1

I. General Principles

DeIinition and Concept oI Taxation

As a process, it is a means by which the soereign, through its law-making body,
raises reenue to deray the necessary expenses o the goernment. It is merely a way o
apportioning the costs o goernment among those who in some measures are priileged to
enjoy its beneits and must bear its burdens.
As a power, taxation reers to the inherent power o the state to demand enorced
contributions or public purpose or purposes.

1axation is a symbiotic relationship, whereby in exchange or the protection that the
citizens get rom the goernment, taxes are paid.
1


B Nature oI Taxation

1. It is an inherent attribute o soereignty
2. It is legislatie in character

C Characteristics oI Taxation

1. 1he power o taxation is an incident o soereignty as it is inherent in the State,
belonging as a matter o right to eery independent goernment. It does need constitutional
conerment. Constitutional proisions do not gie rise to the power to tax but merely
impose limitations on what would otherwise be an inincible power. No attribute o
soereignty is more perading, and at no point does the power o goernment aect more
constantly and intimately all the relations o lie than through the exactions made under it.
2


2. 1he power to tax is inherent in the State, and the State is ree to select the object
o taxation, such power being exclusiely ested in the legislature, except where the
Constitution proides otherwise.
3


1he Congress may by law authorize the President to ix within speciied limits, and
subject to such limitations and restrictions as it may impose, tari rates, import and export
quotas, tonnage and wharage dues, and other duties or imposts within the ramework o the
national deelopment program o the Goernment.

Lach local goernment unit shall hae the power to create its own sources o
reenues and to ley taxes, ees, and charges subject to such guidelines and limitations as the
Congress may proide, consistent with the basic policy o local autonomy. Such taxes, ees,
and charges shall accrue exclusiely to the local goernments.
4



1
commlsslooet of lotetool keveooe vs Alleqte loc et ol L28896 leb 17 1988
2
cbotcblll ooJ 1olt v coocepcloo 34 hll 969
3
ArL vl Sec 28 (2) ArL x Sec 3ArL vl Sec 28 par 2
4
ArL x Sec 3
2

3. It is subject to Constitutional and inherent limitations, hence, it is not an absolute
power that can be exercised by the legislature anyway it pleases.

D !ower oI Taxation Compared With Other !owers

1. Police Power
2. Power o Lminent Domain


%axation Police
Power
Lminent
Domain
Purpose
- leied or
the purpose
o raising
reenue
- exercised to
promote
public welare
thru
regulations
- taking o
property or public
use
Amount o exaction
- no limit

- limited to the
cost o
regulations,
issuance o the
license or
sureillance
- no exaction,
compensation paid
by the goernment
Beneits receied
- no special
or direct
beneits
receied but
the
enjoyment o
the priileges
o liing in an
organized
society
- no direct
beneits but a
healthy
economic
standard o
society or
aavvvv
ab.qve iv;vria
is attained
- direct beneit
results in the orm
o just
compensation
Non-impairment o contracts
- the
impairment
rule subsist
- contract may
be impaired
- contracts may be
impaired
1ranser o property rights
- taxes paid
become part
o public
unds
- no transer
but only
restraint on
the exercise o
property right
exists
- property is taken
by the go`t upon
payment o just
compensation
Scope
- aects all
persons,
property and
- aects all
persons,
property,
- aects only the
particular property
comprehended
3

excise priileges, and
een rights
Basis
- public
necessity
- public
necessity and
the right o
the state and
the public to
sel-protection
and sel-
preseration
-public necessity,
priate property is
taken or public
use
Authority which exercises the power
- only by the
goernment
or its political
subdiisions
- only by the
goernment or
its political
subdiisions
- may be granted
to public serice,
companies, or
public utilities

E !urpose oI Taxation

1 Reenue-raising

1o proide unds or property with which the State promotes the general welare and
protection o its citizens.

2. Non-reenue,special or regulatory

a. Promotion o General \elare - 1axation may be used as an implement o police
power in order to promote the general welare o the people.
5


b. Regulation As in the case o taxes leied on excises and priileges like those
imposed in tobacco or alcoholic products or amusement places like night clubs, cabarets,
cockpits, etc.
6


c. Reduction o Social Inequality - this is made possible through the progressie
system o taxation where the objectie is to preent the under-concentration o wealth in the
hands o ew indiiduals.

d. Lncourage Lconomic Growth - in the realm o tax exemptions and tax relies, or
instance, the purpose is to grant incenties or exemptions in order to encourage inestments
and thereby promote the country`s economic growth.

e. Protectionism - in some important sectors o the economy, as in the case o
oreign importations, taxes sometimes proide protection to local industries like protectie
taris and customs.

3
see otz vs Atooeto 98 hll 148 and Osmeo vs Otbos C no 99886 Mar 31 1993
6
ln Lhe case of coltex lblls loc vs cOA (C no 92383 May 8 1992) lL was held LhaL Laxes may also be
lmposed for a regulaLory purpose as for lnsLance ln Lhe rehablllLaLlon and sLablllzaLlon of a LhreaLened
lndusLry whlch ls affecLed wlLh publlc lndusLry llke Lhe oll lndusLry
4

F !rinciples oI Sound Tax System

1. liscal Adequacy

1he sources o tax reenue should coincide with, and approximate the needs o
goernment expenditure. Neither an excess nor a deiciency o reenue is-a-is the needs o
goernment would be in keeping with the principle.

2. Administratie leasibility

1ax laws should be capable o conenient, just and eectie administration

3. 1heoretical Justice

1he tax burden should be in proportion to the taxpayer`s ability to pay

. 1he 198
Constitution requires taxation to be equitable and uniorm.

G Theory and Basis oI Taxation

1. Lieblood 1heory

1axes are the lieblood o the goernment, being such, their prompt and certain
aailability is an imperious need.
8
\ithout taxes, the goernment would be paralyzed or lack
o motie power to actiate and operate it.

2. Necessity 1heory

1axes proceed upon the theory that the existence o the goernment is a necessity,
that it cannot continue without the means to pay its expenses, and that or those means, it
has the right to compel all citizens and properties within its limits to contribute.
9


3. Beneits-Protection 1heory
10


1he basis o taxation is the reciprocal duty o protection between the state and its
inhabitants. In return or the contributions, the taxpayer receies the general adantages and
protection which the goernment aords the taxpayer and his property.


7
ablllLyLopay prlnclple
8
collectot of lotetool keveooe vs CooJtlcb lotetootloool kobbet co SepL 6 1963
9
ln a case Lhe Supreme CourL held LhaL
1axaLlon ls a power emanaLlng from necesslLy lL ls a necessary burden Lo preserve Lhe SLaLe's
soverelgnLy and a means Lo glve Lhe clLlzenry an army Lo reslsL aggresslon a navy Lo defend lLs shores
from lnvaslon a corps of clvll servanLs Lo serve publlc lmprovemenLs deslgned for Lhe en[oymenL of Lhe
clLlzenry and Lhose whlch come wlLh Lhe SLaLe's LerrlLory and faclllLles and proLecLlon whlch a
governmenL ls supposed Lo provlde (lbll Cootooty co loc vs commlsslooet of lotetool keveooe 1J 5ckA
775)
10
SymbloLlc elaLlonshlp
3

4. Jurisdiction oer subject and objects

Rules:

a, 1ax laws cannot operate beyond a State`s territorial limits.
b, 1he goernment cannot tax a particular object o taxation which is not within its
territorial jurisdiction.
c, Property outside ones jurisdiction does not receie any protection o the State.
d, I a law is passed by Congress, Congress must always see to it that the object or
subject o taxation is within the territorial jurisdiction o the taxing authority.

H. Doctrines in Taxation

1. Prospectiity o tax laws

General Rule:

1axes must only be imposed prospectiely.

Lxception:

1he language o the statute clearly demands or express that it shall hae a
retroactie eect.

2. Imprescriptibility

General Rule:

1axes are imprescriptible.

Lxception:

\hen proided otherwise by the tax law itsel.
11


3. Double taxation

a. Strict sense

Reerred to as direct duplicate taxation, double taxation means:

1. 1axing twice,
2. by the same taxing authority,

11
Lxample nlC provldes for sLaLuLes of llmlLaLlon ln Lhe assessmenL and collecLlon of Laxes Lhereln
lmposed
1he law on prescrlpLlon belng a remedlal measure should be llberally consLrued Lo afford proLecLlon as
a corollary Lhe excepLlons Lo Lhe law on prescrlpLlon be sLrlcLly consLrued (Cl vs CA C no 104171
leb 24 1999)
6

3. within the same jurisdiction or taxing district,
4. or the same purpose,
5. in the same year or taxing period,
6. some o the property in the territory

b. Broad sense

Reerred to as indirect double taxation, double taxation is taxation other than direct
duplicate taxation. It extends to all cases in which there is a burden o two or more
impositions.

c. Constitutionality o double taxation

Unlike in the United States Constitution, our Constitution does not prohibit double
taxation.

loweer, while it is not orbidden, it is something not aored. Such taxation
should, wheneer possible, be aoided and preented.

In addition, where there is direct double taxation, there may be a iolation o the
constitutional precepts o equal protection and uniormity in taxation.

1he argument against double taxation may not be inoked where one tax is imposed
by the State and the other is imposed by the city, it being widely recognized that there is
nothing inherently obnoxious in the requirement that license ees or taxes be exacted with
respect to the same occupation, calling, or actiity by both the State and a political
subdiision thereo. And where the statute or ordinance in question, there is no inringement
o the rule on equality.
12


d. Modes o eliminating double taxation

1o eliminate double taxation, a tax treaty resorts to seeral methods. lirst, it sets out
the respectie rights to tax o the state o source or situs and o the state o residence with
regard to certain classes o income or capital . In some cases, an exclusi e ri ght
to tax is conerred on one o the contracting states, howeer, or other items o
income or capital, both states are gien the right to tax, although the amount o tax that
may be imposed by the state o source is limited. 1he second method or the elimination o
double taxation applies wheneer the state o source is gien a ull or l imited right to
tax together with the state o residence. In this case, the treaties make it incumbent
upon the state o residence to allow relie on order to aoid double taxation.

1here are two methods o relie

1. In the exemption method, the income or capital which is taxable at the state o
source or situs is exempted at the state o residence, although in some instances it may be

12
clty of 8oqolo v ue eoo 23 SCA 938
7

taken into account in determining the rate o tax applicable to the taxpayer`s remaining
income or capital.

2. In the credit method, although the income or capital which is taxed in the state o
source is still taxable in the state o residence, the tax paid in the ormer is credited against
the tax leied in the latter. 1he basic dierence between the two methods is that in the
exemption method, the ocus is on the income or capital, whereas the credit method ocuses
upon the tax.

4. Lscape rom taxation

a. Shiting o tax burden
13


1, \ays o shiting the tax burden
a. lorward shiting
\hen the burden o the tax is transerred rom a actor o production through the
actors o distribution until it inally settles on the ultimate purchaser or consumer.
14

b. Backward shiting
\hen the burden o the tax is transerred rom the consumer or purchaser through
the actors o distribution to the actors o production.
15

c. Onward shiting
\hen the tax is shited two or more times either orward or backward.
16


2, 1axes that can be shited

Only indirect taxes may be shited,
1
direct taxes
18
cannot be shited.

13
1he Lransfer of Lhe burden of a Lax by Lhe orlglnal payer or Lhe one on whom Lhe Lax was assessed or
lmposed Lo someone else
rocess by whlch such Lax burden ls Lransferred from sLaLuLory Laxpayer Lo anoLher wlLhouL vlolaLlng
Lhe law
WhaL ls Lransferred ls noL Lhe paymenL of Lhe Lax buL Lhe burden of Lhe Lax
14
Lxample
ManufacLurer or producer may shlfL Lax assessed Lo wholesaler who ln Lurn shlfLs lL Lo Lhe reLaller who
also shlfLs lL Lo Lhe flnal purchaser or consumer
13
Lxample
Consumer or purchaser may shlfL Lax lmposed on hlm Lo reLaller by purchaslng only afLer Lhe prlce ls
reduced and from Lhe laLLer Lo Lhe wholesaler or flnally Lo Lhe manufacLurer or producer
16
Lxample
1hus a Lransfer from Lhe seller Lo Lhe purchaser lnvolves one shlfL from Lhe producer Lo Lhe
wholesaler Lhen Lo reLaller we have Lwo shlfLs and lf Lhe Lax ls Lransferred agaln Lo Lhe purchaser by Lhe
reLaller we have Lhree shlfLs ln all
17
eg vA1
18
eg lncome Lax
8

3, Meaning o impact and incidence o taxation
Impact o taxation is the point on which a tax is originally imposed. In so ar as the
law is concerned, the taxpayer is the person who must pay the tax to the goernment. le is
also termed as the statutory taxpayer-the one on whom the tax is ormally assessed. le is the
subject o the tax.
Incidence o taxation is that point on which the tax burden inally rests or settle
down. It takes place when shiting has been eected rom the statutory taxpayer to another.

b. 1ax aoidance
19

1he exploitation o the taxpayer o legally permissible alternatie tax rates or
methods o assessing taxable property or income in order to aoid or reduce tax liability.

c. 1ax easion
20

1he use by the taxpayer o illegal or raudulent means to deeat or lessen the
payment o tax.

5. Lxemption rom taxation

a. Meaning o exemption rom taxation
It is the grant o immunity to particular persons or corporations or to persons or
corporations o a particular class rom a tax which persons and corporations generally within

19
also known as Lax mlnlmlzaLlon" lL ls noL punlshed by law
20
also known as Lax dodglng" lL ls punlshable by law
LlemenLs of Lax evaslon
1) 1he end Lo be achleved le paymenL of less Lhan LhaL known by Lhe Laxpayer Lo be legally due or
paylng no Lax when lL ls shown LhaL Lax ls due
2) An accompanylng sLaLe of mlnd whlch ls descrlbed as belng evll" ln bad falLh" wlllful" or
dellberaLe" and noL accldenLal"
3) A course of acLlon (or fallure of acLlon) whlch ls unlawful
lndlcla of fraud ln Lax evaslon
1) lallure Lo declare for LaxaLlon purposes Lrue and acLual lncome derlved from buslness for Lwo (2)
consecuLlve years or
2) SubsLanLlal under declaraLlon of lncome Lax reLurns of Lhe Laxpayer for four (4) consecuLlve years
coupled wlLh unlnLenLlonal oversLaLemenL of deducLlons
Lvldence Lo prove Lax evaslon
Slnce fraud ls a sLaLe of mlnd lL need noL be proved by dlrecL evldence buL may be proved from Lhe
clrcumsLances of Lhe case
lallure of Lhe Laxpayer Lo declare for LaxaLlon purposes hls Lrue and acLual lncome derlved from hls
buslness for Lwo (2) consecuLlve years ls an lndlcaLlon of hls fraudulenL lnLenL Lo cheaL Lhe governmenL of
lLs due Laxes (epubllc vs Conzales 13 SCA 638)



9

the same state or taxing district are obliged to pay. It is an immunity or priilege, it is
reedom rom a inancial charge or burden to which others are subjected.
21


b. Nature o tax exemption
1, It is a mere personal priilege o the grantee.
2, It is generally reocable by the goernment unless the exemption is ounded on a
contract which is contract which is protected rom impairment.
3, It implies a waier on the part o the goernment o its right to collect what
otherwise would be due to it, and so is prejudicial thereto.
4, It is not necessarily discriminatory so long as the exemption has a reasonable
oundation or rational basis.
5, It is not transerable except i the law expressly proides so.

c. Kinds o tax exemption

1, Lxpress
22


\hen certain persons, property or transactions are, by express proision, exempted
rom all certain taxes, either entirely or in part.

2, Implied
23


\hen a tax is leied on certain classes o persons, properties, or transactions without
mentioning the other classes.

Lery tax statute makes exemptions because o omissions.

3, Contractual

Agreed to by the taxing authority in contracts lawully entered into by them under
enabling laws.





21
LxempLlon ls allowed only lf Lhere ls a clear provlslon Lhere for
lL ls noL necessarlly dlscrlmlnaLory as long as Lhere ls a reasonable foundaLlon or raLlonal basls
LxempLlons are noL presumed buL when publlc properLy ls lnvolved exempLlon ls Lhe rule and LaxaLlon
ls Lhe exempLlon

or afflrmaLlve exempLlon
23
or exempLlon by omlsslon
no Lax exempLlon by lmpllcaLlon
lL musL be expressed ln clear and unmlsLakable language
10

d. Rationale,grounds or exemption
Rationale or granting tax exemptions:
Its aowed purpose is some public beneit or interests which the lawmaking body
considers suicient to oset the monetary loss entailed in the grant o the exemption.
1he theory behind the grant o tax exemptions is that such act will beneit the body
o the people. It is not based on the idea o lessening the burden o the indiidual owners o
property.
Grounds or granting tax exemptions:

1, May be based on contract. In such a case, the public, which is represented by the
goernment is supposed to receie a ull equialent thereor, i.e. charter o a corporation.

2, May be based on some ground o public policy, i.e., to encourage new industries
or to oster charitable institutions. lere, the goernment need not receie any consideration
in return or the tax exemption.

3, May be based on grounds o reciprocity or to lessen the rigors o international
double or multiple taxation.
24


e. Reocation o tax exemption

It is an act o liberality which could be taken back by the goernment unless there
are restrictions. Since taxation is the rule and taxation thererom is the exception, the
exemption may be withdrawn by the taxing authority.
25


6. Compensation and Set-o
26


General Rule:

1axes are not subject to set-o or legal compensation. 1he goernment and the
taxpayer are not creditors and debtors or each other. Obligations in the nature o debts are
due to the goernment in its corporate capacity, while taxes are due to the goernment in its
soereign capacity.
2






24
LqulLy ls noL a ground for Lax exempLlon LxempLlon ls allowed only lf Lhere ls a clear provlslon Lherefor
23
MacLan Cebu lnLernaLlonal AlrporL AuLhorlLy vs Marcos 261 SCA 667
26
equlslLes of CompensaLlon ln LaxaLlon (uomlngo v CarllLos)
1 1haL Lhe Lax assessed and Lhe clalm agalnsL Lhe governmenL be fully llquldaLed
2 1haL Lhe Lax assessed and Lhe clalm agalnsL Lhe governmenL ls due and demandable and3 1haL Lhe
governmenL had already approprlaLed funds for Lhe paymenL of Lhe clalm
27
lbllex Mloloq cotp vs clk 294 SCA 687 kepobllc vs Momboloo ombet co 6 SCA 622
11

Lxception:

\here both the claims o the goernment and the taxpayer against each other hae
already become due and demandable as well as ully liquated.
28


. Compromise

A contract whereby the parties, by reciprocal concessions, aoid litigation or put an
end to one already commenced.
29


8. 1ax amnesty

a. Deinition

A general pardon or intentional oerlooking by the State o its authority to impose
penalties on persons otherwise guilty o easion or iolation o a reenue to collect what
otherwise would be due it and, in this sense, prejudicial thereto.
30


b. Distinguished rom tax exemption
A tax amnesty, being a general pardon or intentional oerlooking by the Statute o its
authority to impose penalties on persons otherwise guilty o easion or iolation o a
reenue or tax law, partakes o an absolute orgieness or waier by the Goernment o its
right to collect what otherwise would be due it and, in this sense, prejudicial thereto,
particularly to tax eaders who wish to relent and are willing to reorm are gien a chance to
do so and thereore become a part o the society with a clean slate.
Like a tax exemption, a tax amnesty is neer aored nor presumed in law, and is
granted by statute. 1he terms o the amnesty must be strictly construed against the taxpayer

28
see uomloqo vs Cotlltos L18904 !une 29 1963
29
ArL 2028 new Clvll Code
equlslLes
1 1axpayer musL have a Lax llablllLy
2 1here musL be an offer by Laxpayer or Cl of an amounL Lo be pald by Laxpayer
3 1here musL be accepLance of Lhe offer ln seLLlemenL of Lhe orlglnal clalm
When Laxes may be compromlsed
1A reasonable doubL as Lo Lhe valldlLy lf Lhe clalm agalnsL Lhe Laxpayer exlsLs
2 1he flnanclal poslLlon of Lhe Laxpayer demonsLraLes a clear lnablllLy Lo pay Lhe assessed Lax
3 Crlmlnal vlolaLlons excepL
a 1hose already flled ln courL
b 1hose lnvolvlng fraud
30
1ax amnesLy llke Lax exempLlon ls never favored nor presumed ln law and lf granLed by sLaLuLe musL
be consLrued sLrlcLly agalnsL Lhe Laxpayer who musL show compllance wlLh Lhe law
1he governmenL ls noL esLopped from quesLlonlng Lhe Lax llablllLy even lf amnesLy Lax paymenLs were
already recelved
Lrroneous appllcaLlon and enforcemenL of Lhe law by publlc offlcers do noL block subsequenL correcL
appllcaLlon of Lhe sLaLuLe 1he governmenL ls never esLopped by mlsLakes or errors by lLs agenLs
12

and literally in aor o the goernment. Unlike a tax exemption, howeer, a tax amnesty has
limited applicability as to coer a particular taxing period or transaction only.
1ax exemption, on the other hand, is the grant o immunity to particular persons or
corporations o a particular class rom a tax o which persons and corporations generally
within the same state or taxing district are obliged to pay. 1ax exemptions are not aored
and are construed .tricti..ivi ;vri. against the taxpayer.


%ax amnesty %ax exemption

Immunity rom all criminal, ciil and
administratie liabilities arising rom
non-payment o taxes

Immunity rom ciil liability only

Applies only to past tax periods, hence
retroactie application

Prospectie application


9. Construction and Interpretation o:

a. 1ax laws

1, General Rule

1ax laws are liberally interpreted in aor o the taxpayer and strictly against the
goernment.

2, Lxception

Liberal interpretation does not apply to tax exemptions which should be construed
in .tricti..ivi ;vri. against the taxpayer.
31


b. 1ax exemption and exclusion

1, General Rule

In the construction o tax statutes, exemptions are not aored and are construed
.tricti..ivi ;vri. against the taxpayer.
32
1he undamental theory is that all taxable property
should bear its share in the cost and expense o the goernment.


31
eason Llfeblood docLrlne
32
SLrlcL lnLerpreLaLlon does noL apply Lo Lhe governmenL and lLs agencles
eLlLloner cannoL lnvoke Lhe rule of sttlctlsslml jotls wlLh respecL Lo Lhe lnLerpreLaLlon of sLaLuLes
granLlng Lax exempLlons Lo Lhe nC 1he rule on sLrlcL lnLerpreLaLlon does noL apply ln Lhe case of
exempLlons ln favor of a pollLlcal subdlvlslon or lnsLrumenLallLy of Lhe governmenL MoceJo v Mocotolq
13

1axation is the rule and exemption. le who claims exemption must be able to justiy
his claim or right thereto by a grant express in terms too plain to be mistaken and too
categorical to be misinterpreted.` I not expressly mentioned in the law, it must be at least
within its puriew by clear legislatie intent.

2, Lxceptions

1. \hen the law itsel expressly proides or a liberal construction thereo.
2. In cases o exemptions granted to religious, charitable and educational institutions
or to the goernment or its agencies or to public property because the general rule is that
they are exempted rom tax.

c. 1ax rules and regulations

1, General rule only

1hey shall not be gien retroactie application i the reocation, modiication or
reersal will be prejudicial to the taxpayers.
33


d. Penal proisions o tax laws

1ax laws are ciil and not penal in nature, although there are penalties proided or
their iolation.

1he purpose o tax laws in imposing penalties or delinquencies is to compel the
timely payment o taxes or to punish easion or neglect o duty in respect thereo.

e. Non-retroactie application to taxpayers

1, Lxceptions

A statute may operate retroactiely proided it is expressly declared or is clearly the
legislatie intent. But a tax law should not be gien retroactie application when it would be
harsh and oppressie.













33
Sec 246
14

I Scope and Limitation oI Taxation

1. Inherent Limitations

a. Public Purpose
34


1he tax must be used:

1, or the support o the state or
2, or some recognized objects o goernments or
3, directly to promote the welare o the community
35


b. Inherently Legislatie

1, General Rule

1axation is purely legislatie, Congress cannot delegate the power to others. 1his
limitation arises rom the doctrine o separation o powers among the three branches o
goernment.
2, Lxceptions

a, Delegation to local goernments
36


1he power o local goernment units to impose taxes and ees is always subject to
the limitations which the Congress may proide, the ormer haing no inherent power to
tax.
3


Municipal corporations are mere creations o Congress which has the power to
create and abolish municipal corporations. Congress thereore, has the power o control
oer local goernment units. I Congress can grant to a municipal corporation the power to
tax certain matters, it can also proide or exemptions or een to take back the power.


34
1esL ln deLermlnlng ubllc urposes ln Lax
a uuLy 1esL wheLher Lhe Lhlng Lo be LhreaLened by Lhe approprlaLlon of publlc revenue ls someLhlng
whlch ls Lhe duLy of Lhe SLaLe as a governmenL
b romoLlon of Ceneral Welfare 1esL wheLher Lhe law provldlng Lhe Lax dlrecLly promoLes Lhe
welfare of Lhe communlLy ln equal measure
33
LaxaLlon as an lmplemenL of pollce power
1he Lerm publlc purpose" ls synonymous wlLh governmenLal purpose" a purpose affecLlng Lhe
lnhablLanLs of Lhe sLaLe or Laxlng dlsLrlcL as a communlLy and noL merely as lndlvlduals
A Lax levled for a prlvaLe purpose consLlLuLes a Laklng of properLy wlLhouL due process of law
1he purposes Lo be accompllshed by LaxaLlon need noL be excluslvely publlc AlLhough prlvaLe
lndlvlduals are dlrecLly beneflLed Lhe Lax would sLlll be valld provlded such beneflL ls only lncldenLal
1he LesL ls noL as Lo who recelves Lhe money buL Lhe characLer of Lhe purpose for whlch lL ls expended
noL Lhe lmmedlaLe resulL of Lhe expendlLure buL raLher Lhe ulLlmaLe
ln Lhe lmposlLlon of Laxes publlc purpose ls presumed
36
ArL x Sec 3 1987 ConsLlLuLlon
37
8osco v lACcOk
13

1he power to tax is primarily ested in the Congress, howeer, in our jurisdiction, it
may be exercised by local legislatie bodies, no longer merely by irtue o a alid delegation
but pursuant to direct authority conerred by Section 5, Article X o the198 Constitution,
subject to guidelines and limitations which Congress may proide which must be consistent
with the basic policy o local autonomy.
38


b, Delegation to the President
39


1he power granted to Congress under this constitutional proision to authorize the
President to ix within speciied limits and subject to such limitations and restrictions as it
may impose, tari rates and other duties and imposts include taris rates een or reenue
purposes only. Customs duties which are assessed at the prescribed tari rates are ery much
like taxes which are requently imposed or both reenue-raising and regulatory purposes.
40


c, Delegation to administratie agencies

\ith respect to aspects o taxation not legislatie in character

lor the delegation to be constitutionally alid, the law must be complete in itsel and
must set orth suicient standards.

c. 1erritorial

1, Situs o 1axation
42


a, Meaning

Literally means the place o taxation.`

State where the subject to be taxed has a situs may rightully ley and collect the tax


38
MclAA v Motcos 261 SCA 667
39
ArLvl Sec 28(2) 1987 ConsLlLuLlon
40
Cotclo vs xecotlve 5ectetoty eL al C no 101273 !uly 3 1992
41
example assessmenL and collecLlon
CerLaln aspecLs of Lhe Laxlng process LhaL are noL really leglslaLlve ln naLure are vesLed ln
admlnlsLraLlve agencles ln Lhese cases Lhere really ls no delegaLlon Lo wlL
a) power Lo value properLy
b) power Lo assess and collecL Laxes
c) power Lo perform deLalls of compuLaLlon appralsemenL or ad[usLmenLs
42
lL ls an lnherenL mandaLe LhaL LaxaLlon shall only be exerclsed on persons properLles and exclse
wlLhln Lhe LerrlLory of Lhe Laxlng power because
1) 1ax laws do noL operaLe beyond a counLry's LerrlLorlal llmlL
2) roperLy whlch ls wholly and excluslvely wlLhln Lhe [urlsdlcLlon of anoLher sLaLe recelves none of
Lhe proLecLlon for whlch a Lax ls supposed Lo be compensaLlon
Powever Lhe fundamenLal basls of Lhe rlghL Lo Lax ls Lhe capaclLy of Lhe governmenL Lo provlde
beneflLs and proLecLlon Lo Lhe ob[ecL of Lhe Lax A person may be Laxed even lf he ls ouLslde Lhe Laxlng
sLaLe where Lhere ls beLween hlm and Lhe Laxlng sLaLe a prlvlLy of relaLlonshlp [usLlfylng Lhe levy
16

1he place or the authority that has the power to collect taxes. It is premised upon
the symbiotic relation between the taxpayer and the State.

1he place that gies protection is the place that has the right to demand that it be
supported in the orm o taxes so it could continually gie protection.

b, Situs o Income 1ax
43


1,lrom sources within the Philippines

i. Interests deried rom sources within the Philippines, and interest on bonds, notes or
other interest-bearing obligations o residents, corporate or otherwise

ii. Diidends

iii. Compensation or labor or personal serices perormed in the Philippines

i. Rentals and royalties rom property located in the Philippines or rom any interest in
such property, including rentals or royalties or:

,a, 1he use o or the right or priilege to use in the Philippines any copyright,
patent, design or model, plan, secret ormula or process,
goodwill, trademark, trade brand or other like property or right,

,b, 1he use o, or the right to use in the Philippines any industrial, commercial
or scientiic equipment,

,c, 1he supply o scientiic, technical, industrial or commercial
knowledge or
inormation,

,d, 1he supply o any assistance that is ancillary and subsidiary to, and is urnished
as a means o enabling the application or enjoyment o, any such property or right as is
mentioned in paragraph ,a,, any such equipment as is mentioned in paragraph ,b, or
any such knowledge or inormation as is mentioned in paragraph ,c,,

,e, 1he supply o serices by a nonresident person or his employee in connection
with the use o property or rights belonging to, or the installation or operation o any
brand,

43
Sec 42
1heorles
A) domlclllary Lheory
Lhe locaLlon where Lhe lncome earner resldes ls Lhe slLus of LaxaLlon
8) naLlonallLy Lheory
Lhe counLry where Lhe lncome earner ls a clLlzen ls Lhe slLus of LaxaLlon
C) source rule
Lhe counLry whlch ls Lhe source of Lhe lncome or where Lhe acLlvlLy LhaL produced Lhe lncome Look place
ls Lhe slLus of LaxaLlon

17

machinery or other apparatus purchased rom such nonresident person,

,, 1echnical adice, assistance or serices rendered in connection with technical
management or administration o any scientiic, industrial or commercial undertaking,
enture, project or scheme, and

,g, 1he use o or the right to use:

,i, Motion picture ilms,
,ii, lilms or ideo tapes or use in connection with teleision, and
,iii, 1apes or use in connection with radio broadcasting.

,h, Gains, proits and income rom the sale o real property located in the
Philippines

,i, Gains, proits and income rom the sale o personal property

2, lrom sources without the
Philippines

,1, Interests other than those deried rom sources within the Philippines as proided in 1,
,i,.
,2, Diidends other than those deried rom sources within the Philippines as proided in 1,
,ii,.

,3, Compensation or labor or personal serices perormed without the Philippines,

,4, Rentals or royalties rom property located without the Philippines or rom any interest in
such property including rentals or royalties or the use o or or the priilege o using without the
Philippines, patents, copyrights, secret processes and ormulas,
goodwill, trademarks, trade brands, ranchises and other like properties, and

,5, Gains, proits and income rom the sale o real property located without the Philippines

3, Income partly within and partly
without the Philippines

Allocated or apportioned to sources within or without the Philippines, under the rules and
regulations prescribed by the Secretary o linance, upon recommendation o the Commissioner.

lor the purpose o computing the taxable income thererom, where items o gross income
are separately allocated to sources within the Philippines, there shall be deducted:

,a, the expenses, losses and other deductions properly apportioned or allocated thereto, and

,b, a ratable part o other expenses, losses or other deductions which cannot deinitely be
allocated to some items or classes o gross income. 1he remainder, i any, shall be included in ull as
taxable income rom sources within the Philippines.



18

c, Situs o Property 1axes

,1, 1axes on Real Property

1he place where the property is located because it is that place that gies protection.
1he applicable concept is e .itv. or e rei .itae
44


,2, 1axes on Personal Property

- Mobiia .eqvvtvr er.ovav
45

Rules:
1, 1angible personal property
- \here located, usually the owner`s domicile
2, Intangiblle personal property
General Rule - Domicile o the owner
Lxception: 1he situs location not domicile
46


d, Situs o Lxcise 1ax

1he place where the priilege is exercised because it is that place that gies
protection.
4


44
We can only lmpose properLy Lax on Lhe properLles of a person whose resldence ls ln Lhe hlllpplnes
43
movables follow Lhe owner
movables follow Lhe domlclle of Lhe owner
46
Where Lhe lnLanglble personal properLy has acqulred a buslness slLus ln anoLher [urlsdlcLlon
1he prlnclple of Moblllo 5epootot letsooom" ls only for purposes of convenlence lL musL yleld Lo Lhe
acLual slLus of such properLy
ersonal lnLanglble properLles whlch acqulres buslness slLus here ln Lhe hlllpplnes
1) lranchlse whlch ls exerclsed wlLhln Lhe hlllpplnes
2) Shares obllgaLlons bonds lssued by a domesLlc corporaLlon
3) Shares obllgaLlons bonds lssued by a forelgn corporaLlon 83 of lLs buslness ls conducLed ln Lhe
hlllpplnes
4) Shares obllgaLlons bonds lssued by a forelgn corporaLlon whlch shares of sLock or bonds acqulre
slLus here
3) lghLs lnLeresL ln a parLnershlp buslness or lndusLry esLabllshed ln Lhe hlllpplnes
1hese lnLanglble properLles acqulre buslness slLus here ln Lhe hlllpplnes you cannoL apply Lhe prlnclple
of Moblllo 5epootot letsooom" because Lhe properLles have acqulred slLus here
47
where Lhe LransacLlon performed
1he power Lo levy an exclse upon Lhe performance of an acL or Lhe engaglng ln an occupaLlon does noL
depend upon Lhe domlclle of Lhe person sub[ecL Lo Lhe exerclse nor upon Lhe physlcal locaLlon of Lhe
properLy or ln connecLlon wlLh Lhe acL or occupaLlon Laxed buL depends upon Lhe place on whlch Lhe acL
ls performed or occupaLlon engaged ln
19

,1, Lstate 1ax

Determined by the nationality and residence o the taxpayer and the place where the
property is located.

,2, Donor`s 1ax
48


e, Situs o Business 1ax

,1, Sale o Real Property

1he tax situs is the place or location o the real property.
49


,2, Sale o Personal Property

In determining the tax situs, one should consider the place o sale.

,3, VA1

1he tax situs is where the sale, barter, exchange or lease o goods or properties and
serices in the Philippines and on importation o goods into the Philippines was perormed.

d. International Comity

1he property o a oreign state or goernment may not be taxed by another.
50


e. Lxemption o Goernment Lntities, Agencies, and
Instrumentalities
Agencies perorming goernmental unctions
- tax exempt
51


1hus Lhe gauge of LaxablllLy does noL depend on Lhe locaLlon of Lhe offlce buL aLLaches upon Lhe place
where Lhe respecLlve LransacLlon ls perfecLed and consummaLed (Popewell vs Com of CusLoms)
48
lbld
49
So lf Lhe properLy sold ls slLuaLed wlLhln Lhe hlls Lhe lncome derlved from such sale ls consldered as
lncome wlLhln
30
1he grounds for Lhe above are
1) soverelgn equallLy among sLaLes
2) usage among sLaLes LhaL when one enLer lnLo Lhe LerrlLory of anoLher Lhere ls an lmplled
undersLandlng LhaL Lhe power does noL lnLend Lo degrade lLs dlgnlLy by placlng lLself under Lhe
[urlsdlcLlon of Lhe laLLer
3) forelgn governmenL may noL be sued wlLhouL lLs consenL so LhaL lL ls useless Lo assess Lhe Lax slnce lL
cannoL be collecLed
4) reclproclLy among sLaLes
31
1he exempLlon applles only Lo governmenLal enLlLles Lhrough whlch Lhe governmenL lmmedlaLely and
dlrecLly exerclses lLs soverelgn powers
20

Agencies perorming proprietary unctions
- subject to tax

2. Constitutional Limitations

a. Proisions Directly Aecting 1axation
52


1, Prohibition against imprisonment or non-payment o poll
tax

No person shall be imprisoned or debt or non-payment o poll tax.
53


2, Uniormity and equality o taxation

1he rule o taxation shall be uniorm and equitable. 1he Congress shall eole a
progressie system o taxation.
54


3, Grant by Congress o authority to the President to impose
tari rates

x x x 1he Congress may, by law, authorize the President to ix within speciied limits,
and subject to such limitations and restrictions as it may impose, tari rates, import and

1ax exempLlon of properLy owned by Lhe epubllc of Lhe hlllpplnes refers Lo Lhe properLy owned by
Lhe governmenL and lLs agencles whlch do noL have separaLe and dlsLlncL personallLy (-uc vs cebo clty)
1hose creaLed by speclal charLer (lncorporaLed agencles) are noL covered by Lhe exempLlon
32
under Lhe 1987 consLlLuLlon
33
Sec 20 ArL lll
1he only penalLy for dellnquency ln paymenL ls Lhe paymenL of surcharge ln Lhe form of lnLeresL aL Lhe
raLe of 24 per annum whlch shall be added Lo Lhe unpald amounL from due daLe unLll lL ls pald (Sec
161 LCC)
1he prohlblLlon ls agalnsL lmprlsonmenL" for nonpaymenL of poll Lax" 1hus a person ls sub[ecL Lo
lmprlsonmenL for vlolaLlon of Lhe communlLy Lax law oLher Lhan for nonpaymenL of Lhe Lax and for non
paymenL of oLher Laxes as prescrlbed by law
1he nonlmprlsonmenL rule applles Lo nonpaymenL of poll Lax whlch ls punlshable only by a surcharge
buL noL Lo oLher vlolaLlons llke falslflcaLlon of communlLy Lax cerLlflcaLe or nonpaymenL of oLher Laxes
34
Sec 28(1) ArL vl
unlformlLy (equallLy or equal proLecLlon of Lhe laws) means all Laxable arLlcles or klnds or properLy of
Lhe same class shall be Laxed aL Lhe same raLe A Lax ls unlform when Lhe same force and effecL ln every
place where Lhe sub[ecL of lL ls found
LqulLable means falr [usL reasonable and proporLlonaLe Lo one's ablllLy Lo pay
rogresslve sysLem of 1axaLlon places sLress on dlrecL raLher Lhan lndlrecL Laxes or on Lhe Laxpayers'
ablllLy Lo pay
lnequallLy whlch resulLs ln slngllng ouL one parLlcular class for LaxaLlon or exempLlon lnfrlnges no
consLlLuLlonal llmlLaLlon (see commlsslooet vs loqoyeo Colf lecttlc 164 SCA 27)
1he rule of unlformlLy does noL call for perfecL unlformlLy or perfecL equallLy because Lhls ls hardly
aLLalnable
21

export quotas, tonnage and wharage dues, and other duties or imposts within the
ramework o the national deelopment program o the goernment.
55

4, Prohibition against taxation o religious, charitable entities,
and educational entities

Subject to the conditions prescribed by law, all grants, endowments, donations or
contributions used actually, directly and exclusiely or educational purposes shall be exempt
rom tax.
56


5, Prohibition against taxation o non-stock, non-proit
institutions
All reenues and assets o non-stock, non-proit educational institutions used
actually, directly, and exclusiely or educational purposes shall be exempt rom taxes and
duties.
5


33
equlslLes for exempLlon
1) lL musL be a prlvaLe educaLlonal lnsLlLuLlon
2) lL musL be nonsLock and nonproflL
3) lL's asseLs (properLy) and revenues (lncome) musL be used acLually dlrecLly and excluslvely for
educaLlonal purposes
ules
1) lf Lhe flrsL requlslLe ls absenL (meanlng lL's a governmenL educaLlonal lnsLlLuLlon) lL ls noneLheless
exempL from lncome Lax
2) lf Lhe second requlremenL ls absenL (meanlng lL ls sLock and proflL) as long as Lhe Lhlrd requlremenL
ls presenL lL ls noneLheless exempL from real esLaLe Lax
3) lf Lhe Lhlrd requlremenL ls absenL as long as lL ls nonsLock and nonproflL lL ls noneLheless exempL
from lncome Lax
4) lf Lhe Lhlrd requlremenL ls absenL buL lL ls prlvaLe and nonproflL lL ls sub[ecL Lo lncome Lax buL aL
Lhe preferenLlal raLe of Len percenL (10)
under Lhe presenL Lax code for a prlvaLe educaLlonal lnsLlLuLlon Lo be exempL from Lhe paymenL of
lncome Lax all lL has Lo be ls nonsLock and nonproflL Powever a governmenLal educaLlonal lnsLlLuLlon ls
exempL from lncome Lax wlLhouL any condlLlon
LxempLlon does noL exLend Lo
1) lncome derlved by Lhese educaLlonal lnsLlLuLlons from Lhelr properLy real or personal and
2) lrom acLlvlLles conducLed by Lhem for proflL regardless of Lhe dlsposlLlon made on such lncome
36
Sec 4(4) ArL xlv
1he exempLlon granLed Lo nonsLock nonproflL educaLlonal lnsLlLuLlon covers lncome properLy and
donor's Laxes and cusLom duLles
1o be exempL from Lax or duLy Lhe revenue asseLs properLy or donaLlon musL be used acLually
dlrecLly and excluslvely for educaLlonal purpose
ln Lhe case or rellglous and charlLable enLlLles and nonproflL cemeLerles Lhe exempLlon ls llmlLed Lo
properLy Lax
1he sald consLlLuLlonal provlslon granLlng Lax exempLlon Lo nonsLock nonproflL educaLlonal lnsLlLuLlon
ls selfexecuLlng
1ax exempLlons however of proprleLary (for proflL) educaLlonal lnsLlLuLlons requlre prlor leglslaLlve
lmplemenLaLlon 1helr Lax exempLlon ls noL selfexecuLlng
Lands 8ulldlngs and lmprovemenLs acLually dlrecLly and excluslvely used for educaLlonal purposed
are exempL from properLy Lax wheLher Lhe educaLlonal lnsLlLuLlon ls proprleLary or nonproflL
37
Sec 4 (3) ArL xlv
22

6, Majority ote o Congress or grant o tax exemption

No law granting any tax exemption shall be passed without the concurrence o a
majority o all the members o the Congress.
58


, Prohibition on use o tax leied or special purpose

All money collected or any tax leied or a special purpose shall be treated as a
special und and paid out or such purpose only. I the purpose or which a special und was
created has been ulilled or abandoned the balance, i any, shall be transerred to the general
unds o the goernment.
59


8, President`s eto power on appropriation, reenue, tari
bills

1he President shall hae the power to eto any particular item or items in an
Appropriation, Reenue or 1ari bill but the eto shall not aect the item or items to which
he does not object.
60


9, Non-impairment o jurisdiction o the Supreme Court

1he Congress shall hae the power to deine, prescribe, and apportion the
jurisdiction o the arious courts but may not deprie the Supreme Court o its jurisdiction
oer cases enumerated in Sec. 5 hereo.
61


1he Supreme Court shall hae the ollowing powers: x x x ,2, Reiew, reise, modiy
or airm on appeal or certiorari x x x inal judgments and orders o lower courts in x x x all
cases inoling the legality o any tax, impost, assessment, or toll or any penalty imposed in
relation thereto.
62


roceeds of Lhe sale of real properLy by Lhe oman CaLhollc church ls exempL from lncome Lax because
Lhe LransacLlon was an lsolaLed one (Manlla olo Club vs C1A)
lncome derlved from Lhe hosplLal pharmacy dormlLory and canLeen was exempL from lncome Lax
because Lhe operaLlon of Lhose enLlLles was merely lncldenLal Lo Lhe prlmary purpose of Lhe exempL
corporaLlon (SL aul PosplLal of llollo vs Cl)
Where Lhe educaLlonal lnsLlLuLlon ls prlvaLe and nonproflL (buL a sLock corporaLlon) lL ls sub[ecL Lo
lncome Lax buL aL Lhe preferenLlal raLe of Len percenL (10)
38
Sec 28(4) ArL vl
1he provlslon requlres Lhe concurrence of a ma[orlLy noL of aLLendees consLlLuLlng a quorum buL of all
members of Lhe Congress
39
Sec 29(3) ArL vl
An example ls Lhe Cll rlce SLablllzaLlon lund creaLed under u 1936 Lo sLablllze Lhe prlces of
lmporLed crude oll ln a declde case lL was held LhaL where under an execuLlve order of Lhe resldenL Lhls
speclal fund ls Lransferred from Lhe general fund Lo a LrusL llablllLy accounL" Lhe consLlLuLlonal mandaLe
ls noL vlolaLed 1he CSl accordlng Lo Lhe courL remalns as a speclal fund sub[ecL Lo CCA audlL (Osmeo
vs Otbos eL al C no 99886 Mar 31 1993)
60
Sec 27(2) ArL vl
61
Sec 3 (2) ArL vlll
62
Sec 3 (2b) ld
23

10, Grant o power to the local goernment units to create its
own sources o reenue
Lach local goernment unit has the power to create its own reenue and to ley
taxes, ees and charges subject to such guidelines and limitations as the Congress may
proide.
63


11, llexible tari clause
In the interest o national economy, general welare and,or national security, the
President upon the recommendation o the National Lconomic and Deelopment Authority
is empowered:
1, 1o increase, reduce or remoe existing protectie rates o import duty, roriaea that
the increase should not be higher than 100 ad alorem
2, 1o establish import quota or to ban imports o any commodity
3, 1o impose additional duty on all imports not exceeding 10 ad alorem.
64


12, Lxemption rom real property taxes

Charitable institutions, churches and parsonages or conents appurtenant thereto,
mosques, non-proit cemeteries, and all lands, building, and improements actva airect ava
ecv.ire used or religious, charitable or educational purposes shall be exempt rom
taxation.
65


Congress cannoL Lake away from Lhe Supreme CourL Lhe power glven Lo lL by Lhe ConsLlLuLlon as Lhe
flnal arblLer of Lax cases
63
Sec 3 ArL x
Local governmenL unlLs have no power Lo furLher delegaLe sald consLlLuLlonal granL Lo ralse revenue
because whaL ls delegaLed ls noL Lhe enacLmenL or Lhe lmposlLlon of a Lax lL ls Lhe admlnlsLraLlve
lmplemenLaLlon
1he power of local governmenL unlLs Lo lmpose Laxes and fees ls always sub[ecL Lo Lhe llmlLaLlons
whlch Congress may provlde Lhe former havlng no lnherenL power Lo Lax
Munlclpal corporaLlons are mere creaLures of Congress whlch has Lhe power Lo creaLe and abollsh
munlclpal corporaLlons Congress Lherefore has Lhe power Lo conLrol over local governmenL unlLs lf
Congress can granL Lo a munlclpal corporaLlon Lhe power Lo Lax cerLaln maLLers lL can also provlde for
exempLlons or even Lake back Lhe power (8asco vs ACCC)
64
Sec 401 1CC
63
Sec 28(3) ArL vl
LesL of Lhe Lax exempLlon Lhe use and noL ownershlp of Lhe properLy
1o be LaxexempL Lhe properLy musL be acLually dlrecLly and excluslvely used for Lhe purposes
menLloned
1he word excluslvely" means prlmarlly'
1he exempLlon ls noL llmlLed Lo properLy acLually lndlspensable buL exLends Lo faclllLles whlch are
lncldenLal Lo and reasonably necessary for Lhe accompllshmenL of sald purposes
1he consLlLuLlonal exempLlon applles only Lo properLy Lax
Powever lL would seem LhaL under exlsLlng law glfLs made ln favor or rellglous charlLable and
educaLlonal organlzaLlons would neverLheless quallfy for donor's glfL Lax exempLlon (Sec 101(9)(3) nlC)
1he consLlLuLlonal Lax exempLlons refer only Lo real properLy LhaL are acLually dlrecLly and excluslvely
used for rellglous charlLable or educaLlonal purposes and LhaL Lhe only consLlLuLlonally recognlzed
24

13, No appropriation or use o public money or religious
purposes

No public money or property shall be appropriated, applied, paid or employed,
directly or indirectly or the use, beneit, support o any sect, church, denomination,
sectarian institution, or system o religion or o any priest, preacher, minister, or other
religious teacher or dignitary as such except when such priest, preacher, minister or dignitary
is assigned to the armed orces or to any penal institution, or goernment orphanage or
leprosarium.
66


b. Proisions Indirectly Aecting 1axation

1, Due process

No person shall be depried o lie, liberty or property without due process o law
6

x x x.

