITURE IN THE ABSENCE OF PRIMA and to interfere with these
FACIE EVIDENCE proceedings. The Collector of
The forfeiture of the vehicle, vessel Customs has exclusive jurisdiction
or aircraft shall not be effected if it is over all questions touching on the
established that the owner thereof or his
seizure and forfeiture of dutiable
goods.  
 No petitions for certiorari, If decision is not If decision is not
prohibition or mandamus filed with favorable to the favorable to the
the RTC will lie because these are in aggrieved owner or government
reality attempts to review the importer
Commissioner's actuations. Neither
replevin filed with the RTC will
 
issue. Rationale: Doctrine of Appeal by the Automatic Review
Primary Jurisdiction. aggrieved owner or by the
importer Commissioner
 Even if a Customs seizure is illegal,
exclusive jurisdiction (to the
exclusion of regular courts) still
PERSONS HAVING POLICE AUTHORITY
belongs to the Bureau of Customs
TO ENFORCE THE TARIFF & CUSTOMS
(Jao v. Court of Appeals, GR No.
LAWS AND EFFECT SEARCHES,
104604, October 6, 1995).
SEIZURES AND ARRESTS (SEC. 2203,
TCC)
GOODS IN CUSTOM’S CUSTODY BEYOND
1) officials of the BOC,
REACH OF ATTACHMENT
district collectors,
Goods in the custom’s custody
police officers,
pending payment of customs duties are
agents, inspectors,
beyond the reach of attachment. As long
and guests of the
as the importation has not been
BOC;
terminated, the imported goods remain
2) officers of the Phil.
under the jurisdiction of the Bureau of
Navy and other
Customs. (Viduya vs. Berdiago, GR No.
members of the AFP
L-29218, October 29, 1976)
and national law
enforcement
ADMINISTRATIVE AND JUDICIAL agencies when
PROCEDURES RELATIVE TO CUSTOMS authorized by the
SEIZURES AND FORFEITURES Commissioner of
Customs
Determination of probable cause and 3) officials of the BIR
issuance of warrant on all cases falling
 within the regular
Actual seizure of the articles performances of
 their duties, when
Listing of description, appraisal and the payment of
classification of seized property internal taxes are
involved;
 4) officers generally
Report of seizure to the Comm. of empowered by law
Customs and the Chairman, Comm. to effect arrests and
on Audit execute processes of
 courts, when acting
Issuance by the Collector of a under the direction
warrant of detention of the Collector.

Notification to owner or importer REQUIREMENTS FOR CUSTOMS
FORFEITURE
 1. The wrongful making by the owner,
Formal hearing importer, exporter or consignee of
 any declaration or affidavit, or the
District collector renders his wrongful making or delivery by the
decisions same persons of any invoice, letter
or paper - all touching on the
importation or exportation of Exceptions:
merchandise.; and 1. the importation is absolutely
2. That such declaration, affidavit, prohibited or
invoice, letter or paper is false. 2. the surrender of the property to
(Farolan, Jr. vs. Court of Tax the person offering to redeem
Appeals, GR No. 42204, January 21, would be contrary to law, or
1993) 3. when there is fraud. (Sec. 2307,
TCC)
PLACES WHERE SEARCHES & SEIZURES
MAY BE CONDUCTED
(a) enclosures
(b) dwelling house (there must be
search warrant issued by a judge) ACQUITTAL IN CRIMINAL CHARGE NOT
(c) vessels or aircrafts and persons RES JUDICATA IN SEIZURE OR
or articles conveyed therein FORFEITURE PROCEEDINGS
(d) vehicles, beasts and persons Reasons:
(e) persons arriving from foreign 1) Criminal proceedings are actions in
countries. personam while seizure or forfeiture
proceedings are actions in rem.
Note: Burden of proof in seizure or 2) Customs compromise does not
forfeiture is on the claimant. (Sec. extinguish criminal liability. (People
2535, TCC) vs. Desiderio, GR No. L-208005,
November 26, 1965)
REQUIREMENTS FOR MANIFEST
A manifest in coastwise trade for Note: At any time prior to the sale, the
cargo and passengers transported from delinquent importer may settle his
one place or port in the Philippines to obligations with the Bureau of Customs,
another is required when one or both of in which case the aforesaid articles may
such places is a port of entry (Sec. 906, be delivered upon payment of the
TCC). Manifests are also required of corresponding duties and taxes and
vessel from a foreign port (Sec. 1005, compliance with all other legal
TCC). requirements (Sec. 1508, TCC)
IS MANIFEST REQUIRED ONLY FOR ABATEMENT

