SAN BEDA COLLEGE OF
LAW
CRIMSON
NOTES
LAW
I. GENERAL PROVISIONS
1. Is the non-profit sale of Bibles taxable?
No. Taxing non-profit sale of Bibles is a
violation of freedom of religious worship.
Furthermore, RA 8047, which amended the
EVAT Law (RA 7716) exempted Bibles (and
newspapers) from VAT coverage.
2. What is the extent of the legislature’s
power to choose the subject to be taxed?
The legislature can choose anyone who
can be taxed, not anything that can be
taxed. To illustrate, the manufacturer of the
Bible can be taxed on his income but the act
of manufacturing and selling the Bible
cannot be taxed.
3. An ordinance was passed by the City of
Manila which imposed a permit fee of
P50.00 on aliens as a condition for
employment or engaging in any business
1
TAXATION
Q&A
or occupation. Did this constitute a
denial of due process?
Yes. The SC pointed out that aliens
once admitted in the Philippines cannot be
deprived of life w/o due process of law and
this guarantee includes the means of
livelihood (Villegas vs. Hsiu Chiong Tsai
Pao).
4. Does the non-impairment of contracts
clause in the Constitution apply to a
public utility franchise?
The non-impairment rule does not apply
to a public utility franchise since a it is
subject to amendment, alteration or repeal
by Congress when the public interest so
requires (Art. XII, Sec. 11, 1987
Constitution).
5. Does the tax exemption in the Constitution
of properties used for religious, charitable
and educational purposes [Art. VI, Sec.
28(3)] apply to gifts?
 In the case of Lladoc vs.
Commissioner, the SC ruled that the
Constitutional exemption applies only to
property tax. Gifts are subject to donor’s tax.
HOWEVER, at present under Sec. 101 of
the CTRP, gifts made in favor of religious,
charitable or educational organizations would
nevertheless qualify for donor’s gift tax
exemption.
6. Is proof of actual use for religious,
charitable and educational purposes
necessary in order to avail of the
constitutional tax exemption?
In the case of Prov. of Abra vs.
Hernando (107 SCRA104), the SC ruled
that actual use is necessary. To be exempt,
the lands, buildings, and improvements must
not only be exclusively but also actually and
directly used for religious and charitable
purposes.
In the case of Apostolic Prefect vs.
City Treasurer of Baguio (71 Phil 547), the
SC held that “use” overrides “ownership”.
Hence, even if a property is owned by a
religious, charitable, or educational
institution but is actually used for a non-
exempt purpose, the exemption from tax of
said property vanishes.
7. Is incidental use covered by the
exemption?
Yes. This is called the doctrine of
incidental use. This doctrine was discussed
in Abra Valley College vs. Aquino (162
SCRA 106). In this case, the SC held that
incidental use of school building for
director’s residence will not deprive property
of its tax-exempt character. The term
exclusive use includes incidental use as
long as it is reasonably necessary for the
accomplishment of the taxpayer’s main
purpose.
8. What is the situs of intangible property
for tax purposes?
An intangible property may have
different situs for tax purposes. Thus the
following may impose a tax thereon:
1. The country where the intangible
property receives protection ( see Sec.
104 CTRP);
2. The place of domicile of the decedent at
the time of his death (Mobilia Sequuntur
Personam)
See Wells Fargo Bank v CIR, 70 Phil 325
2
9. A manufacturer has a factory in Pasig. It
has a sales broker who transacts
business in Manila. Is the manufacturer
subject to business tax imposed by the
City of Manila?
Yes. The power to levy a business
(excise) tax upon the performance of an act
does not depend upon the domicile of the
person subject to the excise tax, nor upon
the physical location of the property taxed,
but depends upon the place where the act is
performed. (See Allied Thread Co., Inc. v
City of Manila, 133 SCRA 338)
10. A German Airline has a ticket office in the
Philippines but without any landing right
therein. a.) Is it subject to income tax?
b.) How about percentage (excise) tax?
a. Yes. It is subject to income tax. The
absence of flight operations to and from the
Philippines is not determinative of situs of
income taxation. The test of taxability is the
place of source of income or where the
activity which produces the income.
b. No. It is not subject to percentage
(excise) tax. Its situs is the place where the
act or privilege is done or performed. See
CIR v BOAC, 149 SCRA 395
11. Resume of Situs of Taxation
Income tax-situs is the place of source
of income.
Excise tax-situs is the place where the
act or privilege is done or preformed.
Place of domicile of taxpayer is
immaterial.