2, Lqual protection

xxx Nor shall any person be denied the equal protection o the laws.
68


3, Religious reedom

No law shall be made respecting an establishment o religion or prohibiting the ree
exercise thereo. 1he ree exercise and enjoyment o religious proession and worship,
without discrimination or preerence, shall be oreer allowed.
69
x x x

4, Non-impairment o obligations o contracts

No law impairing the obligation o contract shall be passed.
0


exempLlon from LaxaLlon of revenues are Lhose earned by nonproflL nonsLock educaLlonal lnsLlLuLlons
whlch are acLually dlrecLly and excluslvely used for educaLlonal purposes (Commlssloner of lnLernal
evenue v CourL of Appeals eL al 298 SCA 83)
66
Sec 29(2) ArL vl
ubllc properLy may be leased Lo a rellglous group provlded LhaL Lhe lease wlll be LoLally under Lhe
same condlLlons as LhaL Lo prlvaLe persons (amounL of renL)
Congress ls wlLhouL power Lo approprlaLe funds for a prlvaLe purpose
67
Sec 1 ArL lll
68
lbld
69
Sec 3 ArL lll
Llcense fees/Laxes would consLlLuLe a resLralnL on Lhe freedom of worshlp as Lhey are acLually ln Lhe
naLure of a condlLlon or permlL of Lhe exerclse of Lhe rlghL
Powever Lhe ConsLlLuLlon or Lhe lree Lxerclse of ellglon clause does noL prohlblL lmposlng a generally
appllcable sales and use Lax on Lhe sale of rellglous maLerlals by a rellglous organlzaLlon (see 1oleotloo vs
5ectetoty of lloooce 233 SCA 630)
70
Sec 10 ArL lll
A law whlch changes Lhe Lerms of Lhe conLracL by maklng new condlLlons or changlng Lhose ln Lhe
conLracL or dlspenses wlLh Lhose expressed lmpalrs Lhe obllgaLlon
23

J Stages oI Taxation

1. Ley

Determination o the persons, property or excises to be taxed, the sum or sums to be
raised, the due date thereo and the time and manner o leying and collecting taxes ,strictly
speaking, such reers to taxation,

2. Assessment and Collection

Consists o the manner o enorcement o the obligation on the part o those who
are taxed.
1


1he two processes together constitute the taxation system.`

3. Payment

1he act o the taxpayer in settling his obligations.

4. Reund

1he actual reimbursement o tax to the taxpayer by the goernment.

K DeIinition, Nature, and Characteristics oI Taxes

Deinition

1axes are the enorced proportional contributions rom persons and property leied
by the law-making body o the State by irtue o its soereignty or the support o
goernment and or public needs.

Nature

1hey are not arbitrary exactions but contributions leied by authority o law, and by
some rule o proportion which is intended to ensure uniormity o contribution and a just
apportionment o the burdens o goernment.

Lssential Characteristic o 1axes

1, It is leied by the law-making body o the State.
2

2, It is an enorced contribution.
3


1he nonlmpalrmenL rule however does noL apply Lo publlc uLlllLy franchlse slnce a franchlse ls sub[ecL
Lo amendmenL alLeraLlon or repeal by Lhe Congress when Lhe publlc lnLeresL so requlres
71
Lhls lncludes paymenL by Lhe Laxpayer and ls referred Lo as Lax admlnlsLraLlon
72
1he power Lo Lax ls a leglslaLlve power whlch under Lhe ConsLlLuLlon only Congress can exerclse Lhrough
Lhe enacLmenL of laws Accordlngly Lhe obllgaLlon Lo pay Laxes ls a sLaLuLory llablllLy
26

3, It is generally payable in money.
4

4, It is proportionate in character.
5

5, It is leied on persons or property.
6

6, It is leied or public purpose or purposes.

, It is leied by the State which has jurisdiction oer the persons or property.
8


L Requisites oI a valid tax

1, It should be or a public purpose
2, 1he rule o taxation should be uniorm
3, 1hat either the person or property taxed be within the jurisdiction o the taxing
authority
4, 1hat the assessment and collection be in consonance with the due process clause
5, 1he tax must not inringe on the inherent and constitutional limitations o the
power o taxation.
9


M Tax as distinguished Irom other Iorms oI exactions

1. 1ari

It may be used in 3 senses:

a. As a book o rates drawn usually in alphabetical order containing the names o
seeral kinds o merchandise with the corresponding duties to be paid or the same.
b. As duties payable on goods imported or exported.
80

c. As the system or principle o imposing duties on the importation,exportation o
goods.

2. 1oll

Sum o money or the use o something, generally applied to the consideration which
is paid or the use o a road, bridge o the like, o a public nature.





73
A Lax ls noL a volunLary paymenL or donaLlon lL ls noL dependenL on Lhe wlll or conLracLual assenL
express or lmplled of Lhe person Laxed 1axes are noL conLracLs buL poslLlve acLs of Lhe governmenL
74
1ax ls a pecunlary burden an exacLlon Lo be dlscharged alone ln Lhe form of money whlch musL be ln
legal Lender unless quallfled by law such as A 304 whlch allows backpay cerLlflcaLes as paymenL of
Laxes
73
lL ls ordlnarlly based on Lhe Laxpayer's ablllLy Lo pay
76
A Lax may also be lmposed on acLs LransacLlons rlghLs or prlvlleges
77
1axaLlon lnvolves and a Lax consLlLuLes a burden Lo provlde lncome for publlc purposes
78
1he persons properLy or servlce Lo be Laxed musL be sub[ecL Lo Lhe [urlsdlcLlon of Lhe Laxlng sLaLe
79
1axes are Lhe llfeblood of Lhe governmenL and should be collecLed wlLhouL unnecessary hlndrance 8uL
Lhelr collecLlon should noL be LalnLed wlLh arblLrarlness
80
u no 230
27














3. License ee

A charge imposed under the police power or the purposes o regulation.
81


%ax vs License/Permit Iee
1. enorced contribution
assessed by soereign
authority to deray public
expenses
1. legal compensation or
reward o an oicer or
speciic purposes
2. or reenue purposes 2. or regulation purposes
3. an exercise o the taxing
power
3. an exercise o the police
power
4. generally no limit in the
amount o tax to be paid
4. amount is limited to the
necessary expenses o
inspection and regulation
5. imposed also on persons
and property
5. imposed on the right to
exercise priilege
6. non-payment does not
necessarily make the act or
business illegal
6. non-payment makes the
act or business illegal

81
1hree klnds of llcenses are recognlzed ln Lhe law
1 Llcenses for Lhe regulaLlon of useful occupaLlons
2 Llcenses for Lhe regulaLlon or resLrlcLlon of nonuseful occupaLlons or enLerprlses
3 Llcenses for revenue only
lmporLance of Lhe dlsLlncLlons beLween Lax and llcense fee
1 Some llmlLaLlons apply only Lo one and noL Lo Lhe oLher and LhaL exempLlon from Laxes may noL
lnclude exempLlon from llcense fees
2 1he power Lo regulaLe as an exerclse of pollce power does noL lnclude Lhe power Lo lmpose fees for
revenue purposes (see Amerlcan Mall Llne vs ClLy of 8uLuan L12647 May 31 1967 and relaLed cases)
3 An exLracLlon however maybe consldered boLh a Lax and a llcense fee
4 8uL a Lax may have only a regulaLory purpose
3 1he general rule ls LhaL Lhe lmposlLlon ls a Lax lf lLs prlmary purpose ls Lo generaLe revenue and
regulaLlon ls merely lncldenLal buL lf regulaLlon ls Lhe prlmary purpose Lhe facL LhaL lncldenLally revenue
ls also obLalned does noL make Lhe lmposlLlon of a Lax (see ltoqtesslve uevelopmeot cotp vs Ooezoo
clty 172 SCA 629)

%ax vs %oll
1. demand o soereignty 1. demand o
proprietorship
2. paid or the support o
the goernment
2. paid or the use o
another`s property
3. generally, no limit as to
amount imposed
3. amount depends on the
cost o construction or
maintenance o the public
improement used
4. imposed only by the
goernment
4. imposed by the
goernment or priate
indiiduals or entities
28


4. Special assessment

An enorced proportional contribution rom owners o lands especially or peculiarly
beneited by public improements.
82



%ax vs Special Assessment
1. imposed on persons,
property and excise
1. leied only on land
2. personal liability o the
person assessed
2. not a personal liability o
the person assessed, i.e. his
liability is limited only to
the land inoled
3. based on necessity as
well as on beneits receied
3. based wholly on beneits
4. general application ,see
Apostolic Preect s 1reas.
O Baguio, 1 Phil 54,
4. exceptional both as time
and place

5. Debt

Debt is based upon juridical tie, created by law, contracts, delicts or quasi-delicts
between parties or their priate interest or resulting rom their own acts or omissions.


%ax vs Debt
1. based on law 1. based on contracts,
express or implied
2. generally, cannot be
assigned
2. assignable
3. generally payable in
money
3. may be paid in kind
4. generally not subject to
set-o or compensation
4. may be subject to set-o
or compensation
5. imprisonment is a
sanction or non-payment
o tax except poll tax
5. no imprisonment or
non-payment o debt
6. goerned by special
prescriptie periods
6. goerned by the
ordinary periods o

82
Slnce speclal assessmenLs are noL Laxes wlLhln Lhe consLlLuLlonal or sLaLuLory provlslons on Lax
exempLlons lL follows LhaL Lhe exempLlon under Sec 28(3) ArL vl of Lhe ConsLlLuLlon does noL apply Lo
speclal assessmenLs
Powever ln vlew of Lhe exempLlng provlso ln Sec 234 of Lhe Local CovernmenL Code properLles whlch
are acLually dlrecLly and excluslvely used for rellglous charlLable and educaLlonal purposes are noL
exacLly exempL from real properLy Laxes buL are exempL from Lhe lmposlLlon of speclal assessmenLs as
well (see Aban)
1he general rule ls LhaL an exempLlon from LaxaLlon does noL lnclude exempLlon from speclal
assessmenL
29

proided or in the 1ax
Code
prescriptions
. does not draw interest
except only when
delinquent
. draws interest when so
stipulated, or in case o
deault


N Kinds oI Taxes

1. As to object

a. Personal, capitation, or poll tax
1ax o a ixed amount imposed on persons residing within a speciied territory,
whether citizens or not, without regard to their property or the occupation or business in
which they may be engaged.
83


b. Property tax
1ax imposed on property, real or personal, in proportion to its alue or in
accordance with some other reasonable method o apportionment.
c. Priilege tax
A charge imposed upon the perormance o an act, the enjoyment o priilege, or the
engaging in an occupation.

2. As to burden or incidence

a. Direct
A direct tax is demanded rom the person who also shoulders the burden o the tax.
It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shit
to another.

b. Indirect
An indirect tax is demanded rom a person in the expectation and intention that he
or she shall indemniy himsel or hersel at the expense o another, alling inally upon the
ultimate purchaser or consumer. A tax which the taxpayer can shit to another.

3. As to tax rates

a. Speciic

1he computation o the tax or the rates o the tax is already proided or by law.


83
le communlLy Lax
30

b. Ad alorem

1ax upon the alue o the article or thing subject to taxation, the interention o
another party is needed or the computation o the tax.

c. Mixed

1ax rates are partly progressie and partly regressie.

4. As to purposes

a. General or iscal
Imposed or the purpose o raising public unds or the serice o the goernment.

b. Special, regulatory, or sumptuary
Imposed primarily or the regulation o useul or non-useul occupation or
enterprises and secondarily only or the purpose o raising public unds.

5. As to scope or authority to impose

a. National - internal reenue taxes

Imposed by the National Goernment

b. Local - real property tax, municipal tax

Imposed by the municipal corporations or local goernment units

6. As to graduation

a. Progressie

Rate or amount o tax increases as the amount o the income or earning to be taxed
increases.

b. Regressie

1ax rate decreases as the amount o income to be taxed increases.

b. Proportionate

1ax based on a ixed percentage o the amount o the property receipts or other
basis to be taxed.
84



84
Lxample real esLaLe Lax
31

II. National Internal Revenue Code of J997 as amended (NIRC)

Income Taxation

1. Income 1ax Systems

a. Global 1ax System

One where the tax treatment iews indierently the tax base and generally treats in
common all categories o taxable income o the taxpayer

b. Schedular 1ax System

One where the income tax treatment aries and is made to depend on the kind or
category o taxable income o the taxpayer.
85


c. Semi-schedular or semi-global tax system
86


Partly schedular, and partly global. 1he schedular approach is used in taxation
o indiiduals, while the global approach is used in the taxation o corporations.

2. leatures o the Philippine Income 1ax Law

a. Direct tax

One assessed upon the property, person, business income, etc. o those who pay
them.
b. Progressie

%he tax rates increase as the tax base increases. In certain cases, howeer, inal taxes
are imposed on passie income.
8


c. Comprehensie

1he Philippine Income tax law adopted the so-called comprehensie tax situs` -
Comprehensie in the sense that it practically applies all possible rules o tax situs.



83
Schedular sysLem and Clobal sysLem
1 under Lhe schedular LreaLmenL Lhere are dlfferenL Lax raLes whlle under Lhe global LreaLmenL Lhere
ls a slngle Lax raLe
2 under Lhe schedular sysLem Lhere are dlfferenL caLegorles of Laxable lncome whlle under Lhe global
sysLem Lhere ls no need for classlflcaLlon as all Laxpayers are sub[ecLed Lo a slngle Lax raLe
3 1he scheduler LreaLmenL ls usually used ln Lhe lncome LaxaLlon of lndlvlduals whlle Lhe global
LreaLmenL ls usually applled Lo corporaLlons
86
Approach used ln Lhe hlllpplnes
87
1he lndlvldual lncome Lax sysLem ln Lhe maln ls progresslve ln naLure
32

d. Semi-schedular or semi-global tax system
88


3. Criteria in Imposing Philippine Income 1ax

a. Citizenship Principle

A citizen o the Philippines is subject to Philippine income tax

,a, on his worldwide income, i he resides in the Philippines, or
,b, only on his income rom sources within the Philippines, i he qualiies as
nonresident citizen.

b. Residence Principle

Resident alien is liable to pay income tax on his income rom sources within the
Philippines but exempt rom tax on his income rom sources outside the Philippines.

c. Source Principle

An alien is subject to Philippine income tax because he deries income rom sources
within the Philippines. 1hus, a nonresident alien is liable to pay Philippine income tax on his
income rom sources within the Philippines such as diidend, interest, rent, or royalty,
despite the act that he has not set oot in the Philippines.

4. 1ypes o Philippine Income 1ax

a, Net income tax
b, Gross income tax
c, linal income tax
d, Minimum corporate income tax o 2 o the gross income
e, Improperly Accumulated Larnings tax o 10 on improperly accumulated
earnings
, Optional Corporate Income 1ax o 15 on Gross Income.

5. 1axable Period

a. Calendar Period

1his coers the period o 12 months commencing rom January 1 and ending
December 31.
b. liscal Period

An accounting period o 12 months ending on the last day o any month other than
December.
89



88
supra
89
ex leb 1 Lo !an 31
33

c. Short Period

A period o less than twele ,12, months.

6. Kinds o 1axpayers

a. Indiidual 1axpayers

1, Citizens

a, Resident citizens
90


1hose residing in the Philippines unless he qualiies as a non-resident under Sec. 22
,L, o the NIRC.
91


b, Non-resident citizens
92


1hose not residing in the Philippines.



A vovre.iaevt citiev. means

1. One who establishes to the satisaction o the Commissioner o Internal Reenue
,CIR, the act o his physical presence abroad with a deinite intention to reside
therein.

2. A citizen o the Phils. who leaes the country during the taxable year to reside
abroad, either as immigrant or or employment or on permanent basis.

3. A citizen o the Phils. who works and derie rom abroad and whose employment
thereat requires him to be physically present abroad most o the time during the
taxable year.

4. A citizen who has been preiously considered as non-resident citizen and who
arries in the Phils. at any time during the taxable year to reside permanently in the
country.
93


5. A citizen who shall hae stayed outside the Phils. or 183 days or more by the end
o the year.
94


90
Laxable for lncome derlved from all sources based on Laxable (le neL) lncome
91
lnfra
92
Laxable for lncome derlved wlLhln Lhe hlllpplnes based on Laxable (le neL) lncome
93
Pe shall be consldered a nC for Lhe Laxable year ln whlch he arrlves ln Lhe hlls wlLh respecL Lo hls
lncome derlved from sources abroad unLll Lhe daLe of hls arrlval ln Lhe hlls
94
Sec 22 (L)
34

2, Aliens
95


a, Resident aliens

1hose residing in the Philippines though not a citizen thereo.

1hose who are actually present in the Phils. and who are not mere transients or
sojourners.
96



1he conLlnulLy of resldence abroad ls noL essenLlal lf physlcal presence ls esLabllshed such physlcal
presence for Lhe calendar year ls noL lnLerrupLed by reasons of Lravels Lo Lhe hlls (ev egs no 973
november 26 1973)
An overseas conLracL worker ls Laxable only on lncome from sources wlLhln Lhe hlllpplnes (Sec
23 (c)
A seaman who ls a llllplno clLlzen and who recelves compensaLlon for servlces rendered abroad as
member of Lhe complemenL of a vessel engaged excluslvely ln lnLernaLlonal Lrade ls LreaLed as an
overseas conLracL worker
LengLh of sLay ls lndlcaLlve of lnLenLlon A clLlzen of Lhe hlllpplnes who shall have sLayed ouLslde
Lhe hlllpplnes for 183 days or more by Lhe end of Lhe year ls a nonresldenL clLlzen Pls presence
abroad however need noL be conLlnuous 179
93
WhaL makes an allen a resldenL or nonresldenL allen ls hls lnLenLlon wlLh regard Lo Lhe lengLh and
naLure of hls sLay 1hus
a Cne who comes Lo Lhe hlllpplnes for a deflnlLe purpose whlch ln lLs very naLure may
be prompLly accompllshed ls noL a resldenL clLlzen
b Cne who comes Lo Lhe hlllpplnes for a deflnlLe purpose whlch ln lLs very naLure would
requlre an exLended sLay and Lo LhaL end makes hls home Lemporarlly ln Lhe hlllpplnes becomes a
resldenL Lhough lL may be hls lnLenLlon aL all Llmes Lo reLurn Lo hls domlclle abroad when Lhe purpose
for whlch he came has been consummaLed or abandoned (Sec 3 2)
LengLh of sLay ls lndlcaLlve of lnLenLlon
An allen who shall have sLayed ln Lhe hlllpplnes for more Lhan one year by Lhe end of Lhe
Laxable year ls a resldenL allen
An allen who shall come Lo Lhe hlllpplnes and sLay for an aggregaLe perlod of more Lhan one hundred
elghLy days durlng a calendar year shall be consldered a nonresldenL allen ln buslness or ln Lhe pracLlce
of professlon ln Lhe hlllpplnes Sec 23(A)(1) 1hus lf an allen sLays ln Lhe hlllpplnes for 180 days or less
durlng Lhe calendar year he shall be deemed a nonresldenL allen noL dolng buslness ln Lhe hlllpplnes
regardless of wheLher he owns
1 SLock ln Lrade of Lhe Laxpayer or oLher properLy of a klnd whlch would properly be lncluded ln an
lnvenLory of a Laxpayer lf on hand aL Lhe end of Lhe Laxable year (example aw MaLerlals lnvenLory Work
ln rocess lnvenLory Cfflce Supplles lnvenLory)
2 roperLy held by Lhe Laxpayer prlmarlly for sale Lo cusLomers ln Lhe ordlnary course of hls Lrade
or buslness (example Merchandlse lnvenLory)
3 roperLy used ln Lhe Lrade or buslness whlch ls sub[ecL Lo Lhe allowance for depreclaLlon
(example Cfflce LqulpmenL) acLually engages ln Lrade or buslness Lhereln (MamalaLeo)
96
A mere floaLlng lnLenLlon lndeflnlLe as Lo Llme Lo reLurn Lo anoLher counLry ls noL sufflclenL Lo
consLlLuLe hlm a LranslenL
lor Lax purposes a resldenL allen ls
1) An allen who llves ln Lhe hlls wlLh no deflnlLe lnLenLlon Lo sLay as a resldenL
2) Cne who comes ln Lhe hlls for deflnlLe purposes whlch ln lLs very naLure would requlre an exLended
sLay and Lo LhaL end makes hls home Lemporarlly ln Lhe hlls
3) An allen who sLay wlLhln Lhe hlls for more Lhan 12 monLhs from Lhe daLe of hls arrlval ln Lhe hlls
33

b, Non-resident aliens
9


1hose not residing in the Phils. and who is not a citizen thereo.

,1, Lngaged in trade or business

1axable or income deried within the Philippines based on taxable
98
income.

,2, Not engaged in trade or business

1axable or income deried within the Philippines based on gross income.

,3, Special Class o Indiidual Lmployees

a, Minimum wage earner

Reers to a worker in the priate sector paid the statutory minimum wage, or to an
employee in the public sector with compensation income o not more than the statutory
minimum wage in the non-agricultural sector where he,she is assigned.
99


By irtue o the passage o R.A. 9504, minimum wage earners are exempted rom the
payment o the net income tax,
100
thus: xxx, 1hat minimum wage earners shall be exempt
rom the payment o income tax on their taxable income: Proided, urther, that the holiday
pay, oertime pay, night shit dierential pay and hazard pay receied by such minimum
wage earners shall likewise be exempt rom income tax.`

b, Corporations
101


1, Domestic corporations

1hose created or organized in the Phils. or under its laws.

2, loreign corporations

1hose created, organized or existing under any laws other than those o the Phils.



97
A nonresldenL allen" lndlvldual who came Lo Lhe hlls and sLayed Lhereln for an aggregaLe perlod of
more Lhan 180 days durlng any calendar year shall be deemed a nA dolng buslness ln Lhe hlls
98
le neL
99
Sec 22 (PP) as amended by A 9304
100
1hey are noL requlred Lo flle an lncome Lax reLurn
101
1he Lerm shall lnclude parLnershlp no maLLer how creaLed or organlzed [olnL sLock companles [olnL
accounLs or lnsurance companles buL does noL lnclude general professlonal parLnershlps and a [olnL
venLure or consorLlum formed for Lhe purpose of underLaklng consLrucLlon pro[ecLs or engaglng ln
peLroleum coal geoLhermal and oLher energy operaLlons pursuanL Lo operaLlng or consorLlum
agreemenL under a servlce conLracL wlLh Lhe governmenL (Sec 24(b))
36

,1, Resident

1hose oreign corporation engaged in trade or business
102
within the Phils.

,2, Non-resident

1hose oreign corporation not engaged in trade or business within the Phils.

c. Partnerships
103


Partnership is a contract whereby two or more persons bind themseles to contribute
money, property, or industry to a common und with the intention o diiding the proits
among themseles.

d. General Proessional Partnerships

lormed by persons or the role purpose o exercising their common proession, no
part o the income o which is deried rom engaging in any trade & business.
104


e. Lstates and 1rusts

Lstate is the mass o property, rights and obligations let behind by the decedent
upon his death.
105


1rust is an arrangement created by will or co-agreement under which title to property
is passed to another or conseration or inestment with the income thererom and

102
1he Lerm lmplles a conLlnulLy of commerclal deallngs and arrangemenLs and conLemplaLes Lo LhaL
exLenL Lhe performance of acLs or works or Lhe exerclse of some of Lhe funcLlons normally lnslsLenL Lo
and ln Lhe progresslve prosecuLlon of commerclal galn or for Lhe purpose and Lhe ob[ecL of Lhe buslness
organlzaLlon (comm vs 8tltlsb Ovetseos Altwoys cotpototloo 8CAC case 149 S 393)
103
An ordlnary buslness parLnershlp ls consldered as a corporaLlon and ls Lhus sub[ecL Lo Lax as such
arLners are consldered sLockholders and Lherefore proflLs dlsLrlbuLed Lo Lhem by Lhe parLnershlp are
consldered as dlvldends
WhaL are Laxable unreglsLered parLnershlps?
1he SC ln vooqellsto v clk 102 hll 140 held LhaL Sec 24 covered unreglsLered parLnershlps and even
assoclaLlons or [olnL accounLs whlch have no legal personallLles aparL from Lhelr lndlvldual members
Accordlngly a pool of lndlvldual real properLy owners deallng ln real esLaLe buslness was consldered a
corporaLlon for Lax purposes Aflsco losotooce cotpototloo v cA 302 SCA 1
104
Sec 22 (b)
e g Law flrm
103
LsLaLes may be classlfled as follows
1 LsLaLes noL under [udlclal seLLlemenL are sub[ecL Lo lncome Lax generally as mere coownershlp
1he Lax llablllLy on lncome of Lhe coownershlp levled dlrecLly on Lhe coowners 1hus Lhe helrs shall
lnclude ln Lhelr respecLlve reLurns Lhelr dlsLrlbuLlve shares of Lhe neL lncome of Lhe esLaLe
2 LsLaLes under [udlclal seLLlemenL are sub[ecL Lo lncome Lax ln Lhe same manner as lndlvldual
lncome recelved durlng Lhe seLLlemenL of Lhe esLaLe ls Laxable Lo Lhe flduclary (guardlan execuLor
LrusLee and admlnlsLraLor)
1he reLurn should be flled by execuLor or admlnlsLraLor of Lhe LrusL
37

ultimately the corpus ,principal, to be distributed in accordance with the directions o the
creator as expressed in the goerning instrument.
106


. Co-ownerships
10


It is created wheneer the ownership o an undiided thing or right belongs to
dierent persons.

. Income 1axation

a. Deinition

A tax on all yearly proits arising rom property, proessions, trades or oices.
A tax on the net income or the entire income realized in one taxable year.

b. Nature

Direct tax - the tax burden is borne by the income recipient upon whom the tax is
imposed.
Progressie tax - the tax base increases as the tax rate increases.
Lxcise tax
108
- a tax on the right to earn income

106
2 klnds of 1rusL
1 lrrevocable 1rusL ls consldered as a separaLe Laxpayer
2 evocable 1rusL ls one where aL anyLlme Lhe power Lo revesL Lhe LlLle Lo any parL of Lhe corpus of
Lhe LrusL ls vesLed
(a) ln Lhe granLor (creaLor of Lhe LrusL) elLher alone or ln con[uncLlon wlLh any person noL havlng a
subsLanLlal adverse lnLeresL ln Lhe dlsposlLlon of such parL of Lhe corpus or Lhe lncome Lherefrom or
(b) ln any person noL havlng a subsLanLlal adverse lnLeresL ln Lhe dlsposlLlon of such parL of Lhe corpus
or Lhe lncome Lherefrom
1he Lax shall be lmposed on Laxable lncome of Lhe granLor
107
Ceneral rule Coownershlp ls exempL from lncome Lax because Lhe acLlvlLles of Lhe coowners are
usually llmlLed Lo Lhe preservaLlon" of Lhe properLles owned ln common and Lhe collecLlon of Lhe lncome
Lherefrom
LxcepLlons (When coownershlp ls sub[ecL Lo Lax)
(1) When Lhe lncome of Lhe coownershlp ls lnvesLed by Lhe coowners ln oLher lncomeproduclng
properLles or lncomeproduclng acLlvlLles and
(2) When Lhere ls no aLLempL Lo dlvlde lnherlLed properLy for more Lhan Len (10) years and Lhe sald
properLy was noL under any admlnlsLraLlon proceedlngs nor held ln LrusL an unreglsLered parLnershlp ls
deemed Lo exlsL
1ax llablllLy of coowners
1he coowners ln exempL coownershlp shall be llable for lncome Lax only ln Lhelr separaLe and
lndlvldual capaclLy
llllng of reLurn
1he owners shall reporL and lnclude ln Lhelr respecLlve personal lncome Lax reLurns Lhelr shares of Lhe
neL lncome of Lhe coownershlp
1esL Lo deLermlne wheLher coownershlp ls a Laxable unreglsLered parLnershlp
llnd ouL wheLher Lhe helrs have made subsLanLlal lmprovemenLs on Lhe lnherlLed properLy lf so Lhe
lmpllcaLlon ls LhaL Lhey wlll engage ln buslness for proflL (LvangellsLa uocLrlne) lf LhaL happens Lhe co
ownershlp wlll be Laxed as an unreglsLered parLnershlp
38

c. General principles

1. A citizen o the Philippines residing therein is taxable on all income deried rom
sources within and without the Philippines.

2. A non-resident citizen is taxable only on income deried rom sources within the
Philippines.

3. An indiidual citizen o the Philippines, who is working and deriing income rom
abroad as an oerseas contract worker, is taxable only on income deried rom sources
within the Philippines. Proided, that a seaman who is a citizen o the Philippines and who
receies compensation or serices rendered abroad as a member o the complement o a
essel engaged exclusiely in international trade shall be treated as an oerseas contract
worker.

4. An alien indiidual, whether or not a resident o the Philippines, is taxable only on
income deried rom sources within the Philippines.

5. A domestic corporation is taxable on all income deried rom sources within and
without the Philippines.

6. A oreign corporation, whether engaged or not in trade or business in the
Philippines, is taxable only on income deried rom sources within the Philippines.

8. Income

a. Deinition

It denotes the amount o money or property receied by a person or corporation
within a speciied time, whether as payment or serices, interests, or proits rom
inestments.
109


Income is not merely increase in alue o property, but a gain, a proit in excess o
capital as a result o exchange transactions.

b. Nature

All wealth which lows to the taxpayer other than a mere return o capital

It is an amount o money coming to a person,corporation within a speciied time,
whether as payment or serices, interest or proit rom inestment. Unless otherwise
speciied, it means cash or its equialent. Income can also be thought o as a low o the
ruits o one's labor.
110



108
prlvllege Lax
109
llsbet vs 1tlolJoJ 43 hll 973
110
coowl v coott of 1ox Appeols
39

Income includes earnings, lawully or unlawully acquired, without consensual
recognition, express or implied, o an obligation to repay and without restriction as their
disposition.

c. \hen income is taxable

1, Lxistence o income

1here must be gain - there must be a alue receied in the orm o cash or its
equialent as a result o rendition o serice or earnings in excess o capital inested.
111


2, Realization o income

a, 1ests o Realization

General rule:

A mere increase in the alue o property without actual realization, either through
sale or other disposition, is not taxable. 1he increase in alue is a mere vvreaiea ivcrea.e iv
caita

Lxception:

1hat een without the sale or other disposition i by reason o appraisal, the cost
basis is used as the new tax base or purposes o computing the allowable depreciation
expense, the net dierence between the original cost basis and new basis due to appraisal is
taxable.
112


b, Actual is-a-is Constructie receipt

1he gain must actually be or constructiely realized or receied.
113



111
A mere expecLaLlon of proflLs ls noL an lncome
A LransacLlon where by noLhlng of exchangeable value comes Lo or ls recelved by Lhe Laxpayer does
noL glve rlse Lo or creaLe Laxable lncome
lLems or amounLs recelved whlch do noL add Lo Lhe Laxpayer's neL worLh or redound Lo hls beneflLs
such as amounLs merely deposlLed or enLrusLed Lo hlm are noL consldered as galns (Cl vs 1ours
speclallsL 183 SCA 402)
Caln need noL be necessarlly ln cash lL may be ln form of paymenL reducLlon or cancellaLlon of 1's
lndebLedness or galn from exchange of properLy
112
Lconomlc beneflL prlnclple (8l ullng no 029 98 March 19 1998)
113
lncome whlch ls credlLed Lo Lhe accounL of or seL aparL for a Laxpayer and whlch may be drawn upon
by hlm aL anyLlme ls sub[ecL Lo Lax for Lhe year durlng whlch so credlLed or seL aparL alLhough noL Lhen
acLually reduced Lo possesslon 1he lncome musL be credlLed Lo Lhe Laxpayer wlLhouL any subsLanLlal
llmlLaLlon or resLrlcLlon as Lo Lhe Llme or manner of paymenL or condlLlon upon whlch paymenL ls Lo be
made

40

An income is constructiely receied by a person when - it is credited to the amount
o or segregated in his aor and which may be drawn by him at any time without any
limitations, e. g.:

Interest credited on saings bank deposits
Diidends applied by the corporation against the indebted- ness o stockholder
Share in the proit o a partner in General Proessional Partnership.

3, Recognition o income

a. there is income, gain or proit
b. the income, gain or proit is receied or realized during the taxable year
c. the income gain or proit is not exempt rom income tax

4, Methods o accounting

a, Cash method is-a-is Accrual method

Cash method - recognition o income and expense dependent on inlow or outlow
o cash ,meaning, you recognize the income when you actually receie the cash payment or
the sale, and you recognize the expense when you actually pay cash or the expense,

Accrual method - method under which income, gains and proits are included in
gross income when earned whether receied or not, and expenses are allowed as deductions
when incurred, although not yet paid. It is the right to receie and not the actual receipt that
determines the inclusion o the amount in gross income

b, Installment payment ri.ari. Deerred
payment ri.ari. Percentage completion
114


1. Sales o dealers in personal property

Under Rules and Regulations ,R&R, prescribed by the Sec. o linance, upon
recommendation o the Commissioner: a person who regularly sells or otherwise disposes o
personal property on the installment plan may return as income thererom in any taxable
year that proportion o the installment payments actually receied in that year, which the
gross proit realized or to be realized when payment is completed, bears to the contract
price.
115


114
ln long Lerm conLracLs
113
Lxample Sale ln 1997 payable ln 2 equal annual lnsLallmenLs Pow Lo compuLe for lncome
ConLracL rlce/ lnsLallmenLs
ecelvable 100000
CosL 73000
(C) 23000
* lnsLallmenLs payable ln 2 equal annual lnsLallmenLs
C/ConLracL rlce raLlo 231/1001 23
CollecLlons ln 1997 301
lncome for 1997 301 x 23 12300
41

2. Sales o realty and casual sales o personalty

a, in cases o:

,i, casual sale or other casual disposition o personal property ,other than
inentory on hand o the taxpayer at the close o the taxable year, or a price
P1,000, or

,ii, sale or other disposition o real property, i in either case the initial
payments do not exceed 25 o the selling price

b, how may income be returned: same as in sales o dealer in personal property
aboe

3. Sales o real property considered as capital asset by indiiduals

a, indiidual who sells o disposes o real property, considered as capital asset & is
otherwise qualiied to report the gain under ,2, aboe may pay the capital gains tax in
installments under R&R to be promulgated by the Sec. o linance, upon recommendation o
the Commissioner

b, capital asset: property held by the taxpayer ,whether or not connected with his
trade or business, but does not include:

,1, stock in trade o taxpayer
,2, property which would properly be included in inentory, i on hand
,3, merchandise inentory
,4, depreciable assets used in the trade,business
,5, real property used in trade,business

d. 1ests in determining whether income is earned or tax
purposes

1, Realization test

No taxable income until there is a separation rom capital o something o
exchangeable alue, thereby supplying the realization or transmutation which would result in
the receipt o income.

2, Claim o right doctrine or Doctrine o ownership,
command, or control

1he power to dispose o income is the equialent o ownership o it. 1he exercise o
that power to procure the payment o income to another is the enjoyment and hence, the
realization o the income by him who exercises it. 1he dominant purpose o the reenue
laws is the taxation o income to those who earn or otherwise create the right to receie it
and enjoy the beneit o it when paid.

42

3, Lconomic beneit test, Doctrine o proprietary
interest

Any economic beneit to the employee that increases his net worth is taxable.

4, Seerance test

1here is no taxable income until there is a separation rom capital o something
which is o exchangeable alue
116
thereby supplying the realization or transmutation which
would result in the receipt o income. 1hus, income is not taxable unless separated or
seered rom the capital or labor that bore it.

9. Gross Income

a. Deinition

All income deried during a taxable year by a taxpayer rom whateer source,
whether legal or illegal, including
11
the ollowing items:

1. Gross income deried rom the conduct o trade or business or the exercise o a
proession.
2. Rents
3. Interests
4. Prizes and winnings
5. Compensation or serices in whateer orm paid, including, but not limited to
ees, salaries, wages, commissions, and similar items
6. Annuities
. Royalties
8. Diidends
9. Gains deried rom dealings in property
10. Pensions
11. Partner's distributie share rom the net income o the general proessional partnership.

b. Concept o income rom whateer source deried

1he term deried rom whateer source` implies the inclusion o all income under
the law, irrespectie o the oluntary or inoluntary action o the taxpayer in producing the
gains.

It includes illegal gains arising rom - gambling, betting, lotteries extortion and raud.


c. Gross Income is-a-is Net Income is-a-is 1axable
Income
118



116
lsoet vs Mocomet 232 uS 189
117
buL noL llmlLed Lo
118
See deflnlLlon of gross lncome supra
43

d. Classiication o Income as to Source

1, Gross income and taxable income rom sources
within the Philippines

1, Interests:

a, Interests deried rom sources within the Phils.
b, Interests on bonds, notes or other interest-bearing obligations o residents, corporate
or otherwise.
119


2, Diidends:

a., lrom a domestic corporation, and
b., lrom a oreign corporation 50 or more o the gross income o which or the 3-
year period ending with the close o the taxable year preceding the declaration o such
diidends ,or or such part o such period as the corporation itbiv the Phils.
120
has been
in existence, was deried rom sources. It must be only in an amount which bears the
same ratio to such diidends as the gross income o the corporation or such period
deried rom sources within the Philippines bears to its gross income rom all sources.