IMPORTED GOODS? The reduction or non-imposition of
NO. Articles subject to seizure customs duties on certain imported
do not have to be imported goods. materials as a result of:
Manifests are also required for articles 1) Damage incurred during voyage;
found on vessels or aircraft engaged in 2) Deficiency in contents packages
coastwise trade. (Rigor vs. Rosales, GR 3) Loss or destruction of articles
No. L-33756, October 23, 1982) after arrival
4) Death or injury of animals
UNMANIFESTED CARGO IS SUBJECT TO
FORFEITURE whether the act of FRAUDULENT PRACTICES CONSIDERED
smuggling is established or not under the AS CRIMINAL OFFENSES AGAINST
principle of res ipsa loquitur. It is CUSTOMS REVENUE LAWS
enough that the cargo was unmanifested 1) Unlawful importation;
and that there was no showing that 2) Entry of imported or exported article
payment of duties thereon had been by means of any false or fraudulent
made for it to be subject to forfeiture. practices, invoice, declaration,
affidavit, or other documents;
SETTLEMENT OF FORFEITURE CASES 3) Entry of goods at less than their true
General Rule: Settlement of cases by weights or measures or upon a
payment of fine or redemption of classification as to quality or value;
forfeited property is allowed.
4) Payment of less than the amount
due; POWERS
5) Filing any false or fraudulent claim 1. to administer oaths;
for the payment of drawback or 2. to receive evidence;
refund of duties upon the 3. to summon witnesses by
exportation of merchandise; or subpoena;
6) Filing any affidavit, certificate or 4. to require production or papers
other document to secure to himself or documents by subpoena duces
or others the payment of any tecum;
drawback, allowance or refund of 5. to punish contempt;
duties on the exportation of mdse. 6. to promulgate rules and
greater than that legally due regulations for the conduct of its
thereon. (Sec. 3602, TCC) business;
7. to assess damage against
appellant if appeal to CTA is
VI. COURT OF found to be frivolous or dilatory;
8. to suspend the collection of the
TAX APPEALS tax pending appeal; and
(RA 1125 as amended 9. to render decisions on cases
brought before it
by RA 9282) 10. to issue order authorizing
distraint of personal property
 See ANNEX O for comparison of CTA and levy of real property
as created by RA No. 1125 and the
amendments made by RA No. 9282. DISTRAINT OF PERSONAL PROPERTY
AND LEVY OF REAL PROPERTY
Upon the issuance of any ruling,
NATURE AND POWERS order or decision by the CTA favorable to
the national government, the CTA shall
ELEVATION OF RANK issue an order authorizing the BIR,
shall be of the same level as the through the Commissioner:
Court of Appeals, possessing all the
inherent powers of a Court of Justice 1. to seize and distraint any goods,
chattels, or effects and the personal
COMPOSITION property, including stocks and other
 Consists of a Presiding Justice and securities, debts, credits, bank
five (5) Associate Justices accounts, and interests in and rights
 May sit en banc or in two (2) to personal property and/or
Divisions, each Division consisting of 2. levy the real property of such
three (3) Justices. The Presiding persons in sufficient quantity to
Justice and the most Senior satisfy the tax or charge together
Associate Justice shall serve as with any increment thereto incident
chairmen of the two divisions to delinquency.
QUORUM This remedy shall not be exclusive