12. As to its taxability, what will be your
advice if you are consulted by San Beda
on the following matters:
(1) income tax on amount received from
students as tuition fee;
(2) income tax on interest on as:
 bank deposit
 loan
(3) real property tax on the football field;
(4) real property tax on the new basketball
court simply lent by an alumnus;
(5) income tax on income from the rock
concert held at the football field;
(6) income tax on income from the
operation of the cafeteria;
(7) income tax on money received as
donation;
(8) income tax on money received as
legacy;
(9) donor’s tax on its donations and tax
treatment thereof for income tax purposes;
(10)VAT on
 supplies purchased to be used in the
school’s operations
 books purchased to be used at the
library
 educational services
A: San Beda being a non-stock, non-profit
educational institution, I will consider the
following:
(1) The tuition fee is not a taxable income
pursuant to Sec. 30(H)CTRP;
(2) The interest on bank deposit is subject
to 20%final tax; on loan is subject to 5-
32% income tax; See last paragraph of
Sec. 30, CTRP;
(3) The football field is not subject to real
property tax pursuant to Sec. 234LGC;
(4) The basketball court is not subject to
real property tax pursuant to Sec. 234
LGC only if San Beda can prove it is
actually, directly and exclusively used
for educational purposes. See Province
of Abra v Hernando, 107 SCRA 104,
important in determining its taxability.
Use, not source, of the property taxable.
See Abra Valley College, Inc. v Aquino,
162 SCRA 106;
(5) The income from the rock concert, an
unrelated activity from the purposes of
San Beda, is subject to 5-32% income
tax. An activity is unrelated if the
conduct of which is not substantially
related to the exercise or performance
by the school of its primary purpose or
function (Sec. 27 B, CTRP)
(6) The income from the operation of
cafeteria, a related or ancillary activity
from the purposes of San Beda, is not
subject to income tax. However, if it is
operated by concession, it is subject to
tax.
(7) The donation received is an exclusion
from gross income (Sec. 32B3, CTRP).
Hence it is not subject to income tax.
The donation is already subject to
donor’s tax payable by the donor (Sec.
98 CTRP). NB: The donor may claim
exemption for the payment of the tax
thereon pursuant to Sec. 101CTRP;
provided, he can prove that not more
3
than 30% of such amount shall be used
by San Beda for administration
purposes. Any income that may be
subsequently received therefrom is
subject to income tax(Sec. 32B3,
CTRP).
(8) The legacy is not subject to income tax.
Same as (7). See Secs. 32B3, 84, 87
CTRP;
(9) The donation is subject to donor’s tax
unless San Beda can claim exemption
under Sec. 101 CTRP. For income tax
purposes, San Beda can claim the
amount donated as deduction from its
gross income, in full or in part, under
Sec. 34H, CTRP.
(10)The VAT is imposable on the supplies
purchased to be used in the school’s
operations (Sec. 105 CTRP)
The sale and importation of books are
transactions exempt from VAT under
Sec. 109y, CTRP. Hence San Beda is
not liable therefore.
The educational services of San Beda is
not subject to VAT under Sec. 109m,
CTRP.
The following table may help you in
correlating the pertinent CTRP
provisions in the above illustration.
Giver Receiver
Income Tax-
Sec. 34H Sec. 32B(3)
Estate Tax
Sec. 84, 87 N/A
Donor’s Tax
Sec. 98, 101 N/A
VAT
Sec. 105, 109 same
13. If it is CEU seeking your advice with
regard to the above matters?
Same advice in the preceding problem
except on the income tax treatment of CEU
as a proprietary educational institution.
It is taxable just like any other domestic
corporation. However, it may enjoy a
preferential tax treatment(10% on its taxable
income) if its gross income from unrelated
activity does not exceed 50% of the taxable
gross income derived from all sources. See
Sec. 27B, CTRP.
Note: Same considerations shall apply to
religious, charitable institutions, etc.
14. When can a grant of tax-incentive be
taken away by the government without
violating the rule on non-impairment of
contracts?
It depends on whether the grant is
unilaterally or bilaterally given by the
government. If unilaterally given, there is no
impairment. It constitutes a mere revocation
of a grant of privilege. If bilaterally given,
there is impairment (Art. III, Sec. 10,
Constitution). Exception: In case of grant
of franchise to public utilities when common
good so requires (Art. XII, Sec. 11,
Constitution)
15. How are tax laws construed?
In case of doubt
a. Taxation – is construed against
the government;
b. Tax exemption – is construed
against the taxpayer. Exception:
If the exemption is granted to a
government or religious
institution. Note the Inherent
limitation that the government is
not subject to tax.
16. How are rulings classified?
Rulings of first impression. – They are
the rulings, opinions and interpretations of
the Commissioner of Internal Revenue with
respect to the provisions of the NIRC and
other tax laws without established
precedents. The term includes reversal,
modification or revocation of any existing
ruling.