) Compensation or labor or personal serices perormed in the Phils.
121


4, Rentals and Royalties rom property located in the Phils or rom any interest in such
property, including rentals or royalties or -

a., 1he use o, or the right or priilege to use in the Phils. any copyright, patent, design
or model, plan, secret ormula or process, goodwill, trademark, trade brand or other
like property or night,
b., 1he use o, or the right to use in the Phils any industrial, commercial or scientiic
equipment,
c., 1he supply o scientiic, technical, industrial or commercial knowledge or
inormation,
d., 1he supply o any assistance that is ancillary and subsidiary to, and is urnished as a
means o enabling the application or enjoyment o, any such property or right as is
mentioned in paragraph ,a,, any such equipment as is mentioned in paragraph ,b, or
any such knowledge or inormation as is mentioned in paragraph ,c,,
e., 1he supply o serices by a nonresident person or his employee in connection with
the use o property or rights belonging to, or the installation or operation o any
brand, machinery or other apparatus purchased rom such nonresident person,
., 1echnical adice, assistance or serices rendered in connection with technical
management or administration o any scientiic, industrial or commercial
undertaking, enture, project or scheme, and
g., 1he use o, or the right to use:

1. Motion picture ilms,
2. ilms or ideo tapes or use in connection with teleision, and

119
Sec 42 (A)( 1)
120
ld (A)(2)
121
ld (A)(3)
44

3. tapes or use in connection with radio broadcasting

5, Gains, proits, and income rom the sale o real property located in the Phils. and

6, Gains, proits, and income rom sale o personal property, treated as deried entirely
rom the country where it is sold.
122


2, Gross income and taxable income rom sources
without the Philippines

1, Interest other than that deried rom sources within the Phils.

2, Diidends other than those deried rom sources within the Phils.

a. Diidends rom oreign corporations in general, and
b. Diidends deried rom oreign corporations, 50 or more o the gross income o
which or the 3-year period preceding the declaration o diidends ,or or such part
o such period as the corporation has been in existence was deried rom oreign
sources,
3, Compensation or labor or personal serices perormed outside the Phils.

4, Rentals or royalties rom property located outside the Phils. or rom any interest in such
property including rentals or royalties or the use o or or the priilege o using outside the
Phils., patents, etc.

5, Gains, proits and income rom the sale o real property located outside the Phils.

6, Gains, proits and income rom the sale o personal property located outside the Phils.,
and

, Income deried rom the purchase o personal property within and its sale outside the
Phils.
123


122
LxcepLlon Lo Lhe rule galn from Lhe sale of shares of sLock ln a domesLlc corporaLlon whlch ls LreaLed
as derlved enLlrely from sources wlLhln Lhe hlls regardless of where Lhe shares are sold
assage of LlLle LesL lL ls Lhe prevalllng vlew LhaL ln ascerLalnlng Lhe place of sale Lhe deLermlnaLlon of
where and when Lhe LlLle Lo Lhe goods passes from Lhe seller Lo Lhe buyer ls declslve
LnumeraLlon ln SecLlon 42 noL alllncluslve
ln Lhe case of Commlssloner vs 8rlLlsh Cverseas Alrways CorporaLlon (8CAC) 149 SCA 393 Lhe
Supreme CourL held
xxx SecLlon 37 (now SecLlon 42) by lLs language does noL lnLend Lhe enumeraLlon Lo be excluslve lL
merely dlrecLs LhaL Lhe Lypes of lncome llsLed Lhereln be LreaLed as lncome from sources wlLhln Lhe hlls
a cursory readlng of Lhe secLlon wlll show LhaL lL does noL sLaLe LhaL lL ls an alllncluslve enumeraLlon and
LhaL no oLher klnd of lncome may be so consldered xxx"
1he Supreme CourL furLher held
xxx1he absence of fllghL operaLlons Lo and from Lhe hlls ls noL deLermlnaLlon of Lhe source of
lncome on Lhe slLus of lncome LaxaLlon AdmlLLedly 8CAC was an offllne lnLernaLlonal alrllne aL Lhe Llme
perLlnenL Lo Lhls case 1he LesL of LaxablllLy ls Lhe source and Lhe source of an lncome ls LhaL acLlvlLy xxx
whlch produced Lhe lncome unquesLlonably Lhe passage documenLaLlons ln Lhese cases were sold ln Lhe
hlls and Lhe revenue Lherefrom was derlved from a buslness acLlvlLy regularly pursued wlLhln Lhe hlls
xxx"
43

3, Income partly within or partly without the
Philippines

1, Income rom transportation such as oreign steamship companies whose essel touch the
Phil. ports
124
and other serices rendered partly within and partly outside the Phils. such as oreign
corporations carrying on the business o transmission o telegraph and cable messages between
points outside the Phils.
125


2, Income rom the sale o personal property produced in whole or in part by the taxpayer
within and sold outside the Phils. or produced, in whole or in part, by the taxpayer outside and sold
within the Phils.

e. Sources o income subject to tax

1, Compensation Income
126


All income payments, in money or in kind, arising rom personal` serices under an
employer - employee relationship.

1he gain deried rom labor especially employment such as salaries and commission.

All remuneration or serices perormed by an employee or his employer, including
the cash alue o all remuneration paid in any medium other than cash.
12




123
Sec 42
124
Sec 163 egulaLlons
123
Sec 164 ld
126
lorms of CompensaLlon
a money
b ln klnd
CompensaLlon pald Lo an employee of a corporaLlon ln lLs sLock ls Lo be LreaLed as lf Lhe corporaLlon
sold Lhe sLock for lLs markeL value and pald Lo Lhe employee ln cash
Llvlng quarLers furnlshed Lo Lhe employee ln addlLlon Lo cash salary 1he renLal value should be
reporLed as lncome
Meals glven Lo employee Lhe value Lhereof subsLlLuLes lncome
127
Sec 78(A)
lL lncludes
1 Salarles and wages
2 Commlsslons
3 1lps
4 Allowances
3 8onuses
6 lrlnge 8eneflLs of rank and flle employees
lL does noL lnclude remuneraLlon pald
lor agrlculLural labor pald enLlrely ln producLs of Lhe farm where Lhe labor ls performed or
lor domesLlc servlce ln a prlvaLe home or
lor casual labor noL ln Lhe course of Lhe employers Lrade or buslness or
lor servlces by a clLlzen or resldenL of Lhe hlllpplnes for a forelgn gov'L or an lnL'l organlzaLlon
46

2, lringe Beneits
128


a, Special treatment o ringe beneits

1he special treatment o ringe beneits shall be applied to ringe beneits gien or
urnished to managerial or superising employees and not to the rank and ile.
129


b, Deinition

Any good, serice or other beneit urnished or granted in cash or in kind by an
employer to an indiidual employee, except rank and ile employee

c, 1axable and non-taxable ringe beneits

1axable ringe beneits:

1, lousing Priileges

,a, Lease o residential property or the use o the employee as his usual place o residence.
,b, Residential Property owned by employer and assigned to employee as his usual place o
residence.
,c, Residential property purchased by employer on installment basis or the use o employer
as his usual place o residence.
,d, Residential property purchased by LR and ownership is transerred to LL as his usual
place o residence.
,e, Residential property transerred to employee at less than employer`s acquisition cost.
130


2, lousehold Lxpenses - reer to expenses o the employee paid by the
employer or household personnel or other personal expenses, which shall include:

,a, salaries o household helper
,b, personal drier o the employee
,c, Payment or homeowner assoc., etc.

3, Interest on loan at less than market rate
131


128
Sec 33
1he frlnge beneflL covered refers Lo Lhose en[oyed by managerlal and supervlsory employees
129
ursuanL Lo evenue egulaLlons no 3 98 (daLed May 21 1998) lmplemenLlng secLlon 33 of Lhe 1ax
Code
130
non Laxable Pouslng lrlnge 8eneflLs
(a) Pouslng prlvllege of mlllLary offlclals of Al
(b) Pouslng unlL whlch ls slLuaLed lnslde or ad[acenL Lo Lhe premlse of a buslness or facLory A houslng
unlL ls consldered ad[acenL lf lL ls locaLed wlLhln Lhe maxlmum 30 meLers from Lhe perlmeLer of Lhe
buslness premlses
(c) Pouslng beneflL granLed Lo employees on a Lemporary basls noL exceedlng Lhree (3) monLhs
131
lf Lhe employer lends money Lo hls employee
lree of lnLeresL or aL a raLe lower Lhan 12 (or prevalllng markeL raLe) Lhe lnLeresL foregone by Lhe
employer or Lhe dlfference of Lhe lnLeresL assumed by Lhe employer and Lhe 12 raLe shall be LreaLed as
Laxable frlnge beneflL
47

4, Lxpenses or loreign 1rael

General rule:

Lxpenses or oreign trael insured by the employee and,or amily members o the
employee borne by the employer shall be treated as taxable ringe beneits o the employee.

Lxcept:

\here the expenses or oreign trael paid by the employer or the employee are or
the purpose o attending business meeting or conention. 1he exemption coers only the
ollowing expenses:

a, Inland trael expenses except lodging cost in hotel aeraging US> 300 or less per day,
132

and

b, Cost o economy or business class airline ticket.
133


5, Membership ees, dues and other expenses borne by the employer or his
employee in social or athletic clubs or other similar organizations.
J34


6, Lie or lealth Insurance -

General rule:

1he cost o lie or health insurance and other non - lie insurance premiums or
similar amounts in excess o what the law allows borne by the employer or his employees
shall be treated as taxable ringe beneits.

Lxcept:

a, Contribution o the employer or the beneits o the employee pursuant to
existing laws.
135

b, 1he cost o premium borne by the employer or the group insurance o his
employees.

, lolidays and Vacation Lxpense

8, Motor Vehicle

Appllcable Lo lnsLallmenL paymenL or loan wlLh lnLeresL raLe lower Lhan 12 sLarLlng !anuary 1 1998
132
1ravel expenses should be supporLed by documenLs provlng Lhe acLual occurrences of Lhe meeLlngs or
convenLlons Llkewlse documenLs and evldence showlng Lhe buslness purpose of Lhe employees' Lravel
musL be presenLed oLherwlse Lhe enLlre cosL wlll be consldered Laxable frlnge beneflL
133
Powever lf Lhe LlckeL ls a flrsL class one 30 of Lhe cosL of Lhe LlckeL shall be sub[ecL Lo a frlnge beneflL
Lax
134
1hese are LreaLed as Laxable lrlnge 8eneflLs of Lhe employee ln full
133
such as A 8287 (SSS) or A 8291 (CSlS)
48


a, Motor ehicle purchased by employer in name o employee.
b, cash or the purchased proided by the employer, the ownership is placed in the name o
the employee
c, Purchase on Installment` basis, the ownership is placed in the name o the employee
d, Portion` o purchased price shouldered by employer
e, lleet o motor ehicle leased` by the employer
, lleet o Motor ehicles owned and maintained by employer.
136


9, Lxpense Account

a, Lxpenses incurred by the employee but paid by his employer.
b, Lxpenses paid by the employee but reimbursed by his employer.
13


10, Lducational Assistance

General Rule: 1he cost o the educational assistance to the employee or his
dependents which are borne by the employer shall be treated as 1axable lringe Beneits.

Lxception:

a, Lducation granted to employee
138

b, Lducational Assistance granted to the dependents o the employee in the
nature o educational assistance to the dependents o the employee through a
competitie scheme under a scholarship program o the company.

136
ln case of leLLers a b c and d regardless of wheLher Lhe moLor vehlcle ls used for Lhe personal
purpose of Lhe employee and parLly for Lhe beneflL of hls employer Lhe moneLary value shall be Lhe
enLlre value of Lhe beneflL
under leLLers e and f Lhe fleeL of moLor vehlcles ls for Lhe use of Lhe buslness and Lhe employees 1he
value of Lhe beneflL shall be Lhe renLal paymenLs (e) or Lhe acqulslLlon cosL (f) of all moLor vehlcles noL
normally used for sales frelghL dellvery servlce and nonpersonal use
1he use of yachL wheLher owned and malnLalned or leased by Lhe employer shall be LreaLed as Laxable
frlnge beneflL Lhe value of Lhe beneflL shall be measured based on Lhe depreclaLlon of Lhe ?achL aL an
esLlmaLed useful llfe of 20 yrs
1he use of alrcrafL (lncludlng hellcopLers) owned and malnLalned by Lhe employer shall be LreaLed as
buslness use" and noL sub[ecL Lo l81
137
Lxpense accounL noL sub[ecL Lo l81
a) expenses duly recelpLed for ln Lhe name of Lhe employer and
b) 1he expendlLures do noL parLake Lhe naLure of personal expenses aLLrlbuLable Lo Lhe employee
ersonal expenses of Lhe employee(llke grocerles) pald for or relmbursed by Lhe employer are
Laxable frlnge beneflLs wheLher or noL duly recelpLed for ln Lhe name of Lhe LL
epresenLaLlon and 1ransporLaLlon Allowances (A1A) refers Lo flxed amounLs whlch are regularly
recelved by Lhe employees as parL of Lhelr monLhly compensaLlon lncome 1hey are noL LreaLed as
1axable lrlnge 8eneflLs buL Lhe same are LreaLed as 1axable CompensaLlon lncome
138
equlslLes
(1) LducaLlonal granL whereby Lhe sLudy ls dlrecLly connecLed wlLh Lhe Lrade buslness or professlon of
Lhe L
(2) And Lhere ls a wrlLLen conLracL obllgaLlng Lhe LL Lo remaln under Lhe employmenL for a cerLaln
perlod
49

Non-taxable ringe beneits:

1, Contributions o employer or the beneits o employee to retirement, insurance, and
hospitalization beneits plans.
2, Beneits gien to rank- and -ile employees whether granted under CBA or not.
3, lringe Beneits which are exempted rom income tax under the tax code or other special
laws.
4, lringe Beneits which are required by the nature o, or necessary to the trade, business or
proession o the employer.
5, lringe Beneits granted or the conenience or adantage o the employer.
6, e vivivi. beneits
139
as may be deined by the Secretary o linance.

3, Proessional Income

Any other income that is not deried rom personal serices or not related to an
employer - employee relationship and is generally subject to tax on net income basis.

1he alue deried rom an exercise o proession, business or utilization o capital
assets.
140

4, Income rom Business

Gains or proits deried rom rendering serices, selling merchandise, manuacturing
products, arming and long- term construction contracts.

5, Income rom Dealings in Property

a, 1ypes o Properties

,1, Ordinary assets

Reer to properties held by the taxpayer in the pursuit o his proession, trade or
business, they are:

i. Stock in 1rade,
ii. Property o a kind which would properly be included in the inentory i on hand at
the close o the taxable year,
iii. Property held by the taxpayer primarily or sale to customers in the ordinary course
o trade or business,
i. Property used in trade or business which in subject to the allowance or
depreciation, and
. Real property used in trade or business.
141






139
lofto
140
eg lncome derlved from sale of asseLs used ln Lrade or buslness
141
Sec 39 A nlC
30

,2, Capital assets
142


Property held by the taxpayer
143
but does vot include:

i. Stock in trade,
ii. Property o a kind which would properly be included in the inentory i on hand at
the close o the taxable year,
iii. Property held by the taxpayer primarily or sale to customers in the ordinary course
o trade or business,
i. Property used in trade or business which in subject to the allowance or depreciation,
and
. Real property used in trade or business.
144


b, 1ypes o Gains rom dealings in property

,1, Ordinary income is-a-is Capital
gain

Includes any gain rom the sale or exchange o property which is not a capital
asset.
145

,2, Actual gain is-a-is Presumed
gain

,3, Long term capital gain is-a-is
Short term capital gain

,4, Net capital gain, Net capital loss

Net Capital gain is the excess o the gains rom sales or exchange o capital assets
oer the losses rom such sales or exchanges.
146


Net capital Loss is the excess o the losses rom sales or exchanges o capital assets
oer the gains rom such sales or exchanges.
14






142
Speclflc Lxamples of roperLles classlfled as caplLal asseLs
CaplLal asseLs lnclude personal properLy (noL used ln Lrade or buslness) such as movables ln one's
resldence personal vehlcles appllances and furnlLure for personal use [ewelrles eLc as well as real
properLy (noL used ln Lrade or buslness) such as resldenLlal land ldle land noL used ln buslness operaLlons
and resldenLlal house
143
wheLher or noL connecLed wlLh hls Lrade or buslness
144
Sec 39 A nlC
1hls ls an enumeraLlon by excluslon all oLhers noL enumeraLed are caplLal asseLs
143
Sec 22 Z
146
Sec 39 A 2 ld
147
Sec 39 A 3 ld
31

,5, Computation o the amount o
gain or loss

1he gain rom the sale or other disposition o property shall be the excess o the
amount realized thererom oer the basis or adjusted basis or determining gain, and the loss
shall be the excess o the basis or adjusted basis or determining loss oer the amount
realized. 1he amount realized rom the sale or other disposition o property shall be the sum
o money receied plus the air market alue o the property
148
receied.
149


,a, Cost or basis o the
property sold

1he basis o property shall be -

,1, I such was acquired by purchase, it is the cost o the property.

,2, I the property sold was acquired by inheritance, the air market price or alue
as o the date o acquisition.

,3, I the property sold was acquired by git, the basis shall be the same as i it
would be in the hands o the donor or the last preceding owner by whom it was not
acquired by git.

,4, I the property was acquired or less than an adequate consideration in money
or money's worth, the basis o such property is the amount paid by the transeree or the
property.
150


,b, Cost or basis o the
property exchanged in
corporate readjustment

|1| Merger
|2| Consolidation

A merger or consolidation has income tax consequences to the corporation which is
a party to the merger or consolidation, to its stockholders, and to its security holders. 1o the
corporation, or to its stockholders, or to its security holders, loss is not recognized rom the
merger or consolidation.
151


Gain will be recognized only i, on the exchange under the merger or consolidation,
the taxpayer receied cash or property. 1he gain to be recognized should not exceed the sum
o money and the air market alue o the property receied.

148
oLher Lhan money
149
Sec 40 (A)
130
ld (8)
131
ld (C)
32

|3| 1ranser to a
controlled
corporation
152


\hen a taxpayer transers property to a corporation, in consideration o stock
receied or the transer, as a result o which transer, the taxpayer
153
gains control o the
corporation, no loss is recognized on the transer o property.
154


,c, Recognition o gain or loss
in exchange o property

|1| General rule

Upon the sale or exchange or property, the entire amount o the gain or loss, as the
case may be, shall be recognized.
155

|a| \here no
gain or loss
shall be
recognized

a, Lxchange solely in kind
156
in legitimate mergers or consolidations.

1, A corporation which is a party to a merger or consolidation exchanges
property solely or stock in a corporation which is a party to the merger or
consolidation,

2, A corporation which is a party to a merger or consolidation receies in
exchange or property not only stock o another corporation but also money and,or
other property and distributes it in pursuance o the plan o merger or consolidation.

3, A shareholder exchanges stock in a corporation which is a party to the
merger or consolidation solely or the stock o another corporation, also a party to
the merger or consolidation.
4, A security holder o a corporation which is a party to the merger or
consolidation exchanges his securities in such corporation solely or stock or
securities in another corporation, a party to the merger or consolidation.


132
Laxfree exchanges
133
alone or LogeLher wlLh oLhers noL exceedlng four or a LoLal of flve
134
ld (C)(2)(c) lasL par
Suppose Lhe Lransfer resulLed ln a galn Lo Lhe Lransferor wlll Lhe galn be recognlzed? Caln wlll be
recognlzed only lf on Lhe Lransfer Lhe Laxpayer recelved cash or properLy ln addlLlon Lo Lhe shares
recelved 1he galn Lo be recognlzed shall noL exceed Lhe sum of money and falr markeL value of Lhe
properLy recelved
lf before Lhe Lransfer Lo Lhe corporaLlon Lhe Lransferor already had conLrol over Lhe corporaLlon Lhe
galn or loss on Lhe Lransfer wlll be recognlzed
133
ld (C) (1)
136
exchange of properLy solely for sLocks
33

b, 1ranser or exchange o property or stock resulting in acquisition o corporate
control.
15


|2| Lxceptions

|a| Meaning o
merger,
consolidation,
control
securities

"Merger" or "consolidation shall be understood to mean:

,i, the ordinary merger or consolidation, or
,ii, the acquisition by one corporation o all or substantially all the properties o
another corporation solely or stock: Proided, 1hat or a transaction to be regarded as a
merger or consolidation within the puriew o this Section, it must be undertaken or a bona
ide business purpose and not solely or the purpose o escaping the burden o taxation:
Proided, urther, 1hat in determining whether a bona ide business purpose exists, each and
eery step o the transaction shall be considered and the whole transaction or series o
transaction shall be treated as a single unit: Proided, inally, 1hat in determining whether
the property transerred constitutes a substantial portion o the property o the transeror,
the term 'property' shall be taken to include the cash assets o the transeror.

1he term "control` shall mean ownership o stocks in a corporation possessing at
least ity-one percent ,51, o the total oting power o all classes o stocks entitled to
ote.
158


|b| 1ranser o
a controlled
corporation
159


,6, Income tax treatment o capital
loss
,a, Capital loss limitation
rule
160


Proides that capital losses are deductible only to the extent o capital gains.

137
A person exchanges hls properLy for sLock or unlL of parLlclpaLlon ln a corporaLlon of whlch as a resulL
of such exchange sald person alone or LogeLher wlLh oLhers noL exceedlng four persons galns conLrol of
sald corporaLlon
ConLrol" means ownershlp of sLocks ln a corporaLlon possesslng aL leasL 31 of Lhe LoLal voLlng power
of all classes of sLock enLlLled Lo voLe
1he lLems enumeraLed above are also called LaxexempL exchanges"
138
ld (C)(6)
139
See (3)(b)(3) supra
160
appllcable Lo boLh corporaLlons and lndlvlduals
34

,b, Net loss carry-oer rule
161


Net Capital Loss Carry Oer ,NCLCO, means that:

i. I any taxpayer, other than a corporation, sustains in any taxable year a net
capital loss,
ii. Such net capital loss cannot be deducted rom ordinary income due to the
loss limitation rule,
iii. Such loss could be carried oer to the next taxable year
162
as a deduction
against net capital gain in an amount not in excess o the taxable income
163

in the year the loss was sustained, and
i. Such loss shall be treated as a loss rom the sale or exchange o capital assets
held or not more than twele ,12, months.
164


,, Dealings in real property situated
in the Philippines
165


On sale, exchange, or other disposition o real property in the Philippines, held as a
capital asset - on the gross selling price, or the current air market alue at the time o the
sale, whicheer is higher, a inal tax o 6.
166


,8, Dealings in shares o stock o
Philippine corporations

,a, Shares listed and traded in
the stock exchange

1his is not subject to income tax but subject to percentage tax o ' o 1 o the
gross selling price.







161
appllcable only Lo lndlvlduals
162
noL LhereafLer
163
le neL lncome before exempLlons
164
Sec. 39 |D|
163
1he real properLy lnvolved musL be consldered caplLal asseL A caplLal asseL ls properLy held by Lhe
Laxpayer wheLher or noL connecLed ln hls Lrade or buslness excepL
1 SLock ln Lrade or oLher properLy of any klnd whlch would be lncluded ln Lhe lnvenLory of Lhe
Laxpayer lf on hand aL Lhe end of Lhe Laxable year
2 roperLy prlmarlly held for sale Lo cusLomers ln Lhe ordlnary course of Lrade or buslness
3 roperLy used ln Lrade or buslness sub[ecL Lo depreclaLlon
4 eal properLy used ln Lrade or buslness
166
Sec 24 (u)
33

,b, Shares not listed and
traded in the stock exchange

1he proisions o Section 39,B,
16
notwithstanding, a inal tax at the rates prescribed
below is hereby imposed upon the net capital gains realized during the taxable year rom the
sale, barter, exchange or other disposition o shares o stock in a domestic corporation,
except shares sold, or disposed o through the stock exchange.

Not oer P100,000................... 5

On any amount in excess o P100,000...... 10

,9, Sale o principal residence
168


Not liable or capital gains tax when:

a. 1here is a sale or disposition o their principal residence by natural persons.
b. 1he proceeds o the sale are ully utilized in acquiring or constructing a new
principal residence within 18 calendar months rom the date o sale or disposition.

c. 1he Commissioner shall hae been duly notiied by the taxpayer within 30 days
rom the date o sale or disposition through a prescribed return o his intention to aail o
the tax exemption.

d. A deposit is made o the 6 capital gain tax otherwise due, in cash or manager`s
check, in an interest-bearing account with an Authorized Agent Bank ,AAB,, under an
Lscrow Agreement between the taxpayer and the Bureau o Internal Reenue that the same
shall be released to the taxpayer when the proceeds o the sale shall hae been utilized as
intended.

e. 1he tax exemption can only be aailed o once eery 10 years.


167
ln Lhe case of a Laxpayer oLher Lhan a corporaLlon only Lhe followlng percenLages of Lhe galn or loss
recognlzed upon Lhe sale or exchange of a caplLal asseL shall be Laken lnLo accounL ln compuLlng neL
caplLal galn neL caplLal loss and neL lncome
(1) Cne hundred percenL (100) lf Lhe caplLal asseL has been held for noL more Lhan Lwelve (12)
monLhs and
(2) llfLy percenL (30) lf Lhe caplLal asseL has been held for more Lhan Lwelve (12) monLhs
168
CondlLlons for Lax exempLlon of galn from Lhe sale or exchange of prlnclpal resldence
1 roceeds are fully uLlllzed ln acqulrlng or consLrucLlng a new prlnclpal resldence wlLhln18 monLhs
from Lhe daLe of sale or dlsposlLlon
2 PlsLorlcal cosL or ad[usLed basls or Lhe real properLy sold or dlsposed shall be carrled over Lo Lhe new
prlnclpal resldence bullL or acqulred
3 noLlce Lo Lhe Commlssloner of lnLernal evenue shall be glven wlLhln LhlrLy (30) days from Lhe daLe
of sale or dlsposlLlon and
4 lf Lhe proceeds of Lhe sale were noL fully uLlllzed Lhe porLlon of Lhe galn presumed Lo have been
reallzed from Lhe sale or dlsposlLlon shall be sub[ecL Lo caplLal galns Lax
36

I there is no ull utilization o the proceeds o sale or disposition, the portion o the
gain presumed to hae been realized rom the sale or disposition shall be subject to capital
gains tax ,CG1,. 1he GSP or lMV at the time o sale, whicheer is higher, shall be
multiplied by a raction which the unutilized amount bears to the gross selling price in order
to determine the taxable portion..
169


6, Passie Inestment Income

a, Interest Income

An earning deried rom depositing or lending o money, goods or credits.
10


b, Diidend Income
11


,1, Cash diidend

A diidend paid in cash and is taxable to the extent o the cash receied.

,2, Stock diidend

Inoles the transer o a portion o retained earnings to capital stock by action o
stockholders. it simply means the capitalization o retained earnings.
12


,3, Property diidend

A diidend paid in property o a corporation such as stock inestment, bands or
securities held by the corporation and to the extent o the lMV o the property receied at
the time o the distribution.

169
Sec 24 (u)(2)
170
Ceneral rule lnLeresL recelved by a Laxpayer wheLher usurlous or noL ls sub[ecL Lo lncome Lax
LxcepL When lnLeresL lncome ls exempLed by law from lncome Lax
171
ulvldends means any dlsLrlbuLlons made by a sLock corporaLlon Lo lLs sLockholders (SPs)) ouL of lLs
earnlngs or proflLs and payable Lo lLs SPs ln money or oLher properLy
172
Ceneral rule A mere lssuance of sLock dlvldends ls noL sub[ecL Lo lncome Lax because lL merely
represenLs caplLal and lL does noL consLlLuLe lncome Lo lLs reclplenL 8efore dlsposlLlon Lhereof sLock
dlvldends are noLhlng buL a represenLaLlon of lnLeresL ln Lhe corporaLe enLlLy
xceptloos When sLock dlvldends are sub[ecL Lo Lax
a) 1hese shares are laLer redeemed for a conslderaLlon by Lhe corporaLlon or oLherwlse conveyed by
Lhe sLockholder Lo Lhe exLenL of such conLrlbuLlon under Lhe nlC lf a corporaLlon afLer Lhe dlsLrlbuLlon
of a nonLaxable sLock dlvldend proceeds Lo cancel or redeem lLs sLock aL such Llme and ln such manner
as Lo make Lhe dlsLrlbuLlon and cancellaLlon or redempLlon essenLlally equlvalenL Lo Lhe dlsLrlbuLlon of a
Lax of a Laxable dlvldend Lhe amounL recelved ln redempLlon or cancellaLlon of Lhe sLock shall be LreaLed
as a Laxable dlvldend Lo Lhe exLenL LhaL lL represenLs a dlsLrlbuLlon of earnlngs or proflLs (5ec7J (8)
-lkc) uependlng on Lhe clrcumsLances corporaLe earnlngs may be dlsLrlbuLed under Lhe gulse of lnlLlal
caplLallzaLlon by declarlng Lhe sLock dlvldends prevlously lssued and laLer redeem or cancel sald dlvldends
by paylng cash Lo Lhe sLockholder 1hls process amounLs Lo dlsLrlbuLlon of Laxable dlvldends whlch ls [usL
delayed so as Lo escape Lhe Lax (clk vs cA J01 5ckA 152)
b) 1he reclplenL ls oLher Lhan Lhe sLockholder (8ocbtocb vs 5elfett 57 lnl 48J)
c) A change ln Lhe sLockholder's equlLy resulLs by vlrLue of Lhe sLock dlvldend lssuance
37

,4, Liquidating diidend

A diidend distributed to the shareholders upon dissolution o the corporation.

c, Royalty Income

1hese are the compensations or payments or the use o property and are paid to the
owner o a right.

d, Rental Income
13


Reers to earning deried rom leasing real estate as well as personal property. It
includes all other obligations assumed to be paid by the lessee to the third party in behal o
the lessor.

,1, Lease o personal property
,2, Lease o real property

,3, 1ax treatment o

,a, Leasehold improements
by lessee

1he lease can be drawn up to grant a credit to the renter toward any amounts he
might spend in leasehold improements. 1his would beneit the landlord in that the taxable
income or rent will be reduced. 1he amounts spent or these improements can be
deducted rom any capital gains on the uture sale o the leased building.
14


,b, VA1 added to rental,paid
by the lessee

I VA1 registered, the lessee is able to treat the ull amount o the VA1 charged on
the rentals as input tax and to claim a credit in the normal way. loweer, non-registered
lessees ,including most small enterprises,, and those classiied as exempt cannot claim a
VA1 reund and hence hae to bear the cost.
15

,c, Adance rental,long term
lease

,a, I the adanced rental is a Security Deposit which restricts the lessor as to its use
- such amount shall be excluded` in the determination o rental income.

,b, I the adance rental is prepaid rental receied without restriction as to its use -
the entire amount is taxable` in the year it is receied.

173
1axes pald by Lhe LenanL (lessee) Lo or for a lessor for a buslness properLy are addlLlonal renL and
consLlLuLe lncome Laxable Lo Lhe lessor
174
ePowcom
173
pracLlcalacLlonorg
38

, Annuities, Proceeds rom lie insurance or other
types o insurance

Annuities - amounts payable yearly or at other regular interals or a certain or
uncertain period. 1hey also represent as installment payments or lie insurance sold by
insurance companies.
16


Proceeds o lie insurance paid by reason o the death o the insured to his estate or
to any beneiciary,
1
directly or in trust.

Return o insurance premium
18


8, Prizes and awards

Contest prizes and awards receied are generally taxable. Such payment
constitutes gain deried rom labor.

1he exceptions are as ollows:

Prizes and awards receied in recognition o religious, charitable, scientiic,
educational, artistic, literary or ciic achieements are exclusions rom gross income i:

a. 1he recipient was selected without any action on his part to enter a contest or
proceedings, and
b. 1he recipient is not required to render substantial uture serices as a condition
to receiing the prize or award.

Prizes and awards granted to athletes in local and int`l sports competitions and
tournaments held in the Philippines and abroad and sanctioned by their national associations
shall be exempt rom income tax.

9, Pensions, retirement beneit, or separation pay

Pension reers to allowance paid regularly to a person on his retirement or to his
dependents on his death, in consideration o past serices, meritorious work, age, loss or
injury.


176
lf Lhe parL of annulLy paymenLs represenL lnLeresL" Laxable lncome
lf Lhe annulLy ls a mere reLurn of premlum noL Laxable
177
lndlvldual parLnershlp or corporaLlon buL noL a Lransferee for a valuable conslderaLlon
lf Lhe proceeds are reLalned by Lhe lnsurer Lhe lnLeresL Lhereon ls Laxable
178
lf such amounLs (when added Lo amounLs already recelved before Lhe Laxable year under such
conLracLs) exceed Lhe aggregaLe premlums or conslderaLlons pald (wheLher or noL pald durlng Lhe Laxable
year) Lhen Lhe excess shall be lncluded ln Lhe gross lncome Powever ln Lhe case of a Lransfer for a
valuable conslderaLlon by asslgnmenL or oLherwlse of a llfe lnsurance endowmenL or annulLy conLracL
or any lnLeresL Lhereln only Lhe acLual value of such conslderaLlon and Lhe amounL of Lhe premlums and
oLher sums subsequenLly pald by Lhe Lransferee are exempL from LaxaLlon no loss ls reallzed on
surrender of a llfe lnsurance pollcy for lLs surrender value
39

Retirement beneits receied under RA 641 and those receied by oicials and
employees o priate irms in accordance with a reasonable priate beneit plan maintained
by the employer.
19


Any amount receied by an employee or by his heirs rom the employer as a
consequence o separation o such oicial or employee rom the serice o the employer
because o death, sickness, other physical disability or or any cause beyond the control o
the employee.
180


1he social security beneits, retirement gratuities, pensions and other similar beneits
receied by resident or nonresident citizens o the Philippines or aliens who come to reside
permanently in the Philippines rom oreign goernment agencies and other institutions.

Payments o beneits due or to become due to any person residing in the Philippines
under the laws o the United States administered by the United States Veterans
Administration

Beneits receied rom or enjoyed under the Social Security System.

Beneits receied rom the GSIS, including retirement gratuity receied by
goernment oicials and employees.

10, Income rom any source whateer

All income not expressly excluded or exempted rom the class o taxable income,
irrespectie o the oluntary or inoluntary action o the taxpayer in producing the
income.
181

a, lorgieness o indebtedness

1he cancellation and orgieness o indebtedness may, dependent upon the
circumstances, amount to:

1. a payment o income,
2. a git, or
3. a capital transaction.

I, or example, an indiidual perorms serices or a creditor who, in consideration
thereo cancels the debt, income to that amount is realized by the debtor as compensation
or his serice.


179
equlslLes
l 1he reLlrlng employee has been ln Lhe servlce of Lhe same employer for aL leasL 10 years
ll 1he reLlrlng employee ls noL less Lhan 30 years of age aL Lhe Llme of hls reLlremenL
lll 1he beneflLs shall be avalled of by an employee only once
lv 1haL Lhere be a reasonable prlvaLe beneflL plan as deflned below
180
le Lhe separaLlon of Lhe employee musL be lnvolunLary and noL lnlLlaLed by hlm
181
Cotlettez vs collectot of lotetool keveooe C1A case no 63 AugusL 31 1963
60

I, howeer, a creditor merely desires to beneit a debtor and without any
consideration thereo cancels the debt, the amount o the debt is a git rom the creditor to
the debtor and need not be included in the latter`s gross income.

I a corporation to which a stockholder is indebted orgies the debt, the transaction
has the eect o payment o diidends.
182


b, Recoery o accounts preiously written
o

Bad debts claimed as a deduction in the preceding year,s, but subsequently recoered
shall be included as part o the taxpayer`s gross income in the year o such recoery to the
extent o the income tax beneit o said deduction.
183
1here is an income tax beneit when the
deduction o the bad debt in the prior year resulted in lesser income and hence tax saings
or the company.
184


c, Receipt o tax reunds or credit

As a general rule, a reund o a tax related to the business or the practice o
proession, is taxable income
185
in the year o receipt to the extent o the income tax beneit
o said deduction.
186

1ax credit takes place upon the issuance o a tax certiicate or tax credit memo,
which can be applied against any sum that may be due and collected rom the taxpayer.

d, Income rom any source whateer
18







182
Sec 30 ev eg 2
183
1ax 8eneflL ule
184
Sec 4 399
183
eg refund of frlnge beneflL Lax
186
le Lhe Lax beneflL rule applles
Powever Lhe followlng Lax refunds are noL Lo be lncluded ln Lhe compuLaLlon of gross lncome
1 hlllpplne lncome Lax excepL Lhe frlnge beneflL Lax
2 lncome Lax lmposed by auLhorlLy of any forelgn counLry lf Lhe Laxpayer clalmed a credlL for such Lax
ln Lhe year lL was pald or lncurred
3LsLaLe and donor's Laxes
4 1axes assessed agalnsL local beneflLs of a klnd Lendlng Lo lncrease Lhe value of Lhe properLy assessed
(Speclal assessmenLs)
3valueAdded1ax
6 llnes and penalLles due Lo laLe paymenL of Lax
7llnal Laxes
8 CaplLal Calns 1ax
187
supra
61

. Source rules in determining income rom within and
without
188


1he ollowing items o gross income shall be treated as gross income rom sources
within the Philippines:

1, Interests

Interests deried rom sources within the Philippines, and interests on bonds, notes
or other interest-bearing obligation o residents, corporate or otherwise.

2, Diidends

1he amount receied as diidends:

,a, rom a domestic corporation, and
,b, rom a oreign corporation, unless less than ity percent ,50, o the gross
income o such oreign corporation or the three-year period ending with the close o its
taxable year preceding the declaration o such diidends or or such part o such period as
the corporation has been in existence, was deried rom sources within the Philippines as
determined under the proisions o this Section, but only in an amount which bears the
same ration to such diidends as the gross income o the corporation or such period
deried rom sources within the Philippines bears to its gross income rom all sources.

3, Serices

Compensation or labor or personal serices perormed in the Philippines.

4, Rentals

Rentals and royalties rom property located in the Philippines or rom any interest in
such property, including rentals or royalties or -

,a, 1he use o or the right or priilege to use in the Philippines any copyright, patent, design
or model, plan, secret ormula or process, goodwill, trademark, trade brand or other like property or
right,

,b, 1he use o, or the right to use in the Philippines any industrial, commercial or scientiic
equipment,

,c, 1he supply o scientiic, technical, industrial or commercial knowledge or inormation,

,d, 1he supply o any assistance that is ancillary and subsidiary to, and is urnished as a
means o enabling the application or enjoyment o, any such property or right as is mentioned in
paragraph ,a,, any such equipment as is mentioned in paragraph ,b, or any such knowledge or
inormation as is mentioned in paragraph ,c,,


188
Sec 42
62

,e, 1he supply o serices by a nonresident person or his employee in connection with the
use o property or rights belonging to, or the installation or operation o any brand, machinery or
other apparatus purchased rom such nonresident person,

,, 1echnical adice, assistance or serices rendered in connection with technical
management or administration o any scientiic, industrial or commercial undertaking, enture,
project or scheme, and

,g, 1he use o or the right to use:

,i, Motion picture ilms,
,ii, lilms or ideo tapes or use in connection with teleision, and
,iii, 1apes or use in connection with radio broadcasting.

5, Royalties
189


6, Sale o real property

Gains, proits and income rom the sale o real property located in the Philippines.

, Sale o personal property

Gains, proits and income rom the sale o personal property

1he ollowing items o gross income shall be treated as income rom sources without
the Philippines:

,1, Interests other than those deried rom sources within the Philippines

,2, Diidends other than those deried rom sources within the Philippines

,3, Compensation or labor or personal serices perormed without the Philippines,

,4, Rentals or royalties rom property located without the Philippines or rom any interest in
such property including rentals or royalties or the use o or or the priilege o using without the
Philippines, patents, copyrights, secret processes and ormulas, goodwill, trademarks, trade brands,
ranchises and other like properties, and

,5, Gains, proits and income rom the sale o real property located without the Philippines.

8, Shares o stock o domestic corporation

Gain rom the sale o shares o stock in a domestic corporation shall be treated as
deried entirely orm sources within the Philippines regardless o where the said shares are
sold.

g. Situs o Income 1axation
190


189
See 4) enLals supra
190
See lnherenL LlmlLaLlons 1errlLorlal supra
63

h. Lxclusions rom Gross Income
191


Reers to income receied or earned but is not taxable as income because it is
exempted by law or by treaty. Receipts which are not in act income are also excluded rom
Gross Income.
192

1, Rationale or the exclusions

a, Lie Insurance proceeds
- represents indemnity not income

b, Amount Receied by Insured as Return o Premium
- the amount returned are not income but return o capital. 1hey
represent earnings which were preiously taxed.

c, Gits, Bequests, and Deises
- the property is subject to donor`s or estate taxes as the case may be.
lurther, there is no income.

d, Compensation or Injuries or Sickness
- they are mere compensation or injuries or sickness suered and
not income.

e, Income Lxempt under 1reaty
- the principle o reciprocity and comity among nations.