 Four (4) Justices shall constitute a and shall not preclude the Court from
quorum for sessions EN BANC. availing of other means under the Rules
of Court.
 Two (2) Justices for sessions of a
DIVISION.
PROVIDED: in case the required quorum JURISDICTION
cannot be had due to any vacancy,
disqualification, inhibition, disability, I. EXCLUSIVE APPELLATE JURISDICTION
or any other lawful cause, the Presiding TO REVIEW BY APPEAL
Justice shall designate any Justice of
other Divisions of the Court to sit (a) Decisions of the Commissioner
temporarily therein. of Internal Revenue
1. in cases involving disputed are adverse to the Government
assessments, refunds of under Section 2315 of the Tariff
internal revenue taxes, fees and Customs Code;
or other charges, penalties (g) Decisions of the Secretary of
in relation thereto, Trade and Industry in the case
2. or other matters arising of nonagricultural product,
under the NIRC or other laws commodity or article, and the
administered by the BIR; Secretary of Agriculture in the
(b) Inaction by the Commissioner of case of agricultural product,
Internal Revenue commodity or article,
1. in cases involving disputed – involving dumping and
assessments, refunds of countervailing duties under Secs.
internal revenue taxes, fees 301and 302, respectively, of the
or other charges, penalties Tariff and Customs Code, and
in relation thereto, safeguard measures under RA
2. or other matters arising No, 8800, where either party
under the NIRC or other laws may appeal the decision to
administered by the BIR, impose or not to impose said
where the NIRC provides a duties.
specific period for action, in
which case the inaction shall II. JURISDICTION OVER CASES
be deemed a denial; INVOLVING CRIMINAL CASES
(c) Decisions, orders or resolutions
of the RTC (a) Exclusive original jurisdiction
– in local tax cases originally over all criminal cases arising from
decided or resolved by them in violations of the NIRC or Tariff and
the exercise of their original or Customs Code and other laws
appellate jurisdiction; administered by the BIR or the
(d) Decisions of the Commissioner Bureau of Customs
of Customs  Provided however, where the
1. in cases involving liability principal amount of taxes and
for customs duties, fees or fees, exclusive of charges and
other money charges, penalties claimed is less than
seizure, detention or one million pesos (P1, 000, 000.
release of property 00) or where there is no
affected, fines, forfeitures specified amount claimed - the
or other penalties in offenses or penalties shall be
relation thereto, tried by the regular courts and
2. or other matters arising the jurisdiction of the CTA shall
under the Customs Law or be appellate.
other laws administered by  Any provision of law or the Rules
the Bureau of Customs; of Court to the contrary
(e) Decisions of the Central Board notwithstanding, the criminal
of Assessment Appeals action and the corresponding
– in the exercise of its appellate civil action for the recovery of
jurisdiction over cases involving civil liability for taxes and
the assessment and taxation of penalties shall at all times be
real property originally decided simultaneously instituted with,
by the provincial or city board of and jointly determined in the
assessment appeals; same proceeding by the CTA,
(f) Decisions of the Secretary of the filing of the criminal action
Finance being deemed to necessarily
– on customs cases elevated to carry with it the filing of the
him automatically for review civil action, and no right to
from decisions of the reserve the filing of such civil
Commissioner of Customs which action separately from the
criminal action will be Municipal Circuit Trial Courts, in
recognized. their respective jurisdiction.
(b) Exclusive appellate jurisdiction  In criminal and collection cases, the