Rulings with established precedents
– They are mere reiterations of previous
rulings, opinions and interpretations of the
Commissioner, as delegated to duly
authorized internal revenue officers.
17. Distinguish prospective, official, and
jeopardy assessments.
Prospective assessment informs the
taxpayer of the findings of the examiner who
recommends a deficiency assessment. The
taxpayer is usually given ten (10) days from
notice within which to explain his side.
Official assessment is issued by the
BIR in case the taxpayer fails to respond to
the proposed assessment, or his
explanation is not satisfactory to the
Commissioner,
Jeopardy assessment is a delinquency
tax assessment made without the benefit of
4
complete or partial investigation by an
authorized revenue officer. This is issued
when the revenue officer finds himself
without enough time to conduct an
appropriate or thorough examination in view
of the impending expiration of the
prescriptive period for issuing a valid
assessment. To prevent the issuance of a
jeopardy assessment, the taxpayer may be
required to execute a waiver of the statute of
limitations.
18. When the BIR garnishes a taxpayer’s
bank deposit, does it violate the Bank
Secrecy Law (RA 1405)?
No. It is not a violation of the Bank
Secrecy Law because the BIR is not
inquiring the balance of the deposit but
merely attaching it without knowing the
balance of the same.(China Banking Corp.
vs. Ortega).
19. Is the revenue producing activity of the
government taxable?
It depends.
If the activity is performed by the
government in its sovereign capacity (jure
imperii), the General Rule is exemption, the
Exception is taxation. (Sec. 32, B7b, CTRP)
If the activity is performed by the
government in its proprietary capacity (jure
gestionis), the General Rule is taxation, the
Exception is exemption. (Sec. 27C, CTRP).
20. If a seller adds to the selling price the tax
imposed on him, can a tax-exempt
purchaser claim a refund after paying for
the same?
No. The purchaser paid the additional
amount not as a tax but as part of the selling
price of the product. The fact that a seller
added the amount of tax to the price of the
product did not make it a tax on the
purchaser. See Phil. Acetylene Co. v CIR,
20 SCRA 1056
21. In the case above, if the buyer is
specifically exempted from indirect
taxes, can he now claim a refund?
Yes, if his specific exemption from
indirect taxes contemplates taxes which,
although not imposed upon or paid by him
directly, form part of price paid or to be paid
by him. See CIR v Gotamco, and Sons ,
Inc.,148 SCRA 36; Maceda v Macaraig.
22. If the tax is paid by the seller but passed
on to the buyer, when can the seller
claim a refund of the tax erroneously
paid by the former?
It depends.
If the tax is imposed directly on the thing
sold, only the buyer has the right to claim a
refund. See Medina v City of Baguio (Taxes
imposed therein were taxes on the
admission tickets sold).
If the tax is imposed directly, not on the
thing sold, but on the act of the seller who is
exclusively made liable for its timely
payment, the seller can claim a refund and
hold the refunded taxes in trust for the
buyers. See CIR vs American Rubber Co.
23. When can a taxpayer compensate his
claims against the government from his
tax liability?
As a general rule, taxes and debt cannot
be compensated. An exception is when two
obligations are both due and demandable
and all the requisites of a valid
compensation (Art. 1279 Civil Code) are
present. See Domingo v Garlitos, 8 SCRA
447(Both the claim of the government and
intestate, the latter’s claim had earlier been
appropriated by a corresponding law, have
already become overdue and demandable
as well as fully liquidated).
24. If the claim of the taxpayer against the
government has long been paid and
deposited in a bank but he simply fails to
withdraw it, can he compensate it against
his tax liability?
No. There is no compensation if the
parties involved are not creditors and
debtors of each other. See Francia v IAC,
162 SCRA 753(The taxpayer knew that the
payment for his claim had long been
deposited to the bank but did not withdraw it.
Further, his tax liability was due to a local
government unit while his claim was against
the national government).
25. If the taxpayer is clearly entitled to a tax
refund although the CIR has not yet
approved the same, can he compensate
it against his other tax liability?
Yes. A return filed showing an
overpayment shall be considered a written
claim for refund (refer to Sec. 58(D) in
relation to Sec. 204(C) CTRP). If not yet
refunded, it may be deducted from the tax to
5
be paid. See CIR v Itogon Suyoc Mines,
Inc., 28 SCRA 867
26. If the government fails to use the
taxpayer’s compelled contribution to a
fund for the purpose to which it was set
up, can he compensate his contribution
from his tax liability?
No. The government does not owe
anything from him. They are not mutual
creditors and debtors of each other. See
Republic v Mambulao Lumber Co., 4 SCRA
622 (The amount paid by the licensee as
reforestation charges is in the nature of a tax
which forms part of the reforestation fund,
payable by it irrespective of whether the
area covered by its license is reforested or
not).