2, 1axpayers who may aail o the exclusions

a, Indiiduals b, Corporations, and c, Lstates and trusts

3, Lxclusions distinguished rom deductions and tax
credit

Lxclusions - reer to income receied or earned but is not taxable because by law or
treaty. Such tax - ree income is not to be included in the income tax return unless
inormation regarding it is speciically called or.
193


Deductions - reer to the items or amounts authorized by law to be subtracted rom
the pertinent items o gross income to arrie at taxable income.
194


1ax credit - an amount subtracted rom an indiidual`s or entity`s tax liability to
arrie at the total tax liability.
195


191
See Sec 32 (8)
192
Lxcluslons are ln Lhe naLure of Lax exempLlons Lhus Lhe clalmanL musL esLabllsh Lhem convlnclngly
193
Sec 61 ev egs no 2
194
Secs 34 and 33 nlC
193
M nolJloq cotp vs commlsslooet of lotetool keveooe C1A Case no 3314 prom AugusL 17 1998
clLlng 8lack's Law ulcLlonary 6
Lh
Ld
64

4, Under the Constitution

a, Income deried by the goernment or its
political subdiisions rom the exercise o any
essential goernmental unction

Reers only to income deried by the Goernment or any o its political subdiisions
rom:

1, any public utility, and
,2, the exercise o any essential goernmental unction.
196


5, Under the 1ax Code

a, Proceeds o lie insurance policies

1he proceeds o lie insurance policies paid to the heirs or beneiciaries upon the
death o the insured, whether in a single sum or otherwise.
19


b, Return o premium paid

1he amount receied by the insured as a return o premiums paid by him under lie
insurance, endowment, or annuity contracts, either during the term or at the maturity o the
term o the contract o upon surrender.
198

c, Amounts receied under lie insurance,
endowment or annuity contracts
199


d, Value o property acquired by git, bequest,
deise or descent

1he alue the property acquired by git, deise, or descent shall be excluded.
loweer, the income rom such property, as well a. git, bequest, deise, or descent o
income rom property, in cases o transers o diided interest, shall be included in gross
income.

e, Amount receied through accident or
health insurance

196
1hus lncome from sources oLher Lhan Lhose menLloned ls sub[ecL Lo lncome Lax
197
eason for excluslon 1he conLracL of lnsurance ls a conLracL of lndemnlLy hence Lhe proceeds Lhereof
are consldered lndemnlLy raLher Lhan a galn or proflLs
lnsLances when proceeds from lnsurance are Laxable
a) Where proceeds are held by Lhe lnsurer under an agreemenL Lo pay lnLeresL 1he lnLeresL ls lncluded
ln deLermlnaLlon of gross lncome
b) Where Lhe Lransfer ls for valuable conslderaLlon
198
eason for Lhe excluslon 1he reLurn of premlum ls a mere reLurn of caplLal Powever where Lhe
lncluded ln Lhe gross amounL recelved exceed Lhe aggregaLe premlums pald Lhe excess shall be lncome
199
See b
63


Amounts receied, through Accident or lealth Insurance or under \orkmen`s
Compensation Acts, as compensation or personal injuries or sickness, plus the amounts o
any damages receied, whether by suit or agreement, on the account o such injuries or
sickness.
200


, Income exempt under tax treaty

Income o any kind, to the extent required by any treaty obligation binding upon the
Goernment o the Philippines.

g, Retirement beneits, pensions, gratuities,
etc.

a, Retirements beneits receied under RA 641 and those receied by oicials and
employees o priate irms in accordance with reasonable priate beneit plan.
201

b, Any amount receied by an oicial or employees or by his heirs rom the
employer as a cov.eqvevce o .earatiov frov .errice due to death, sickness or other physical
disability beyond the control o the said oicial or employer.
c, 1erminal leae and other social security beneits.
202

d, Beneits receied under the US eterans Administration.
e, Beneits receied rom SSS
, Beneits receied rom GSIS









200
Lxample of damages recovered from personal ln[urles Moral damages for personal ln[urles
lf Lhe award of damages ls Lo compensaLe loss of properLy or an award of damages Lo compensaLe loss
of lncome / proflLs such ls sub[ecL Lo Lax
201
equlslLes
1) 1he reLlrlng offlclal or employees has been ln servlce of Lhe same employer for aL leasL Len years
2) ls noL less Lhan 30 yrs of age aL Lhe Llme of hls reLlremenL and
3) Avallable Lo offlclal or employee only once
A reasonable prlvaLe beneflL plan" means a penslon graLulLy sLock bonus or proflL sharlng plan
malnLalned by an employer for Lhe beneflL of some or all of hls employees
a) whereln conLrlbuLlons are made by such employer or employees or boLh for Lhe purpose of
dlsLrlbuLlng Lo such employer Lhe earnlngs and prlnclpal of Lhe fund Lhus accumulaLed and
b) whereln sald plan provldes LhaL aL no Llme shall any parL of Lhe prlnclpal or lncome of Lhe fund be
used for or be dlverLed Lo any purpose oLher Lhan for Lhe excluslve beneflL of sald employee
202
1he Lermlnal leave pay of governmenL employees whose employmenL ls coLermlnous ls exempL slnce
lL falls wlLhln Lhe meanlng of Lhe phrase for any cause beyond Lhe conLrol of Lhe sald offlclal or
employees" (8l ullng 14398)
66

h, \innings, prizes, and awards, including
those in sports competition

1, Prizes and Award - to be excluded, the ollowing conditions must concur:

,1, Prizes and award made primarily in recognition o religious, charitable,
scientiic, educational, artistic, literary, or ciic achieement.
,2, 1he recipient was selected without any action on his part to enter the
contest or proceeding.
,3, 1he recipient is not required to render substantial uture serices as a
condition in receiing the award.

2, Prizes and Award in Sports Competition - All prizes and award granted to
athletes in local and international sports competitions and tournaments whether held in the
Phils. or abroad and sanctioned by sports associations.

6, Under a 1ax 1reaty

1o the extent required by any treaty obligation binding upon the Philippine
goernment.

, Under Special Laws

1. Prizes receied by winners in charity horse race sweepstakes rom PCSO.
2. Back pay beneits
3. Income o cooperatie marketing association
4. Salaries and stipends in dollars receied by non - lilipino citizens on the
technical sta o IRRI ,International Rice Research Institutes,.
5. Supplemental allowances per diem, beneits receied by oicer or employees o
the loreign Serice.
6. Income rom bonds and securities or sale in the international market.

i. Deductions rom Gross Income
203


203
1hese are lLems or amounLs auLhorlzed by Lhe law Lo be subLracLed from Lhe perLlnenL lLems of Lhe
gross lncome Lo arrlve aL Lhe Laxable lncome 1he Lerm 'Laxable lncome' means Lhe perLlnenL lLems of
gross lncome speclfled ln Lhe naLlonal lnLernal evenue Code Sec 32 less Lhe deducLlons Sec 34
and/or personal and addlLlonal exempLlons Sec 33 lf approprlaLe auLhorlzed for such Lypes of lncome
by Lhe Code or oLher speclal laws Sec 31
Who can avall of deducLlons?
Ceneral rule All Laxpayers
LxcepLlon 1hose earnlng compensaLlon lncome arlslng from personal servlces
rendered under an employeremployee
relaLlonshlp
8aslc rlnclples Covernlng 1ax ueducLlons
Pe who clalms lL musL polnL Lo Lhe speclflc provlslon of Lhe sLaLuLe auLhorlzlng lL and he musL be able
Lo prove LhaL he ls enLlLled Lo lL
lf Lhe exempLlon ls noL expressly sLaLed ln Lhe law Lhe Laxpayer musL aL leasL be wlLhln Lhe purvlew of
Lhe exempLlon by clear leglslaLlve lnLenL Powever lf Lhere ls an express menLlon ln Lhe law or lf Lhe
67

1, General rules

a, Deductions must be paid or incurred in
connection with the taxpayer`s trade, business
or proession

It must be directly connected with trade or business or proession o the taxpayer.

b, Deductions must be supported by adequate
receipts or inoices
204


1he claimed deduction must be eidenced by oicial receipts or other adequate
records.
205


2, Return o capital ,cost o sales or serices,

a, Sale o inentory o goods by
manuacturers and dealers o properties
b, Sale o stock in trade by a real estate dealer
and dealer in securities
c, Sale o serices

3, Itemized deductions
206


a, Lxpenses
20





Laxpayer falls wlLhln Lhe purvlew of Lhe exempLlon by clear leglslaLlve lnLenL Lhe rule on sLrlcL
consLrucLlon agalnsL Lhe LaxpayerclalmanL wlll noL apply
unllke gross lncome Lhere ls no caLchall provlslon for deducLlons ueducLlons musL comply wlLh Lhe
subsLanLlaLlon requlremenL
204
excepL sLandard deducLlon
203
1he evldence musL esLabllsh Lhe followlng
a) Lhe amounL of expenses belng deducLed
b) Lhe dlrecL relaLlon of such Lo Lhe developmenL managemenL operaLlon and/or conducL of Lhe
Lrade buslness or professlon of Lhe Laxpayer
206
1he followlng can clalm lLemlzed deducLlons
a CorporaLlons wheLher domesLlc or (resldenL) forelgn
b Ceneral rofesslonal arLnershlps
c lndlvlduals engaged ln Lrade professlon or buslness (clLlzen resldenL allen nonresldenL allen
dolng buslness ln Lhe hlllpplnes)
d LsLaLes and LrusLs engaged ln Lrade or buslness
e roprleLary educaLlonal lnsLlLuLlons and hosplLals (nonproflL)
f CovernmenLowned or conLrolled corporaLlons
Cnly lndlvlduals excepL nonresldenL allens can elecL beLween lLemlzed deducLlons and opLlonal
sLandard deducLlon
207
Sec 34(A)
Cnly deducLlons allowable are ordlnary and necessary Lrade buslness or professlonal expenses
68

,1, Requisites or deductibility

1. It must be ordinary and necessary.
2. It must be paid or incurred during the taxable year.
3. It must be paid or incurred in carrying on or which are directly attributable to the
deelopment, management, operation and,or conduct o the trade, business or exercise o
a proession.
4. 1he amount must be reasonable.
5. It must be substantiated with suicient eidence, such as oicial receipts or other
adequate records, showing:

i. the amount o the expense being deducted, and
ii. the direct connection or relation o the expense being deducted to the
deelopment, management, operation and,or conduct o the trade, business or
proession o the taxpayer.

6. It is not contrary to law, public policy or morals.
. 1he tax required to be withheld on the amount paid or payable must hae been
paid to the BIR by the taxpayer, who is constituted as a withholding agent o the
goernment.
208


,a, Nature: Ordinary and
necessary
209


Ordinary - expenses which are commonly incurred in the trade or business o the
taxpayers as distinguished rom capital expenditures. An expense is ordinary i it is normal
or usual to the line o business.

Necessary - expenses which are appropriate and helpul to the taxpayer`s business or
i it is intended to realized proit or to minimize a loss.

,b, Paid and incurred during
taxable year

Paid - the payment is on cash receipt basis, expenses are deductible in the year they
are incurred.

Incurred - the payment thereo is on accrual basis, expenses are deductible in the
year they are incurred, whether paid or not.


208
lor lnsLance wlLhholdlng Lax on compensaLlon lncome pald Lo employees frlnge beneflL Lax on
frlnge beneflLs glven Lo managerlal and supervlsory employees eLc ( Sec 2383 298 as amended by
Sec 6 142002)
209
1he Lwo condlLlons musL concur A courL may declde on when an expense ls or ls noL ordlnary buL
as much as posslble lL wlll refuse Lo subsLlLuLe lLs [udgmenL for LhaL of Lhe Laxpayer on Lhe necesslLy of an
expense
69

,2, Salaries, wages and other orms o
compensation or personal serices
actually rendered, including the
grossed-up monetary alue o the
ringe beneit subjected to ringe
beneit tax which tax should hae
been paid
210


,3, 1rael,1ransportation expenses
211


,4, Cost o materials

,5, Rentals and,or other payments or
use or possession o property
212


,6, Repairs and maintenance
213


,,Lxpenses under lease agreements
214


,8, Lxpenses or proessionals

,9, Lntertainment expenses

,10, Political campaign expenses

,11, 1raining expenses





210
Sec 34 (A)(1)(a)(l)
211
lor Lravel expenses here and abroad whlle away from home ln Lhe pursulL of Lrade buslness or
professlon
lnclude meals and lodglng here and/or abroad
Whlle away from home means away from prlnclpal place of buslness
lf Lhe Lrlp ls underLaken for purposes oLher Lhan buslness or exerclse of professlon Lhe LransporLaLlon
expenses are personal expenses and Lhe meals and lodglng are llvlng expenses and are noL deducLlble
1ransporLaLlon expenses of an employee from hls resldence Lo hls offlce and back are noL deducLlble
1hey are personal expenses Powever LransporLaLlon expenses from hls offlce Lo hls cusLomer's place of
buslness and back are deducLlble 1hey are buslness expenses
212
equlred as a condlLlon for Lhe conLlnued use or possesslon for purposes of Lhe Lrade buslness or
professlon of properLy Lo whlch Lhe Laxpayer has noL Laken or ls noL Laklng LlLle or ln whlch he has no
equlLy oLher Lhan LhaL of a lessee user or possessor
213
LxLraordlnary repalrs Lhose ln Lhe naLure of replacemenLs alLeraLlon and expanslon Lo Lhe exLenL
LhaL Lhey arresL deLerloraLlon and prolong Lhe llfe of Lhe properLy
Crdlnary repalrs Lhose made Lo keep Lhe properLy ordlnarlly efflclenL worklng condlLlon and do noL
maLerlally add Lo Lhe value of Lhe properLy
214
See 3) enLals eLc supra
70

b, Interest
215


,1, Requisites or deductibility

a, there must be indebtedness.
b, the indebtedness must be that o the taxpayer
c, the indebtedness must be connected with the trade, business or proession o the taxpayer
d, the interest must hae been paid or incurred during the taxable year
e, the interest must hae been stipulated in writing
, the deduction or interest expense shall be reduced by an amount equal to 38 o the
interest income subject to inal tax.
216

g, 1he interest payment arrangement must not be between related taxpayers as
mandated in Sec. 34,B,,2,,b,, in relation to Sec. 36,B,,
21
both o the 1ax Code o 199.
h, 1he interest must not be incurred to inance petroleum operations.
i, In case o interest incurred to acquire property used in trade, business or exercise o
proession, the same was not treated as a capital expenditure.

,2, Non-deductible interest expense

1, Interest paid in adance by a taxpayer reporting income on cash basis proided:

a, Such interest may be allowed as deduction in the year the indebtedness is paid:
and

,b, I the indebtedness is payable in periodic amortization -- the interest
corresponding to the amortized principal may be deducted during the taxable year.

,2, I the indebtedness is incurred to inance petroleum exploration.

,3, Interest on loans between related taxpayer:

,a, between members o a amily

- Brothers and sisters
218

- Spouse
- Ancestors
- Lineal descendants

,b, between an indiidual and a corporation --- where more than 50 in the alue o
outstanding capital stock is owned by such indiidual except in the case o distribution
in liquidation.

,c, between two corporations - where more than 50 o the OCS o which is owned
directly or indirectly by or or the same indiidual except distribution in liquidation.

213
1he amounL of lnLeresL pald or lncurred wlLhln a Laxable year on lndebLedness ln connecLlon wlLh Lhe
Laxpayers professlon Lrade or buslness shall be allowed as deducLlon from gross lncome (Sec 34
8 (1))
216
beglnnlng !an 1 2000
217
lnfra
218
wheLher full or halfblood
71


,d, between the Grantor and the iduciary in 1rust

,e, between the iduciary o a trust and a iduciary o another trust i the same person is
a grantor with respect to each trust.

,4, In the case o banks and loan or trust companies, interest paid within the year on
deposits or on saings receied or inestment and secured by interest-bearing certiicates o
indebtedness issued by such bank or company.

,3, Interest subject to special rules

,a, Interest paid in adance

I within the taxable year an indiidual taxpayer reporting income on the cash basis
incurs an indebtedness on which an interest is paid in adance through discount or
otherwise: Proided, 1hat such interest shall be allowed as a deduction in the year the
indebtedness is paid: Proided, urther, 1hat i the indebtedness is payable in periodic
amortizations, the amount o interest which corresponds to the amount o the principal
amortized or paid during the year shall be allowed as deduction in such taxable year.

,b, Interest periodically
amortized
219


,c, Interest expense incurred
to acquire property or use in
trade,business,proession

At the option o the taxpayer, interest incurred to acquire property used in trade
business or exercise o a proession may be allowed as a deduction or treated as a capital
expenditure.
220


c, 1axes
221


,1, Requisites or deductibility

1. It must be paid or incurred within the taxable year.
2. It must be paid or incurred in connection with the taxpayer`s trade, proession or
business.
222


219
See a) above
220
Sec 34 (8)(3)
221
1he word 'Laxes' means Laxes proper and no deducLlon should be allowed for amounLs
represenLlng lnLeresL surcharge or penalLles lncldenL Lo dellnquency (Sec 80 2)
222
Lxamples
1) lmporL duLles
2) 8uslness Laxes
3) CccupaLlon Laxes
4) rlvllege and llcense Laxes
72

3. It must be imposed directly on the taxpayer.
4. It must not be speciically excluded by law rom being deducted rom the taxpayer`s
gross income.

,2, Non-deductible taxes

1. loreign income tax, i not claimed as tax credit
223

2. linal 1axes
3. Lstate and donor`s taxes
4. Stock transaction tax on the sale, barter or exchange o s,s listed and traded through the
local stock exchange.
5. 1axes assessed against local beneits tending to increase the alue o the property
224

6. 1axes which are not in connection with the trade, business or proession o taxpayer.
. Income tax imposed by the Philippine go`t.
8. Value - added 1ax ,VA1,
225

9. Lnergy 1axes












3) Lxclse Laxes
6) uocumenLary sLamp Laxes
7) AuLomoblle reglsLraLlon fees
8) eal properLy Laxes
LlmlLaLlon ln Lhe case of a nonresldenL allen lndlvldual engaged ln Lrade or buslness (nAL18)
and a resldenL forelgn corporaLlon (lC) Lhe deducLlons for Laxes shall be allowed only lf and Lo Lhe
exLenL LhaL Lhey are connecLed wlLh lncome from sources wlLhln Lhe hlllpplnes
223
lncome Lax lmposed by a forelgn counLry are deducLlble only lf
a) Lhe Laxpayer ls quallfled Lo avall of Lax credlL
b) Pe does noL slgnlfy ln lLs reLurn hls deslre Lo avall of Lhe same
1he rlghL Lo deducL lncome Laxes pald Lo a forelgn governmenL ls glven only as an alLernaLlve or
subsLlLuLe Lo hls rlghL Lo clalm a Lax credlL for such forelgn lncome Laxes
LlmlLaLlon on deducLlon
a) non resldenL allen engaged ln Lrade or buslness ln Lhe hlls
b) resldenL forelgn corporaLlon Lhe deducLlons for Laxes shall be allowed only lf and Lo Lhe exLenL
LhaL Lhey are connecLed wlLh lncome from sources wlLhln" Lhe hlls
224
speclal assessmenL or levles
223
1o be deducLlble Lhe Laxes musL be lmposed by law and payable by Lhe Laxpayer 1hus a value added
Lax ls noL deducLlble by Lhe cusLomer upon whom Lhe burden of Lhe Lax ls shlfLed by Lhe seller Powever
Lhe cusLomer may conslder Lhe Lax burden as parL of hls cosL as an ordlnary or caplLal expendlLure lf
lncurred ln buslness or Lrade
73

,3,1reatment,o
surcharges,interests,ines,or
delinquency
226


,4, 1reatment o special assessment


A special assessment
22
is leied on land.
A special assessment is not a personal liability o the person assessed, it is limited to
the land.
A special assessment is based wholly on beneits, not necessity.
A special assessment is exceptional both as to time and place.


,5, 1ax credit
228
is-a-is deduction


%ax Credit %ax deduction
-- deducted rom Phil
income tax
-- deducted rom the
gross income
-- all taxes are allowed
to be deducted with the
exception o the taxes
expressly excluded
-- only oreign
income taxes may be
claimed as credits






226
See (l)(3)(a)(2) under 1ax emedles under Lhe nlC lnfra
227
an enforced proporLlonal conLrlbuLlon from owners of lands especlally or pecullarly beneflLed by
publlc lmprovemenLs
228
refers Lo Lhe Laxpayer's rlghL Lo deducL from Lhe lncome Lax due Lhe amounL of Lax he has pald Lo
forelgn counLry
ersons enLlLled Lo Lax credlL
1 esldenL ClLlzen of Lhe hlllpplnes
2 uomesLlc Corp excepL Ceneral rofesslonal arLnershlp
3 Members of Lhe C
4 8eneflclarles of LsLaLes and 1rusLs
ersons noL enLlLled Lo 1ax credlL
1 non esldenL ClLlzen
2 Allens wheLher resldenLs or non resldenLs
3 lorelgn CorporaLlon wheLher resldenLs or non resldenLs


74

d, Losses

Losses actually sustained during the taxable year and not compensated or by
insurance or other orms o indemnity shall be allowed as deductions:

1, I incurred in trade, proession or business,
2, O property connected with the trade, business or proession, i the loss arises
rom ires, storms, shipwreck, or other casualties, or rom robbery, thet or
embezzlement.

,1, Requisites or deductibility
229


a, 1he loss must be that o the taxpayer.
230

b, 1here must be an actual loss suered in a closed and completed transaction.
231

c, 1he loss must be connected with the taxpayer`s trade, business or proession.
d, 1he loss must not be compensated or by insurance or otherwise.
e, 1he loss must be actually sustained and charge - o during the taxable year.
232

, In the case o casualty loss, declaration o loss
233
must be iled within 45 days
rom the occurrence o the casualty loss.
234

g, 1he loss must not be claimed as deduction or estate tax purposes in the estate tax return.

,2, Other types o losses

,a, Capital losses

,a, Losses rom sale or exchange o capital assets.
b, Losses resulting rom securities becoming worthless and which are capital assets
235

,c, Losses rom short sales o property.
,d, Losses due to ailure to exercise priilege or options to buy or sell.


229
uesplLe concurrence of requlslLes when ls loss noneLheless nC1 deducLlble?
ln compuLlng neL lncome no deducLlons shall ln any case be allowed ln respecL of losses from
sales or exchanges of properLy dlrecLly or lndlrecLly beLween relaLed Laxpayers (Sec 36 (8)
230
1he loss ls personal Lo Lhe Laxpayer and ls noL Lransferable or usable by anoLher 1he loss of a
predecessor parLnershlp ls noL deducLlble by a successor corporaLlon 1he loss of Lhe parenL company
may noL be deducLed by lLs subsldlary
231
closed LransacLlon means LhaL Laxable year when Lhe amounL of loss was flnally ascerLalned
232
1he deducLlon shall be ln full or noL aL all
Powever lf Lhe loss ls compensaLed by lnsurance or oLherwlse Lhe loss ls posLponed Lo a subsequenL
year ln whlch lL appears LhaL no compensaLlon aL all can be had or Lhere ls a remalnlng neL loss (or
Lhere ls no full compensaLlon) ueducLlon wlll be denled lf Lhere ls a measurable rlghL Lo compensaLlon for
Lhe loss wlLh ulLlmaLe collecLlon reasonably clear So where Lhere ls reasonable ground for
relmbursemenL Lhe Laxpayer musL seek hls redress and may noL secure a loss deducLlon unLll he
esLabllshes LhaL no recovery may be had ln oLher words Lhe Laxpayer musL flrsL exhausL hls remedles
Lo recover or reduce hls loss (llotlJel 5otety ooJ losotooce co v collectot 21 SCA 1187)
233
Sworn ueclaraLlon of Loss
234
1277
233
A mere loss on accounL of Lhe shrlnkage ln value of securlLles or shares of sLock ls noL deducLlble 1he
loss Lo be deducLed musL be acLually suffered when Lhe sLock ls dlsposed
73

,b, Securities becoming
worthless

I any securities which are capital assets, are ascertained to be worthless and charged-
o within the taxable year, the loss resulting thererom to the taxpayer
236
is not considered as
a bad debt but as a capital loss.

,c, Losses on wash sales o
stocks or securities

Loss on wash sales not deductible when:

1, A taxpayer who is not a dealer o stocks in trade has disposed shares and
2, \ithin the period o 60,sixty, days beginning 30 days beore the date o such sale
and ending 30 days ater such date.
3, 1he taxpayer has acquired substantially identical stocks or securities.
23


,d, \agering losses

\agering losses are deductible only to the extent o the gains rom such wagering
transaction. I there is no gain rom the wagering transaction, the loss thererom cannot be
deducted rom gross income.
238


,e, NOLCO

Net Operating Loss - denotes the excess o allowable deductions oer gross income.

Net Operating loss Carry - oer - it means that the net operating loss or the taxable
year immediately preceding the current taxable year shall be carried oer as a deduction rom
gross income or the next three ,3, consecutie taxable yrs. immediately ollowing the year o
such loss.
239


236
oLher Lhan a bank or LrusL company lncorporaLed under Lhe laws of Lhe hll
23
Powever lf losses from wash sales are clalmed by a dealer" ln securlLles ln Lhe ordlnary course of
buslness such losses are deducLlble
238
Wagerlng LransacLlons are Lhose ln whlch Lhe ouLcome ls uncerLaln or Lhose LhaL lnvolve games of
chance
239
LlmlLaLlons of avallablllLy of nCLCC
a) 1here musL be no subsLanLlal change ln ownershlp of Lhe buslness or enLerprlse ln LhaL
1 noL less Lhan 73 ln nomlnal value of Lhe ouLsLandlng lssued shares lf Lhe buslness ls on Lhe name
of Lhe corporaLlon ls held by or on behalf of Lhe same persons or
2 noL less Lhan 73 of Lhe pald up caplLal of Lhe corporaLlon lf Lhe buslness ls ln Lhe name of Lhe
corporaLlon ls held by or on behalf of Lhe same persons
b) Where one buslness operaLlon ls lncome Lax exempL and Lhe oLher ls noL Lhe losses ln Lhe laLLer
operaLlons are noL deducLlble from Lhe proflLs ln Lhe Laxable operaLlon
c) Any neL loss lncurred ln a Laxable year durlng whlch Lhe Laxpayer was exempL from lncome Lax shall
noL be allowed Lo be carrled over Lo Lhe nexL Lhree years
nCLCC lor mlnes oLher Lhan oll and gas wells Lhe neL operaLlng loss of mlnes lncurred ln Lhe flrsL 10
yrs of operaLlon shall be carrled over Lo Lhe nexL flve (3) yrs followlng Lhe loss
76

e, Bad debts

Debts due to the taxpayer when actually ascertained to be worthless
240
and charged-
o within the taxable year.
241


1hey reer to those debts resulting rom the worthlessness or uncollectibility, in
whole or in part, o amounts due to the taxpayer by others, arising rom money lent or rom
uncollectible amounts o income rom goods sold or serices rendered.
242


,1, Requisites or deductibility

1, 1here must be a alid and subsisting debt.
243

2, 1he same must be connected with the taxpayer`s trade, business or practice o proession.
3, 1he same must not be sustained in a transaction entered into between related parties
enumerated under Sec. 36 ,B,
244
o the NIRC.
4, 1he same must be actually charged-o the books o accounts o the taxpayer as o the
end o the taxable year.
245


240
ln general a debL ls noL worLhless slmply because lL ls of doubLful value or dlfflculL Lo collecL
WorLhlessness ls noL deLermlned by an lnflexlble formula or sllde rule calculaLlon buL upon Lhe exerclse of
sound buslness [udgmenL 1he deLermlnaLlon of worLhlessness ln a glven case musL depend upon Lhe
parLlcular facLs and Lhe clrcumsLances of Lhe case A Laxpayer may noL posLpone a bad debL deducLlon on
Lhe basls of a mere hope of ulLlmaLe collecLlon or because of a conLlnuance of aLLempLs Lo collecL noLes
whlch have long become overdue and where Lhere ls no showlng LhaL Lhe surroundlng clrcumsLances
dlffer from Lhose relaLlng Lo oLher noLes whlch were charged off ln a prlor year Whlle a mere hope
probably wlll noL [usLlfy posLponemenL of Lhe deducLlon a reasonable posslblllLy of recovery wlll permlL
Lhe accounL Lo be carrled along noLwlLhsLandlng LhaL Lhe probablllLles are LhaL Lhe debL may noL be
collecLed aL all
241
Sec34 L1
242
Sec2 a ev egs no399
243
A valld and subslsLlng debL ls one Lhe collecLlon of whlch may be enforced ln a courL of law A debL
whlch had prescrlbed ls no longer valld and subslsLlng
244
1he sald secLlon provldes
ln compuLlng neL lncome no deducLlon shall ln any case be allowed ln respecL of losses from sales or
exchange of properLy dlrecLly or lndlrecLly
l 8eLween members of a famlly lor Lhe purpose of Lhls paragraph Lhe famlly of an lndlvldual shall
lnclude only hls broLhers and slsLers (wheLher by Lhe whole halfblood) spouse ancesLors and llneal
descendanLs or
ll LxcepL ln Lhe case of dlsLrlbuLlons ln llquldaLlon beLween an lndlvldual and a corporaLlon more Lhan
flfLy percenL (30) ln value of Lhe ouLsLandlng sLock of whlch ls owned dlrecLly or lndlrecLly by or for
such lndlvldual or
lll LxcepL ln Lhe case of dlsLrlbuLlons ln llquldaLlon beLween Lwo corporaLlons more Lhan flfLy percenL
(30) ln value of Lhe ouLsLandlng sLock of each of whlch ls owned dlrecLly or lndlrecLly by or for Lhe same
lndlvldual lf elLher one of such corporaLlons wlLh respecL Lo Lhe Laxable year of Lhe corporaLlon
precedlng Lhe daLe of Lhe sale or exchange was under Lhe law appllcable Lo such Laxable year a personal
holdlng company or a forelgn personal holdlng company
lv 8eLween Lhe granLor and a flduclary of any LrusL or
v 8eLween Lhe flduclary of a LrusL and Lhe flduclary of anoLher LrusL lf Lhe same person ls a granLor
wlLh respecL Lo each LrusL or
vl 8eLween a flduclary of a LrusL and a beneflclary of such LrusL
77

5, 1he same must be actually ascertained to be worthless and uncollectible as o the end o
the taxable year.
246


, Depreciation

1he gradual diminution in the useul alue o tangible property used in trade or
business resulting rom exhaustion, wear and tear, and normal obsolescence.

1he term is also applied to amortization o alue o intangible assets the use o
which in trade or business is deinitely limited in duration.
24


,1, Requisites or deductibility

a, 1he allowance or depreciation must be reasonable
248

b, It must be or property arising out o its use or employment in the business or trade, or
out o its not being used temporarily during the year
249

c, It must be charged-o during the taxable year,
250

d, A statement on the allowance must be attached to the return.
e, 1he property must hae a limited useul lie.

,2, Methods o computing
depreciation allowance

,a, Straight-line method
251


1his method spreads the total depreciation oer the useul lie o the asset and
generally results in an equal depreciation per unit o time regardless o the use to which the
properties are put.
,b, Declining-balance method

1his method uses a rate
252
to the declining book alue o the asset. Depreciation is
largest in amount the irst year and declines in the years thereater.




243
A parLlal wrlLlngoff of a bad debL ls noL allowed lL musL be chargedoff ln full or noL aL all (letoooJez
netmooos loc vs commlsslooet 29 SCA 332 lblllpploe kefloloq co vs coott of Appeols 70 SCAu 344
236 SCA 667)
246
ln general a debL ls noL worLhless slmply because lL ls of doubLful value or dlfflculL Lo collecL
WorLhlessness ls deLermlned upon Lhe exerclse of a sound buslness [udgmenL 1he deLermlnaLlon of
worLhlessness ln a glven case musL depend upon Lhe parLlcular facLs and clrcumsLances of Lhe case
247
8oslloo stotes loc vs comm 21 SCA 17
248
8ocoloJMotclo Mlllloq co loc vs comm C1A Case no 1402 CcL 31 1969
249
coooel 8tos co vs collectot C1A Cases no 411 610 Aprll 30 1966)
230
1he deducLlon musL be made ln Lhe year ln whlch Lhe wear Lear occurs uepreclaLlon may noL be
accumulaLed
231
llxed ercenLage MeLhod
232
usually 13 or 2 Llmes Lhe sLralghLllne raLe
78

,c,Sum-o-the-years-digit
method

1his method requires the application o a changing raction to the cost basis o the
property, reduced by the estimated residual salage alue.

g, Charitable and other contributions
253


,1, Requisites or deductibility

1, 1he contribution must actually be paid or made to the Phil. Goernment or any o its
agencies or political subdiision or to any domestic corporations or associations
speciied by the 1ax Code or other entities as allowed by the 1ax Code and existing
special laws.
2, It must be made within the taxable year,
3, It must not exceed 10 o the indiidual`s taxable income and 5 o the corporation`s
taxable income beore deducting the contribution ,applicable only to contributions with
limit,, and
4, It must be eidenced by adequate records or receipts.
254


,2, Amount that may be deducted

1he ollowing are subject to limit:
255


1., Donations to the Philippine goernment or any o its agencies or any political
subdiision thereo exclusiely or public purposes,

2., Donations to accredited domestic corporations or associations organized and
operated exclusiely or:

a., Religions,
b.,Charitable,
c., Scientiic,
d.,\outh and sports deelopment,
e., Cultural, or
., Lducational purposes, or or the
g.,Rehabilitations o eterans, and

3., Donations to social welare institutions or to non-goernment organizations in
accordance with rules and regulations promulgated by the Secretary o linance,
proided no part o the net income o which inures to the beneit o any priate
stockholders or indiidual.
256

Kinds o contributions allowed as deduction:

1, Ordinary or contributions with limit or subject to limitation
2, Special or contributions deductible in ull
234
Sec 34 (P)
233
3/10
236
Sec 34 (P)(1)
79

Contributions deductible in ull under the 1ax Code:

1., Donations to the goernment o the Philippines or to any o its agencies or political
subdiisions including ully-owned goernment corporations exclusiely to inance, to
proide or, or to be used in undertaking priority actiities in:

a., Lducation,
b.,lealth,
c., \outh and sports deelopment,
d.,luman settlements,
e., Science and culture, and
., Lconomic deelopment

According to the national priority plan determined by NLDA proided, that donations
not in accordance with the said annual priority plan shall be with limit,

2., Donations to oreign institutions or international organizations in pursuance or
compliance with agreements, treaties, or commitments entered into by the goernment
o the and the oreign laws or international organizations or in pursuance o special laws,
and

3., Donations to certain accredited non-goernment organization.
25


h, Contributions to pension trusts

,1, Requisites or deductibility
258


1, 1he employer must hae established a pension or retirement plan to proide or the
payment o reasonable pensions to its employees,
2, 1he pension plan is reasonable and actuarially sound.
259

3, It must be unded by the employer, i.e., the employer contributes cash to the plan,
4, 1he amount contributed must no longer be subject to its control or disposition, and
5, 1he payment has not thereore been allowed as a deduction.

4, Optional standard deduction

a, Indiiduals, except non-resident aliens

1he OSD allowed to indiidual taxpayers shall be a maximum o orty percent ,40,
o gross sales or gross receipts during the taxable year. 1he cost o sales` in case o
indiidual seller o goods, or the cost o serices` in the case o indiidual seller o serices,
is not allowed to be deducted or purposes o determining the basis o the OSD inasmuch as
the law
260
is speciic as to the basis thereo which states that or indiiduals, the basis o the
40 OSD shall be the gross sales` or gross receipts` and not gross income`
261


237
see Sec 34(P)( 2)
238
under Sec 34 !
239
Sec 118 egs
260
A 9304 Mlnlmum Wage Larner Law
261
ev eg no 162008
80

b, Corporations, except non-resident oreign
corporations

1he OSD shall be in an amount not exceeding orty percent ,40, o their gross
income.

5, Personal and additional exemption
262


a, Basic personal exemptions

lity thousand pesos ,P50,000, or each indiidual taxpayer.
263


b, Additional exemptions or taxpayer with
dependents

1wenty-ie thousand pesos ,P25,000, or each dependent
264
not exceeding our
,4,.
265


c, Status-at-the-end-o-the-year rule

1. I taxpayer marries during taxable year, taxpayer may claim the corresponding
BPL
266
in ull or such year
26


2. I taxpayer should hae additional dependent,s, during taxable year, taxpayer may
claim corresponding AL
268
in ull or such year.

3. I taxpayer dies during taxable year, his estate may still claim BPL and AL or
himsel and his dependent,s, as i he died at the close o such year.






262
A 9304
263
Sec 4 ld
ln Lhe case of marrled lndlvldual where only one of Lhe spouses ls derlvlng gross lncome only such
spouse shall be allowed Lhe personal exempLlon
264
means a leglLlmaLe llleglLlmaLe or legally adopLed chlld chlefly dependenL upon and llvlng wlLh Lhe
Laxpayer lf such dependenL ls noL more Lhan LwenLyone (21) years of age unmarrled and noL galnfully
employed or lf such dependenL regardless of age ls lncapable of selfsupporL because of menLal or
physlcal defecL
263
ln Lhe case of legally separaLed spouses addlLlonal exempLlons may be clalmed only by Lhe spouse
who has cusLody of Lhe chlld or chlldren
rovlded 1haL Lhe LoLal amounL of addlLlonal exempLlons LhaL may be clalmed by boLh shall noL exceed
Lhe maxlmum addlLlonal exempLlons hereln allowed (lbld)
266
8aslc personal exempLlon
267
le no need Lo pro raLe Lhe exempLlon
268
addlLlonal exempLlon(s)
81

4. I during the taxable year

a. spouse dies, or
b. any o the dependents dies or marries, turns 21 years old or becomes
gainully employed, taxpayer may still claim same exemptions as i the spouse or any
o the dependents died, or married, turned 21 years old or became gainully
employed at the close o such year.
269


6, Items not deductible

a, General rules

1hese items are not related to the trade, business or proession o the taxpayer.

b, Personal, liing or amily expenses

1hese are not deductible rom compensation and business,proessional income.
20


c, Amount paid or new buildings or or
permanent improements ,capital
expenditures,

Does not apply to intangible drilling and deelopment cost incurred in petroleum
operations which are deductible under Sec.34 ,G,,1,
21
o the NIRC ,Depletion,.

d, Amount expended in restoring property
22


1hey are capital expenditures or those expenditures that result in obtaining beneits
o a permanent nature such as lands, buildings and machineries

e, Premiums paid on lie insurance policy
coering lie or any other oicer or employee
inancially interested

A person is said to be inancially interested in the taxpayer`s business, i he is a
stockholders thereo or he is to receie as his compensation a share o the property o the
business.

, Interest expense, bad debts, and losses rom
sales o property between related parties




269
Sec 33 (C)
270
under Sec 24 (A)
271
See eference
272
ma[or repalrs
82

Interest Lxpense

In general, the amount o interest paid or incurred within a taxable year on
indebtedness in connection with the taxpayer's proession, trade or business.
23

Bad Debts

In general, debts due to the taxpayer actually ascertained to be worthless and charged
o within the taxable year except those not connected with proession, trade or business and
those sustained in a transaction entered into between parties mentioned under Section 36 ,B,
o this Code: Proided, 1hat recoery o bad debts preiously allowed as deduction in the
preceding years shall be included as part o the gross income in the year o recoery to the
extent o the income tax beneit o said deduction.
24


Losses rom sales o property between related parties:

,1, Between members o a amily,
25
or
,2, Lxcept in the case o distributions in liquidation, between an indiidual and corporation
more than ity percent ,50, in alue o the outstanding stock o which is owned, directly or
indirectly, by or or such indiidual, or
,3, Lxcept in the case o distributions in liquidation, between two corporations more than
ity percent ,50, in alue o the outstanding stock o which is owned, directly or indirectly, by or
or the same indiidual i either one o such corporations, with respect to the taxable year o the
corporation preceding the date o the sale o exchange was under the law applicable to such taxable
year, a personal holding company or a oreign personal holding company,
,4, Between the grantor and a iduciary o any trust, or
,5, Between the iduciary o and the iduciary o a trust and the iduciary o another trust i
the same person is a grantor with respect to each trust, or
,6, Between a iduciary o a trust and beneiciary o such trust.
26


g, Losses rom sales or exchange or property

In general, losses actually sustained during the taxable year and not compensated or
by insurance or other orms o indemnity:

,a, I incurred in trade, proession or business,
,b, O property connected with the trade, business or proession, i the loss arises
rom ires, storms, shipwreck, or other casualties, or rom robbery, thet or embezzlement.
2







273
Sec 34 (8)
274
ld (L)
273
1he famlly of an lndlvldual shall lnclude only hls broLhers and slsLers (wheLher by Lhe whole or half
blood) spouse ancesLors and llneal descendanLs
276
Sec 36 (8)
277
Sec 34 (u)(1)
83

h, Non-deductible interest

,a, interest paid in adance through discount or otherwise
28
allowed as deduction in
the year the debt is paid i indebtedness is payable in periodic amortizations, interest is
deducted in proportion o the amt. o the principal paid.

,b, payments made:

1. between members o a amily
29

2. between an indiidual & a corp. more than 50 in alue o outstanding stock is
owned by such indiidual ,except in case o distributions in liquidation,
3. between 2 corps. more than 50 in alue o outstanding stock owned by same
indiidual, i either one is a personal holding co. or a oreign holding co. during the taxable
yr. preceding the date o sale,exchange
4. between grantor & iduciary o any trust
5. between liduciary o a trust & the iduciary o another i same person is a grantor
to each trust
6. between liduciary & a beneiciary o a trust
. indebtedness is incurred by a serice contractor to inance petroleum corp.
8. interest on preerred stock which in reality is diidend
9. interest on unpaid salaries and bonuses
10. interest calculated or cost keeping on account o capital or surplus inested in
business which does not represent charges arising under interest-bearing obligation
11. interest paid when there is no stipulation or the payment thereo

i, Non -deductible taxes

a, Philippine income tax
280

b, income tax imposed by authority o any oreign country ,except when the
taxpayer signiies his desire to aail o the tax credit or taxes o oreign countries,
c, estate & donor`s taxes
d, taxes assessed against local beneits o a kind tending to increase the alue o the
property assessed
e, inal taxes, being in the nature o income tax
, special assessments

j, Non-deductible losses


1. Losses rom Illegal 1ransactions
2. Losses rom sales or exchanges o property between related taxpayers
281
- but the
gains are taxable


278
ln case of cash basls Laxpayer
279
supra
280
buL l81 can be deducLed from gross lncome ( 898)
281
As provlded under Sec 36
84

k, Losses rom wash sales o stock or
securities

Not deductible unless claim is made by a dealer in stock,securities & made in
ordinary course o business.

j. Lxempt Corporations

1. General Proessional Partnerships
282


Any other partnership is liable or corporate income tax.

2. Joint Venture under a serice contract with the goernment

A merger o two ,2, or more corporations or the purpose o engaging in construction
projects or energy operations pursuant to a consortium agreement or a serice contract with the
goernment. 1he corporations comprising the joint enture or consortium must be engaged in the
same line o business.