in criminal offenses Government may directly file the
 Over appeals from the said cases with the CTA covering
judgments, resolutions or orders amounts within its exclusive and
of the RTC in tax cases originally original jurisdiction.
decided by them, in their
respective territorial  See ANNEX P – Comparative
jurisdiction. Diagrams on CTA jurisdiction.
 Over petitions for review of the
judgments, resolutions, or
orders of the RTC in the exercise
of their appellate jurisdiction
over tax cases originally decided “Other Matters”
by the Metropolitan Trial Courts, Those controversies which can be
Municipal Trial Courts, and considered within the scope of the
Municipal Circuit Trial Courts in function of the BIR / BOC under ejusdem
their respective jurisdiction. generis rule (e.g. action for the nullity of
distraint and levy; questioning the
III. JURISDICTION OVER TAX propriety of the assessment; collection
COLLECTION CASES of compromise penalties).
(a) Exclusive original jurisdiction
in tax collection cases involving APPEAL
final and executory assessments
for taxes, fees, charges and
When
penalties.
Within 30 days after the receipt of
 In collection cases where the such decision or ruling or after the
principal amount of taxes and expiration of the period fixed by law for
fees, exclusive of charges and action.
penalties, claimed is less than
one million pesos (P 1, 000, 000. Modes of Appeal
00) – shall be tried by the proper (1) By filing a petition for review under
Municipal Trial Court, a procedure analogous to that
Metropolitan Trial Court, and provided for under Rule 42 of 1997
Regional Trial Court. Rules on Civil Procedure
 decision, ruling, or inaction of
(b) Exclusive appellate
the Commissioner of Internal
jurisdiction in tax collection
Revenue, Commissioner of
cases
Customs, the Secretary of
 Over appeals from the Finance, the Secretary of Trade
judgments, resolutions or orders and Industry or the Secretary of
of RTC in tax collection cases Agriculture or the Regional Trial
originally decided by them, in Courts
their respective territorial
 this appeal shall be heard by a
jurisdiction.
Division of the CTA
 Over petitions for review of the (2) By filing a petition for review under
judgements, resolutions or a procedure analogous to that
orders of the RTC in the exercise provided for under Rule 43 of 1997
of their appellate jurisdiction Rules on Civil Procedure
over tax collection cases
 decisions or rulings of the
originally decided by the
Central Board of Assessments
Metropolitan Trial Courts,
Appeals and the Regional Trial
Municipal Trial Courts and
Courts in the exercise of its they are not the final decision of the
appellate jurisdiction Commissioner.
 this appeal shall be heard by the  An assessment can be appealed if
CTA en banc. taxpayer does not seek a
reconsideration.
Procedure  At times there is an exchange of
A. Any party adversely affected by a communications between taxpayer
ruling, order or decision of a Division and Commissioner states that his
of the CTA may file a motion for action is final, then, period for
reconsideration or new trial before appeal begins to run.
the same Division within 15 days  Commissioner must state that his
from notice decision is final, for period of appeal
to run.
 Final decision cannot be implied
from issuance of warrant of distraint
and levy, unless it is issued after a
B. Any party adversely affected by a request for reconsideration.
resolution of a Division of the CTA on GENERAL RULE: New issues cannot be
a motion for reconsideration or new raised for the first time on appeal.
trial may file a petition for review
with the CTA en banc. EXCEPTIONS:
a. Defense of prescription
C. Any party adversely affected by a Reason: This is a statutory right.
decision or ruling of the CTA en banc (Visayan Land Transportation vs.
may file with the Supreme Court a Collector)
verified petition for review on b. Errors of administrative officials
certiorari pursuant to Rule 45 of the Reason: State can never be in
1997 Rules on Civil Procedure. estoppel and lifeblood theory.
(Commissioner vs. Procter and
Thirty (30) day Prescriptive Period for Gamble Phils. Mfg. Corp, GR No.
Appeal 66838, April 15, 1988)
Starts to run from the date the
taxpayer receives the appealable NOTE: However, this was reversed in
decision. If the taxpayer’s request for Supreme Court’s subsequent resolution
reconsideration (i.e., the protest is wherein it was held that “in the absence
denied or the original assessment is of explicit statutory provisions to the
maintained, the appealable decision is contrary, the Government must follow
the decision denying the request for the same rules of procedure which bind
reconsideration. private parties.” (Commissioner vs.
The said period is jurisdictional and Procter and Gamble, GR No. 66838,
non-extendible. Requests or motions for December 2, 1991, Resolution)
reconsideration, however, operate to
suspend the running of the period to Tax collection Not Suspended during
appeal. A pro forma request for Appeal
reconsideration or one which is directed
to the Secretary of Finance does not General Rule: No appeal taken to the
suspend the running of the 30-day CTA shall suspend the payment, levy or
reglementary period. distraint, and/or sale of any property of
the taxpayer.
Only A Final Decision Is Appealable To
The Court Of Tax Appeals Exception: The CTA is empowered to
suspend the collection of internal
 Preliminary collection letters, post revenue taxes and custom duties only
reporting notices and pre-assessment when there was a –
notices are not appealable, because
c) showing that collection of the tax
may jeopardize the interest of the  Decisions of Tax Court have
government and / or the taxpayer; persuasive effect and may serve as
d) deposit of the amount claimed or judicial guides. They have more
file a surety bond for not more persuasive value than BIR Rulings.
than double the amount of tax  CTA’s findings of fact are entitled to
with the Court when required; and the highest respect. (Raymundo vs.
e) showing by taxpayer that appeal is de Joya, GR No. L-27733, December
not frivolous nor dilatory. 3, 1980)
 The Supreme Court will not set aside
Can The CTA Enjoin Collection of conclusions reached by Tax Court
Taxes? which by the very nature of its
function, is dedicated exclusively to
 Sec. 11 of RA No. 1125 as amended the consideration of tax problems
by Sec. 9 of RA No. 9282 grants CTA and has developed an expertise on
power to suspend collection of tax if the subject, unless there has been
such collection works to serious an abuse or an improvident exercise
prejudice of either taxpayer or of authority on its part.
government. (Commissioner vs. Court of Appeals
 However, Sec. 218 of the Tax Code & Atlas Consolidated, GR No. 86785,
provides no court may grant November 21, 1991)
injunction to restrain collection of
any tax, fee or charge imposed by
Tax Code. VII.VALUE–ADDED TAX