NB: To reconcile the above cases, it may
help to refer to the requisites of legal
compensation under Art. 1279 Civil Code,
specifically:
a. That each one of the obligors be
bound principally, and that he
be at the same time a principal
creditor of the other;
b. That the two debts be due;
II. NATIONAL TAXATION
1. When is a seaman considered an OCW for
purposes of income tax exemption from
sources not within the Philippines?
(1) When the seaman receives
compensation abroad as a member of
the complement of a vessel; and,
(2) When such vessel is engaged
exclusively in international trade.
2. Is there an imprescriptible tax in the Tax
Code?
Formerly documentary stamp tax. Now
under the CTRP, a documentary stamp tax
return is required. Thus, there is no more
imprescriptible tax.
3. Distinguish “final withholding tax system”
from the “creditable withholding tax
system” per BIR Revenue Regulations 2-
98.
Under the final withholding tax system,
the amount withheld by the withholding
agent constitutes a full and final payment of
the tax due from the taxpayer. Failure of the
 withholding agent to withhold the correct
amount of tax will make him liable for the
deficiency. The taxpayer is no longer
required to file an income tax return.
On the other hand, under the creditable
withholding tax system, the tax withheld is
intended to equalize or at least approximate
the tax due of the taxpayer on his income.
The taxpayer is still required to file an
income tax return and pay the difference
between the tax withheld and the tax due.
4. Are cash and property dividends taxable?
If so, at what rate?
Cash and property dividends may either
be exempt or taxable depending on whether
the recipient is an individual or corporate
taxpayer. The tax rate depends on what
type of taxpayer is the recipient.
Consider the following summary of the
pertinent CTRP provisions:
Corporate Taxpayer
Foreign to Domestic Corporation
☛ 32% (Sec. 32A)
Domestic to Domestic Corporation
☛ Exempt (Sec. 27D)
c. Domestic to Foreign Corporation
 Resident Foreign Corporation
☛ Exempt(Sec. 28A7d)
 Nonresident Foreign
Corporation ☛ 15% subject to the
condition stated in Sec. 28B5b.
Otherwise, 32%
Individual Taxpayer
a. From Domestic Corporation
 Resident citizen, nonresident
citizen, resident alien ☛ 10%(Sec
24A)
 Nonresident alien engaged in
business and trade ☛ 20%(Sec.
25A2)
 Nonresident alien not engaged
in business and trade ☛ 25% on
gross income (Sec. 25B)
b. From Foreign Corporation
 Resident citizen, nonresident
citizen, resident alien,
nonresident alien engaged in
business and trade ☛ 5-32%
(Sec. 24, 25A1)
 Nonresident alien not engaged
in business and trade ☛ 25% on
gross income (Sec. 25B)
6
NB: If a corporate taxpayer will not
declare dividends, it will be subjected to
10% tax on improperly accumulated
income (Sec. 29)
5. Are stock dividends taxable? How about
liquidating dividends?
As a rule, stock dividends are not
taxable. They will not result in a change in
interest of the stockholder. They will result
in a new cost per share which will be used in
determining any gain or loss upon any
subsequent sale of such shares.
They are taxable only if they will give
stockholder an interest different from that
which his former stocks represent (i.e. when
the stockholder is given the option of
choosing cash or property instead of
stocks.). The measure of income in such
case is the fair market value of stocks
received.
Liquidating dividends are not taxable to
the stockholder as dividends. They are
considered as mere return of capital. But
any gain or loss sustained by him is taxable
income or deductible loss.
6. An employer is planning to take a life
insurance policy on the life of his key
officer as part of the latter’s fringe
benefits. Both seek your advice about
the tax treatment of the following:
(1) Premium payments;
(2) Amount to be received as return of
premium;
(3) Proceeds of insurance
My advice depends on who will be the
designated beneficiary. If the designated
beneficiary is:
The employee’s estate or his heirs
(1) Premium payments-
They are deductible by the employer for
income tax purposes as ordinary and
necessary expenses (Sec. 34A1).
They are not taxable fringe benefits of
the officer under Sec. 33C2
(2) Amount to be received as return of
premium-
The amount is not taxable under Sec.
32B2. It is considered as a mere return of
capital. Hence, not income.
If the amount to be received is much
more than the total amount of the premiums,
the excess amount is a taxable income.
 (3) Proceeds of life insurance-
The proceeds of life insurance policy
paid to the heirs or decedent’s estate is
excluded from gross income for income tax
purposes under Sec. 32B1. If such
proceeds are held by the insurer under an
agreement to pay interest thereon, the
interest payments shall be included in gross
income.