It is only the joint enture or consortium itsel which is exempt rom corporate income tax,
not the income o each corporation rom the joint enture consortium. 1hus, each corporation
comprising o the joint enture or consortium is liable or corporate income tax.
283


3. Goernment-owned or controlled corporations:

i. Goernment Serice Insurance System ,GSIS,,
ii. the Social Security System ,SSS,,
iii. the Philippine lealth Insurance Corporation ,PlIC,,
i. the Philippine Charity Sweepstakes Oice ,PCSO, and
. the Philippine Amusement and Gaming Corporation ,PAGCOR,

Other exempt corporations:

1he ollowing organizations shall not be taxed in respect to income receied by them as
such:

,A, Labor, agricultural or horticultural organization not organized principally or proit,

,B, Mutual saings bank not haing a capital stock represented by shares, and cooperatie
bank without capital stock organized and operated or mutual purposes and without proit,

,C, A beneiciary society, order or association, operating or the exclusie beneit o the
members such as a raternal organization operating under the lodge system, or mutual aid association

282
1wo (2) requlslLes Lo be exempL from corporaLe lncome Lax
1 lL ls formed by persons for Lhe sole purpose of exerclslng Lhelr common professlon and
2 no parL of Lhe lncome of whlch ls derlved from engaglng ln any Lrade or buslness
283
8otooqos ooJ 1toospottotloo co vs collectot 102 hll 822

83

or a non-stock corporation organized by employees proiding or the payment o lie, sickness,
accident, or other beneits exclusiely to the members o such society, order, or association, or non-
stock corporation or their dependents,

,D, Cemetery company owned and operated exclusiely or the beneit o its members,

,L, Non-stock corporation or association organized and operated exclusiely or religious,
charitable, scientiic, athletic, or cultural purposes, or or the rehabilitation o eterans, no part o its
net income or asset shall belong to or inures to the beneit o any member, organizer, oicer or any
speciic person,

,l, Business league chamber o commerce, or board o trade, not organized or proit and
no part o the net income o which inures to the beneit o any priate stock-holder, or indiidual,

,G, Ciic league or organization not organized or proit but operated exclusiely or the
promotion o social welare,

,l, A non-stock and nonproit educational institution,

,I, Goernment educational institution,

,J, larmers' or other mutual typhoon or ire insurance company, mutual ditch or irrigation
company, mutual or cooperatie telephone company, or like organization o a purely local character,
the income o which consists solely o assessments, dues, and ees collected rom members or the
sole purpose o meeting its expenses, and

,K, larmers, ruit growers, or like association organized and operated as a sales agent or the
purpose o marketing the products o its members and turning back to them the proceeds o sales,
less the necessary selling expenses on the basis o the quantity o produce inished by them,

Notwithstanding the proisions in the preceding paragraphs, the income o whateer kind
and character o the oregoing organizations rom any o their properties, real or personal, or rom
any o their actiities conducted or proit regardless o the disposition made o such income, shall be
subject to tax imposed under this Code.
284


10. 1axation o Resident Citizens, Non-resident Citizens, and Resident
Aliens
a. General rule: Resident citizens - 1axable on income rom
all sources within and without the Philippines

1he tax base is net income.

b. 1axation on Compensation Income

1, Inclusions

a, Monetary compensation


284
Sec 30
86

,1, Regular salary,wage

Compensation income deried rom an employer-employee relationship in
consideration o serices rendered, except in the case o a minimum wage earner.
285


,2, Separation pay,retirement beneit
not otherwise exempt

Separation pay receied by an employee who oluntarily resigns is subject to income
tax. Retirements beneits may be subject to tax i it does not comply with the proision o
Sec. 32 ,B,,6,,a,.
286

,3, Bonuses, 13th month pay, and
other beneits not exempt

Amount in excess o 1hirty thousand pesos ,P30,000.00,

,4, Director`s ees
28


b, Non-monetary compensation

,1, lringe beneit not subject tax
288


,1, ringe beneits which are authorized and exempted rom tax under special laws,

,2, Contributions o the employer or the beneit o the employee to retirement,
insurance and hospitalization beneit plans,

,3, Beneits gien to the rank and ile employees, whether granted under a collectie
bargaining agreement or not, and

,4, e vivivi. beneits.
289


,5, I the grant o ringe beneits to the employee is required by the nature o, or
necessary to the trade, business, or proession o the employer.

,6, I the grant o the ringe beneits is or the conenience o the employer.
290







283
lnfra
286
See eference
287
See (1) egular salary/wage supra
288
Sec 33 consolldaLed wlLh Sec 233 (C) 0398
289
lnfra
290
Convenlence of Lhe employer rule
87

2, Lxclusions

a, lringe beneit subject to tax

Any good, serice or other beneit urnished or granted in cash or in kind by an employer to
an indiidual employee
291
such as, but not limited to, the ollowing:

,1, lousing,
,2, Lxpense account,
,3, Vehicle o any kind,
,4, lousehold personnel, such as maid, drier and others,
,5, Interest on loan at less than market rate to the extent o the dierence between the
market rate and actual rate granted,
,6, Membership ees, dues and other expenses borne by the employer or the employee in
social and athletic clubs or other similar organizations,
,, Lxpenses or oreign trael,
,8, loliday and acation expenses,
,9, Lducational assistance to the employee or his dependents, and
,10, Lie or health insurance and other non-lie insurance premiums or similar amounts in
excess o what the law allows.

b, De minimis beneits

Limited to acilities or priileges urnished or oered by an employer to his
employees that are o relatiely small alue and are oered or urnished by the employer as a
means o promoting the health, goodwill, contentment, or eiciency o his employees such
as the ollowing:

,a, Rice subsidy o P1,500 or one ,1, sack o 50 kg. rice per month amounting to not
more than P1,500, and

,b, Uniorm and clothing allowance not exceeding P4,000 per annum.
292


c, 13th month pay and other beneits and
payments speciically excluded rom taxable
compensation income

Gross beneits receied by oicials and employees o public and priate entities:
Proided, the total exclusion shall not exceed 1hirty thousand pesos ,P30,000, which shall
coer:

,i, Beneits receied by oicials and employees o the national and local goernment
pursuant to Republic Act No. 6686,

,ii, Beneits receied by employees pursuant to Presidential Decree No. 851, as amended by
Memorandum Order No. 28, dated August 13, 1986,


291
excepL rank and flle employees
292
32008
88

,iii, Beneits receied by oicials and employees not coered by Presidential decree No. 851,
as amended by Memorandum Order No. 28, dated August 13, 1986, and

,i, Other beneits such as productiity incenties and Christmas bonus: Proided, urther,
1hat the ceiling o 1hirty thousand pesos ,P30,000, may be increased through rules and regulations
issued by the Secretary o linance, upon recommendation o the Commissioner, ater considering
among others, the eect on the same o the inlation rate at the end o the taxable year.
293


3, Deductions

a, Personal exemptions and additional
exemptions

A basic personal exemption amounting to lity thousand pesos ,P50,000, or each
indiidual taxpayer.
294


An additional exemption o 1wenty-ie thousand pesos ,25,000, or each dependent
not exceeding our ,4,.
295


b, lealth and hospitalization insurance

1he amount o premiums not to exceed 1wo thousand our hundred pesos ,P2,400,
per amily or 1wo hundred pesos ,P200, a month paid during the taxable year or health
and,or hospitalization insurance taken by the taxpayer or himsel, including his amily:
Proided, said amily has a gross income o not more than 1wo hundred ity thousand
pesos ,P250,000, or the taxable year, and in the case o married taxpayers, only the spouse
claiming the additional exemption or dependents shall be entitled to this deduction.
296










293
Sec 32 (e)
294
Sec 33(A) as amended by A 9304
ln Lhe case of marrled lndlvldual where only one of Lhe spouses ls derlvlng gross lncome only such
spouse shall be allowed Lhe personal exempLlon
293
Sec 33 (8) ld
1he addlLlonal exempLlon for dependenLs shall be clalmed by only one of Lhe spouses ln Lhe case of
marrled lndlvlduals
ln Lhe case of legally separaLed spouses addlLlonal exempLlons may be clalmed only by Lhe spouse who
has cusLody of Lhe chlld or chlldren
rovlded 1haL Lhe LoLal amounL of addlLlonal exempLlons LhaL may be clalmed by boLh shall noL exceed
Lhe maxlmum addlLlonal exempLlons hereln allowed
296
Sec 34 (M)
89

c, 1axation o compensation income o a
minimum wage earner

,1, Deinition o Statutory Minimum
\age

1he rate ixed by the Regional 1ripartite \age and Productiity Board, as deined by
the Bureau o Labor and Lmployment Statistics ,BLLS, o the Department o Labor and
Lmployment ,DOLL,
29


,2, Deinition o Minimum \age
Larner
298


,3, Income also subject to tax
exemption: holiday pay, oertime pay,
night shit dierential, and hazard
pay
299


c. 1axation o Business Income,Income rom Practice o
Proession

Optional Standard Deduction ,OSD, or Itemized deductions

Optional Standard Deductions -10 o the gross income. May be aailed only by
indiiduals
300
who are not purely compensation income earners. 1his is in lieu o the
itemized deductions.

Premium payments on health and,or hospital insurance.
301


Personal and additional exemptions.

d. 1axation o Passie Income

1, Passie income subject to inal tax

a, Interest income

Interest income deried by a resident indiidual
302
rom a depositary bank under the
expanded oreign serice deposit system - .5.


297
Sec 22 as amended by A 9304
298
See ll (A) (6) klnds of 1axpayers supra
299
lbld
300
excepL nonresldenL allens
301
lf requlslLes are complled wlLh
302
nonresldenL clLlzen noL lncluded
90

Interest income rom long term deposit or inestment eidenced by certiicates
prescribed by BSP:

a, Lxempt, i inestment is held or more than 5 years
b, I inestment is pre-terminated, interest income on such inestment shall be subject to the
ollowing rates:
20 - I pre-terminated in less than 3 years
12 - I pre-terminated ater 3 years to less than 4 years
5 - I pre-terminated ater 4 years to less than 5 years

b, Royalties

Royalties, except on books, as well as other literary works and musical compositions -20

Royalties on books literary works and musical compositions - 10


c, Diidends rom domestic corporation

Cash and or property diidend actually or constructiely receied rom a domestic
corporation or rom a joint stock company, insurance or mutual und companies and
regional operating headquarters o multinational companies. - 10

d, Prizes and other winnings

Prizes oer P10,000 - 20

Prizes less than P10,000 are included in the income tax o the indiidual subject to
the schedular rate o 5 up to P125,000 - 32 o excess o P500,000.

Other winnings, except PCSO and Lotto, deried rom sources within the
Philippines - 20

2, Passie income not subject to inal tax

Interest income rom long-term deposit or inestment in the orm o saings,
common or indiidual trust unds, deposit substitutes, inestment management accounts and
other inestments eidenced by certiicates in such orm prescribed by the avg/o evtra vg
Piiiva. ,BSP, shall be exempt rom inal tax.
303









303
See Sec 24 (8)(1)
91

e. 1axation o capital gains

1, Income rom sale o shares o stock o a Philippine
corporation

a, Shares traded and listed in the stock
exchange

1he gains are not subject to income tax. 1he tax applicable will be a business tax
known as percentage tax.

1ax on Sale, Barter or Lxchange o Shares o Stock Listed and 1raded 1hrough the
Local Stock Lxchange. - 1here shall be leied, assessed and collected on eery sale, barter,
exchange, or other disposition o shares o stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a tax at the rate o one-hal o one
percent ,1,2 o 1, o the gross selling price or gross alue in money o the shares o stock
sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or
transeror.
304


b, Shares not listed and traded in the stock
exchange

A inal tax at the rates prescribed below shall be imposed on net capital gains realized
during the taxable year rom the sale, exchange or other disposition o shares o stock in a
domestic corporation except shares sold or disposed o through the stock exchange:

Not oer P100,000............... 5
Amount in excess o P100,000....... 10
305


2, Income rom the sale o real property situated in
the Philippines

A inal tax o six percent ,6, based on the gross selling price or current air market
alue, whicheer is higher, upon capital gains presumed to hae been realized rom the sale,
exchange, or other disposition o real property located in the Philippines, classiied as capital
assets, including acto ae retro sales and other orms o conditional sales, by indiiduals,
including estates and trusts xxx.
306


3, Income rom the sale, exchange, or other
disposition o other capital assets

A inal tax o 6 on the gross selling price, or the current air market alue at the
time o the sale, whicheer is higher.


304
Sec 127 (A)
303
Sec 27 (u)(2)
306
Sec 24 (u)
92

11. 1axation o Non-resident Aliens Lngaged in 1rade or Business

a. General rules

A nonresident alien indiidual engaged in trade or business in the Philippines shall be
subject to an income tax in the same manner as an indiidual citizen and a resident alien
indiidual, on taxable income receied rom all sources within the Philippines. A nonresident
alien indiidual who shall come to the Philippines and stay therein or an aggregate period o
more than one hundred eighty ,180, days during any calendar year shall be deemed a
'nonresident alien doing business in the Philippines.
30


b. Cash and,or property diidends

10 inal tax, by January 1, 2000, on the ollowing:

a, Cash and or property diidend actually or constructiely receied rom a domestic
corporation or rom a joint stock company, insurance or mutual und companies and regional
operating headquarters o multinational companies.

b, Share o an indiidual in the distributie net income ater tax o a partnership except a
general proessional partnership o which he is a partner

c, Share o an indiidual in the net income ater tax o an association, joint account, or a
joint enture or consortium taxable as a corporation o which he is a member or a co-enture.
308


c. Capital gains

Capital gains realized rom sale, barter or exchange o shares o stock in domestic
corporations not traded through the local stock exchange, and real properties shall be subject
to the tax prescribed under Subsections ,C, and ,D, o Section 24.
309


|12. Lxclude Non-resident Aliens Not Lngaged in 1rade or Business|

13. Indiidual 1axpayers Lxempt rom Income 1ax

a. Senior citizens

Senior Citizen is:

1. any resident citizen o the Philippines

2. at least sixty 60 years old, including those who hae retired rom both goernment
oices and priate enterprises, and


307
Sec 23 (A)(1)
308
ld (A)(2)
309
ld (A)(3)
93

3. has an income o not more than sixty thousand pesos ,P60,000.00, per annum
subject to the reiew o the National Lconomic Deelopment Authority,NLDA, eery three
,3, years.

b. Lxemptions granted under international agreements

NRAL1B
310
may deduct personal exemption
311
but only to the extent allowed by his
country to lilipinos not residing therein, and shall not exceed the aorementioned amounts.
NRANL1B cannot claim any personal or additional exemption.

14. 1axation o Domestic Corporations

a. 1ax payable

1, Regular tax

An income tax o thirty-ie percent ,35,
312
is hereby imposed upon the taxable
income deried during each taxable year rom all sources within and without the Philippines
by eery corporation,
313
and taxable as a corporation, organized in, or existing under the laws
o the Philippines.
314


2, Minimum corporate income tax ,MCI1,

a, Imposition o MCI1
315


A tax rate o is imposed on the gross income o domestic corporations and
resident oreign corporations.

b, Carry orward o excess minimum tax

Any excess o the minimum corporate income tax ,MCI1, oer the normal income
tax shall be carried orward on an annual basis and credited against the normal income tax or
the three ,3, immediately succeeding taxable yrs.


310
nonresldenL allen engaged ln Lrade or buslness
311
buL noL addlLlonal exempLlon
312
lowered Lo 30 beglnnlng !anuary 1 2009 (A 9337)
313
1he Lerm corporaLlon shall lnclude parLnershlps no maLLer how creaLed or organlzed [olnLsLock
companles [olnL accounLs (coeotos eo pottlclpocloo) assoclaLlon or lnsurance companles buL does noL
lnclude general professlonal parLnershlps and a [olnL venLure or consorLlum formed for Lhe purpose of
underLaklng consLrucLlon pro[ecLs or engaglng ln peLroleum coal geoLhermal and oLher energy
operaLlons pursuanL Lo an operaLlng consorLlum agreemenL under a servlce conLracL wlLh Lhe
CovernmenL (Sec 22(8))
314
Sec 27 (A)
313
a lL ls lmposed beglnnlng Lhe fourLh (4Lh) Laxable year lmmedlaLely followlng Lhe Laxable yr ln whlch
such corporaLlon sLarLs lLs buslness operaLlon
b lL ls lmposable only lf such corporaLlon has zero or negaLlve Laxable lncome or whenever Lhe amounL of
MCl1 ls greaLer Lhan Lhe normal CorporaLe lncome 1ax (nCl1) due from such corporaLlon
94

c, Relie rom the MCI1 under certain
conditions

1he Sec. o linance, upon recommendation o the Commissioner may suspend the
imposition o MCI1, upon showing that the corporation suers losses due to any o the
ollowing causes:

a. Prolonged labor dispute
316

b. Legitimate business reerses
31

c. lorce majeure
318

d, Corporations exempt rom the MCI1

1he ollowing corporations are not subject to MCI1:

,1., Proprietary Lducational Institution
,2., Non-proit hospitals
,3., Depository banks under expended lCDU
,4., International carriers
,5., Oshore Banking Units
,6., ROlQs o resident oreign corp.

e, Applicability o the MCI1 where a
corporation is goerned both under the
regular tax system and a special income tax
system

Only one may be imposed. A minimum corporate income tax o 2 o the gross
income xxx is imposed xxx on a corporation
319
xxx when the minimum income tax is greater
than the ,net income tax,`
320


b. Allowable deductions

1, Itemized deductions

Business
321
expenses which are ordinary and necessary in the conduct o business.
322


2, Optional standard deduction
323


May be taken by an indiidual, in lieu o itemized deductions.
324


316
eg sLrlkes for more Lhan 6 monLhs
317
eg sLrlkes for more Lhan 6 monLhs)
318
eg war
319
domesLlc and resldenL forelgn
320
Secs 27 (L) and 28 (A)(2)
321
or professlonal
322
or ln Lhe exerclse of professlon
323
See also (9)(h)(4)(b) supra
324
SecLlon 34(L)
93

c. 1axation o Passie Income

1, Passie income subject to tax

a, Interest rom deposits and yield or any
other monetary beneit rom deposit
substitutes and rom trust unds and similar
arrangements and royalties

A inal tax at the rate o twenty percent ,20, is hereby imposed upon the amount
o interest on currency bank deposit and yield or any other monetary beneit rom deposit
substitutes and rom trust unds and similar arrangements receied by domestic
corporations, and royalties, deried rom sources within the Philippines: Proided, howeer,
1hat interest income deried by a domestic corporation rom a depository bank under the
expanded oreign currency deposit system shall be subject to a inal income tax at the rate o
seen and one-hal percent , 1,2, o such interest income.
325


b, Capital gains rom the sale o shares o
stock not traded in the stock exchange

On sale, barter, exchange or other disposition o shares o stock o a
domestic corporation not listed and traded through a local stock exchange, held as a
capital asset:

On the net capital gain:

Not oer P100,000
linal 1ax o 5

On any amount in excess o P100,000
plus 10 linal tax on the excess

c, Income deried under the expanded
oreign currency deposit system

Income deried by a depository bank under the expanded oreign currency deposit system
rom oreign currency transactions with local commercial banks, including branches o oreign banks
that may be authorized by the avg/o evtra vg Piiiva. ,BSP, to transact business with oreign
currency depository system units and other depository banks under the expanded oreign currency
deposit system, including interest income rom oreign currency loans granted by such depository

equlslLes
a Avallable only Lo clLlzens and resldenL allens
b 1he sLandard deducLlon ls opLlonal le unless Lhe Laxpayer slgnlfles ln hls reLurn hls lnLenLlon Lo
elecL Lhls deducLlon he ls consldered as havlng avalled of Lhe lLemlzed deducLlons
c Such elecLlon when made by Lhe quallfled Laxpayer ls lrrevocable for Lhe year ln whlch made
however he can change Lo lLemlzed deducLlons ln succeedlng years
323
Sec 27 (u)(1)
96

banks under said expanded oreign currency deposit system to residents, shall be subject to a inal
income tax at the rate o ten percent ,10, o such income.

Any income o nonresidents, whether indiiduals or corporations, rom transactions with
depository banks under the expanded system shall be exempt rom income tax.
326


d, Intercorporate diidends

Diidends receied by a domestic corporation rom another domestic corporation
shall not be subject to tax.

e, Capital gains realized rom the sale,
exchange, or disposition o lands and,or
buildings

On the sale, exchange or disposition o lands and,or buildings which are not actually
used in the business o a corporation and are treated as capital assets.

On the gross selling price, or the current air market alue at the time o the sale,
whicheer is higher, a inal tax o 6.
32


2, Passie income not subject to tax
328


d. 1axation o Capital Gains

1, Income rom sale o shares o stock
329


2, Income rom the sale o real property situated in
the Philippines
330


3, Income rom the sale, exchange, or other
disposition o other capital assets
331


e. 1ax on proprietary educational institutions and hospitals

Proprietary educational institutions and hospitals which are nonproit shall pay a tax
o ten percent ,10, on their taxable income except those coered by Subsection ,D,
hereo: Proriaea that i the gross income rom unrelated trade, business or other actiity
exceeds ity percent ,50, o the total gross income deried by such educational
institutions or hospitals rom all sources, the tax prescribed in Subsection ,A, hereo shall be
imposed on the entire taxable income..
332


326
ld (u)(3)
327
1ax LreaLmenL ls Lhe same as LhaL of lndlvlduals
328
supra
329
See 10 (e) 1axaLlon of CaplLal Calns supra
330
lbld
331
See (A)(10)(e)(3) under 1axaLlon of CaplLal Calns supra
332
Sec 27 (8)
97

. 1ax on goernment-owned or controlled corporations,
agencies or instrumentalities

1he proisions o existing special or general laws to the contrary notwithstanding, all
corporations, agencies, or instrumentalities owned or controlled by the Goernment, except
the Goernment Serice Insurance System ,GSIS,, the Social Security System ,SSS,, the
Philippine lealth Insurance Corporation ,PlIC,, the Philippine Charity Sweepstakes Oice
,PCSO, and the Philippine Amusement and Gaming Corporation ,PAGCOR,, shall pay
such rate o tax upon their taxable income as are imposed upon corporations or associations
engaged in s similar business, industry, or actiity.
333


15. 1axation o Resident loreign Corporations
334


a. General rule

Resident oreign corporations are subject to any or some o the ollowing:

1. Capital Gain 1ax
2. linal 1ax on Passie Income
3. Normal 1ax |or| Minimum Corporate Income 1ax ,MCI1, |or| Gross Income
1ax ,GI1,
4. Branch Proit Remittance 1ax

b. \ith respect to their income rom sources within the
Philippines

Normal corporate income tax rate at 35
335
o net taxable income rom sources
within the Philippines.

c. Minimum corporate income tax

At 2 o MCI1 Gross Income rom sources within the Philippines. 1he MCI1 is
imposed on RlCs under the same conditions as domestic corporations.
336



A roprleLary educaLlonal lnsLlLuLlon ls any prlvaLe school malnLalned and admlnlsLered by prlvaLe
lndlvlduals or groups wlLh an lssued permlL Lo operaLe from Lhe ueparLmenL of LducaLlon CulLure and
SporLs (uLCS) or Lhe Commlsslon on Plgher LducaLlon (CPLu) or Lhe 1echnlcal LducaLlon and Skllls
uevelopmenL AuLhorlLy (1LSuA) as Lhe case may be ln accordance wlLh exlsLlng laws and regulaLlons
1he Lerm unrelaLed Lrade buslness or oLher acLlvlLy means any Lrade buslness or oLher acLlvlLy Lhe
conducL of whlch ls noL subsLanLlally relaLed Lo Lhe exerclse or performance by such educaLlonal
lnsLlLuLlon or hosplLal of lLs prlmary purpose or funcLlon (lbld)
333
ld (C)
334
lncome sub[ecL Lo normal 1ax or Mlnlmum CorporaLe lncome 1ax (MCl1) or Cross lncome 1ax (Cl1)
under Lhe subheadlng of domesLlc corporaLlons ls equally appllcable Lo resldenL forelgn corporaLlons
boLh as Lo concepLs and compuLaLlons excepL LhaL lCs are Laxed only on lncome from sources wlLhln
Lhe hlllpplnes
333
Lowered Lo 30 beglnnlng !anuary 1 2009
336
Sec 28(A)(2)
98

d. 1ax on certain income

,1, Interest rom deposits and yield or any other
monetary beneit rom deposit substitutes, trust unds
and similar arrangements and royalties

Interest rom any currency bank deposit and yield or any other monetary beneit
rom deposit substitutes and rom trust unds and similar arrangements and royalties deried
rom sources within the Philippines shall be subject to a inal income tax at the rate o
twenty percent ,20, o such interest: Proided, the interest income deried by a resident
oreign corporation rom a depository bank under the expanded oreign currency deposit
system shall be subject to a inal income tax at the rate o seen and one-hal percent ,
1,2, o such interest income.
33


,2,Income deried under the expanded oreign
currency deposit system

Income deried by a depository bank under the expanded oreign currency deposit
system rom oreign currency transactions with local commercial banks including branches
o oreign banks that may be authorized by the avg/o evtra vg Piiiva. ,BSP, to transact
business with oreign currency deposit system units, including interest income rom oreign
currency loans granted by such depository banks under said expanded oreign currency
deposit system to residents, shall be subject to a inal income tax at the rate o ten percent
,10, o such income.

Any income o nonresidents, whether indiiduals or corporations, rom transactions
with depository banks under the expanded system shall be exempt rom income tax.
338


,3, Capital gain rom sale o shares o stock not
traded in the stock exchange

A inal tax at the rates prescribed below is hereby imposed upon the net capital gains
realized during the taxable year rom the sale, barter, exchange or other disposition o shares
o stock in a domestic corporation, except shares sold, or disposed o through the stock
exchange:

Not oer P100,000......................5
On any amount in excess o P100,000.... 10








337
Sec 28 (A)(7)(a)
338
ld (A)(7)(c)
99

,4, Intercorporate diidends
339


16. 1axation o Non-resident loreign Corporations

a. General rule

Non-resident oreign corporations are subject to any or some o the ollowing:

1. Capital Gains 1ax
2. linal 1ax on Passie Income
3. linal 1ax on |Other| Gross Income rom sources within the Philippines

b. 1ax on certain income

,1, Interest on oreign loans

A inal withholding tax at the rate o twenty percent ,20, is hereby imposed on the
amount o interest on oreign loans contracted on or ater August 1, 1986.
340


,2, Intercorporate diidends

- 15, as long as the country in which the nonresident oreign corporation is
domiciled allows a tax credit or taxes deemed paid` in the Philippines equialent to 20.

20 represents the dierence between the regular income tax o 35 on
corporations and the 15 tax on diidends

I the country within which the NRlC is domiciled does not allow a tax credit, a
inal withholding tax at the rate o 35 is imposed on the diidends receied rom a
domestic corporation.
341


,3, Capital gains rom sale o shares o stock not
traded in the stock exchange
342


1. Improperly Accumulated Larnings o Corporations

Lery corporation ormed or aailed or the purpose o aoiding the income tax
with respect to its shareholders or the shareholders o any other corporation, by permitting
earnings and proits to accumulate instead o being diided or distributed.



339
supra
340
Sec 28 (8)(3)(2)
341
Sec 28 (8)(3)(b)
ln oLher words Lhe dlvldends are sub[ecL Lo Lhe Lhlrd klnd of Lax llnal 1ax on CLher Cross lncome
from sources wlLhln Lhe hlllpplnes
342
See 10 (e)(1)(b) under 1axaLlon of caplLal galns
100

18. Lxemption rom tax on corporations

A, Labor, agricultural or horticultural organization not organized principally or proit,

,B, Mutual saings bank not haing a capital stock represented by shares, and cooperatie
bank without capital stock organized and operated or mutual purposes and without proit,

,C, A beneiciary society, order or association, operating or the exclusie beneit o the
members such as a raternal organization operating under the lodge system, or mutual aid association
or a non-stock corporation organized by employees proiding or the payment o lie, sickness,
accident, or other beneits exclusiely to the members o such society, order, or association, or non-
stock corporation or their dependents,

,D, Cemetery company owned and operated exclusiely or the beneit o its members,

,L, Nonstock corporation or association organized and operated exclusiely or religious,
charitable, scientiic, athletic, or cultural purposes, or or the rehabilitation o eterans, no part o its
net income or asset shall belong to or inures to the beneit o any member, organizer, oicer or any
speciic person,

,l, Business league chamber o commerce, or board o trade, not organized or proit and
no part o the net income o which inures to the beneit o any priate stock-holder, or indiidual,

,G, Ciic league or organization not organized or proit but operated exclusiely or the
promotion o social welare,

,l, A nonstock and nonproit educational institution,

,I, Goernment educational institution,

,J, larmers' or other mutual typhoon or ire insurance company, mutual ditch or irrigation
company, mutual or cooperatie telephone company, or like organization o a purely local character,
the income o which consists solely o assessments, dues, and ees collected rom members or the
sole purpose o meeting its expenses, and

,K, larmers', ruit growers', or like association organized and operated as a sales agent or
the purpose o marketing the products o its members and turning back to them the proceeds o
sales, less the necessary selling expenses on the basis o the quantity o produce inished by them,

Notwithstanding the proisions in the preceding paragraphs, the income o whateer kind
and character o the oregoing organizations rom any o their properties, real or personal, or rom
any o their actiities conducted or proit regardless o the disposition made o such income, shall be
subject to tax imposed under this Code.
343








343
Sec 30
101

19. 1axation o Partnerships
344


Rules:

1. 1he partnership is subject to the same rules on corporations ,capital gains tax, inal tax on
passie income, normal tax, minimum corporate income tax |MCI1| and gross income tax |GI1|,,
but is not subject to the improperly accumulated earnings tax |IAL1|. 1he partnership must ile
quarterly and year-end income tax returns.

2. 1he taxable income o the partnership, less the normal corporate income tax thereon, is
the distributable net income o the partnership.

3. 1he share o a partner in the partnership`s distributable net income o a year shall be
deemed to hae been actually or constructiely receied by the partners in the same taxable year
and shall be taxed to them in their indiidual capacity, whether actually distributed or not.
345
Such
share will be subjected to a inal tax o 10 to be withheld by the partnership.
346


20. 1axation o General Proessional Partnerships
34


Rules:

1. A GPP as such shall not be subject to the income tax.

2. 1he partners shall only be liable or income tax only in their separate and indiidual
capacities.

3. lor purposes o computing the distributie share o the partners, the net income o
the GPP shall be computed in the same manner as a corporation.

4. Lach partner shall report as gross income his distributie share, actually or
constructiely receied, in the net income o the partnership.

6. 1he share o a partner shall be subject to a creditable withholding income tax o 15.
348



344
parLnershlps whereln all or parL of Lhelr lncome ls derlved from Lhe conducL of Lrade or buslness
343
Sec 73(u)
346
Sec 24(8)(2)
347
C ls noL a Laxable enLlLy 1he parLnershlp ls a mere mechanlsm or a flowLhrough enLlLy ln Lhe
generaLlon of lncome by and Lhe ulLlmaLe mechanlsm dlsLrlbuLlon of such lncome Lo Lhe lndlvldual
parLners (1oo v commlsslooet CcL 3 1994) 8uL Lhe parLnershlp lLself ls requlred Lo flle lncome Lax
reLurns for Lhe purpose of furnlshlng lnformaLlon as Lo Lhe share ln Lhe galns or proflLs whlch each parLner
shall lnclude ln hls lndlvldual reLurn ( 2 1998)
1he share of an lndlvldual parLner ln Lhe neL proflL of a general professlonal parLnershlp ls deemed Lo
have been acLually or consLrucLlvely recelved by Lhe parLner ln Lhe same Laxable year ln whlch such
parLnershlp neL lncome was earned and shall be Laxed Lo Lhem ln Lhelr lndlvldual capaclLles wheLher
acLually dlsLrlbuLed or noL aL Lhe graduaLed lncome Lax ranglng from 3 Lo 32 1hus Lhe prlnclple
of consLrucLlve recelpL of lncome or proflL ls belng applled Lo undlsLrlbuLed proflLs of Cs 1he paymenL
Lo Lhe parLners of such Laxpald proflLs ln anoLher year should no longer be llable Lo lncome Lax
(MamalaLeo)
348
2 1998
102

21. 1axation on Lstates and 1rusts

a, Application

1he tax imposed upon indiiduals shall apply to the income o estates or o any kind
o property held in trust, including:

1. Income accumulated in trust or the beneit o unborn or unascertained
person or persons with contingent interests, and income accumulated or held or uture
distribution under the terms o the will or trust,

2. Income which is to be distributed currently by the iduciary to the beneiciaries,
and income collected by a
guardian o an inant which is to be held or distributed as the court may direct,

3. Income receied by estates o deceased persons during the period o
administration or settlement o the estate, and
4. Income which, in the discretion o the iduciary, may be either distributed to the
beneiciaries or accumulated.

b, Lxception

1he tax shall not apply to employee's trust which orms part o a pension,
stock bonus or proit-sharing plan o an employer or the beneit o some or all o his
employees:

i. i contributions are made to the trust by such employer, or employees, or both
or the purpose o distributing to such employees the earnings and
principal o the und accumulated by the trust in accordance with such plan, and

ii. i under the trust instrument it is impossible, at any time prior to the satisaction
o all liabilities with respect to employees under the trust, or any part o the corv. or
income to be
349
used or, or dierted to, purposes other than or the exclusie beneit o his
employees.
350


c, Determination o tax

1, Consolidation o income o two or more trusts

\here, in the case o two or more trusts, the creator o the trust in each instance is
the same person, and the beneiciary in each instance is the same, the taxable income o
all the trusts shall be consolidated and the tax computed on such consolidated income, and
such proportion o said tax shall be assessed and collected rom each trustee which the

349
wlLhln Lhe Laxable year or LhereafLer
330
Any amounL acLually dlsLrlbuLed Lo any employee or dlsLrlbuLee shall be Laxable Lo hlm ln Lhe year ln
whlch so dlsLrlbuLed Lo Lhe exLenL LhaL lL exceeds Lhe amounL conLrlbuLed by such employee or
dlsLrlbuLee
103

taxable income o the trust administered by him bears to the consolidated income o the
seeral trusts.

2, 1axable income
351


General rule:

Any amount actually distributed to any employee or distributee shall be taxable to
him in the year in which so distributed to the extent that it exceeds the amount contributed
by such employee or distributee.

3, Reocable trusts

\here at any time the power to reest in the grantor title to any part o the corpus
o the trust is ested:

i. in the grantor either alone or in conjunction with any person not haing a
substantial aderse interest in the disposition o such part o the corpus or the income
thererom, or

ii. in any person not haing a substantial aderse interest in the disposition o such
part o the corpus or the income thererom, the income o such part o the trust shall be
included in computing the taxable income o the grantor.
352








331
1he Laxable lncome of Lhe esLaLe or LrusL shall be compuLed ln Lhe same manner and on Lhe same basls
as ln Lhe case of an lndlvldual excepL LhaL
(A) 1here shall be allowed as a deducLlon ln compuLlng Lhe Laxable lncome of Lhe esLaLe or LrusL
Lhe amounL of Lhe lncome of Lhe esLaLe or LrusL for Lhe Laxable year whlch ls Lo be dlsLrlbuLed currenLly
by Lhe flduclary Lo Lhe beneflclarles and Lhe amounL of Lhe lncome collecLed by a guardlan of an lnfanL
whlch ls Lo be held or dlsLrlbuLed as Lhe courL may dlrecL 8u1 Lhe amounL so allowed as a deducLlon
shall be lncluded ln compuLlng Lhe Laxable lncome of Lhe beneflclarles wheLher dlsLrlbuLed Lo Lhem or
noL Any amounL allowed as a deducLlon under Lhls SubsecLlon shall noL be allowed as a deducLlon under
SubsecLlon (8) of Lhls SecLlon ln Lhe same or any succeedlng Laxable year
(8) ln Lhe case of lncome recelved by esLaLes of deceased persons durlng Lhe perlod of admlnlsLraLlon
or seLLlemenL of Lhe esLaLe and ln Lhe case of lncome whlch ln Lhe dlscreLlon of Lhe flduclary may be
elLher dlsLrlbuLed Lo Lhe beneflclary or accumulaLed Lhere shall be allowed as an addlLlonal deducLlon Lhe
amounL of Lhe lncome of Lhe esLaLe or LrusL for lLs Laxable year whlch ls properly pald or credlLed durlng
such year Lo any legaLee helr or beneflclary buL Lhe amounL so allowed as a deducLlon shall be lncluded ln
compuLlng Lhe Laxable lncome of Lhe legaLee helr or beneflclary
(C) ln Lhe case of a LrusL admlnlsLered ln a forelgn counLry Lhe deducLlons menLloned ln SubsecLlons (A)
and (8) of Lhls SecLlon shall noL be allowed rovlded 1haL Lhe amounL of any lncome lncluded ln Lhe
reLurn of sald LrusL shall noL be lncluded ln compuLlng Lhe lncome of Lhe beneflclarles (Sec 61)
332
LxcepLlon
104

4, Income or beneit o grantor

\here any part o the income o a trust

i. is, or in the discretion o the grantor or o any person not haing a
substantial aderse interest in the disposition o such part o the income may be held or
accumulated or uture distribution to the grantor, or
ii. may, or in the discretion o the grantor or o any person not haing a
substantial aderse interest in the disposition o such part o the income, be distributed to
the grantor, or
iii. is, or in the discretion o the grantor or o any person not haing a
substantial aderse interest in the disposition o such part o the income may be applied to
the payment o premiums upon policies o insurance on the lie o
the grantor, such part o the income o the trust shall be included in computing the taxable
income o the grantor.
353


5, Meaning o "in the discretion o the grantor"

'In the discretion o the grantor' means in the discretion o the grantor, either alone
or in conjunction with any person not haing a substantial aderse interest in the disposition
o the part o the income in question.

22. \ithholding tax

a. Concept

1his practice which is also known as taxation at source` reers to the requirement
that taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-
corporations and,or persons rom payments made to payees-corporations and,or persons
or the ormer to pay the same directly to the BIR.

b. Kinds

1, \ithholding o inal tax o certain incomes

Subject to rules and regulations the Secretary o linance may promulgate, upon the
recommendation o the Commissioner, requiring the iling o income tax return by certain
income payees, the tax imposed or prescribed by Sections 24,B,,1,, 24,B,,2,, 24,C,,
24,D,,1,, 25,A,,2,, 25,A,,3,, 25,B,, 25,C,, 25,D,, 25,L,, 2,D,,1,, 2,D,,2,, 2,D,,3,,
2,D,,5,, 28 ,A,,4,, 28,A,,5,, 28,A,,,,a,, 28,A,,,,b,, 28,A,,,,c,, 28,B,,1,, 28,B,,2,,
28,B,,3,, 28,B,,4,, 28,B,,5,,a,, 28,B,,5,,b,, 28,B,,5,,c,, 33, and 282 o this Code on speciied
items o income shall be withheld by payor-corporation and,or person and paid in the same
manner and subject to the same conditions as proided in Section 58 o this Code.
354




333
lbld
334
Sec 37 (A) see eference
103

2, \ithholding o creditable tax at source

1he Secretary o linance may, upon the recommendation o the Commissioner,
require the withholding o a tax on the items o income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation,persons as proided or by law, at
the rate o not less than one percent ,1, but not more than thirty- two percent ,32,
thereo, which shall be credited against the income tax liability o the taxpayer or the taxable
year.
355


c. \ithholding on wages

1, Requirement or withholding

Lery employer making payment o wages shall deduct and withhold upon
such wages a tax determined in accordance with the rules and regulations to be
prescribed by the Secretary o linance, upon recommendation o the Commissioner:
No withholding o a tax shall be required where the total compensation income o an
indiidual does not exceed the statutory minimum wage, or ie thousand
pesos ,P5,000.00, per month, whicheer is higher.
356


2, 1ax paid by recipient

I the employer ails to deduct and withhold the tax as required, and thereater the
tax against which such tax may be credited is paid, the tax so required to be deducted and
withheld shall not be collected rom the employer, but in no case reliee the employer rom
liability or any penalty or addition to the tax otherwise applicable in respect o such ailure
to deduct and withhold.
35


3, Reunds or credits

,1, Lmployer. - \hen there has been an oerpayment o tax, reund or credit shall
be made to the employer only to the extent that the amount o such oerpayment was not
deducted and withheld hereunder by the employer.

,2, Lmployees. - 1he amount deducted and withheld during any calendar year
shall be allowed as a credit to the recipient o such income against the tax imposed under
Section 24,A,.
358
Reunds and credits in cases o excessie withholding shall be granted
under rules and regulations promulgated by the Secretary o linance, upon recommendation
o the Commissioner.

Any excess o the taxes withheld oer the tax due rom the taxpayer shall be returned
or credited within three ,3, months rom the iteenth ,15th, day o April. Reunds or credits

333
ld (8)
336
Sec 79 (A)
337
ld (8)
338
See eference
106

made ater such time shall earn interest at the rate o six percent ,6, per annum, starting
ater the lapse o the three-month period to the date the reund o credit is made.

Reunds shall be made upon warrants drawn by the Commissioner or by his duly
authorized representatie without the necessity o counter- signature by the Chairman,
Commission on Audit or the latter's duly authorized representatie as an exception to the
requirement prescribed by Section 49, Chapter 8, Subtitle B, 1itle 1 o Book V o Lxecutie
Order No. 292, otherwise known as the Administratie Code o 198.
359


4, \ear-end adjustment

On or beore the end o the calendar year but prior to the payment o the
compensation or the last payroll period, the employer shall determine the tax due rom each
employee on taxable compensation income or the entire taxable year in accordance with
Section 24,A,.
360
1he dierence between the tax due rom the employee or the entire year
and the sum o taxes withheld rom January to Noember shall either be withheld rom his
salary in December o the current calendar year or reunded to the employee not later
than January 25 o the succeeding year.
361


5, Liability or tax

1he employer shall be liable or the withholding and remittance o the correct
amount o tax required to be deducted and withheld. I the employer ails to withhold and
remit the correct amount o tax as required to be withheld, such tax shall be collected rom
the employer together with the penalties or additions to the tax otherwise applicable in
respect to such ailure to withhold and remit.

\here an employee ails or reuses to ile the withholding exemption certiicate or
willully supplies alse or inaccurate inormation thereunder, the tax otherwise required to be
withheld by the employer shall be collected rom him including penalties or additions to the
tax rom the due date o remittance until the date o payment. On the other hand, excess
taxes withheld made by the employer due to:

,1, ailure or reusal to ile the withholding exemption certiicate, or
,2, alse and inaccurate inormation shall not be reunded to the employee but
shall be oreited in aor o the Goernment.
362









339
ld (C)
360
supra
361
ld (P)
362
Sec 80
107

d. \ithholding o VA1

,a, 1he goernment or any o its political subdiisions, instrumentalities or agencies,
including goernment-owned or controlled corporations ,GOCCs, shall, beore making
payment on account o each purchase o goods and,or serices taxed at twele percent
,120 VA1 pursuant to Secs. 106 and 108
363
o the 1ax Code, deduct and withhold a inal
VA1 due at the rate o ie percent ,5, o the gross payment thereo.

1he ie percent ,5, inal VA1 withholding rate shall represent the net VA1
payable o the seller. 1he remaining seen percent ,, eectiely accounts or the standard
input VA1 or sales o goods or serices to goernment or any o its political subdiisions,
instrumentalities or agencies, including GOCCs, in lieu o the actual input VA1 directly
attributable or ratably apportioned to such sales. Should actual input VA1 attributable to sale
to goernment exceeds seen percent ,, o gross payments, the excess may orm part o
the seller`s expense or cost. On the other hand, i actual input VA1 is less than seen
percent ,, o gross payment, the dierence must be closed to expense or account.

,b, 1he goernment or any o its political subdiisions, instrumentalities or agencies,
including goernment-owned or controlled corporations,GOCCs,, as well as priate
corporations, indiiduals, estates and trusts, whether large or non-large taxpayers, shall
withhold twele percent ,12, VA1, starting lebruary 1, 2006, with respect to the ollowing
payments:

,1, Lease or use o properties or property rights owned by non-residents, and
,2, Other serices rendered in the Philippines by non-residents.
364


e. liling o return and payment o taxes withheld

1, Return and payment in case o goernment
employees

I the employer is the Goernment o the Philippines or any political subdiision,
agency or instrumentality thereo, the return o the amount deducted and withheld upon any
wage shall be made by the oicer or employee haing control o the payment o such wage,
or by any oicer or employee duly designated or the purpose.
365


2, Statements and returns

,A, Requirements. - Lery employer required to deduct and withhold a tax shall urnish to
each such employee in respect o his employment during the calendar year, on or beore January
thirty-irst ,31st, o the succeeding year, or i his employment is terminated beore the close o such
calendar year, on the same day o which the last payment o wages is made, a written statement
conirming the wages paid by the employer to such employee during the calendar year, and the
amount o tax deducted and withheld under this Chapter in respect o such wages. 1he statement

363
supra
364
162003 as amended by 42007
363
Sec 82
108

required to be urnished by this Section in respect o any wage shall contain such other inormation,
and shall be urnished at such other time and in such orm as the Secretary o linance, upon the
recommendation o the Commissioner, may, by rules and regulation, prescribe.