 The provision in Tax Code refers to (VAT)
courts other than the CTA. TITLE IV OF NIRC
(Blaquera vs. Rodriguez, GR No. L-
11295, March 29, 1958) DEFINITION: The value-added tax is an
 Appeal to the CTA does not indirect tax and the amount of tax may
automatically suspend collection be shifted or passed on to the buyer,
unless CTA issues suspension order at transferee or lessee of the goods,
any stage of proceedings. properties or services. This rule shall
likewise apply to existing contracts of
Simultaneous filing of an application sale or lease of goods, properties or
for refund or credit and institution of a services at the time of the effectivity of
case before the CTA allowed Republic Act No. 7716.
The law fixes the same period of VAT replaced Sales Tax as imposed by
two (2) years for filing a claim for refund previous Tax Laws.
with the Commissioner and for filing a
case with the CTA. The two-year period HISTORY:
for both starts from the date after the a. Executive Order No. 273
payment of the tax or penalty, or from b. Republic Act No. 7716
the approval of the application for c. Republic Act No. 8241
credit. d. Republic Act No. 8424 (took
effect on 1 January 1998)
Observation: If we are not going to
allow the taxpayer to file a refund TRANSACTIONS COVERED BY VAT:
before the CTA and let him wait for the 1. Sale of Commodities or Goods (in
CIR’s decision, and the latter failed to the course of trade or business
render a decision within the 2-year only)
period, the said taxpayer can no longer 2. Sale of Services (in the course of
file a refund before the CTA because his trade or business only)
right to appeal has prescribed. 3. Exportation (in the course of
trade or business only)
Weight of Decision of CTA
4. Importation (whether or not in
the course of trade or business) MANNER OF COMPUTING THE VAT:
A. 10% rate of Tax
PERSONS LIABLE FOR VAT
Any person who, in the course of 1. In sale of commodities and goods,
trade or business, sells barters, 10% is multiplied with the Gross
exchanges, leases goods or properties, Selling Price.
renders services, and any person who 2. In sale of services, 10% is multiplied
imports goods shall be subject to the with the Gross Receipts.
value-added tax (VAT) imposed in 3. In importation, 10% is multiplied
Sections 106 to 108 of the National with the rates used by the Bureau of
Internal Revenue Code. Customs in imposing tariff and
customs duties plus customs duties,
“IN THE COURSE OF TRADE OR excise taxes, if any, and other
BUSINESS” charges, such tax to be paid by the
The regular conduct or pursuit of a importer prior to the release of such
commercial or an economic activity, goods from customs custody:
including transactions incidental Provided, That where the customs
thereto, by any person regardless of duties are determined on the basis
whether or not the person engaged of the quantity or volume of the
therein is a non-stock, nonprofit private goods, the value-added tax shall be
organization (irrespective of the based on the landed cost plus excise
disposition of its net income and taxes, If any. customs duties.
whether or not it sells exclusively to
members or their guests), or government B. Zero-rated (0%) rate of tax
entity.
1. Export Sales as provided in Section
Therefore if the disposition of goods
106(A)(2)(a)
or services is NOT in the course of trade
2. Foreign Currency Denominated Sale
or business then it is not subject to VAT;
as provided in Section 106 (A)(2)(b)
with the exception of importation of
3. Sale to persons or entities which is
course.
VAT exempt under special laws or
The rule of regularity, to the international agreements to which
contrary notwithstanding, services as the Philippines is a signatory as
defined in this Code rendered in the provided in Section 106 (A)(2)(c)
Philippines by non-resident foreign 4. Transactions subject to zero-rated
persons shall be considered as being (0%) as provided in Section 108(B)
course of trade or business.
Importation is subject to VAT REGISTRATION UNDER THE VAT SYSTEM
regardless of whether or not it is in the (SECTION 236 OF THE NIRC)
course of trade or business
General Rule: Failure to register is
The reason for the rule is to protect subject to temporary closure of the
our local or domestic goods or articles establishment for 5 days as provided in
and to regulate the entry or introduction Section 115(b).
of foreign articles to our local market.
Regulation is one of the purposes of Exception: It does not apply to an
Taxation. exporter who fails to register. The effect
is, instead of treating the transaction as
Tax Rates: zero-rated (0%), it is treated as an
1. 10% - the rate used in sale of exempt transaction.
commodities and goods, sale of
services, and importation. What is the difference? In zero-rated
2. Zero-rated (0%) - the rate used in (0%) transactions, tax credit is
exportation. available. However, in exempt
transactions, tax credit is not available.
receipts must not exceed
P550,000.00.
EXEMPT TRANSACTIONS (SECTION 109):
1. In Section 109(a) and (c), food and 7. Section 109(z) provides that the sale
non-food products are VAT-exempt or lease of goods or performances of
as long as these products are in its services other than those mentioned
original state. The simple process of in the preceding paragraphs are VAT
preparation or preservation for the exempt if the Gross Annual Receipts
market such as freezing, drying, do not exceed P550,000.00.
salting, broiling, roasting, smoking, However, the limitation of
or stripping does not remove the P550,000.00 does apply for those
product from its category of being in transactions from Section 109(a) to
its original state. (y), except (x) because Revenue
 However, even if the products were Regulations No. 6-97 imposes a
no longer in its original state, it can P550,000.00 limitation.
still be VAT-exempt under Section
109(r), if sold by agricultural  In cases of tax-free importation of
cooperatives duly registered by goods into the Philippines by
Cooperative Development Authority. persons, entities or agencies exempt
2. Under Section 109(m), private from tax where such goods are
educational institutions are exempt subsequently sold, transferred or
from VAT if duly accredited by the exchanged in the Philippines to non-
DECS or by the CHED. In case of exempt persons or entities, the
government educational institution, purchasers, transferees or recipients
no accreditation is required. shall be considered the importers
thereof, who shall be liable for any
3. Transactions in the field of Arts are internal revenue tax on such
VAT-exempt only, as provided in importation. The tax due on such
Section 109(n), if the seller is the importation shall constitute a lien on
artist himself or the artist’s services the goods superior to all charges or
performed for the production of liens on the goods, irrespective of
such works. the possessor thereof.
4. Section 109(p) makes Regional or TRANSACTIONS DEEMED SALE:

Area Headquarters exempt from
VAT. The following transactions shall be
deemed sale therefore making them
5. Under Section 109(w) in order for covered by VAT:
the sale or lease of real property to
be exempted from VAT, the (1) Transfer, use or consumption not in
transaction must NOT be conducted the course of business of goods or
in the ordinary course of trade or properties originally intended for sale or
business. It complements Section for use in the course of business;
106(A)(1)(a) where it states that in (2) Distribution or transfer to:
order for the sale or lease of real (a) Shareholders or investors as
property to be covered by VAT, it share in the profits of the VAT-registered
must be made in the ordinary course persons; or
of trade or business. (b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is
6. Revenue Regulations No. 6-97 adds a not made within sixty (60) days following
requirement in order for the lease of the date such goods were consigned; and
residential units with a monthly (4) Retirement from or cessation of
rental of not more than P8,000.00, business, with respect to inventories of
as provided in Section 109(x), to be taxable goods existing as of such
VAT exempt, that the annual gross retirement or cessation.
How to determine the VAT: The tax 2. to claim for refund
shall be computed by multiplying the
total amount indicated in the invoice by The claim, which must be in writing,
one-eleventh (1/11). for both cases, must be filed within 2
years after the close of the taxable
Example: the total amount indicated in quarter when the sales were made for:
the invoice is P110. P110/11 = P10. P10 a) the issuance of a tax credit
is the amount of VAT. certificate; b) refund of creditable input
tax due or paid attributable to such
TAX CREDIT AND REFUND sales.
Formula for Tax Credit: HOW TO DETERMINE CREDITABLE INPUT