For estate tax purposes, if the
designated beneficiary is the
 Estate-whether or not
revocable-taxable
 3rd person-
If revocable-taxable
If irrevocable-not taxable(Sec. 85E)
The employer
(1) Premium payments-
They are not deductible by the employer
for income tax purposes (Sec. 36A4)
They are not considered fringe benefits
to the officer.
(1) Sec.32B2
(2) Sec. 32B1
7. What if the employer instead considers
an accident or health insurance , what
will be your advice?
My advice will be the same as in the
case of life insurance policy payable to the
employee’s estate in the preceding problem.
See Sec. 32B4. With regard to the
proceeds thereof, the amount which
compensates the officer for lost profits is a
taxable income.
8. As regards to his property insurance, the
employer asks you on the tax treatment
of the premium payments and the
proceeds thereof. What will be your
advice?
The premium payments are deductible
for income tax purposes as ordinary and
necessary expenses (Sec. 34A1)
The proceeds thereof covering the book
value of the property are not taxable. They
are considered as a mere return of capital.
The amount in excess of the book value:
 If to be used in restoring the property
☛ not taxable
 If not ☛ taxable
9. Are retirement benefits, pensions taxable
as income?
7
Yes. See Sec. 32A. Sec. 32B6
enumerates the exceptions.
NB: The amount received by an
employee under a reasonable private benefit
plan is excluded from gross income only if
the fund cannot anymore be diverted by the
employer for other purposes (Sec. 32B6a).
Further, earnings of the trust fund are
not subject to income tax under Sec. 60B.
Exception-the interest income or yield from
bank deposit or deposit substitute of trust
fund is subject to 20% final tax (Sec.
24B,60A)
10. For estate tax purposes, are they also
taxable?
Yes. They are taxable including those
that are enumerated as exclusions from
gross income under Sec. 32B6. Exception
☛ the amount received by heirs under
RA4917 (Sec. 86A7).
11. How will you treat the contributions of
the employer to the retirement/pension
benefit plan?
The contributions are deductible by the
employer for income tax purposes as
ordinary and necessary expenses or as
pension trusts (Sec. 34A,J).
For the employee/officer, the
contributions are not taxable fringe benefits.
12. Are prizes and awards taxable as
income? If so, at what rate?
It depends.
If prizes and awards are given primarily
in recognition of charitable, civic, artistic,
religious, literary, educational, scientific
achievement (CCAR-LES), they are
excluded from gross income provided the 2
requisites provided under Sec. 32B7c are
met.
If prizes and awards are given in cases
other than the above, they are taxable
income. If the value thereof is more than
Php 10,000, the prizes and awards are
subject to 20% final tax. If Php 10,000 or
less, they are subject to 5-32% income tax.
13. What about the prizes and awards given
in sports competition?
It depends.
If the sports competition is sanctioned
by the athlete’s national sports association,
the prizes and awards are excluded from
gross income (Sec. 32B7d).
 If not sanctioned by the athlete’s 27D2)
national sports association, the prizes and Shares of stock of Stock transaction tax
awards are subject to income tax. If being domestic corp. listed (percentage tax)
an athlete is the recipient’s profession, the and traded thru a based on the GSP
prizes and awards are subject to 5-32% local stock exchange
income tax. If it is not his profession, the (Sec. 127)
prizes and awards are subject to 20% final Shares of stock in a Gains from
tax if their value is more than Php 10,000. If mutual fund redemption are
Php 10,000 or less, then they are subject to company (Sec. excluded from gross
5-32% income tax. 32B7h) income)
Bonds, debentures Gains from their
14. How are gains and losses treated? or other certificate of sale, exchange,
To determine the proper treatment of indebtedness (Sec. retirement are
gains and losses, it is imperative to 32B7g) excluded from gross
determine the type of property involved, income
whether it is an ordinary or a capital asset. Bonds, debentures Gains from their
See Sec. 39A. or other certificate of sale, exchange,
If it is an ordinary asset, the ordinary indebtedness (Sec. retirement are
gains and losses are considered in 32B7g) excluded from gross
determining income or loss from trade, income
business or profession. See Secs. 32A, Real property not Capital gains/losses
34D. located in the Phils are considered in
If it is a capital asset, determine further Personal property determining the
whether or not it is a real property located in located in/out the taxable income
the Philippines. If it is, then it is subject to Phils (including
capital gains tax (See Secs. 24D, 27D5. shares of stock of
See also Secs. 24C, 27D2). If not, the foreign corp.) (Sec.
capital gains and losses are considered in 39)
determining the taxable income (Sec. 39).
15. Your client whose house and lot are
NB: While both ordinary and capital being expropriated by the government
gains/losses affect the taxable income, asks you whether he is still subject to tax
distinction between them is important under thereon. What will be your advice?