,B, Annual Inormation Returns. - Lery employer required to deduct and withhold the
taxes in respect o the wages o his employees shall, on or beore January thirty-irst ,31st, o the
succeeding year, submit to the Commissioner an annual inormation return containing a list o
employees, the total amount o compensation income o each employee, the total amount o taxes
withheld thererom during the year, accompanied by copies o the statement reerred to in the
preceding paragraph, and such other inormation as may be deemed necessary. 1his return, i made
and iled in accordance with rules and regulations promulgated by the Secretary o linance, upon
recommendation o the Commissioner, shall be suicient compliance with the requirements o
Section 68 o this 1itle in respect o such wages.

,C, Lxtension o time. - 1he Commissioner, under such rules and regulations as may be
promulgated by the Secretary o linance, may grant to any employer a reasonable extension o time
to urnish and submit the statements and returns required under this Section.
366


. linal withholding tax at source

Subject to rules and regulations the Secretary o linance may promulgate, upon the
recommendation o the Commissioner, requiring the iling o income tax return by certain
income payees, the tax imposed or prescribed by Sections 24,B,,1,, 24,B,,2,, 24,C,,
24,D,,1,, 25,A,,2,, 25,A,,3,, 25,B,, 25,C,, 25,D,, 25,L,, 2,D,,!,, 2,D,,2,, 2,D,,3,,
2,D,,5,, 28 ,A,,4,, 28,A,,5,, 28,A,,,,a,, 28,A,,,,b,, 28,A,,,,c,, 28,B,,1,, 28,B,,2,,
28,B,,3,, 28,B,,4,, 28,B,,5,,a,, 28,B,,5,,b,, 28,B,,5,,c,, 33, and 282 o this Code on speciied
items o income shall be withheld by payor-corporation and,or person and paid in the same
manner and subject to the same conditions as proided in Section 58 o this Code.
36


g. Creditable withholding tax

1, Lxpanded withholding tax

1he Secretary o linance may, upon the recommendation o the Commissioner,
require the withholding o a tax on the items o income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation,persons as proided or by law, at
the rate o not less than one percent ,1, but not more than thirty-two percent ,32,
thereo, which shall be credited against the income tax liability o the taxpayer or the taxable
year.
368








366
Sec 83
367
Sec 37 (A) supra
368
ld (8)
109

2, \ithholding tax on compensation
369


Lery employer must withhold rom compensation paid, an amount computed in
accordance with the regulations.

Lxception:

\here such compensation income o an indiidual:

1. Does not exceed the statutory minimum wages, or
2. lie thousand pesos ,P5,000, monthly ,P60,000 a year, -whicheer is higher

h. lringe beneit tax

A inal tax o thirty-two percent ,32, is imposed on the grossed-up monetary alue
o ringe beneit urnished or granted to the employee
30
by the employer, whether an
indiidual or a corporation, unless the ringe beneit is required by the nature o, or
necessary to the trade, business or proession o the employer, or when the ringe beneit is
or the conenience or adantage o the employer.
31


B Estate Tax

1. Basic principles

1he estate tax accrues as o the death o the decedent and the accrual o the tax is
distinct rom the obligation to pay the same. Upon the death o the decedent, succession
takes place and the right o the State to tax the priilege to transmit the estate ests instantly
upon death.
32

Not a direct tax on the property transmitted or transerred although its amount is
based thereon.

2. Deinition

A graduated tax imposed on the priilege o the decedent to transmit property at
death and is based on the entire net estate, regardless o the number heirs and relations to
the decedent.




369
LlemenLs of WlLhholdlng on CompensaLlon
1 1here musL be an employeremployee relaLlonshlp
2 1here musL be paymenL of compensaLlon or wages
for servlces rendered
3 1here musL be a payroll perlod
370
excepL rank and flle employees
371
Sec 33 (A)
372
Sec 3 22003
110

3. Nature

It is not a direct tax on property nor is it a capitation tax, that is, the tax is laid
neither on the property, nor on the transeree or transeror, but on the right o the decedent
to transmit his estate.

It is not a property tax but an excise tax.

4. Purpose or object

a, Beneit-Receied 1heory

lor the perormance o serices rendered by the goernment in the distribution o
the estate o the decedent and other beneits that accrue to the estate and the heirs, the state
collects the tax.

b, Redistribution o \ealth 1heory

Is a contributing actor to the inequalities in wealth and income. 1he imposition o
death tax reduces the property receied by the successor bringing about a more equitable
distribution o wealth in society.

c, Ability-to pay- theory

1he receipt o inheritance places assets in the hands o the heirs and beneiciaries
thereby creating an ability to pay the tax and thus to contribute to goernmental income, and

d, Priilege theory or State Partnership theory

Inheritance is not a right but a priilege granted by the state and large estates hae
been acquired only with the protection o the state. 1he State, as a passie and silent
partner` in the accumulation o property has the right to collect the share which is properly
due to it

5. 1ime and transer o properties

At the time o death. 1he tax should not be construed as a direct tax on the property
o the decedent although the tax is based thereon.

6. Classiication o decedent

a, resident decedent
b, non - resident alien decedent





111

. Gross estate is-a-is Net estate

1he total alue o all property, whether real or personal, tangible or intangible
belonging to the decedent at the time o his death, situated within or outside the Philippines,
where such decedent was a resident or citizen o the Philippines.

In the case o a nonresident alien decedent, it shall include only property situated in
the Philippines.

8. Determination o gross estate and net estate

lormula:

Gross Lstate
33

Less: Allowable deductions
Lstate ater allowable deductions

Less: ' net share o suriing spouse on conjugal or community property
34

lamily home allowance
35


~ Net estate o decedent
Less: P200, 000.00 exemptions

~ 1axable net estate X 1ax Rate in section 84.
~ Amount o estate tax due

9. Composition o gross estate

Gross Lstate. - the alue o the gross estate o the decedent shall be determined by
including the alue at the time o his death o all property, real or personal, tangible or
intangible, whereer situated: Proriaea boerer, that in the case o a nonresident decedent who
at the time o his death was not a citizen o the Philippines, only that part o the entire gross
estate which is situated in the Philippines shall be included in his taxable estate.

,A, Decedent's Interest. - 1o the extent o the interest therein o the decedent at the time o
his,death,

,B, 1ranser in Contemplation o Death. - 1o the extent o any interest therein o which the
decedent has at any time made a transer, by trust or otherwise, in contemplation o or intended to
take eect in possession or enjoyment at or ater death, or o which he has at any time made a

373
when Lhe gross esLaLe exceeds 200000000 Lhe esLaLe Lax reLurn shall be accompanled by a
sLaLemenL whlch ls cerLlfled by an lndependenL publlc accounLanL sLaLlng
1 1he lLemlzed asseLs of Lhe decedenL wlLh lLs correspondlng gross value aL Lhe Llme of hls deaLh or ln
Lhe case of a nonresldenL noL clLlzen of Lhe hlllpplnes LhaL parL of hls gross esLaLe slLuaLed ln Lhe
hlllpplnes
2 1he lLemlzed deducLlons from Lhe gross esLaLe
3 1he amounL of Lax due wheLher pald or sLlll due and ouLsLandlng
374
lf appllcable
373
lbld
112

transer, by trust or otherwise, under which he has retained or his lie or or any period which does
not in act end beore his death

,1, the possession or enjoyment o, or the right to the income rom the property, or

,2, the right, either alone or in conjunction with any person, to designate the person
who shall possess or enjoy the property or the income thererom, except in case o a
bonaide sale or an adequate and ull consideration in money or money's worth.

,C, Reocable 1ranser. -

,1, 1o the extent o any interest therein, o which the decedent has at any time made
a transer
36
by trust or otherwise, where the enjoyment thereo was subject at the date o his
death to any change through the exercise o a power
3
by the decedent alone or by the
decedent in conjunction with any other person ,without regard to when or rom what source
the decedent acquired such power,, to alter, amend, reoke, or terminate, or where any such
power is relinquished in contemplation o the decedent's death.

,2, lor the purpose o this Subsection, the power to alter, amend or reoke shall be
considered to exist on the date o the decedent's death een though the exercise o the
power is subject to a precedent giing o notice or een though the alteration, amendment or
reocation takes eect only on the expiration o a stated period ater the exercise o the
power, whether or not on or beore the date o the decedent's death notice has been gien
or the power has been exercised. In such cases, proper adjustment shall be made
representing the interests which would hae been excluded rom the power i the decedent
had lied, and or such purpose i the notice has not been gien or the power has not been
exercised on or beore the date o his death, such notice shall be considered to hae been
gien, or the power exercised, on the date o his death.

,D, Property Passing Under General Power o Appointment - 1o the extent o any property
passing under a general power o appointment exercised by the decedent: ,1, by will, or ,2, by deed
executed in contemplation o, or intended to take eect in possession or enjoyment at, or ater his
death, or ,3, by deed under which he has retained or his lie or any period not ascertainable without
reerence to his death or or any period which does not in act end beore his death ,a, the
possession or enjoyment o, or the right to the income rom, the property, or ,b, the right, either
alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income thererom, except in case o a bona ide sale or an adequate and ull
consideration in money or money's worth.

,L, Proceeds o Lie Insurance - 1o the extent o the amount receiable by the estate o the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon
his own lie, irrespectie o whether or not the insured retained the power o reocation, or to the
extent o the amount receiable by any beneiciary designated in the policy o insurance, except when
it is expressly stipulated that the designation o the beneiciary is irreocable.

,l, Prior Interests. - Lxcept as otherwise speciically proided therein, Subsections ,B,, ,C,
and ,L, o this Section shall apply to the transers, trusts, estates, interests, rights, powers and
relinquishment o powers, as seerally enumerated and described therein, whether made, created,

376
excepL ln case of a bona flde sale for an adequaLe and full conslderaLlon ln money or moneys worLh
377
ln whaLever capaclLy exerclsable
113

arising, existing, exercised or relinquished beore or ater the eectiity o this Code.

,G, 1ransers o Insuicient Consideration. - I any one o the transers, trusts, interests,
rights or powers enumerated and described in Subsections ,B,, ,C, and ,D, o this Section is made,
created, exercised or relinquished or a consideration in money or money's worth, but is not a bona
ide sale or an adequate and ull consideration in money or money's worth, there shall be included in
the gross estate only the excess o the air market alue, at the time o death, o the property
otherwise to be included on account o such transaction, oer the alue o the consideration receied
thereor by the decedent.

,l, Capital o the Suriing Spouse. - 1he capital o the suriing spouse o a decedent shall
not, or the purpose o this Chapter, be deemed a part o his or her gross estate.
38


10. Items to be included in gross estate

In case o resident citizens, nonresident citizens and resident aliens:

1. Real Property within and without the Philippines,
2. 1angible personal property within and without the Philippines, and
3. Intangible personal property within and without the Philippines.

In cases o nonresident aliens:

1. Real property within the Philippines,
2. 1angible personal property within the Philippines and,
3. Intangible personal property within the Philippines, unless there is reciprocity in which case,
it is not taxable.

11.Deductions rom estate

1he ollowing are the expenses, losses, indebtedness and taxes that may be allowed
as deductions rom the gross estate:

A, I decedent is a resident decedent:

Ordinary deductions:

1, luneral Lxpenses
39


378
Sec 83
379
1he amounL deducLlble ls equal Lo 3 of Lhe gross esLaLe or Lhe amounL of Lhe acLual funeral expenses
whlchever ls lower buL ln no case Lo exceed 200 000
AcLual funeral expenses" are Lhose whlch were acLually lncurred ln connecLlon wlLh Lhe lnLermenL or
burlal of Lhe deceased and pald for from Lhe esLaLe of sald deceased
luneral expenses lnclude
a) CosLs of coffln LombsLone mausoleum and burlal loL
b) luneral parlor fees
c) Mournlng cloLhlng of Lhe survlvlng spouse and Lhe unmarrled mlnor chlldren
d) CosLs of oblLuary noLlces and
e) Lxpenses durlng Lhe wake
114

2, Medical expenses
380

3, Judicial expenses o the testamentary or intestate proceedings.
381

4, Claims against the decedent`s estate
382

5, Claims against insolent persons
383

6, Unpaid mortgages indebtedness
384

, Casualty Losses
385

8, Unpaid 1axes
386


1he followlng cannoL be deducLed under funeral expenses
a) Cash advances of Lhe survlvlng spouse and Lhe helrs
b) Lxpenses pald by Lhe relaLlves and frlends and
c) Lxpenses afLer Lhe burlal
380
rovlded LhaL Lhe followlng requlslLes are meL
a MusL be lncurred by Lhe decedenL wlLhln one (1) year prlor Lo hls deaLh
b MusL be duly subsLanLlaLed by recelpLs and
c MusL noL exceed 300 00000
381
lnclude admlnlsLraLlon expenses" Lo Lhose acLually lncurred ln Lhe admlnlsLraLlon of Lhe esLaLe
Lxamples
a) fees of Lhe execuLor or admlnlsLraLor
b) aLLorney's fees
c) accounLanL's fees
d) courL fees
e) salarles of employees and
All oLher expense relaLed Lo Lhe admlnlsLraLlon of Lhe esLaLe
Lxpenses noL essenLlal Lo Lhe proper seLLlemenL of Lhe esLaLe buL lncurred for Lhe lndlvldual beneflL of
Lhe helrs legaLees or devlsees are noL allowed as deducLlons
382
uebLs or obllgaLlons of Lhe decedenL LhaL ls enforceable agalnsL Lhe esLaLe provlded LhaL Lhe followlng
requlslLes are meL
a) 1hey were conLracLed ln good falLh and for an adequaLe and full conslderaLlon ln money or money's
worLh
b) 1hey musL be exlsLlng agalnsL Lhe esLaLe
c) 1hey musL be legally enforceable obllgaLlons of Lhe decedenL and oughL Lo be enforced by Lhe
clalmanLs
d) 1hey musL be reasonably cerLaln ln amounL and
e) AL Lhe Llme Lhe lndebLedness was lncurred Lhe debL lnsLrumenL was duly noLarlzed and lf Lhe loan
was conLracLed wlLhln Lhree (3) years before Lhe deaLh of Lhe decedenL Lhe admlnlsLraLor or execuLor
shall submlL a sLaLemenL showlng Lhe dlsposlLlon of Lhe proceeds of Lhe loan
383
equlslLes for deducLlblllLy
a) 1he amounL of sald clalms has been lnlLlally lncluded as parL of Lhe gross esLaLe and
b) 1he lncapaclLy of Lhe debLors Lo pay Lhelr obllgaLlons ls proven and noL merely alleged
384
equlslLes for deducLlblllLy
a) 1he falr markeL value of Lhe properLy morLgaged wlLhouL deducLlng Lhe morLgage lndebLedness has
been lnlLlally lncluded as parL of hls gross esLaLe and
b) 1he morLgage lndebLedness was conLracLed ln good falLh and for an adequaLe and full conslderaLlon
ln money or money's worLh
383
1hey lnclude all losses lncurred durlng Lhe seLLlemenL of Lhe esLaLe arlslng from flres sLorms
shlpwreck or oLher casualLles or from robbery LhefL or embezzlemenL
rovlded LhaL Lhe followlng requlslLes are meL
a) Losses noL compensaLed by an lnsurance or oLherwlse
b) Losses noL have been clalmed as a deducLlon for lncome Lax purposes and
c) Losses lncurred noL laLer Lhan Lhe lasL day for paymenL of Lhe esLaLe Lax (6 monLhs from deaLh)
113

9, Vanishing deduction
38

10, 1ranser or public use
388

11, lamily home
389

12, Standard deduction equialent to P1, 000,000.00
390

13, Amounts receied by heirs under RA NO.491 rom the decedent`s employer as a
consequence o the death o the decedent -employee proided that such amount is included
in the gross estate o the decedent.
14, Net share o the suriing spouse in the conjugal , community property.
15, 1ax credit or estate tax paid to a oreign country.



386
unpald lncome Lax on lncome due or recelved before deaLh of Lhe decedenL and real properLy Laxes
whlch have accrued prlor Lo Lhe deaLh of Lhe decedenL (real properLy Laxes accrued aL Lhe beglnnlng of
Lhe year buL may be pald before or aL Lhe end of each quarLer) are deducLlble
lncome Laxes upon lncome recelved afLer Lhe deaLh of Lhe decedenL or properLy Laxes noL accrued
before hls deaLh or any esLaLe Lax cannoL be deducLed because Lhey are chargeable Lo Lhe lncome of Lhe
esLaLe
387
properLy prevlously Laxed
ls an amounL allowed Lo reduce Lhe Laxable esLaLe of a decedenL where Lhe properLy
a recelved by hlm from prlor decedenL by glfL bequesL devlse or lnherlLance or
b Lransferred Lo hlm by glfL has been Lhe ob[ecL of prevlous Lransfer deducLlon
lL ls socalled a vanlshlng deducLlon because Lhe raLe of deducLlon gradually dlmlnlshes and enLlrely
vanlshes dependlng upon Lhe Llme lnLerval beLween Lhe Lwo (2) successlve Lransfers
1wo (2) facLors necessary ln vanlshlng deducLlon Lhese are
a 1here are Lwo (2) deceased persons and Lhe flrsL ls Lhe donor and
b 1he second decedenL dles wlLhln flve (3) years afLer Lhe deaLh of Lhe prlor decedenL or ln Lhe case of
glfLs Lhe decedenL donee dles wlLhln Lhe same perlod afLer Lhe daLe of Lhe glfL
aLlonale
1he deducLlon operaLes Lo ease Lhe harshness of successlve LaxaLlon of Lhe same properLy wlLhln a
relaLlvely shorL perlod of Llme
388
equlslLes
a 1he dlsposlLlon musL be LesLamenLary ln characLer
b 1o Lake effecL afLer deaLh
c ln favor of Lhe governmenL of Lhe hlllpplnes or any pollLlcal subdlvlslon Lhereof
d Lxcluslvely for publlc purpose
389
efers Lo Lhe dwelllng house lncludlng Lhe land on whlch lL ls slLuaLed where Lhe husband and wlfe or
an unmarrled person who ls Lhe head of Lhe famlly and members of Lhelr lmmedlaLe famlly resldes as
cerLlfled by Lhe 8arangay CapLaln of Lhe locallLy
lor Lhe purpose of avalllng of a famlly home deducLlon Lo Lhe exLenL provlded by law a person may
consLlLuLe only one famlly home
1he amounL deducLlble ls equlvalenL Lo Lhe currenL falr markeL value of Lhe decedenL's famlly home lf
sald currenL falr markeL value exceeds 1 00000000 Lhe excess shall be sub[ecL Lo esLaLe Lax
equlslLes Lo be deducLlble
a 1he famlly home musL be Lhe acLual resldenLlal home of Lhe decedenL and hls famlly aL Lhe Llme of
hls deaLh as cerLlfled by Lhe barangay CapLaln of Lhe locallLy where Lhe famlly ls slLuaLed
b 1he LoLal value of Lhe famlly home musL be lncluded ln Lhe gross esLaLe of Lhe decedenL
c 1he allowable deducLlon musL be ln an amounL equlvalenL Lo Lhe currenL falr markeL value of Lhe
famlly home as declared or lncluded ln Lhe gross esLaLe noL exceedlng 1 00000000
390
does noL lnclude Lhe 20000000 exempLlon

116

B, I decedent is a non - resident alien.

1he deductions allowed to citizens or residents o the Philippines are also extended
to a non-resident alien decedent with respect to his estates situated in the Philippines at the
time o his death.

In case o deductions or expenses, losses, indebtedness and taxes, the amount o the
allowable deduction is limited only to the proportion o such deductions with the alue o
such part o his gross estate which at the time o his death, is situated in the Philippines,
bears to the alue o his entire gross estate whereer situated.
391


12. Lxclusions rom estate

1he ollowing properties are excluded rom gross estate:
392


1, Amount receiable by any beneiciary irrerocab designated in the policy o insurance by the
insured.
2, Proceeds o a group insurance policy taken out by a company or its employees.
3, Proceeds o insurance policies issued by the GSIS to goernment oicials and employees.
4, Beneits accruing under the Social Security Act.
5, Proceeds o lie insurance payable to the heirs o deceased members o the military
personnel o the United States Army or Philippine Army under laws administered by the
United State eterans Administration.
6, Accident insurance proceeds.
393

, Separate property o the suriing spouse.

13. 1ax credit or estate taxes paid in a oreign country

1he estate tax imposed by the tax code shall be credited with the amount o any
estate tax paid to a oreign country.

14. Lxemption o certain acquisitions and transmissions

a. 1he irst P200, 000.00 alue o the estate.
394

b. 1he merger o the usuruct in the owner o the naked title.
c. 1he transmission rom the irst heir, legatee, or donee in aor o another beneiciary in
accordance with the desire o the predecessor.
d. All bequest, deises, legacies or transers to social welare, cultural and charitable
institutions, no part o the net income o which inured to the beneit o any indiidual and proided

391
Sec 86 (8)
392
ln Lhe deLermlnaLlon of Lhe gross esLaLe Lhe naLure of Lhe properLy wheLher common properLy of Lhe
spouses separaLe or excluslve properLy elLher of Lhe deceased or of Lhe survlvlng spouse becomes of
vlLal lmporLance WhaL reglme of properLy relaLlons shall govern Lhe spouses?
under Lhe Clvll Code Lhe husband and wlfe who goL marrled before AugusL 3 1988 are governed by
Lhe Con[ugal arLnershlp of Calns whlle Lhose who goL marrled on or afLer AugusL 3 1988 are governed
by Lhe AbsoluLe CommunlLy of roperLy unless a dlfferenL reglme was agreed upon ln Lhe marrlage
seLLlemenL
393
lLems 1 6 are proceeds of lnsurance noL lncludlble ln Lhe gross esLaLe of Lhe decedenL
394
Sec 84
117

that not more than 30 o the said bequest, etc. shall be used by such institution or administration
purposes.
e. Intangible personal property o non-resident aliens under the principle o reciprocity.
. Retirement beneits o employees o priate irms rom priate pension plans approed by
the BIR.
g. Amount receied or war damages.
h. Grants and donations to the Intramuros administration.

15. liling o notice o death

\here the gross alue o the estate exceeds twenty thousand pesos ,P 20,000.00,
although exempt, the executor, administrator, or any o the legal heirs shall gie, within two
,2, months ater the decedent`s death or within like period ater the executor or
administrator qualiies as such, a written notice thereo, to the Commissioner o Internal
Reenue.
395


16. Lstate tax return

An estate tax return, under oath, is required by law to be iled by the executor,
administrator, or any o the legal heirs,

a, \here the gross alue o the estate exceeds p200, 000.00 though exempt rom the estate
tax, or
b, Regardless o the gross alue o the estate, where the said estate consists o registered or
registrable real property, such as real property, motor ehicle, shares o stock or other
similar property or which a clearance rom the Bureau o Internal Reenue is required
as a condition precedent or the tr5anser o ownership thereo in the name o the
transeree.

C Donor`s Tax

1. Basic principles

It is leied, assessed, collected and paid upon the transer o any person, resident or
non-resident, o the property by git ivter riro.. It applies whether the transer is in trust or
otherwise, whether the git is direct or indirect, and whether the property is real or personal,
tangible or intangible.
396


A git` is merely subjected to donor`s tax.

2. Deinition

A tax on the priilege o transmitting one`s property or property rights to another or
others without adequate and ull aluable consideration.



393
Sec 89
396
Sec 98
118

3. Nature

Git or donation - an act o liberality whereby a person disposes gratuitously o a
thing or right in aor o another who accepts it.
39


4. Purpose or object

Donor`s tax shall be imposed whether the transer is in trust or otherwise, whether
the git is direct or indirect and whether the property is real or personal, tangible or
intangible.

5. Requisites o alid donation

1. 1he donor must hae capacity
2. 1here must be an intent to donate
3. 1here must be deliery, either actual or constructie
4. 1he donee must accept the donation

6. 1ransers which may be constituted as donation

a. Sale,exchange,transer o property or insuicient
consideration
398


I bona ide sale - no alue shall be included in the gross estate.

I not a bona ide sale - the excess o the air market alue at the time o death oer
the alue o the consideration receied by the decedent shall orm part o his gross estate.

I ivter riro. transer is proen ictitious - total alue o the property at the time o
death included in the gross estate.
399


b. Condonation,remission o debt

I a creditor wishes merely to beneit the debtor, and without any consideration
thereore, cancels the debt, the amount o the debt is a git to the debtor and need not be
included in the latter`s report o income.

. 1ranser or less than adequate and ull consideration

\here property, other than real property reerred to in Section 24,D,,
400
is
transerred or less than an adequate and ull consideration in money or money's worth, then
the amount by which the air market alue o the property exceeded the alue o the

397
ArL 723 CC
398
1ransfers LhaL are noL bona flde sales of properLy for an adequaLe and full conslderaLlon ln money or
money's worLh
399
Sec 83 (C)
400
real properLy locaLed ln Lhe hlllpplnes classlfled as caplLal asseLs
119

consideration shall, or the purpose o the tax imposed, be deemed a git, and shall be
included in computing the amount o gits made during the calendar year.
401


8. Classiication o donor

1. Citizens or Residents o the Philippines - all properties located not only within
the Philippines but also in oreign countries

2. Nonresident Alien - all real and tangible properties within the Philippines, and
intangible personal property, unless there is reciprocity,
402
in which case it is not taxable

9. Determination o gross git

10. Composition o gross git

Include real and personal property, whether tangible or intangible, or mixed,
whereer situated: Proided, howeer, 1hat where the decedent or donor was a nonresident
alien at the time o his death or donation, as the case may be, his real and personal property
so transerred but which are situated outside the Philippines shall not be included as part o
his "gross estate" or "gross git".

11. Valuation o gits made in property

I the git is made in property, the air market alue thereo at the time o the git
shall be considered the amount o the git. In case o real property, the proisions o Section
88,B, shall apply to the aluation thereo.
403


12. 1ax credit or donor`s taxes paid in a oreign country

In General. - 1he tax imposed by this 1itle upon a donor who was a citizen or a
resident at the time o donation shall be credited with the amount o any donor's tax o any
character and description imposed by the authority o a oreign country.

Limitations on Credit. - 1he amount o the credit taken under this Section shall be
subject to each o the ollowing limitations:


401
Sec 100
402
1here ls reclproclLy lf Lhe forelgn counLry of whlch Lhe decedenL was a clLlzen and resldenL aL Lhe Llme
of hls deaLh
a) dld noL lmpose a Lransfer Lax of any characLer ln respecL of lnLanglble personal properLy of clLlzens
of Lhe hlllpplnes noL resldlng ln LhaL forelgn counLry or
b) allowed a slmllar exempLlon from Lransfer Lax ln respecL of lnLanglble personal properLy owned by
clLlzens of Lhe hlllpplnes noL resldlng ln LhaL counLry (Sec 104)
ln sum boLh sLaLes musL exempL nonresldenLs (clLlzens of Lhe oLher sLaLe) from Lransfer Laxes ln
respecL of lnLanglble personal properLy
lor Lhe reclproclLy rule Lo apply Lhere musL be LoLal reclproclLy
403
Sec 102
120

,a, 1he amount o the credit in respect to the tax paid to any country shall not exceed the
same proportion o the tax against which such credit is taken, which the net gits situated within such
country taxable under this 1itle bears to his entire net gits, and

,b, 1he total amount o the credit shall not exceed the same proportion o the tax against
which such credit is taken, which the donor's net gits situated outside the Philippines taxable under
this title bears to his entire net gits.
404


13. Lxemptions o gits rom donor`s tax

1he ollowing gits or donations shall be exempt rom the tax:

,A, In the Case o Gits Made by a Resident. -

,1, Dowries or gits made on account o marriage and beore its celebration or within one
year thereater by parents to each o their legitimate, recognized natural, or adopted children to the
extent o the irst 1en thousand pesos ,P10,000,:

,2, Gits made to or or the use o the National Goernment or any entity created by any o
its agencies which is not conducted or proit, or to any political subdiision o the said Goernment,
and
,3, Gits in aor o an educational and,or charitable, religious, cultural or social welare
corporation, institution, accredited nongoernment organization, trust or philanthropic organization
or research institution or organization: Proriaea boerer, 1hat not more than thirty percent ,30, o
said gits shall be used by such donee or administration purposes. lor the purpose o the exemption,
a 'non-proit educational and,or charitable corporation, institution, accredited nongoernment
organization, trust or philanthropic organization and,or research institution or organization' is a
school, college or uniersity and,or charitable corporation, accredited nongoernment organization,
trust or philanthropic organization and,or research institution or organization, incorporated as a
non-stock entity, paying no diidends, goerned by trustees who receie no compensation, and
deoting all its income, whether students' ees or gits, donation, subsidies or other orms o
philanthropy, to the accomplishment and promotion o the purposes enumerated in its Articles o
Incorporation.

,B, In the Case o Gits Made by a Nonresident Not a Citizen o the Philippines. -

,1, Gits made to or or the use o the National Goernment or any entity created by any o
its agencies which is not conducted or proit, or to any political subdiision o the said Goernment.

,2, Gits in aor o an educational and,or charitable, religious, cultural or social welare
corporation, institution, oundation, trust or philanthropic organization or research institution or
organization: Proriaea boerer 1hat not more than thirty percent ,30, o said gits shall be used by
such donee or administration purposes.
405


14. Person liable

1here shall be leied, assessed, collected and paid upon the transer by any person,
resident or nonresident, o the property by git, a tax, computed as proided in Section 99.

404
Sec 101 (C)
403
Sec 101
121


1he tax shall apply whether the transer is in trust or otherwise, whether the git is
direct or indirect, and whether the property is real or personal, tangible or intangible.
406


15. 1ax basis

) v Cevera - 1he tax or each calendar year shall be computed on the basis o the total
net gits made during the calendar year in accordance with the ollowing schedule:

I the net git is:

'LR

BU% N% 'LR %L %AX
SALL BL


PLUS I %L LXCLSS
'LR
P 100,000 Lxempt
P 100,000 200,000 0 2 P100,000
200,000 500,000 2,000 4 200,000
500,000 1,000,000 14,000 6 500,000
1,000,000 3,000,000 44,000 8 1,000,000
3,000,000 5,000,000 204,000 10 3,000,000
5,000,000 10,000,000 404,000 12 5,000,000
10,000,000 1,004,000 15 10,000,000

,B, %a Paabe b ovor if ovee i. a travger. - \hen the donee or beneiciary is stranger, the
tax payable by the donor shall be thirty percent ,30, o the net gits. lor the purpose o this tax, a
.travger, is a person who is not a:

,1, Brother, sister ,whether by whole or hal-blood,, spouse, ancestor and lineal
descendant, or
,2, Relatie by consanguinity in the collateral line within the ourth degree o
relationship.

,C, Any contribution in cash or in kind to any candidate, political party or coalition o
parties or campaign purposes shall be goerned by the Llection Code, as amended.








406
Sec 98

122

D Value-dded Tax ,VA1,

1. Concept

VA1 is a percentage tax imposed at eery stage o the distribution process on the
sale, barter, or exchange, or lease o goods or properties, and on the perormance o serice
in the course o trade or business, or on the importation o goods, whether or business
or non-business purposes.

It is a business tax leied on certain transactions inoling a wide range o
goods, properties, and serices, such tax being payable by the seller, lessor, or transeror. 1he
tax is so- called because it is imposed on the alue not preiously subjected to VA1.
40


It is also an excise tax, or a tax on the priilege o engaging in the business o selling
goods or serices, or in the importation o goods.

1he taxpayer
408
determines his tax liability by computing the tax on the gross selling
price or gross receipt
409
and subtracting or crediting the earlier VA1 on the purchase or
importation o goods or on the sale o serice ,input tax, against the tax due on his own sale.

2. Characteristics

It is an indirect tax, the amount o which may be shited to or passed on the buyer,
transeree, or lessee o the goods, properties or serices.
410


1his rule shall likewise apply to existing contracts o sale or lease o goods,
properties or serices at the time o the eectiity o RA No. 933.
411


It is equitable: 1he law is equipped with a threshold margin ,P1.5M,. Also, basic
marine and agricultural products in their original state are still not subject to tax.
Congress also proided or mitigating measures to cushion the impact o the imposition o
the tax on those preiously exempt. Lxcise taxes on petroleum products and natural gas
were reduced. Percentage tax on domestic carriers was remoed. Power producers are
now exempt rom paying ranchise tax.

VA1, by its ery nature, is regressie. But the Constitution does not really
prohibit the imposition o indirect taxes
412
. \hat it simply proides is that Congress shall
eole a progressie system o taxation`. In 1olentino . Sec. o linance, the Court said
that direct taxes are to be preerred, and as much as possible, indirect taxes should be
minimized. but not aoided entirely because it is diicult, i not impossible, to aoid them.


407
ue Leon 1he naLlonal lnLernal evenue Code AnnoLaLed" 2000 edlLlon
408
seller
409
ouLpuL Lax
410
Sec 103
411
16200323
412
whlch ls essenLlally regresslve
123

1he Constitution mandate to eole a progressie system o taxation` simply
means that direct taxes are to be preerred as much as possible, and indirect taxes should be
minimized. Resort to indirect taxes should be minimized but not aoided entirely. Also, the
regressie eects are corrected by the zero rating o certain transactions and through the
exemptions. 1he transactions which are subject to VA1 are those which inole goods and
serices which are used or aailed o mainly by higher income groups.
413


3. Impact o tax
414


1he seller
415
who shits the burden to .

4. Incidence o tax
416


. the customer who inally bears the incidence o the tax.

5. 1ax credit method

1his method relies on inoices, an entity can credit against or subtract rom the
VA1 charged on its sales or outputs the VA1 paid on its purchases, inputs and imports.
41


I at the end o a taxable period, the output taxes charged by a seller are equal to the
input taxes passed on by the suppliers, no payment is required. It is when the output taxes
exceed the input taxes that the excess has to be paid. I howeer, the input taxes exceed the
output taxes, the excess shall be carried oer to the succeeding quarter or quarters. Should
the input taxes result rom zero-rated or eectiely zero-rated transactions or rom
acquisition o capital goods, any excess oer the output taxes shall instead be reunded to the
taxpayer or credited against other internal reenue taxes.
418


6. Destination principle

VA1 is imposed in the country in which the products or serices are actually
consumed or used. Lxports exempt, imports taxable.
419




413
real properLles held prlmarlly for sale Lo cusLomers rlghL or prlvllege Lo use paLenL copyrlghL
414
1he polnL on whlch a Lax ls orlglnally lmposed ln so far as Lhe law ls concerned Lhe Laxpayer ls Lhe
person who musL pay Lhe Lax Lo Lhe governmenL Pe ls also Lermed as Lhe sLaLuLory LaxpayerLhe one on
whom Lhe Lax ls formally assessed Pe ls Lhe sub[ecL of Lhe Lax
413
manufacLurer
416
1haL polnL on whlch Lhe Lax burden flnally resLs or
seLLle down lL Lakes place when shlfLlng has been effecLed from Lhe sLaLuLory
Laxpayer Lo anoLher
417
commlsslooet of lotetool keveooe v 5eoqote 1ecbooloqy lblllpploes C no 133866 lebruary 11
2003 clLlng varlous cases and auLhorlLles AbokoJo Coto lotty lst (etc) v tmlto eLc eL al C no
168036 SepLember 1 2003 and companlon cases)
418
commlsslooet of lotetool keveooe v 5eoqote 1ecbooloqy (lblllpploes) C no 133866 lebruary 11
2003 clLlng varlous cases and auLhorlLles
419
SlLus counLry of ConsumpLlon
124

. Persons liable
420


A. Any person who, in the course o trade or business
421


,1, sells, barters, exchanges goods or properties,
,2, leases goods or properties,
,3, renders serices, and
,4, any person who imports goods.
422


8. VA1 on sale o goods or properties

a. Requisites o taxability o sale o goods or properties:

1, Value-added tax collection as a percentage o Gross Domestic Product ,GDP, o the
preious year exceeds 2 4,5, or
2, National goernment deicit as a percentage o GP o the preious year exceeds 1
'.
423


9. Zero-rated sales o goods or properties, and eectiely zero-rated
sales o goods or properties

1. Lxport Sales as proided in Section 106,A,,2,,a,
424

2. loreign Currency Denominated Sale as proided in Section 106 ,A,,2,,b,
425

3. Sale to persons or entities which is VA1 exempt under special laws or international
agreements to which the Philippines is a signatory as proided in Section 106 ,A,,2,,c,
4. 1ransactions subject to zero-rated ,0, as proided in Section 108,B,
426


10. 1ransactions deemed sale
42


a. 1ranser, use or consumption not in the course o business
o goods,properties originally intended or sale or use in the course
o business

e.g. when a VA1-registered person withdraws goods rom his business or his
personal use.

420
Sec 103
421
1he phrase ln Lhe course of Lrade or buslness" means Lhe regular conducL or pursulL of a commerclal
or an economlc acLlvlLy lncludlng LransacLlons lncldenLal LhereLo by any person regardless of wheLher or
noL Lhe person engaged Lhereln ls a nonsLock nonproflL organlzaLlon (lrrespecLlve of Lhe dlsposlLlon of lLs
neL lncome and wheLher or noL lL sells excluslvely Lo members or Lhelr guesLs) or governmenL enLlLy (Sec
103)
422
1he lmporLer wheLher an lndlvldual or corporaLlon and wheLher or noL made ln Lhe course of hls
Lrade or buslness shall be llable Lo pay vA1 ( 162003)
423
Sec 106 (l)(ll)
424
See eference
423
lbld
426
lbld
427
Sec 106 (8)
428
162003
123

b. Distribution or transer to shareholders, inestors or
creditors

Distribution or transer to:

,a, Shareholders or inestors as share in the proits o the VA1-registered persons,
or ,b, Creditors in payment o debt.
429


c. Consignment o goods i actual sale not made within 60
days rom date o consignment

Consigned goods returned by the consignee within the 60-day period are not deemed
sold.
430


d. Retirement rom or cessation o business with respect to
inentories on hand

Retirement rom or cessation o business, with respect to inentories o taxable
goods existing as o such retirement or cessation
431
as o the date o such retirement or
cessation, whether or not the business is continued by the new owner or successor.
Lxamples are change o ownership o the business
432
and dissolution o a partnership
and creation o a new partnership which takes oer the business.
433


11.Change or cessation o status as VA1-registered person

VA1 shall apply to goods disposed o or existing as o a certain date i under the
circumstances to be prescribed in rules and regulations to be promulgated by the Secretary
o linance, upon recommendation o the Commissioner, the status o a person as a VA1-
registered person changes or is terminated. xxx











429
roperLy dlvldends whlch consLlLuLe sLocks ln Lrade or properLles prlmarlly held for sale or lease
declared ouL of reLalned earnlngs on or afLer !an 1 1996 and dlsLrlbuLed by Lhe company Lo lLs
shareholders shall be sub[ecL Lo vA1 based on Lhe zonal value or lMv aL
Lhe Llme of Lhe dlsLrlbuLlon whlchever ls appllcable ( 162003)
430
162003
431
wlLh respecL Lo all goods on hand wheLher caplLal goods sLocklnLrade supplles or maLerlals
432
eg when a sole proprleLorshlp lncorporaLes or Lhe proprleLor sells hls enLlre buslness
433
162003
126

a. Subject to VA1

Subject to output tax - applicable to goods,properties originally intended or sale
or use in business and capital goods which are existing as o the occurrence o the ollowing:

1, Change o business actiity rom VA1 taxable
status to VA1-exempt status

2, Approal o request or cancellation o a
registration due to reersion to exempt status

3, Approal o request or cancellation o registration
due to desire to reert to exempt status ater lapse
o 3 consecutie years
434


b. Not subject to VA1

1, Change o control o a corporation

Change o control o a corporation by the acquisition o the controlling interest o
such corporation by another stockholder or group o stockholders.

2, Change in the trade or corporate name

Change in the trade or corporate name o the business

3, Merger or consolidation o corporations

1he unused input tax o the dissoled corporation, as o the date o merger or
consolidation, shall be absorbed the suriing or new corp.

12. VA1 on importation o goods

On eery importation o goods.
435


a. 1ranser o goods by tax exempt persons

I importer is tax-exempt, the subsequent purchasers, transerees or recipients o
such imported goods shall be considered as importers who shall be liable or the tax on
importation.

1he tax due on such importation shall constitute a lien on the goods superior to all
charges or liens on the goods, irrespectie o the possessor thereo.
436


434
from Lhe Llme of reglsLraLlon by a person who volunLarlly reglsLered desplLe belng exempL under Sec
109 (2)
433
wheLher or noL goods are for use ln buslness
436
Sec 107 (8)
127

13. VA1 on sale o serice and use or lease o properties

a. Requisites or taxability

1he President, upon the recommendation o the Sec. o linance, shall, eectie
January 1, 2006, raise the rate o alue- added tax to 12, ater any o the ollowing
conditions has been satisied:

1. Value-added tax collection as a percentage o Gross Domestic Product ,GDP, o
the preious year exceeds 2 4,5, or
2. National goernment deicit as a percentage o GP o the preious year exceeds 1
'.
43


14. Zero-rated sale o serices
438


1, Processing, manuacturing or repacking goods or other persons doing business outside
the Philippines which goods are subsequently exported, where the serices are paid or in
acceptable oreign currency and accounted or in accordance with the rules and regulations o the
BSP.

2, Serices other than those mentioned in the preceding paragraph rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the serices are perormed, the consideration or which
is paid or in acceptable oreign currency and accounted or in accordance with the rules and
regulations o the BSP.

3, Serices rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory eectiely subjects the supply o
such serices to zero percent ,0, rate.

4, Serices rendered to persons engaged in international shipping or international air
transport operations, including leases o property or use thereo,
439
Proided, howeer, that the
serices reerred to herein shall not pertain to those made to common carriers by air and sea relatie
to their transport o passengers, goods or cargoes rom one place in the Phil. to another place in the
Phil., the same being subject to 12 VA1 under Sec. 108.
440


5, Serices perormed by subcontractors and,or contractors in processing, conerting, o
manuacturing goods or an enterprise whose export sales exceed seenty percent ,0, o total
annual production.

6, 1ransport o passengers and cargo by air or sea essels rom the Philippines to a oreign
country and,

, Sale o power or uel generated through renewable sources o energy such as, but not
limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy

437
Sec 108 (A)
438
Sec 108 (8)
439
lbld
440
supra
128

sources using technologies such as uel cells and hydrogen uels.
441
Zero-rating shall apply strictly to
the sale o power or uel generated through renewable sources o energy, and shall not extend to the
sale o serices related to the maintenance or operation o plants generating said power.