Output TAX
Less: Input The sum of the excess input tax
VAT due. carried over from the preceding month
or quarter and the input tax creditable
 If Input is greater than Output, Tax to a VAT-registered person during the
Credit is available. taxable month or quarter shall be
reduced
"INPUT TAX" means the value-added tax

due from or paid by a VAT-registered reduced by the amount of claim for
person in the course of his trade or refund or tax credit for value-added tax
business on importation of goods or local and other adjustments, such as purchase
purchase of goods or services, including returns or allowances and input tax
lease or use of property, from a VAT- attributable to exempt sale.
registered person. It shall also include
the transitional input tax determined in The claim for tax credit referred to
accordance with Section 111 of the in the foregoing paragraph shall include
NIRC. not only those filed with the Bureau of
Internal Revenue but also those filed
"OUTPUT TAX" means the value-added with other government agencies, such as
tax due on the sale or lease of taxable the Board of Investments or the Bureau
goods or properties or services by any of Customs.
person registered or required to register
under Section 236 of the NIRC. The Commissioner within 120 days,
in proper cases, from the date of
 If at the end of any taxable quarter submission of complete documents in
the output tax exceeds the input support of the application shall grant a
tax, the excess shall be paid by the refund or issue the tax credit certificate
VAT-registered person. If the input for creditable input taxes.
tax exceeds the output tax, the
excess shall be carried over to the
Remedy in case of full, or partial
succeeding quarter or quarters. Any
denial, or failure on the part of the
input tax attributable to the
Commissioner to act upon the
purchase of capital goods or to zero-
application for tax credit or refund: the
rated sales by a VAT-registered
taxpayer affected may, within thirty (30)
person may at his option be
days from the receipt of the decision
refunded or credited against other
denying the claim or after the expiration
internal revenue taxes, subject to
of the one hundred twenty day-period,
the provisions of Section 112.
appeal the decision or the unacted claim
with the Court of Tax Appeals.
OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112: RETURN AND PAYMENT OF VAT
1. to claim for tax credit; or
Every person liable to pay the value- Section 236, shall file a return and pay
added tax shall file a quarterly return of the tax due thereon within 25 days from
the amount of his gross sales or receipts the date of cancellation of registration:
within 25 days following the close of Provided, That only one consolidated
each taxable quarter prescribed for each return shall be filed by the taxpayer for
taxpayer: Provided, however, That VAT- his principal place of business or head
registered persons shall pay the value- office and all branches.
added tax on a monthly basis.
Any person, whose registration has

been cancelled in accordance with

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San Beda College of Law

MEMORY AID IN TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Contracts Contracts Contracts may

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

stockholders. (Corporate Entity 3. As to purpose:

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

7. Debt – a sum of money due upon the start of a before

Exemption granted Exemption does not Payable in money Payable in money,

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

No limit as to the Amount of toll

Non-payment is No imprisonment in Imposed only by the May be imposed by:

Imposed only by Can be imposed by Tax Penalty

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

kinds of enforced which are traded - refers to tax legislation

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

occupation is As a matter of public policy,

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

vs. Commissioner, GR No. L-19201, Educational Institutions, Including

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

c. imposed by the same taxing  A tax credit is granted for estate

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

tax, levied in the latter. KINDS OF SHIFTING

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

FACTORS IN TAX EVASION Examples of Statutory Exemptions

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

d. Taxation is the rule; tax exemption b. Adherence to form- if the tax

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Tax amnesty Tax exemption c.) Local Government Code

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

different from the facts on which

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

KINDS 4. The authority of the Commissioner

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

iii. any person having in his

TAXATION LAW COMMITTEE