Sec. 34H. The 5 or 10% limitation therein is He has two options. He may opt to be
based on income from trade, business or taxed at 6% of the FMV or GSP whichever is
profession without considering the net higher; he may consider the capital gain/loss
capital gains. Further, ordinary losses are thereon in computing his taxable income
deductible without limitations (Sec. 34D); subject to the normal rate.
capital losses have limitations (Sec. 39C). If the subject property is his principal
residence and the proceeds of the sale will
The following summary might help you: be utilized in acquiring or constructing a new
Type of Asset Tax Treatment principal residence, he may be exempted
Ordinary (see 4 Ordinary from paying the capital gains tax provided
types, Sec. 39A1, gains/losses are the requisites under Sec. 24D2 are met.
32) taxable
income/deductible 16. Is the immediately preceding advice
losses from business (allowing exemption) available to all
Real Property loc. in Capital gains tax types of taxpayer?
the Phils.(Secs. 24D, based on FMV or No. It is not available to a corporate
27D5) GSP whichever is taxpayer. Moreover, not all individual
higher taxpayer can avail of the said exemption.
Shares of stock of Capital gains tax They are only the following:
domestic corp. not based on the net (1) A resident citizen
listed and traded capital gains (2) A non-resident citizen (i.e. OCW). But
thru a local stock not an immigrant to a foreign country.
exchange(Sec. 24C,
8
 (3) Alien resident under the
following cases:
a. Property acquired by intestate
succession;
b. Natural-born citizen who lost his Filipino
citizenship (see Sec. 10, RA 7042 as
amended by RA 8179-Foreign
Investments Law)
c. Condominium
(4) A nonresident alien engaged in
business and trade (in case of a former
Filipino citizen who still maintains a residence
in the Phil.).
A nonresident alien not engaged in business
and trade cannot avail of the exemption.
17. What are the transfer taxes under the
CTRP? Discuss.
The transfer taxes under the CTRP are
as follows:
Capital gains tax
This is a tax imposed upon capital gains
presumed to have been realized from the
sale, exchange or other disposition of real
property located in the Philippines classified
as capital asset. This includes pacto de
retro sales and other forms of conditional
sales (Sec. 24D)
This is also imposed upon the net
capital gains realized from the sale,
exchange or other disposition of shares of
stock in a domestic corporation not listed
and traded through a local stock exchange
(Sec. 24C).
In both cases, consideration is essential.
Estate tax
This is a tax imposed on the right to
transmit property upon the death of the
decedent and on certain transfers by the
decedent during his lifetime which are made
by law the equivalent of a testamentary
disposition. See Sec. 84 CTRP, Art. 774
Civil Code.
Death of the decedent is essential. In
case of wills, formal requisites must be
complied with. See Arts. 804-814 Civil
Code.
Donor’s tax
This is a tax imposed on the transfer by
a person of the property by gift. See Sec. 98
CTRP, Art. 725 Civil Code.
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Donative intent is essential. Further, the
formal requisites must also be observed.
See Arts. 748,749 Civil Code.
N.B.: There is another kind of transfer
tax which is found under the Local
Government Code (LGC) – the tax on
transfer of real property ownership imposed
by provinces (Sec. 135, LGC).
18. In case of transfer of property during the
lifetime of the decedent, when is such
transfer subject to capital gains tax,
estate tax, donor’s tax?
It depends on the type of the property
involved and whether there is a full,
inadequate, or no consideration at all.
☛ In case of real property located in the
Philippines-
Full Consideration
The transfer is subject to capital gains
tax. Estate and donor’s taxes are not applicable
since there are no succession and donation
(gratuitous titles) to speak of.
No consideration
The transfer is subject to either estate
tax or donor’s tax. Capital gains tax is not
applicable since there is no sale or exchange to
speak of.
Insufficient consideration
In cases of transfer in contemplation of
death, revocable transfer, transfer under the
general power of attorney, the transfer is subject
to estate tax pursuant to Sec. 85G. In any other
transfer involving real property located in the
Philippines, the transfer is subject to capital
gains tax (NB: the tax is based on the FMV or
GSP whichever is higher).
A real property subjected to 6% capital
gains tax under Sec. 24(D) on sale of real
property by an individual will no longer be
subjected to Donor’s tax on the amount by which
the FMV exceeded the consideration. While not
explicitly provided in the CTRP law, it is also
deemed that same treatment shall be applied to
lands and/or buildings held as capital assets by
a corporate seller and subjected to the 6%
capital gains tax under Sec. 27(1)(5).