15. VA1 exempt transactions
442


a. VA1 exempt transactions, in general

Reer to sale o goods or properties and,or serices and the use or lease o properties that is
not subject to VA1
443
and the seller is not allowed any tax credit o VA1
444
on purchases. 1he
person making the exempt sale o goods, properties or serices shall not bill any output tax to his
customers because the said transaction is not subject to VA1.

1. Sale, import o agricultural, marine ood products in original state,
445
o liestock and
poultry.
446


Original state een i they hae undergone the simple processes o preparation or
preseration or the market, such as reezing, drying, salting, broiling, roasting, smoking or stripping.

Polished and,or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and
copra shall be considered in their original state.

2. Sale, import o ertilizers, seeds, seedlings and ingerlings, ish, prawn, liestock and
poultry eeds.

3. Import o personal and household eects o Phil resident returning rom abroad and
nonresident citizens coming to resettle in the Philippines

4. Import o proessional instruments and implements, wearing apparel, domestic animals,
and personal household eects belonging to persons coming to settle in the Philippines, or their
own use and not or sale, barter or exchange.

5. Serices subject to percentage tax under 1itle V.

6. Serices by agricultural contract growers and milling or others o palay into rice, corn into
grits and sugar cane into raw sugar,

. Medical, dental, hospital and eterinary serices except those rendered by
proessionals.
44


441
lbld
442
Sec 109
443
ouLpuL Lax
444
lnpuL Lax
443
Crlglnal sLaLe lncludlng preservaLlon uslng advanced Lechnologlcal means of packaglng such as shrlnk
wrapplng ln plasLlcs vacuum packlng LeLrapack and oLher slmllar packaglng meLhods ( 162003)
446
LlvesLock or poulLry does noL lnclude flghLlng cocks race horses zoo anlmals and oLher anlmals
generally consldered as peLs
447
lbld
LaboraLory servlces are exempLed lf Lhe hosplLal or cllnlc operaLes a pharmacy or drug sLore Lhe
sale of drugs and medlclne ls sub[ecL Lo vA1 162003
129

8. Lducational serices rendered by priate educational institutions, duly accredited by
DLPLD, ClLD, 1LSDA, and those rendered by goernment educational institutions.

9. Serices rendered by indiiduals pursuant to an employer-employee relationship,

10. Serices rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as superisory, communications and coordinating centers or
their ailiates, subsidiaries or branches in the Asia-Paciic Region and do not earn or derie
income rom the Philippines,

11. 1ransactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under Presidential Decree No. 529 |Petroleum
Lxploration Concessionaires under the Petroleum Act o 1949|

12. Sales by agricultural cooperaties duly registered with the Cooperatie Deelopment
Authority to their members as well as sale o their produce. Lxemption includes importation o
direct arm inputs, machineries and equipment, including spare parts thereo, to be used directly and
exclusiely in the production and,or processing o their produce.

13. Gross receipts rom lending actiities by credit or multi-purpose cooperaties duly
registered with the Cooperatie Deelopment Authority.

14. Sales by non-agricultural, non- electric and non-credit cooperaties duly registered with
the Cooperatie Deelopment Authority are exempt BU1 their importation o machineries and
equipment, including spare parts thereo, to be used by them are subject to at.

15. Lxport sales by persons who are not VA1- registered,

16. Sale o real properties - the . sales are exempt:

1, Sale o real properties NO1 primarily held or sale to customers or held or lease
in the ordinary course o trade or business.

2, Sale o real properties utilized or low-cost housing as deined by RA No.
29, otherwise known as the "Urban Deelopment and lousing Act o 1992" and other
related laws, such as RA No. 835 and RA No. 863. Low-cost housing" reers to housing
projects intended or homeless low- income amily beneiciaries, undertaken by the
Goernment or priate deelopers, which may either be a subdiision or a
condominium registered and licensed by the lousing and Land Use Regulatory
Board,lousing ,lLURB, under BP Blg. 220, PD No. 95 or any other similar law, wherein
the unit selling price is within the selling price ceiling per unit o P50,000.00 under RA No.
29, and other laws, such as RA No. 835 and RA No. 863.

3, Sale o real properties utilized or socialized housing as deined under RA No.
29, and other related laws, such as RA No. 835 and RA No. 863, wherein the price
ceiling per unit is P225,000.00 or as may rom time to time be determined by the lUDCC
and the NLDA and other related laws. "Socialized housing" reers to housing programs and
projects coering houses and lots or home lots only undertaken by the Goernment or the
priate sector or the underpriileged and homeless citizens which shall include sites and
serices deelopment, long-term inancing, liberated terms on interest payments, and such
other beneits in accordance with the proisions o RA No. 29 and RA No. 835 and
RA No. 863. "Socialized housing" shall also reer to projects intended or the
130

underpriileged and homeless wherein the housing package selling price is within the
lowest interest rates under the Uniied lome Lending Program ,UlLP, or any equialent
housing program o the Goernment, the priate sector or non-goernment organizations.

4, Sale o residential lot alued at P1.5M and below, or house & lot and other
residential dwellings alued at P2.5M and below, where the instrument o
sale,transer,disposition was executed on or ater July 1, 2005,
448
I two or more adjacent
residential lots are sold or disposed in aor o one buyer, or the purpose o utilizing the
lots as one residential lot, the sale shall be exempt rom VA1 only i the aggregate alue o
the lots does not exceed P1.5M. Adjacent residential lots, although coered by
separate titles and,or separate tax declarations, when sold or disposed to one and the same
buyer, whether coered by one or separate Deed o Coneyance, shall be presumed as a sale
o one residential lot.
449


1. Lease o residential units with a monthly rental per unit not exceeding P10K,
regardless o the amount o aggregate rentals receied by the lessor during the year.
Lease o residential units where the monthly rental per unit exceeds 10K but the aggregate o
such rentals o the lessor during the year do not exceed One Million lie lundred Pesos P1.5M
shall likewise be exempt rom VA1, howeer, the same shall be subjected to three percent
,3, percentage tax.

In cases where a lessor has seeral residential units
450
or lease, some are leased out
or a monthly rental per unit o not exceeding P10K while others are leased out or more than P10K
per unit, his tax liability will be as ollows:

a. 1he gross receipts rom rentals not exceeding P10K per month per unit shall be
exempt rom VA1 regardless o the aggregate annual gross receipts.

b. 1he gross receipts rom rentals exceeding P10K per month per unit shall be
subject to VA1 i the aggregate annual gross receipts rom said units only
451
exceeds
P1.5M. Otherwise, the gross receipts will be subject to the 3 tax imposed under Section
116 o the 1ax Code.

18. Sale, importation, printing or publication o books and any newspaper, magazine reiew
or bulletin which appears at regular interals with ixed prices or subscription and sale and which is
not deoted principally to the publication o paid adertisements,

19. Sale, importation or lease o passenger or cargo essels and aircrat, including engine,
equipment and spare parts thereo or domestic or international transport operations.

20. Importation o uel, goods, and supplies by persons engaged in international shipping or
air transport operations.

448
1o be ad[usLed every 3 years from !an 31 2009
449
162003
430
1he Lerm resldenLlal unlLs shall refer Lo aparLmenLs and houses loLs used for resldenLlal purposes
and bulldlngs or parLs or unlLs Lhereof used solely as dwelllng places (eg dormlLorles rooms and bed
spaces) excepL moLels moLel rooms hoLels and hoLel rooms
1he Lerm unlL shall mean an aparLmenL unlL ln Lhe case of aparLmenLs house ln Lhe case of
resldenLlal houses per person ln Lhe case of dormlLorles boardlng houses and bed spaces and per room
ln case of rooms for renL 162003
431
noL lncludlng Lhe gross recelpLs from unlLs leased for noL more Lhan 10k
131


21. Serices o banks, non-bank inancial intermediaries perorming quasi-banking unctions
and other non-bank inancial intermediaries, and

22. Sale or lease o goods or properties or the perormance o serices other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and,or receipts do
not exceed the amount o P1,500,0000.

b. Lxempt transactions, enumerated

1, Subject to the proisions o subsection ,2, hereo, the ollowing shall be exempt
rom the alue-added tax:

,a, Sale or importation o agricultural and marine ood products in their original
state, liestock and poultry o or kind generally used as, or yielding or producing oods
or human consumption, and breeding stock and genetic materials thereor.

Products classiied under this paragraph and paragraph ,a, shall be considered in their
original state een i they hae undergone the simple processes o preparation or preseration or the
market, such as reezing, drying, salting, broiling, roasting, smoking or stripping.

Polished and,or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and
copra shall be considered in their original state,

,b, Sale or importation o ertilizers, seeds, seedlings and ingerlings, ish, prawn,
liestock and poultry eeds, including ingredients, whether locally produced or imported,
used in the manuacture o inished eeds ,except specialty eeds or race horses, ighting
cocks, aquarium ish, zoo animals and other animals generally considered as pets,,

,c, Importation o personal and household eects belonging to the residents o the
Philippines returning rom abroad and nonresident citizens coming to resettle in the
Philippines: Proided, 1hat such goods are exempt rom customs duties under the 1ari
and Customs Code o the Philippines,

,d, Importation o proessional instruments and implements, wearing apparel,
domestic animals, and personal household eects ,except any ehicle, essel, aircrat,
machinery other goods or use in the manuacture and merchandise o any kind in
commercial quantity, belonging to persons coming to settle in the Philippines, or their own
use and not or sale, barter or exchange, accompanying such persons, or arriing within
ninety ,90, days beore or ater their arrial, upon the production o eidence satisactory to
the Commissioner, that such persons are actually coming to settle in the Philippines and that
the change o residence is bona ide,

,e, Serices subject to percentage tax under 1itle V,

,, Serices by agricultural contract growers and milling or others o palay into rice,
corn into grits and sugar cane into raw sugar,

,g, Medical, dental, hospital and eterinary serices except those rendered by
proessionals.

132

,h, Lducational serices rendered by priate educational institutions, duly
accredited by the Department o Lducation, Culture and Sports ,DLCS, Department o
Lducation ,DLPLD,, the Commission on ligher Lducation ,ClLD,, the 1echnical
Lducation and Skills Deelopment Authority ,1LSDA,, and those rendered by goernment
educational institutions.

,i, Serices rendered by indiiduals pursuant to an employer-employee relationship,

,j, Serices rendered by regional or area headquarters established in the Philippines
by multinational corporations which act as superisory, communications and coordinating
centers or their ailiates, subsidiaries or branches in the Asia-Paciic Region and do not
earn or derie income rom the Philippines,

,k, 1ransactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree No.
529,

,l, Sales by agricultural cooperaties duly registered with the Cooperatie
Deelopment Authority to their members as well as sale o their produce, whether in its
original state or processed orm, to non-members, their importation o direct arm inputs,
machineries and equipment, including spare parts thereo, to be used directly and exclusiely
in the production and,or processing o their produce,
,m, Gross receipts rom lending actiities by credit or multi-purpose cooperaties
duly registered with the Cooperatie Deelopment Authority,

,n, Sales by non-agricultural, non- electric and non-credit cooperaties duly
registered with the Cooperatie Deelopment Authority: Proided, 1hat the share capital
contribution o each member does not exceed liteen thousand pesos ,P15,000, and
regardless o the aggregate capital and net surplus ratably distributed among the members,

,o, Lxport sales by persons who are not VA1-registered,

,p, Sale o real properties not primarily held or sale to customers or held or lease
in the ordinary course o trade or business or real property utilized or low-cost and
socialized housing as deined by Republic Act No. 29, otherwise known as the Urban
Deelopment and lousing Act o 1992, and other related laws, residential lot alued at one
million ie hundred thousand pesos ,P1,500,000, and below, house and lot, and other
residential dwellings alued at two million ie hundred thousand pesos ,P2,500,000, and
below: Proided, 1hat not later than January 31, 2009 and eery three ,3, years thereater,
the amounts herein stated shall be adjusted to their present alues using the Consumer Price
Index, as published by the national Statistics Oice ,NSO,,

,q, Lease o a residential unit with a monthly rental not exceeding 1en thousand
pesos ,P10,000,, Proided, 1hat not later than January 31, 2009 and eery three ,3, years
thereater, the amount herein stated shall be adjusted to its present alue using the
Consumer Price Index as published by the National Statistics Oice ,NS0,,

,r, Sale, importation, printing or publication o books and any newspaper,
magazine reiew or bulletin which appears at regular interals with ixed prices or
subscription and sale and which is not deoted principally to the publication o paid
adertisements, and

133

,s, Sale, importation or lease o passenger or cargo essels and aircrat,
including engine, equipment and spare parts thereo or domestic or international transport
operations,

,t, Importation o uel, goods, and supplies by persons engaged in international
shipping or air transport operations,

,u, Serices o banks, non-bank inancial intermediaries perorming quasi-banking
unctions and other non-bank inancial intermediaries, and

,, Sale or lease o goods or properties or the perormance o serices other than
the transactions mentioned in the preceding paragraphs, the gross annual sales and,or
receipts do not exceed the amount o One million ie hundred thousand pesos
,P1,500,000,: Proided, 1hat not later than January 31, 2009 and eery three ,3, years
thereater, the amount herein stated shall be adjusted to its present alue using the
Consumer Price Index, as published by the National Statistics Oice ,NSO,.

,2, A at-registered person may elect that subsection ,1, not apply to its sale o goods or
properties or serices: proided, that an election made under this subsection shall be irreocable or a
period o three ,3, years rom the quarter the election was made.

16. Input tax and output tax, deined

Input tax - the VA1 due rom or paid by a VA1- registered person in the course o
his trade or business on importation o goods or local purchase o goods or serices,
including lease or use o property, rom a VA1-registered person. It includes the transitional
input tax determined in accordance with Section 111
452
o this Code.

It includes input taxes which can be directly attributed to transactions subject to the
VA1 plus a ratable portion o any input tax which cannot be directly attributed to either the
taxable or exempt actiity. Input tax must be eidenced by a VA1 inoice or oicial receipt
issued by a VA1- registered person in accordance with Secs. 113 and 23
453
o the 1ax.
454


Output tax - the VA1 due on the sale or lease o taxable goods or properties or
serices by any person registered or required to register under Section 236
455
o this Code.










432
See eference
433
lbld
434
162003
433
See eference
134

1. Sources o input tax

a. Purchase or importation o goods
456


b. Purchase o real properties or which a VA1 has actually
been paid

c. Purchase o serices in which VA1 has actually been paid

d. 1ransactions deemed sale

,1, 1ranser, use or consumption not in the course o business o goods or
properties originally intended or sale or or use in the course o business,

,2, Distribution or transer to:

,a, Shareholders or inestors as share in the proits o the VA1-registered
persons, or
,b, Creditors in payment o debt,

,3, Consignment o goods i actual sale is not made within sixty ,60, days ollowing
the date such goods were consigned, and

,4, Retirement rom or cessation o business, with respect to inentories o taxable
goods existing as o such retirement or cessation.
45


e. 1ransitional input tax
458


. Presumptie input tax

Persons or irms engaged in the processing o sardines, mackerel and milk, and in
manuacturing reined sugar and cooking oil and packed noodle based instant meals, shall be
allowed a presumptie input tax, creditable against the output tax, equialent our percent ,4
, o the gross alue in money o their purchases o primary agricultural products which are
used as inputs to their production.

As used in this Subsection, the term "processing" shall mean pasteurization, canning
and actiities which through physical or chemical process alter the exterior texture or orm

436
(l) lor sale or
(ll) lor converslon lnLo or lnLended Lo form parL of a flnlshed producL for sale lncludlng packaglng
maLerlals or
(lll) lor use as supplles ln Lhe course of buslness or
(lv) lor use as maLerlals supplled ln Lhe sale of servlce or
(v) lor use ln Lrade or buslness for whlch deducLlon for depreclaLlon or amorLlzaLlon ls allowed under
Lhls Code excepL auLomoblles alrcrafL and yachLs (Sec 110 (A)(1)
437
Sec 106 (8)
438
See lnpuL Lax supra
133

or inner substance o a product in such manner as to prepare it or special use to which it
could not hae been put in its original orm or condition.
459


g. 1ransitional input tax credits allowed under the transitory
and other proisions o the regulations
460


A person who becomes liable to alue-added tax or any person who elects to be a
VA1-registered person shall, subject to the iling o an inentory according to rules and
regulations prescribed by the Secretary o inance, upon recommendation o the
Commissioner, be allowed input tax on his beginning inentory o goods, materials and
supplies equialent to two percent ,2, o the alue o such inentory or the actual alue-
added tax paid on such goods, materials and supplies, whicheer is higher, which shall be
creditable against the output tax.
461


18.Persons who can aail o input tax credit

1he input tax on domestic purchase o goods or properties shall be creditable:

,a, 1o the purchaser upon consummation o sale and on importation o goods or properties,
and

,b, 1o the importer upon payment o the alue-added tax prior to the release o the goods
rom the custody o the Bureau o Customs.

loweer, in the case o purchase o serices, lease or use o properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment o the compensation, rental, royalty or
ee.

A VA1-registered person who is also engaged in transactions not subject to the alue-added
tax shall be allowed tax credit as ollows:

,a, 1otal input tax which can be directly attributed to transactions subject to alue-added tax,
and

,b, A ratable portion o any input tax which cannot be directly attributed to either actiity.
462










439
ld (8)
460
See e) 1ranslLlonal lnpuL Lax supra
461
Sec 111 (A)
462
Sec 110 (A)(2)(3)
136

19.Determination o output,input tax, VA1 payable, Lxcess input
tax credits

a. Determination o output tax

I at the end o any taxable quarter the output tax exceeds the input tax, the excess
shall be paid by the Vat-registered person. I the input tax exceeds the output tax, the excess
shall be carried oer to the succeeding quarter or quarters, any input tax attributable to the
purchase o capital goods or to zero-rated sales by a VA1-registered person may at his
option be reunded or credited against other internal reenue taxes, subject to the proisions
o Section 112.
463

b. Determination o input tax creditable

1he sum o the excess input tax carried oer rom the preceding month or quarter
and the input tax creditable to a VA1-registered person during the taxable month or quarter
shall be reduced by the amount o claim or reund or tax credit or alue-added tax and
other adjustments, such as purchase returns or allowances and input tax attributable to
exempt sale.

1he claim or tax credit reerred to in the oregoing paragraph shall include not only
those iled with the Bureau o Internal Reenue but also those iled with other goernment
agencies, such as the Board o Inestments the Bureau o Customs.
464


c. Allocation o input tax on mixed transactions

A VA1-registered person who is also engaged in transactions not subject to Vat shall
be allowed to recognize input tax credit on transactions subject to Vat as ollows:

All the input taxes that can be directly attributed to transactions subject to VA1 may
be recognized or input tax credit, Proided, that input taxes that can be directly attributable
to VA1 taxable sales o goods and serices to the Goernment or any o its political
subdiisions, instrumentalities or agencies, including goernment-owned or controlled
corporations ,GOCCs, shall not be credited against output taxes arising rom sales to non-
Goernment entities, and

2. I any input tax cannot be directly attributed to either a VA1 taxable or VA1-
exempt transaction, the input tax shall be pro-rated to the VA1 taxable and VA1-exempt
transactions and only the ratable portion pertaining to transactions subject to VA1 may be
recognized or input tax credit.

d. Determination o the output tax and VA1 payable and
computation o VA1 payable or excess tax credits
465




463
See eference
464
Sec 110 (C)
463
See a supra
137

20. Substantiation o input tax credits
466


a, Input taxes must be substantiated and supported by the ollowing documents, and
must be reported in the inormation returns required to be submitted to the Bureau:

,1, lor the importation o goods- import entry or other equialent document
showing actual payment o VA1 on the imported goods.

,2, lor the domestic purchase o goods and properties-inoice showing the
inormation required under Secs. 113 and 23
46
o the 1ax Code.
,3, lor the purchase o real property - public instrument i.e., deed o absolute sale,
deed o conditional sale, contract,agreement to sell, etc., together with VA1 inoice issued
by the seller.
,4, lor the purchase o serices-oicial receipt showing the inormation required
under Secs. 113 and 23 o the 1ax Code.

A cash register machine tape issued to a registered buyer shall constitute alid proo
o substantiation o tax credit only i it shows the inormation required under Secs. 113 and
23 o the 1ax Code.

b, 1ransitional input tax shall be supported by an inentory o goods as shown in a
detailed list to be submitted to the BIR.

,c, Input tax on "deemed sale" transactions shall be substantiated with the inoice
required.

,d, Input tax rom payments made to non- residents ,such as or serices, rentals and
royalties, shall be supported by a copy o the Monthly Remittance Return o Value Added
1ax \ithheld ,BIR lorm 1600, iled by the resident payor in behal o the non-resident
eidencing remittance o VA1 due which was withheld by the payor.

,e, Adance VA1 on sugar shall be supported by the Payment Order showing
payment o the adance VA1

21.Reund or tax credit o excess input tax

a. \ho may claim or reund,apply or issuance o tax credit
certiicate ,1CC,

Any VA1-registered person, whose sales are zero-rated or eectiely zero-rated may
apply or the issuance o a tax credit certiicate or reund o creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has
not been applied against output tax: Proided, howeer, 1hat in the case o zero-rated sales
under Section 106,A,,2,,a,,1,, ,2, and ,B,
468
and Section 108 ,B,,1, and ,2,,
469
the acceptable

466
162003
467
See eference
468
lbld
469
lbld
138

oreign currency exchange proceeds thereo had been duly accounted or in accordance with
the rules and regulations o the avg/o evtra vg Piiiva. ,BSP,: Proided, urther, 1hat
where the taxpayer is engaged in zero-rated or eectiely zero-rated sale and also in taxable
or exempt sale o goods o properties or serices, and the amount o creditable input tax due
or paid cannot be directly and entirely attributed to any one o the transactions, it shall be
allocated proportionately on the basis o the olume o sales.
40


b. Period to ile claim,apply or issuance o 1CC

\ithin two ,2, years ater the close o the taxable quarter when the sales were made,

c. Manner o giing reund

Reunds shall be made upon warrants drawn by the Commissioner or by his duly
authorized representatie without the necessity o being countersigned by the Chairman,
Commission on audit, the proisions o the Administratie Code o 198 to the contrary
notwithstanding: Proided, 1hat reunds under this paragraph shall be subject to post audit
by the Commission on Audit.
41


d. Destination principle or Cross-border doctrine
42


Destination principle - goods and serices are taxed only in the country where these
are consumed.

Cross border doctrine - mandates that no VA1 shall be imposed to orm part o the
cost o the goods destined or consumption outside the territorial border o the taxing
authority.

22.Inoicing requirements

a. Inoicing requirements in general
A VA1-registered person shall, or eery sale, issue an inoice or receipt. In addition
to the inormation required under Section 23, the ollowing inormation shall be indicated
in the inoice or receipt:
,1, A statement that the seller is a VA1-registered person, ollowed by his taxpayer's
identiication number ,1IN,, and

,2, 1he total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the alue-added tax.




470
Sec 112 (A)
471
ld (L)
472
See also (u)(7) supra
139


b. Inoicing and recording deemed sale transactions

1ransaction Inoicing Requirement
1ranser, use or consumption not in
the course o business o goods or
properties originally intended or sale
or or use in the course o business
Memorandum entry in the subsidiary sales
journal to record withdrawal o goods or
personal use
Distribution or transer to
shareholders,inestors or creditors
Inoice, at the time o the transaction,
which should include all the ino prescribed
in Sec. 113 ,B,
Consignment o goods i actual sale is
not made within 60 days
Inoice, at the time o the transaction,
which should include all the ino prescribed
in Sec. 113 ,B,
Retirement rom or cessation o
business with respect to all goods in
hand
An inentory shall be prepared and
submitted to the RDO who has jurisdiction
oer the taxpayer`s principal place o
business not later than 30 days ater
retirement or cessation rom the business.
An inoice shall be prepared or the entire
inentory, which shall be the basis o the
entry into the subsidiary sales journal. 1he
inoice need not enumerate the speciic
items appearing in the inentory regarding
the description o the goods. I the business
is to be continued by the new owners or
successors, the entire amount o output tax
on the amount deemed sold shall be allowed
as input taxes.


c. Consequences o issuing erroneous VA1 inoice or VA1
oicial receipt

,1, I a person who is not a VA1-registered person issues an inoice or receipt
showing his 1axpayer Identiication Number ,1IN,, ollowed by the word VA1`:

a, 1he issuer shall, in addition to any liability to other percentage taxes, be liable to:

i. 1he tax imposed in Section 106 or 106 without the beneit o any input
tax credit, and

ii. A 50 surcharge under Section 248 ,B,
43
o this code,


473
See eference
140

,b, 1he VA1 shall, i the other requisite inormation required under Subsection ,B,
hereo is shown on the inoice or receipt, be recognized as an input tax credit to the
purchaser under Section 110
44
o this Code.

,2, I a VA1-registered person issues a VA1 inoice or VA1 oicial receipt or a
VA1-exempt transaction, but ails to display prominently on the inoice or receipt the term
VA1-exempt Sale,` the issuer shall be liable to account or the tax imposed in Section 106
or 108 as i Section 109
45
did not apply.
46


23.liling o return and payment
Lery person liable to pay the alue-added tax imposed under this 1itle shall ile a
quarterly return o the amount o his gross sales or receipts within twenty-ie ,25, days
ollowing the close o each taxable quarter prescribed or each taxpayer: Proriaea that VA1-
registered persons shall pay the alue-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236,
shall ile a return and pay the tax due thereon within twenty-ie ,25, days rom the date o
cancellation o registration: Proriaea 1hat only one consolidated return shall be iled by the
taxpayer or his principal place o business or head oice and all branches.
4

24. \ithholding o inal VA1 on sales to goernment

1he Goernment or any o its political subdiisions, instrumentalities or agencies,
including goernment-owned or -controlled corporations ,GOCCs, shall, beore making
payment on account o each purchase o goods rom sellers and serices rendered by
contractors which are subject to the alue-added tax imposed in Sections 106 and 108
48

deduct and withhold the alue-added tax due at the rate o three percent ,3, o the gross
payment or the purchase o goods and six percent ,6, on gross receipts or serices
rendered by contractors on eery sale or installment payment which shall be creditable
against the alue-added tax liability o the seller or contractor: Proriaea 1hat in the case o
goernment public works contractors, the withholding rate shall be eight and one-hal
percent ,8.5,: Proriaea fvrtber 1hat the payment or lease or use o properties or property
rights to nonresident owners shall be subject to ten percent ,10, withholding tax at the
time o payment. lor this purpose, the payor or person in control o the payment shall be
considered as the withholding agent.

1he alue-added tax withheld shall be remitted within ten ,10, days ollowing the
end o the month the withholding was made.
49




474
See eference
473
supra
476
Sec 113 (u)
477
Sec 114 (A)
478
supra
479
Sec 114 (C)
141

E Compliance Requirements (Internal Revenue Taxes)

1. Administratie requirements

a. Registration requirements

1, Annual registration ee

An annual registration ee in the amount o lie hundred pesos ,P500, or eery
separate or distinct establishment or place o business, including acility types where sales
transactions occur, shall be paid upon registration and eery year thereater on or beore the
last day o January: Proided, howeer, 1hat cooperaties, indiiduals earning purely
compensation income, whether locally or abroad, and oerseas workers are not liable to the
registration ee herein imposed.

1he registration ee shall be paid to an authorized agent bank located within the
reenue district, or to the Reenue Collection Oicer, or duly authorized 1reasurer o the
city o municipality where each place o business or branch is registered.
480


2, Registration o each type o internal reenue tax

Lery person who is required to register with the Bureau o Internal Reenue shall
register each type o internal reenue tax or which he is obligated, shall ile a return and
shall pay such taxes, and shall updates such registration o any changes in accordance with
Subsection ,L, hereo.
481


3, 1ranser o registration

In case a registered person decides to transer his place o business or his head oice
or branches, it shall be his duty to update his registration status by iling an application or
registration inormation update in the orm prescribed thereor.
482


4, Other updates

Any person registered shall, wheneer applicable, update his registration inormation
with the Reenue District Oice where he is registered, speciying therein any change in type
and other taxpayer details.
483








480
Sec 236 (8)
481
ld (C)
482
ld (u)
483
ld (L)
142

5, Cancellation o registration

1he registration o any person who ceases to be liable to a tax type shall be cancelled
upon iling with the Reenue District Oice where he is registered an application or
registration inormation update in a orm prescribed thereor.
484


6, Power o the Commissioner to suspend the
business operations o any person who ails to
register

1he Commissioner or his authorized representatie is hereby empowered to suspend
the business operations and temporarily close the business establishment o any person or
any o the ollowing iolations:

,a, In the case o a VA1-registered Person. -

,1, lailure to issue receipts or inoices,
,2, lailure to ile a alue-added tax return as required under Section 114, or
,3, Understatement o taxable sales or receipts by thirty percent ,30, or
more o his correct taxable sales or receipts or the taxable quarter.

,b, lailure o any Person to Register as Required under Section 236. -

1he temporary closure o the establishment shall be or the duration o not less than
ie ,5, days and shall be lited only upon compliance with whateer requirements prescribed
by the Commissioner in the closure order.
485


b. Persons required to register or VA1

1, Optional registration or VA1 o exempt person

Any person whose transactions are exempt rom alue-added tax under Section
109,z,
486
o this Code, or any person whose transactions are exempt rom the alue-added
tax under Section 109,a,, ,b,, ,c,, and ,d,
48
o this Code, who opts to register as a VA1
taxpayer with respect to his export sales only, may update his registration inormation in
accordance with Subsection ,L, hereo, not later than ten ,10, days beore the beginning o
the taxable quarter and shall pay the annual registration ee prescribed in Subsection ,B,
hereo.
488





484
ld (l)
483
Sec 113
486
supra
487
ld
488
ld (l)
143

2, Cancellation o VA1 registration
489


3, Changes in or cessation o status o a VA1-
registered person
490


c. Supplying taxpayer identiication number ,1IN,

Any person required under the authority o this Code to make, render or ile a return,
statement or other document shall be supplied with or assigned a 1axpayer Identiication Number
,1IN, which he shall indicate in such return, statement or document iled with the Bureau o Internal
Reenue or his proper identiication or tax purposes, and which he shall indicate in certain
documents, such as, but not limited to the ollowing:

,1, Sugar quedans, reined sugar release order or similar instruments,
,2, Domestic bills o lading,
,3, Documents to be registered with the Register o Deeds o Assessor's Oice,
,4, Registration certiicate o transportation equipment by land, sea or air,
,5, Documents to be registered with the Securities and Lxchange Commission,
,6, Building construction permits,
,, Application or loan with banks, inancial institutions, or other inancial intermediaries,
,8, Application or mayor's permit,
,9, Application or business license with the Department o 1rade & Industry, and
,10, Such other documents which may hereater be required under rules and regulations to
be promulgated by the Secretary o linance, upon recommendation o the Commissioner.

In cases where a registered taxpayer dies, the administrator or executor shall register the
estate o the decedent in accordance with Subsection ,A, hereo and a new 1axpayer Identiication
Number ,1IN, shall be supplied in accordance with the proisions o this Section.

In the case o a nonresident decedent, the executor or administrator o the estate shall
register the estate with the Reenue District Oice where he is registered: Proided, howeer, 1hat
in case such executor or administrator is not registered, registration o the estate shall be made with
the 1axpayer Identiication Number ,1IN, supplied by the Reenue District Oice haing
jurisdiction oer his legal residence.

Only one 1axpayer identiication Number ,1IN, shall be assigned to a taxpayer. Any person
who shall secure more than one 1axpayer Identiication Number shall be criminally liable under the
proision o Section 25 on 'Violation o Other Proisions o this Code or Regulations in General.
491


d. Issuance o receipts or sales or commercial inoices

All persons subject to an internal reenue tax shall, or each sale or transer o
merchandise or or serices rendered alued at 1wenty-ie pesos ,P25.00, or more, issue
duly registered receipts or sales or commercial inoices, prepared at least in duplicate,
showing the date o transaction, quantity, unit cost and description o merchandise or nature
o serice: Proided, howeer, 1hat in the case o sales, receipts or transers in the amount

489
See L (1)(a)(3) under Compllance equlremenLs supra
490
See (u)(11)
491
ld (l)
144

o One hundred pesos ,P100.00, or more, or regardless o the amount, where the sale or
transer is made by a person liable to alue-added tax to another person also liable to alue-
added tax, or where the receipt is issued to coer payment made as rentals, commissions,
compensations or ees, receipts or inoices shall be issued which shall show the name,
business style, i any, and address o the purchaser, customer or client: Proided, urther,
1hat where the purchaser is a VA1-registered person, in addition to the inormation herein
required, the inoice or receipt shall urther show the 1axpayer Identiication Number ,1IN,
o the purchaser.

1he original o each receipt or inoice shall be issued to the purchaser, customer or
client at the time the transaction is eected, who, i engaged in business or in the exercise o
proession, shall keep and presere the same in his place o business or a period o three ,3,
years rom the close o the taxable year in which such inoice or receipt was issued, while
the duplicate shall be kept and presered by the issuer, also in his place o business, or a like
period.

1he Commissioner may, in meritorious cases, exempt any person subject to internal
reenue tax rom compliance with the proisions o this Section.
492


1, Printing o receipts or sales or commercial inoices

All persons who are engaged in business shall secure rom the Bureau o Internal
Reenue an authority to print receipts or sales or commercial inoices beore a printer can
print the same.

No authority to print receipts or sales or commercial inoices shall be granted unless
the receipts or inoices to be printed are serially numbered and shall show, among other
things, the name, business style, 1axpayer Identiication Number ,1IN, and business address
o the person or entity to use the same, and such other inormation that may be required by
rules and regulations to be promulgated by the Secretary o linance, upon recommendation
o the Commissioner.

All persons who print receipt or sales or commercial inoices shall maintain a
logbook,register o taxpayers who aailed o their printing serices. 1he logbook,register
shall contain the ollowing inormation:

,1, Names, 1axpayer Identiication Numbers o the persons or entities or whom the
receipts or sales or commercial inoices were printed, and

,2, Number o booklets, number o sets per booklet, number o copies per set and
the serial numbers o the receipts or inoices in each booklet.






492
Sec 237
143

2, Inoicing requirements or VA1

a, Inormation contained in the VA1 inoice
or VA1 oicial receipt

A VA1-registered person shall, or eery sale, issue an inoice or receipt. In addition
to the inormation required under Section 23, the ollowing inormation shall be indicated
in the inoice or receipt:

,1, A statement that the seller is a VA1-registered person, ollowed by his taxpayer's
identiication number ,1IN,, and

,2, 1he total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the alue-added tax.

b, Consequences o issuing erroneous VA1
inoice or oicial receipts
493


e. Lxhibition o certiicate o payment at place o business

1he certiicate or receipts showing payment o taxes issued to a person engaged in a
business subject to an annual registration ee shall be kept conspicuously exhibited in plain
iew in or at the place where the business is conducted, and in case o a peddler or other
persons not haing a ixed place o business, shall be kept in the possession o the holder
thereo, subject to production upon demand o any internal reenue oicer.
494


. Continuation o business o deceased person

\hen any indiidual who has paid the annual registration ee dies, and the same
business is continued by the person or persons interested in his estate, no additional
payment shall be required or the residue o the term which the tax was paid: Proided,
howeer, 1hat the person or persons interested in the estate should, within thirty ,30, days
rom the death o the decedent, submit to the Bureau o Internal Reenue or the regional or
reenue District Oice inentories o goods or stocks had at the time o such death.

1he requirement under this Section shall also be applicable in the case o transer o
ownership or change o name o the business establishment.
495









493
See (u)(22)(c) supra
494
Sec 241
493
Sec 242
146

g. Remoal o business to other location

Any business or which the annual registration ee has been paid may, subject to the
rules and regulations prescribed by the Secretary o linance, upon recommendation o the
Commissioner, be remoed and continued in any other place without the payment o
additional tax during the term or which the payment was made.
496


2. 1ax returns

a. Income 1ax Returns

1, Indiidual 1ax Returns

a, liling o indiidual tax returns

,1, \ho are required to ile

1he ollowing indiiduals are required to ile an income tax return:

,a, Lery lilipino citizen residing in the Philippines,
,b, Lery lilipino citizen residing outside the Philippines, on his income rom sources within
the Philippines,
,c, Lery alien residing in the Philippines, on income deried rom sources within the
Philippines, and
,d, Lery nonresident alien engaged in trade or business or in the exercise o proession in
the Philippines.
49

,a, Return o husband and
wie

Married indiiduals, whether citizens, resident or nonresident aliens, who do not
derie income purely rom compensation, shall ile a return or the taxable year to include
the income o both spouses, but where it is impracticable or the spouses to ile one return,
each spouse may ile a separate return o income but the returns so iled shall be
consolidated by the Bureau or purposes o eriication or the taxable year.
498


,b, Return o parent to include
income o children

1he income o unmarried minors deried rom properly receied rom a liing
parent shall be included in the return o the parent, except ,1, when the donor's tax has been
paid on such property, or ,2, when the transer o such property is exempt rom donor's
tax.
499


496
Sec 243
497
Sec 31 (A)
498
ld (u)
499
ld (L)
147

,c, Return o persons under
disability

I the taxpayer is unable to make his own return, the return may be made by his duly
authorized agent or representatie or by the guardian or other person charged with the care
o his person or property, the principal and his representatie or guardian assuming the
responsibility o making the return and incurring penalties proided or erroneous, alse or
raudulent returns.
500


,2, \ho are not required to ile

1he ollowing indiiduals shall not be required to ile an income tax return,

,a, An indiidual whose gross income does not exceed his total personal and
additional exemptions or dependents under Section 35:
501
Proided, 1hat a citizen o the
Philippines and any alien indiidual engaged in business or practice o proession within the
Philippine shall ile an income tax return, regardless o the amount o gross income,

,b, An indiidual with respect to pure compensation income, as deined in Section
32 ,A,,1,,
502
deried rom sources within the Philippines, the income tax on which has been
correctly withheld under the proisions o Section 9
503
o this Code: Proided, 1hat an
indiidual deriing compensation concurrently rom two or more employers at any time
during the taxable year shall ile an income tax return: Proided, urther, 1hat an indiidual
whose compensation income deried rom sources within the Philippines exceeds Sixty
thousand pesos ,P60,000, shall also ile an income tax return,

,c, An indiidual whose sole income has been subjected to inal withholding tax
pursuant to Section 5,A,
504
o this Code, and

,d, An indiidual who is exempt rom income tax pursuant to the proisions o this
Code and other laws, general or special.

1he oregoing notwithstanding, any indiidual not required to ile an income tax
return may neertheless be required to ile an inormation return pursuant to rules and
regulations prescribed by the Secretary o linance, upon recommendation o the
Commissioner.
505






300
ld (l)
301
supra
302
CompensaLlon for servlces ln whaLever form pald lncludlng buL noL llmlLed Lo fees salarles wages
commlsslons and slmllar lLems
303
supra
304
ld
303
ld (A)(2)
148

b, \here to ile

Lxcept in cases where the Commissioner otherwise permits, the return shall be iled
with an authorized agent bank, Reenue District Oicer, Collection Agent or duly
authorized 1reasurer o the city or municipality in which such person has his legal residence
or principal place o business in the Philippines, or i there be no legal residence or place o
business in the Philippines, with the Oice o the Commissioner.
506


c, \hen to ile

,1, 1he return o any indiidual speciied aboe shall be iled on or beore the
iteenth ,15th, day o April o each year coering income or the preceding taxable year.

,2, Indiiduals subject to tax on capital gains,

,a, lrom the sale or exchange o shares o stock not traded thru a local stock
exchange as prescribed under Section 24,c, shall ile a return within thirty ,30, days
ater each transaction and a inal consolidated return on or beore April 15 o each
year coering all stock transactions o the preceding taxable year, and

,b, lrom the sale or disposition o real property under Section 24,D
50
, shall
ile a return within thirty ,30, days ollowing each sale or other disposition.
508


2, Corporate Returns

a, Requirement or iling returns

Lery corporation subject to the tax herein imposed, except oreign corporations not
engaged in trade or business in the Philippines, shall render, in duplicate, a true and accurate
quarterly income tax return and inal or adjustment return in accordance with the proisions
o Chapter XII
509
o this 1itle. 1he return shall be iled by the president, ice-president or
other principal oicer, and shall be sworn to by such oicer and by the treasurer or assistant
treasurer.
510

,1, Declaration o quarterly corporate
income tax

Lery corporation shall ile in duplicate a quarterly summary declaration o its gross
income and deductions on a cumulatie basis or the preceding quarter or quarters upon
which the income tax shall be leied, collected and paid. 1he tax so computed shall be
decreased by the amount o tax preiously paid or assessed during the preceding quarters

306
ld (8)
307
See eference
308
ld (C)
309
CuarLerly CorporaLe lncome 1ax Annual ueclaraLlon and CuarLerly aymenLs of lncome 1axes
310
Sec 32
149

and shall be paid not later than sixty ,60, days rom the close o each o the irst three ,3,
quarters o the taxable year, whether calendar or iscal year.
511


,a, Place o iling

Lxcept as the Commissioner otherwise permits, the quarterly income tax declaration
required in Section 5
512
and the inal adjustment return required I Section 6 shall be iled
with the authorized agent banks or Reenue District Oicer or Collection Agent or duly
authorized 1reasurer o the city or municipality haing jurisdiction oer the location o the
principal oice o the corporation iling the return or place where its main books o
accounts and other data rom which the return is prepared are kept.
513


,b, 1ime o ling

1he corporate quarterly declaration shall be iled within sixty ,60, days ollowing the
close o each o the irst three ,3, quarters o the taxable year. 1he inal adjustment return
shall be iled on or beore the iteenth ,15th, day o April, or on or beore the iteenth
,15th, day o the ourth ,4th, month ollowing the close o the iscal year, as the case may
be.
514


,2, linal adjustment return

Lery corporation liable to tax shall ile a inal adjustment return coering the total
taxable
income or the preceding calendar or iscal year. I the sum o the quarterly tax payments
made during the said taxable year is not equal to
the total tax due on the entire taxable income o that year, the corporation shall either:

,A, Pay the balance o tax still due, or
,B, Carry-oer the excess credit, or
,C, Be credited or reunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or reund o the excess estimated
quarterly income taxes paid, the excess amount shown on its inal adjustment return may be
carried oer and credited against the estimated quarterly income tax liabilities or the taxable
quarters o the succeeding taxable years. Once the option to carry-oer and apply the
excess quarterly income tax against income tax due or the taxable quarters o the
succeeding taxable years has been made, such option shall be considered
irreocable or that taxable period and no application or cash reund or issuance o a
tax credit certiicate shall be allowed.
515



311
Sec 73
312
supra
313
Sec 77 (A)
314
ld (8)
313
Sec 76
130

,a, Place o iling

Lxcept as the Commissioner otherwise permits, the quarterly income tax declaration
required in Section 5
516
and the inal adjustment return required in Section 6
51
shall be
iled with:
a, the authorized agent banks or
b, Reenue District Oicer or
c, Collection Agent or
d, duly authorized 1reasurer o the city or municipality haing jurisdiction
oer the location o the principal oice o the corporation iling the return or place where
its main books o accounts and other data rom which the return is prepared are kept.
518


,b, 1ime o iling

Quarterly declaration - shall be iled within sixty ,60, days ollowing the close o
each o the irst three ,3, quarters o the taxable year.