☛ In case of property other than real property
located in the Philippines-
 With consideration  When the donor reserves the right to
The corresponding gain or loss is a revoke the donation at his pleasure;
taxable income or deductible loss for income tax  When the intention of donor is to
purposes. Further, the transfer is subject to transfer ownership after his death;
VAT provided it is in the ordinary course of trade  When the donor reserves the right to
or business (Sec. 105). Estate and donor’s dispose of property.
taxes are not applicable.
The transfer is subject to donor’s tax if it
No consideration constitutes a donation inter-vivos, that is
The transfer is either subject to estate or when its effectivity is independent of donor’s
donor’s tax. For income tax purposes, the value death.
of the property may be claimed as a deduction
under Sec. 34H. NB: Disposition is different from
Insufficient consideration execution. Disposition or its taking effect
In case of transfer in contemplation of does not depend whether the property is
death, revocable transfer, transfer under the delivered during the lifetime or after the
general power of attorney, the transfer is subject death of donor. See Art. 729 Civil Code
to estate tax pursuant to Sec. 85G. In any other Effectivity of donation may be subject to
transfer involving property not a real property condition/term (i.e.death).
located in the Philippines, the transfer is subject
to donor’s tax under Sec. 100. 21. Are checks acceptable for the payment of
In case there is no donative intent, the internal revenue taxes?
corresponding loss is a deductible loss for Checks payable to BIR as payment for
income tax purposes. taxes are no longer acceptable beginning
May 1, 1997, except in remote areas where
there are no Accredited Agent Banks. The
The following summary might help you: BIR however accepts cashier’s or manager’s
Capital Gains Estate Tax Donor’s check (Rev. Regs. No. 6-98).
Tax Tax
With Full 22. Is criminal action allowed as a remedy for
Consideration the collection of taxes?
Sec. 24C,D N/A N/A Yes, but no such action can be filed
No without the approval of the Commissioner of
Consideration Internal Revenue (see Sec. 221 & 222,
N/A Sec. 84 Sec. 98 CTRP). The approval may be given by the
Insufficient Regional Director. (Arches vs. Bellosillo, L-
Consideration 23534, May 10, 1967.)
Sec. 24D Sec. 85G Sec. 100

19. For income tax purposes, is the resulting
loss from transfer of property (other than
real property located in the Philippines)
for insufficient consideration always
deductible?
No. See losses which are not
deductible under Sec. 36B.
20. When is the gratuitous transfer of
property during the lifetime of the donor
subject to estate tax? subject to donor’s
tax?
The transfer is subject to estate tax if it
constitutes a donation mortis causa. There
is donation mortis causa if its effectivity is
dependent on donor’s death, such as:
III. LOCAL TAXATION AND REAL
PROPERTY TAXATION
1. What is the nature of a business tax?
This is a tax paid for each and every
business activity. A tax on business is
distinct from a tax on the article itself.
2. When can a local government unit
impose an excise tax on the sale
transactions perfected within its
jurisdiction?
It depends.
a. If the sale is perfected and paid for within
the jurisdiction of local taxing authority but
delivered to the customer outside its

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 jurisdiction, the sale is taxable by the local
taxing authority. Reason: Delivery to
Carrier is Delivery to Buyer (Art. 1423 Civil
Code). See Philippine Match Co. v City of
Manila 81 SCRA 99
b. If the sale is perfected within the
jurisdiction of local taxing authority but paid
and delivered to customer outside its
jurisdiction, not taxable by local taxing
authority. Reason: Delivery to carrier is not
considered delivery to buyer. Carrier is
merely considered as agent of seller. See
Shell v Municipality of Sipocot 105 Phil.
1263
NB: To reconcile the above cases,
check where the sale is consummated
(where payment is made).
3. Can regular courts enjoin the collection
of local tax?
Yes, subject to the provisions of Rule 58
of Rules of Court(Preliminary Injuction).
4. Distinguish fair market value(FMV) from
assessed value(AV).
a. FMV is declared by the owner subject to
the final determination by the assessor.
On the other hand, AV is determined by
the application of the assessment level
to the FMV.
b. FMV is the actual value of the real
property in the market; AV is merely a
percentage of the FMV.
5. What is appraisal?
It is the act or process of determining
the value of the property as of a specific
date for a specific purpose (Sec. 199, LGC)
6. What is an assessment level?
The percentage applied to the FMV to
determine the taxable value of the property.
7. How is assessed value (taxable value) of
real property computed?
FMV x Assessment level (%) = not required to enforce the provisions of the
Assessed Value
Assessment level depends on the
nature of the property; whether
residential, agricultural, commercial,
industrial, mining, timberland, or special.
Tax Rates:
Cities - 2%,
Municipalities in Metro Manila - 2%
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Provinces - 1%
8. Can Municipalities outside Metro Manila
impose real property tax?
No. However, they may impose a
special levy or assessment.
9. As contemplated in the real property tax
code, what is “property discovered for
the first time”? What is its tax
treatment?
This refers to a property that has not
been declared for tax purposes for so many
years and when discovered, the owner must
pay back taxes plus incremental penalties.
Assessed taxes shall cover not more than
10 years prior to the date of the initial
assessment.
IV. TARIFF AND CUSTOMS LAWS
1. What is a port of entry?
A port of entry refers to a domestic port
open to both foreign and coastwise trade
(Sec. 3514, TCC).
2. For customs purposes, who is
considered the owner of articles
imported into the Philippines?
All articles imported into the Phil. shall
be held to be the property of:
a. the person to whom the same are
consigned; or,
b. the holder of the bill of lading duly
endorsed by the consignee therein
named, or,
c. the underwriters of the abandoned
articles saved from a wreck at sea,
along a coast or in any area of the
Philippines (Sec. 1203, TCC)
3. Is a search warrant issued by a court
necessary to effect searches and
seizures under the TCC?
As a general rule, a search warrant is
customs code because of the Lifeblood
Theory. However, in case of searches of a
dwelling place, a search warrant issued by a
court is required.
4. When are personal and household
effects of a RETURNING resident
conditionally-free from duties?
 They are considered conditionally free
from duties when the returning resident:
a. Is a Filipino citizen;
b. Has stayed in a foreign country for a
period of at least six months.
5. Who is a BALIKBAYAN entitled to avail of
the tax-free purchase incentive at Duty-
free shops?
A Balikbayan is either a:
a. Filipino citizen who has been
continuously out of the Philippines for a
period of at least 1 year; or
b. Filipino overseas worker; or
c. Former Filipino .citizen, as well as his
family, who has been naturalized in a
foreign country and comes or returns to
the Philippines. (Sec. 2. [a], RA 6768).
The term family shall mean the spouse
and children of the balikbayan who are
not balikbayans in their own right (Sec.
2 [b]).
6. When can there be an automatic review
of the decision of the Collector of
Customs?
When the decision of the Collector of
Customs in seizure and protest cases is
adverse to the government, it shall
automatically be reviewed by the
Commissioner of Customs. If the amount
involved is P5 million and above, there will
be an automatic review by the Secretary of
Finance.
V. COURT OF TAX APPEALS (CTA):
RA 1125, effective June 16, 1954
1. Does the CTA possess advisory and
criminal jurisdiction?
It has no advisory jurisdiction. Neither
does it have criminal jurisdiction although it
can take cognizance over cases involving
the imposition by the Commissioner of
compromise penalties.
2. Whose decisions are appealable to the
CTA?
GENERAL RULE: Decisions of either
the Commissioner of Internal Revenue or
the Commissioner of Customs are
appealable to the CTA.
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Rev. Regulation No. 12-85 provides that
decisions of Regional Directors may be
appealed to the CTA. A Regional Director
possesses delegated powers to issue
assessment notices on behalf of the CIR. (In
Fortaleza vs. Collector, the Regional
Director's assessment was made with
endorsement of the Commissioner, so there
was no need for the petitioner to elevate his
case to the Commissioner).
EXCEPTION: In Commissioner of
Customs v. Planter's Products Inc, Mar. 16,
1989, while a claim for refund was still
pending in the Office of the Collector of
Customs, the importer was allowed to file an
appeal with the Tax Court even in the
absence of an administrative decision of the
claim for refund. The SC took note of the
fact that the prescriptive period for judicial
appeals on refunds (2 years) was about to
expire.
3. Who may appeal?
a. Any person, association or corporation
adversely affected by a decision of the
CIR/Customs;
b. Stockholders of a dissolved company;
c. Stockholders of a corporation who have
unpaid subscription.
Note:
The Government cannot appeal to the
CTA. The right is available only to persons,
associations, or corporations. Further, it is
not adversely affected by the decision of the
BIR since the BIR itself is an agency of the
Government.
4. What Decisions are Appealable?
• In Commissioner vs. Villa, Jan.
20, 1968, the term "decisions" in
Sec. 7 of RA 1125 was interpreted
to mean decisions of the CIR on the
protest of the taxpayer against the
assessments. Mere assessments of
the CIR are not appealable to the
CTA.
• In cases where the taxpayer
files several requests for
reconsideration of a protested
assessment and these requests for
reconsideration are all denied, the
appealable decision is the letter of
denial where the CIR not only
demanded payment BUT made a
 statement regarding a resort to legal
remedies.

• A reiteration of BIR's previous

demand for payment amounts to
finality of its decision.

• Administrative actions which are

tantamount to appealable decisions
(when the action to collect is by
judicial remedies).

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