1he inal adjustment return - shall be iled on or beore the iteenth ,15th, day o
April, or on or beore the iteenth ,15th, day o the ourth ,4th, month ollowing the close
o the iscal year, as the case may be.
519


,3, 1axable year o corporations

A corporation may employ either calendar year or iscal year as a basis or iling its
annual income tax return: Proided, the corporation shall not change the accounting period
employed without prior approal rom the Commissioner in accordance with the proisions
o Section 4
520
o this Code.
521


,4,Lxtension o time to ile return

1he Commissioner may, in meritorious cases, grant a reasonable extension o time
or iling returns o income ,or inal and adjustment returns in case o corporations,, subject
to the proisions o Section 56 o this Code.
522








316
supra
317
ld
318
Sec 77 (A)
319
ld (8)
320
See eference
321
Sec 32 (8)
322
Sec 33
131

b, Return o corporation contemplating
dissolution or reorganization

Lery corporation shall, within thirty ,30, days ater the adoption by the corporation
o a resolution or plan or its dissolution, or or the liquidation o the whole or any part o
its capital stock, including a corporation which has been notiied o possible inoluntary
dissolution by the Securities and Lxchange Commission, or or its reorganization, render a
correct return to the Commissioner, eriied under oath, setting orth the terms o such
resolution or plan and such other inormation as the Secretary o linance, upon
recommendation o the commissioner, shall, by rules and regulations, prescribe.

1he dissoling or reorganizing corporation shall, prior to the issuance by the
Securities and Lxchange Commission o the Certiicate o Dissolution or Reorganization, as
may be deined by rules and regulations prescribed by the Secretary o linance, upon
recommendation o the Commissioner, secure a certiicate o tax clearance rom the Bureau
o Internal Reenue which certiicate shall be submitted to the Securities and Lxchange
Commission.
523


c, Return on capital gains realized rom sale o
shares o stock not traded in the local stock
exchange

Lery corporation deriing capital gains rom the sale or exchange o shares o stock
not traded thru a local stock exchange as prescribed under Sections 24 ,c,, 25 ,A,,3,, 2
,L,,2,, 28,A,,8,,c, and 28 ,B,,5,,c,,
524
shall ile a return within thirty ,30, days ater each
transactions and a inal consolidated return o all transactions during the taxable year on or
beore the iteenth ,15th, day o the ourth ,4th, month ollowing the close o the taxable
year.
525

3, Returns o receiers, trustees in bankruptcy or
assignees

In cases wherein receiers, trustees in bankruptcy or assignees are operating the
property or business o a corporation, subject to the tax imposed by this 1itle, such
receiers, trustees or assignees shall make returns o net income as and or such corporation,
in the same manner and orm as such organization is hereinbeore required to make returns,
and any tax due on the income as returned by receiers, trustees or assignees shall be
assessed and collected in the same manner as i assessed directly against the organizations o
whose businesses or properties they hae custody or control.
526







323
Sec 32 (C)
324
supra
323
ld (u)
326
Sec 34
132

4, Returns o general partnerships

Lery general proessional partnership shall ile, in duplicate, a return o its income,
except income exempt under Section 32 ,B,
52
o this 1itle, setting orth the items o gross
income and o deductions allowed by this 1itle, and the names, 1axpayer Identiication
Numbers ,1IN,, addresses and shares o each o the partners.
528


5, liduciary returns

Guardians, trustees, executors, administrators, receiers, conserators and all persons
or corporations, acting in any iduciary capacity, shall render, in duplicate, a return o the
income o the person, trust or estate or whom or which they act, and be subject to all the
proisions o this 1itle, which apply to indiiduals in case such person, estate or trust has a
gross income o 1wenty thousand pesos ,P20,000, or oer during the taxable year. Such
iduciary or person iling the return or him or it, shall take oath that he has suicient
knowledge o the aairs o such person, trust or estate to enable him to make such return
and that the same is, to the best o his knowledge and belie, true and correct, and be subject
to all the proisions o this 1itle which apply to indiiduals: Proided, 1hat a return made by
or or one or two or more joint iduciaries iled in the proince where such iduciaries reside,
under such rules and regulations as the Secretary o linance, upon recommendation o the
Commissioner, shall prescribe, shall be a suicient compliance with the requirements o this
Section.
529


b. Lstate 1ax Returns

1, Notice o death to be iled

In all cases o transers subject to tax, or where, though exempt rom tax, the gross
alue o the estate exceeds 1wenty thousand pesos ,P20,000,, the executor, administrator or
any o the legal heirs, as the case may be, within two ,2, months ater the decedent's death,
or within a like period ater qualiying as such executor or administrator, shall gie a written
notice thereo to the Commissioner.
530


2, Lstate tax returns

a, Requirements

In all cases o transers subject to the tax imposed herein, or where, though exempt
rom tax, the gross alue o the estate exceeds 1wo hundred thousand pesos ,P200,000,, or
regardless o the gross alue o the estate, where the said estate consists o registered or
registrable property such as real property, motor ehicle, shares o stock or other similar
property or which a clearance rom the Bureau o Internal Reenue is required as a
condition precedent or the transer o ownership thereo in the name o the transeree, the

327
supra
328
Sec 33
329
Sec 63
330
Sec 89
133

executor, or the administrator, or any o the legal heirs, as the case may be, shall ile a return
under oath in duplicate, setting orth:

,1, 1he alue o the gross estate o the decedent at the time o his death, or in case
o a nonresident, not a citizen o the Philippines, o that part o his gross estate situated in
the Philippines,

,2, 1he deductions allowed rom gross estate in determining the estate as deined in
Section 86, and

,3, Such part o such inormation as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct taxes.

Proided, howeer, 1hat estate tax returns showing a gross alue exceeding 1wo
million pesos ,P2,000,000, shall be supported with a statement duly certiied to by a Certiied
Public Accountant containing the ollowing:

,a, Itemized assets o the decedent with their corresponding gross alue at the time
o his death, or in the case o a nonresident, not a citizen o the Philippines, o that part o
his gross estate situated in the Philippines,

,b, Itemized deductions rom gross estate allowed in Section 86, and

,c, 1he amount o tax due whether paid or still due and outstanding.
531


b, 1ime o iling and extension o time

1he Commissioner shall hae authority to grant, in meritorious cases, a reasonable
extension not exceeding thirty ,30, days or iling the return.
532


c, Place o iling

Lxcept in cases where the Commissioner otherwise permits, the return required
under Subsection ,A, shall be iled with an authorized agent bank, or Reenue District
Oicer, Collection Oicer, or duly authorized 1reasurer o the city or municipality in which
the decedent was domiciled at the time o his death or i there be no legal residence in the
Philippines, with the Oice o the Commissioner.
533


3, Discharge o executor or administrator rom
personal liability

I the executor or administrator makes a written application to the Commissioner or
determination o the amount o the estate tax and discharge rom personal liability thereore,
the Commissioner ,as soon as possible, and in any eent within one ,1, year ater the making

331
Sec 90 (A)
332
lbld (C)
333
lbld (u)
134

o such application, or i the application is made beore the return is iled, then within one
,1, year ater the return is iled, but not ater the expiration o the period prescribed or the
assessment o the tax in Section 203 shall not notiy the executor or administrator o the
amount o the tax. 1he executor or administrator, upon payment o the amount o which he
is notiied, shall be discharged rom personal liability or any deiciency in the tax thereater
ound to be due and shall be entitled to a receipt or writing showing such discharge.
534


a, Deinition o deiciency

,a, 1he amount by which the tax imposed by this Chapter exceeds the amount
shown as the tax by the executor, administrator or any o the heirs upon his return, but the
amounts so shown on the return shall irst be increased by the amounts preiously assessed
,or collected without assessment, as a deiciency and decreased by the amount preiously
abated, reunded or otherwise repaid in respect o such tax, or

,b, I no amount is shown as the tax by the executor, administrator or any o the
heirs upon his return, or i no return is made by the executor, administrator, or any heir,
then the amount by which the tax exceeds the amounts preiously assessed ,or collected
without assessment, as a deiciency, but such amounts preiously assessed or collected
without assessment shall irst be decreased by the amounts preiously abated, reunded or
otherwise repaid in respect o such tax.
535


c. Donor`s 1ax Returns

1, Requirements

Any indiidual who makes any transer by git
536
shall, or the purpose o the said tax,
make a return under oath in duplicate. 1he return shall set orth:

,1, Lach git made during the calendar year which is to be included in computing net
gits,
,2, 1he deductions claimed and allowable,
,3, Any preious net gits made during the same calendar year,
,4, 1he name o the donee, and
,5, Such urther inormation as may be required by rules and regulations made
pursuant to law.
53

2, 1ime and place o iling

1he return o the donor required in this Section shall be iled within thirty ,30, days
ater the date the git is made and the tax due thereon shall be paid at the time o iling.
Lxcept in cases where the Commissioner otherwise permits, the return shall be iled and the
tax paid to an authorized agent bank, the Reenue District Oicer, Reenue Collection
Oicer or duly authorized 1reasurer o the city or municipality where the donor was

334
Sec 92
333
Sec 93
336
excepL Lhose whlch under SecLlon 101 are exempL from Lhe Lax provlded for ln Lhls ChapLer
337
Sec 103 (A)
133

domiciled at the time o the transer, or i there be no legal residence in the Philippines, with
the Oice o the Commissioner. In the case o gits made by a nonresident, the return may
be iled with the Philippine Lmbassy or Consulate in the country where he is domiciled at
the time o the transer, or directly with the Oice o the Commissioner.
538


d. VA1 Returns

1, In general

Lery person liable to pay the alue-added tax imposed under this 1itle shall ile a
quarterly return o the amount o his gross sales or receipts within twenty-ie ,25, days
ollowing the close o each taxable quarter prescribed or each taxpayer: Proided, howeer,
1hat VA1-registered persons shall pay the alue-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236,
shall ile a return and pay the tax due thereon within twenty-ie ,25, days rom the date o
cancellation o registration: Proided, that only one consolidated return shall be iled by the
taxpayer or his principal place o business or head oice and all branches.
539


2, \here to ile the return
540


Lxcept as the Commissioner otherwise permits, the return shall be iled with and the
tax paid to an authorized agent bank, Reenue Collection Oicer or duly authorized city or
municipal 1reasurer in the Philippines located within the reenue district where the taxpayer
is registered or required to register.
541


e. \ithholding 1ax Returns

1, Quarterly returns and payments o taxes withheld

1axes deducted and withheld under Section 5 by withholding agents shall be
coered by a return and paid to, except in cases where the Commissioner otherwise permits,
an authorized 1reasurer o the city or municipality where the withholding agent has his legal
residence or principal place o business, or where the withholding agent is a corporation,
where the principal oice is located.

1he taxes deducted and withheld by the withholding agent shall be held as a special
und in trust or the goernment until paid to the collecting oicers.

1he return or inal withholding tax shall be iled and the payment made within
twenty-ie ,25, days rom the close o each calendar quarter, while the return or creditable
withholding taxes shall be iled and the payment made not later than the last day o the
month ollowing the close o the quarter during which withholding was made: Proided,

338
ld (8)
339
Sec 114 (A)
340
and pay Lhe Lax
341
ld (8)
136

1hat the Commissioner, with the approal o the Secretary o linance, may require these
withholding agents to pay or deposit the taxes deducted or withheld at more requent
interals when necessary to protect the interest o the goernment.
542


2, Annual inormation return
Lery withholding agent required to deduct and withhold taxes under Section 5
shall submit to the Commissioner an annual inormation return containing the list o payees
and income payments, amount o taxes withheld rom each payee and such other pertinent
inormation as may be required by the Commissioner. In the case o inal withholding taxes,
the return shall be iled on or beore January 31 o the succeeding year, and or creditable
withholding taxes, not later than March 1 o the year ollowing the year or which the annual
report is being submitted. 1his return, i made and iled in accordance with the rules and
regulations approed by the Secretary o linance, upon recommendation o the
Commissioner, shall be suicient compliance with the requirements o Section 68 o this
1itle in respect to the income payments.
1he Commissioner may, by rules and regulations, grant to any withholding agent a
reasonable extension o time to urnish and submit the return required in this Subsection.
543

3. 1ax payments

a. Income 1axes

1, Payment, in general, time o
payment

1he total amount o income tax imposed shall be paid by the person subject thereto
at the time the return is iled. In the case o tramp essels, the shipping agents and,or the
husbanding agents, and in their absence, the captains thereo are required to ile the return
herein proided and pay the tax due thereon beore their departure. Upon ailure o the said
agents or captains to ile the return and pay the tax, the Bureau o Customs is hereby
authorized to hold the essel and preent its departure until proo o payment o the tax is
presented or a suicient bond is iled to answer or the tax due.
544


2, Installment payment

\hen the tax due is in excess o 1wo thousand pesos ,P2,000,, the taxpayer other
than a corporation may elect to pay the tax in two ,2, equal installments in which case, the
irst installment shall be paid at the time the return is iled and the second installment, on or
beore July 15 ollowing the close o the calendar year. I any installment is not paid on or
beore the date ixed or its payment, the whole amount o the tax unpaid becomes due and
payable, together with the delinquency penalties.
545


342
Sec 38
343
ld (C)
344
Sec 36 (A)(1)
343
ld (A)(2)
137


3, Payment o capital gains tax

1he total amount o tax imposed and prescribed under Section 24 ,c,, 24,D,,
2,L,,2,, 28,A,,8,,c, and 28,B,,5,,c,
546
shall be paid on the date the return prescribed
thereor is iled by the person liable thereto: Proriaea 1hat i the seller submits proo o his
intention to aail himsel o the beneit o exemption o capital gains under existing special
laws, no such payments shall be required : Proriaea fvrtber 1hat in case o ailure to qualiy
or exemption under such special laws and implementing rules and regulations, the tax due
on the gains realized rom the original transaction shall immediately become due and
payable, subject to the penalties prescribed under applicable proisions o this Code: Proriaea
fiva, 1hat i the seller, haing paid the tax, submits such proo o intent within six ,6,
months rom the registration o the document transerring the real property, he shall be
entitled to a reund o such tax upon eriication o his compliance with the requirements
or such exemption.

In case the taxpayer elects and is qualiied to report the gain by installments under
Section 49 o this Code, the tax due rom each installment payment shall be paid within ,30,
days rom the receipt o such payments.
No registration o any document transerring real property shall be eected by the
Register o Deeds unless the Commissioner or his duly authorized representatie has
certiied that such transer has been reported, and the tax herein imposed, i any, has been
paid.
54

b. Lstate 1axes

1, 1ime o payment

1he estate tax imposed by Section 84 shall be paid at the time the return is iled by
the executor, administrator or the heirs.
548


a, Lxtension o time

\hen the Commissioner inds that the payment on the due date o the estate tax or
o any part thereo would impose undue hardship upon the estate or any o the heirs, he may
extend the time or payment o such tax or any part thereo not to exceed ie ,5, years, in
case the estate is settled through the courts, or two ,2, years in case the estate is settled
extrajudicially. In such case, the amount in respect o which the extension is granted shall be
paid on or beore the date o the expiration o the period o the extension, and the running
o the Statute o Limitations or assessment as proided in Section 203 o this Code shall be
suspended or the period o any such extension.


346
supra
347
ld (A)(3)
348
Sec (91) (A)
138

\here the taxes are assessed by reason o negligence, intentional disregard o rules
and regulations, or raud on the part o the taxpayer, no extension will be granted by the
Commissioner.

I an extension is granted, the Commissioner may require the executor, or
administrator, or beneiciary, as the case may be, to urnish a bond in such amount, not
exceeding double the amount o the tax and with such sureties as the Commissioner deems
necessary, conditioned upon the payment o the said tax in accordance with the terms o the
extension.
549


2, Liability or payment

a, Discharge o executor or
administrator rom personal
liability
550


b, Deinition o deiciency
551


3, Payment beore deliery by
executor or administrator

No judge shall authorize the executor or judicial administrator to delier a
distributie share to any party interested in the estate unless a certiication rom the
Commissioner that the estate tax has been paid is shown.
552


a, Payment o tax antecedent
to the transer o shares,
bonds or rights

1here shall not be transerred to any new owner in the books o any corporation,
.ocieaaa avoviva, partnership, business, or industry organized or established in the Philippines
any share, obligation, bond or right by way o git ivter riro. or vorti. cav.a, legacy or
inheritance, unless a certiication rom the Commissioner that the taxes ixed in this 1itle
and due thereon hae been paid is shown.

I a bank has knowledge o the death o a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal rom the said deposit
account, unless the Commissioner has certiied that the taxes imposed thereon by this 1itle
hae been paid: Proided, howeer, 1hat the administrator o the estate or any one ,1, o the
heirs o the decedent may, upon authorization by the Commissioner, withdraw an amount
not exceeding 1wenty thousand pesos ,P20,000, without the said certiication. lor this
purpose, all withdrawal slips shall contain a statement to the eect that all o the joint

349
ld (8)
330
See (L)(2)(b)(3) under LsLaLe 1ax eLurns
331
lbld
332
Sec 94
139

depositors are still liing at the time o withdrawal by any one o the joint depositors and
such statement shall be under oath by the said depositors.
553


4, Duties o certain oicers and
debtors

Registers o Deeds shall not register in the Registry o Property any document
transerring real property or real rights therein or any chattel mortgage, by way o gits ivter
riro. or vorti. cav.a, legacy or inheritance, unless a certiication rom the Commissioner that
the tax ixed in this 1itle and actually due thereon had been paid is show, and they shall
immediately notiy the Commissioner, Regional Director, Reenue District Oicer, or
Reenue Collection Oicer or 1reasurer o the city or municipality where their oices are
located, o the non-payment o the tax discoered by them. Any lawyer, notary public, or any
goernment oicer who, by reason o his oicial duties, interenes in the preparation or
acknowledgment o documents regarding partition or disposal o donation ivter riro. or vorti.
cav.a, legacy or inheritance, shall hae the duty o urnishing the Commissioner, Regional
Director, Reenue District Oicer or Reenue Collection Oicer o the place where he may
hae his principal oice, with copies o such documents and any inormation whatsoeer
which may acilitate the collection o the aorementioned tax. Neither shall a debtor o the
deceased pay his debts to the heirs, legatee, executor or administrator o his creditor, unless
the certiication o the Commissioner that the tax ixed in this Chapter had been paid is
shown, but he may pay the executor or judicial administrator without said certiication i the
credit is included in the inentory o the estate o the deceased.
554


5, Restitution o tax upon satisaction
o outstanding obligations


I ater the payment o the estate tax, new obligations o the decedent shall appear,
and the persons interested shall hae satisied them by order o the court, they shall hae a
right to the restitution o the proportional part o the tax paid.
555


c. Donor`s 1axes

1, 1ime and place o payment

1he return o the donor required in this Section shall be iled within thirty ,30, days
ater the date the git is made and the tax due thereon shall be paid at the time o iling.
Lxcept in cases where the Commissioner otherwise permits, the return shall be iled and the
tax paid to an authorized agent bank, the Reenue District Oicer, Reenue Collection
Oicer or duly authorized 1reasurer o the city or municipality where the donor was
domiciled at the time o the transer, or i there be no legal residence in the Philippines, with
the Oice o the Commissioner. In the case o gits made by a nonresident, the return may

333
Sec 97
334
Sec 93
333
Sec 96
160

be iled with the Philippine Lmbassy or Consulate in the country where he is domiciled at
the time o the transer, or directly with the Oice o the Commissioner.
556


d. VA1

1, Payment o VA1

Lery person liable to pay the alue-added tax imposed under this 1itle shall ile a
quarterly return o the amount o his gross sales or receipts within twenty-ie ,25, days
ollowing the close o each taxable quarter prescribed or each taxpayer: Proided, howeer,
1hat VA1-registered persons shall pay the alue-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236,
shall ile a return and pay the tax due thereon within twenty-ie ,25, days rom the date o
cancellation o registration: Proided, 1hat only one consolidated return shall be iled by the
taxpayer or his principal place o business or head oice and all branches.

2, \here to pay the VA1

Lxcept as the Commissioner otherwise permits, the return shall be iled with and the
tax paid to an authorized agent bank, Reenue Collection Oicer or duly authorized city or
municipal 1reasurer in the Philippines located within the reenue district where the taxpayer
is registered or required to register.
55


l. 1ax Remedies under the NIRC

1. 1axpayer`s Remedies

a. Assessment

1, Concept o assessment

1. It is the oicial action o an oicer authorized by law in ascertaining the amount
o tax due under the law rom a taxpayer. 1his action necessarily inoles:

a. the computation o the sum due,
b. giing notice to that eect to the taxpayer, and
c. the making, simultaneously with or sometime ater the giing o notice, o a
demand upon him or the payment o the tax deiciency stated.

a, Requisites or alid assessment

a. post-reporting notice or notice or an inormal conerence ater the tax audit
b. Pre-assessment notice, i required
c. Issuance and receipt o Notice o Assessment

336
Sec 103 (8)
337
Sec 114 (8)
161


i. must be issued prior to lapse o prescriptie period
ii. the written notice must state the acts and the law upon which the
assessment is based

b, Constructie methods o income
determination

c, Inentory method or income
determination
558


Assessment is made when it is mailed, released or sent.

d, Jeopardy assessment

An assessment made demanding immediate payment o the tax due without the usual
ormalities in instances when the Commissioner beliees that i the tax will be collected
under normal procedures, the collection o such tax is at risk which might result in loss to
the goernment.

Instances when jeopardy assessment may be issued:

\hen it shall come to the knowledge o the Commissioner that a taxpayer is:

a. retiring rom business subject to tax, or
b. intending
1. to leae the Philippines or remoe his property thererom, or
2. to hide or conceal his property,
c. perorming any act tending
1. to obstruct the proceedings or the collection o the tax or the past or
current quarter or year, or
2. to render the same totally or partly ineectie unless such proceedings
are begun immediately.
559

3.
e, 1ax delinquency and tax deiciency

1ax delinquency - the taxpayer did not ile a return

1ax deiciency - the taxpayer iled a return but the same was deicient. Deiciency is
the dierence between the tax due and the tax paid.




338
also called neL lnvesLlgaLory MeLhod
339
Sec 6u A 8424

162

2, Power o the Commissioner to make assessments
and prescribe additional requirements or tax
administration and enorcement

a, Power o the Commissioner to obtain
inormation, and to summon,examine, and
take testimony o persons

In ascertaining the correctness o any return, or in making a return when none has
been made, or in determining the liability o any person or any internal reenue tax, or in
collecting any such liability, or in ealuating tax compliance, the Commissioner is authorized:

,A, 1o examine any book, paper, record, or other data which may be releant or
material to such inquiry,

,B, 1o Obtain on a regular basis rom any person other than the person whose
internal reenue tax liability is subject to audit or inestigation, or rom any oice or oicer
o the national and local goernments, goernment agencies and instrumentalities, including
the avg/o evtra vg Piiiva. and goernment-owned or -controlled corporations, any
inormation such as, but not limited to, costs and olume o production, receipts or sales
and gross incomes o taxpayers, and the names, addresses, and inancial statements o
corporations, mutual und companies, insurance companies, regional operating headquarters
o multinational companies, joint accounts, associations, joint entures o consortia and
registered partnerships, and their members,

,C, 1o summon the person liable or tax or required to ile a return, or any oicer or
employee o such person, or any person haing possession, custody, or care o the books o
accounts and other accounting records containing entries relating to the business o the
person liable or tax, or any other person, to appear beore the Commissioner or his duly
authorized representatie at a time and place speciied in the summons and to produce such
books, papers, records, or other data, and to gie testimony,

D, 1o take such testimony o the person concerned, under oath, as may be releant
or material to such inquiry, and

,L, 1o cause reenue oicers and employees to make a canass rom time to time o
any reenue district or region and inquire ater and concerning all persons therein who may
be liable to pay any internal reenue tax, and all persons owning or haing the care,
management or possession o any object with respect to which a tax is imposed.

1he proisions o the oregoing paragraphs notwithstanding, nothing in this Section
shall be construed as granting the Commissioner the authority to inquire into bank deposits
other than as proided or in Section 6,l, o this Code.
560





360
Sec 3
163

3, \hen assessment is made

a, Prescriptie period or assessment

,1, lalse, raudulent, and non-iling o
returns

1en ,10, years ater the discoery o the alsity, raud or omission.
561


b, Suspension o running o statute o
limitations

1, Periods suspended:

,a, periods or assessment in Secs. 203
562
and 222
563

,b, beginning o distraint or ley
,c, proceeding in court or collection

2, Grounds or suspension o prescriptie periods:

a, Commissioner is prohibited rom making the assessment or beginning
distraint or ley or a proceeding in court and or 60 days thereater

b, 1axpayer requests or Reinestigation which is granted

c, 1axpayer cannot be located in the address gien in the return iled, except
i the taxpayer inorms the Commissioner o a change in address the prescriptie
period will not be suspended

d, \hen the warrant is duly sered upon the taxpayer and no property could
be located

e, \hen the taxpayer is out o the Phils.
564












361
Sec 222
362
See eference
363
lbld
364
Sec 223
164

4, General proisions on additions to the tax

a, Ciil penalties
b, Interest
565


Additions to the tax consist o the:

,1, ciil penalty, otherwise known as .vrcbarge which may either be 25 or 50 o
the tax depending upon the nature o the iolation,

,2, ivtere.t either or a deiciency tax or delinquency as to payment,

,3, other ciil penalties or administratie ines such as or ailure to ile certain
inormation returns and iolations committed by withholding agents.
566


5, Assessment process
56


a, 1ax audit

1he process o examining, going oer, or scrutinizing the books and records o the
taxpayer to ascertain the correctness o the tax declared and paid by the taxpayer. It can only
be perormed upon a Letter o Authority issued by the Commissioner or Regional Director.


363
1hls ls an lncremenL on any unpald amounL of Lax assessed aL Lhe raLe of LwenLy percenL (20) per
annum or such hlgher raLe as may be prescrlbed y rules and regulaLlons from Lhe daLe prescrlbed for
paymenL unLll Lhe amounL ls fully pald (Sec 249 A 1997 nlC)
lnLeresL ls classlfled lnLo
1ueflclency lnLeresL
Any deflclency ln Lhe Lax due as Lhe Lerm ls deflned ln Lhls code shall be sub[ecL Lo Lhe lnLeresL of 20
per annum or such hlgher raLe as may be prescrlbed by rules and regulaLlons whlch shall be assessed and
collecLed from Lhe daLe prescrlbed for lLs paymenL unLll Lhe full paymenL Lhereof (Sec 249 8 1997 nlC)
2uellnquency lnLeresL
1hls klnd of lnLeresL ls lmposed ln case of fallure Lo pay
(1)1he amounL of Lhe Lax due on any reLurn requlred Lo be flled or
(2)1he amounL of Lhe Lax due for whlch no reLurn ls requlred or
(3)A deflclency Lax or any surcharge or lnLeresL Lhereon on Lhe due daLe appearlng ln Lhe noLlce and
demand of Lhe Commlssloner
366
Ceneral ConslderaLlons on Lhe AddlLlon Lo Lax
a AddlLlons Lo Lhe Lax or deflclency Lax apply Lo all Laxes fees and charges lmposed ln Lhe 1ax Code
b 1he amounL so added Lo Lhe Lax shall be collecLed aL Lhe same Llme ln Lhe same manner and as parL
of Lhe Lax
c lf Lhe wlLhholdlng agenL ls Lhe governmenL or any of lLs agencles pollLlcal subdlvlslons or
lnsLrumenLallLles or a governmenL owned or conLrolled corporaLlon Lhe employee Lhereof responslble
for Lhe wlLhholdlng and remlLLance of Lhe Lax shall be personally llable for Lhe addlLlons Lo Lhe Lax
prescrlbed (Sec 247b 1997 nlC) such as Lhe 23 surcharge and Lhe 20 lnLeresL per annum on Lhe
dellnquency (Secs 248 and 249 C 1997 nlC)
367
AssessmenLs rlma facle correcL 1ax assessmenLs by Lax examlners are presumed correcL and made ln
good falLh 1he Laxpayer has Lhe duLy Lo prove oLherwlse (Sy o v C1A Cn L 81446 AugusL 18 1988)
163

b, Notice o inormal conerence

A written notice inorming a taxpayer that the indings o the audit conducted on his
books o accounts and accounting records indicate that additional taxes or deiciency
assessments hae to be paid

- I, ater the culmination o an audit, a Reenue Oicer recommends the imposition
o deiciency tax assessments, this recommendation is communicated by the Bureau to the
taxpayer concerned during an inormal conerence called or this purpose, the taxpayer shall
hae 15 days rom receipt o the notice o inormal conerence to explain his side.

c, Issuance o preliminary assessment notice
,PAN,

Communication issued by the Regional Assessment Diision or any other concerned
BIR oice, inorming a taxpayer who has been audited o the indings o the Reenue
Oicer, ollowing the reiew o these indings. 1he assessment shall be in writing, and
should inorm the taxpayer o the law and the acts on which the assessment is made,
otherwise, the assessment is oid.

- I the taxpayer disagrees with the indings in the PAN, he has 15 days to ile a
written reply contesting the proposed assessment.

d, Lxceptions to Issuance o PAN

,a, \hen the inding or any deiciency tax is the result o mathematical error in the
computation o the tax as appearing on the ace o the return, or

,b, \hen a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent, or

,c, \hen a taxpayer who opted to claim a reund or tax credit o excess creditable
withholding tax or a taxable period was determined to hae carried oer and automatically
applied the same amount claimed against the estimated tax liabilities or the taxable quarter
or quarters o the succeeding taxable year, or

,d, \hen the excise tax due on excisable articles has not been paid, or

,e, \hen the article locally purchased or imported by an exempt person, such as, but
not limited to, ehicles, capital equipment, machineries and spare parts, has been sold, traded
or transerred to non-exempt persons.
568







368
Sec 228
166

e, Reply to PAN

\ithin a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. I the taxpayer ails to respond, the
Commissioner or his duly authorized representatie shall issue an assessment based on his
indings.
569


, Issuance o ormal letter o demand and
assessment notice,inal assessment notice
50


Notice o Assessment is a ormal letter o demand where a declaration o deiciency
taxes is issued to a taxpayer who ails to respond to a pre-assessment notice within the
prescribed period o time, or whose reply to the PAN was ound to be without merit. 1his is
commonly known as the linal Assessment Notice. An assessment contains not only a
computation o under declaration o taxable sales, receipts or income, OR a substantial
oerstatement o deductions.
g, Disputed assessment

1axpayer or his duly authorized representatie may administratiely protest against a
lormal Letter o Demand and Assessment notice within thirty ,30, days rom date o receipt
thereo.

I the protest is denied in whole or part, or is not acted upon within one hundred
eighty ,180, days rom submission o documents, the taxpayer adersely aected by the
decision or inaction may appeal to the C1A within 30 days rom receipt o the said decision,
or rom lapse o the one hundred ,180,-day period: otherwise, the decision shall become
inal and executor.

j, Administratie decision on a disputed
assessment

Aderse decision or ruling rendered by the Commissioner o Internal Reenue in
disputed assessment or claim or tax reund or credit, taxpayer may appeal the same
within thirty ,30, days ater receipt.
51


Appeal equialent to a judicial action.


369

370
CLnLAL uLL 1axes are selfassesslng and do
noL requlre Lhe lssuance of an assessmenL noLlce ln
order Lo esLabllsh Lhe Lax llablllLy of a Laxpayer
LxcepLlons
1 1ax perlod of a Laxpayer ls LermlnaLed (sec
6d nlC)
2 ueflclency Lax llablllLy arlslng from a Lax audlL conducLed by a 8l (sec 36b nlC)
3 1ax llen (sec 219 nlC)
4 ulssolvlng CorporaLlon (sec 32c nlC
371
Sec 11 A no 1123
167

In the absence o appeal, the decision becomes inal and executory. But where the
taxpayer adersely aected has not receied the decision or ruling, he could not appeal the
same to the C1A within 30 days rom notice. lence, it could not become inal and
executory.
52


Motion or reconsideration suspends the running o the 30 - day period o perecting
an appeal. Must adance new grounds not preiously alleged to toll the reglementary period,
otherwise, it would be merely pro-orma.
53


6, Protesting assessment

a, Protest
54
o assessment by taxpayer

,1, Protested assessment
,2, \hen to ile a protest

liling a request or reconsideration
55
or reinestigation
56
within 30 days rom
receipt o assessment.

,3, lorms o protest

1. It is made in writing, and addressed to the Commissioner o Internal Reenue.

2. It contains inormation as speciied in RR12-85.

3. It states the acts, applicable law, rules and regulations or jurisprudence on which
his protest is based, otherwise the protest shall be considered oid and without orce and
eect.
4. It is iled within the period prescribed by law.

b, Submission o documents within 60 days
rom iling o protest

\ithin 60 days rom iling, all releant documents should be iled, otherwise
assessment becomes inal and cannot be appealed.
5


372
kepobllc vs ue lo komo 18 SCA 861
373
komoo cotbollc Atcbblsbop vs coll L16683 !an 31 1962
374
A proLesL ls a vlLal documenL whlch ls a formal declaraLlon of reslsLance of Lhe Laxpayer lL ls a
reposlLory of all argumenLs lL can be used ln courL ln case of admlnlsLraLlve remedles have been
exhausLed lL ls also Lhe formal acL of Lhe Laxpayer quesLlonlng Lhe offlclal acLuaLlons of Lhe Cl 1hls ls
equlvalenL Lo a pleadlng
373
a plea for reevaluaLlon of Lhe assessmenL on Lhe basls of exlsLlng records wlLhouL need of addlLlonal
evldence lnvolves a quesLlon of facL or law or boLh (evenue egulaLlon no 1283)
376
a plea for reevaluaLlon of an assessmenL on Lhe basls of newly dlscovered or addlLlonal evldence LhaL
a Laxpayer lnLends Lo presenL ln Lhe relnvesLlgaLlon lnvolves a quesLlon of facL or law or boLh
377
Sec 228
Submlsslon of documenLs wlLhln Lhe 60 days perlod ls opLlonal Lo Lhe Laxpayer 1he relevanL
supporLlng documenLs menLloned ln Lhe law refers Lo such documenLs whlch Lhe Laxpayer feels would be
168

c, Lect o ailure to protest
58


, Rendition o decision by Commissioner

a, Denial o protest
59


,1, CIR`s actions equialent to denial
o protest

,a, liling o criminal action
against taxpayer
,b, Issuing a warrant o
distraint and ley

1hese actions o the CIR sere as bases or appeal to the C1A.

,2, Inaction by Commissioner

1he protest is not acted upon by the Commissioner within 180 days rom
submission o documents.

8, Remedies o taxpayer to action by Commissioner

a, In case o denial o protest

Appeal o Protest to the Court o 1ax Appeals ,C1A, within 30 days rom receipt o
decision denying the protest.



necessary Lo supporL hls proLesL and noL whaL Lhe Commlssloner feels should be submlLLed oLherwlse Lhe
Laxpayer would always be aL Lhe mercy of Lhe 8l whlch may requlre producLlon of such documenLs whlch
Laxpayer could noL produce (SLandard CharLered 8ank v C1A Case no 3696 Aug 16 2001)
378
See b) supra
379
1 ulrecL uenlal
1he declslon of Lhe Commlssloner or hls duly rep shall (a) sLaLe Lhe facLs appllcable law rules and
regulaLlons or [urlsprudence on whlch hls proLesL ls based oLherwlse Lhe proLesL shall be consldered vold
and wlLhouL force and effecL ln whlch case Lhe same shall noL be consldered a declslon a dlspuLed
assessmenL and (b) LhaL Lhe same ls hls flnal declslon (sec 313 1299)
2 lndlrecL uenlal
a Commlssloner dld noL rule on Lhe Laxpayer's M of Lhe assessmenL lL was only when respondenL
recelved summons on Lhe clvll acLlon for Lhe collecLlon of deflclency lncome Lax LhaL Lhe perlod Lo appeal
commenced Lo run (Cl vs unlon Shlpplng Corp)
b eferral by Lhe Commlssloner of requesL for relnvesLlgaLlon Lo Lhe SollclLor Ceneral (epubllc vs Llm
1lan 1eng Sons)
c elLeraLlng Lhe demand for lmmedlaLe paymenL of Lhe deflclency Lax due Lo Laxpayer's conLlnued
refusal Lo execuLe walver (Cl vs Ayala SecurlLles Corp)
d rellmlnary collecLlon leLLer may serve as assessmenL noLlce (unlLed lnL'l lcLures vs Cl)
169

b, In case o inaction by Commissioner within
180 days rom submission o documents

Appeal o Protest to the Court o 1ax Appeals ,C1A, 30 days rom the lapse o 180
day period.

c, Lect o ailure to appeal

1he decision shall be inal, executory and demandable.

b. Collection

1, Requisites

2, Prescriptie periods

Local taxes, ees or charges may be collected within ie years rom the date o
assessment by administratie or judicial action. No such action shall be instituted ater the
expiration o such period.
580


3, Distraint o personal property including
garnishment

a, Summary remedy o distraint o personal
property
,1, Procedure or distraint and
garnishment

1he oicer sering the warrant o distraint shall make or cause to be made an
account o the goods, chattels, eects or other personal property distrained, a copy o which,
signed by himsel, shall be let either with the owner or person rom whose possession such
goods, chattels, or eects or other personal property were taken, or at the dwelling or place
o business o such person and with someone o suitable age and discretion, to which list
shall be added a statement o the sum demanded and note o the time and place o sale.

Stocks and other securities shall be distrained by sering a copy o the warrant o
distraint upon the taxpayer and upon the president, manager, treasurer or other responsible
oicer o the corporation, company or association, which issued the said stocks or securities.

Debts and credits shall be distrained by leaing with the person owing the debts or
haing in his possession or under his control such credits, or with his agent, a copy o the
warrant o distraint. 1he warrant o distraint shall be suicient authority to the person
owning the debts or haing in his possession or under his control any credits belonging to
the taxpayer to pay to the Commissioner the amount o such debts or credits.


380
sec 194 LCC
170

Bank accounts shall be garnished by sering a warrant o garnishment upon the
taxpayer and upon the president, manager, treasurer or other responsible oicer o the bank.
Upon receipt o the warrant o garnishment, the bank shall turn oer to the Commissioner
so much o the bank accounts as may be suicient to satisy the claim o the Goernment.
581


,2, Sale o property distrained and
disposition o proceeds

1he Reenue District Oicer or his duly authorized representatie, other than the
oicer reerred to in Section 208 o this Code shall, according to rules and regulations
prescribed by the Secretary o linance, upon recommendation o the Commissioner,
orthwith cause a notiication to be exhibited in not less than two ,2, public places in the
municipality or city where the distraint is made, speciying, the time and place o sale and the
articles distrained. 1he time o sale shall not be less than twenty ,20, days ater notice. One
place or the posting o such notice shall be at the Oice o the Mayor o the city or
municipality in which the property is distrained.

At the time and place ixed in such notice, the said reenue oicer shall sell the
goods, chattels, or eects, or other personal property, including stocks and other securities
so distrained, at public auction, to the highest bidder or cash, or with the approal o the
Commissioner, through duly licensed commodity or stock exchanges.

In the case o Stocks and other securities, the oicer making the sale shall execute a
bill o sale which he shall delier to the buyer, and a copy thereo urnished the corporation,
company or association which issued the stocks or other securities. Upon receipt o the copy
o the bill o sale, the corporation, company or association shall make the corresponding
entry in its books, transer the stocks or other securities sold in the name o the buyer, and
issue, i required to do so, the corresponding certiicates o stock or other securities.

Any residue oer and aboe what is required to pay the entire claim, including
expenses, shall be returned to the owner o the property sold. 1he expenses chargeable upon
each seizure and sale shall embrace only the actual expenses o seizure and preseration o
the property pending ,the sale, and no charge shall be imposed or the serices o the local
internal reenue oicer or his deputy.
582


,a, Release o distrained
property upon payment prior
to sale

I at any time prior to the consummation o the sale all proper charges are paid to
the oicer conducting the sale, the goods or eects distrained shall be restored to the
owner.
583



381
Sec 208
382
Sec 209
383
Sec 210
171

,3,Purchase by the goernment at sale
upon distraint

\hen the amount bid or the property under distraint is not equal to the amount o
the tax or is ery much less than the actual market alue o the articles oered or sale, the
Commissioner or his deputy may purchase the same in behal o the national Goernment
or the amount o taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his deputy, subject to
the rules and regulations prescribed by the Secretary o linance, the net proceeds thererom
shall be remitted to the National 1reasury and accounted or as internal reenue.
584


,4, Report o sale to BIR

\ithin two ,2, days ater the sale, the oicer making the same shall make a report o
his proceedings in writing to the Commissioner and shall himsel presere a copy o such
report as an oicial record.
585

,5, Constructie distraint to protect
the interest o the goernment

1o saeguard the interest o the Goernment, the Commissioner may place under
constructie distraint the property o a delinquent taxpayer or any taxpayer who, in his
opinion, is retiring rom any business subject to tax, or is intending to leae the Philippines
or to remoe his property thererom or to hide or conceal his property or to perorm any act
tending to obstruct the proceedings or collecting the tax due or which may be due rom
him.

1he constructie distraint o personal property shall be aected by requiring the
taxpayer or any person haing possession or control o such property to sign a receipt
coering the property distrained and obligate himsel to presere the same intact and
unaltered and not to dispose o the same ,in any manner whateer, without the express
authority o the Commissioner.

In case the taxpayer or the person haing the possession and control o the property
sought to be placed under constructie distraint reuses or ails to sign the receipt herein
reerred to, the reenue oicer eecting the constructie distraint shall proceed to prepare a
list o such property and, in the presence o two ,2, witnessed, leae a copy thereo in the
premises where the property distrained is located, ater which the said property shall be
deemed to hae been placed under constructie distraint.
586







384
Sec 212
383
Sec 211
386
Sec 206
172

4, Summary remedy o ley on real property

a, Adertisement and sale

\ithin twenty ,20, days ater ley, the oicer conducting the proceedings shall
proceed to adertise the property or a usable portion thereo as may be necessary to satisy
the claim and cost o sale, and such adertisement shall coer a period o a least thirty ,30,
days. It shall be eectuated by posting a notice at the main entrance o the municipal
building or city hall and in public and conspicuous place in the barrio or district in which the
real estate lies and ,by publication once a week or three ,3, weeks in a newspaper o general
circulation in the municipality or city where the property is located. 1he adertisement shall
contain a statement o the amount o taxes and penalties so due and the time and place o
sale, the name o the taxpayer against whom taxes are leied, and a short description o the
property to be sold. At any time beore the day ixed or the sale, the taxpayer may
discontinue all proceedings by paying the taxes, penalties and interest. I he does not do so,
the sale shall proceed and shall be held either at the main entrance o the municipal building
or city hall, or on the premises to be sold, as the oicer conducting the proceedings shall
determine and as the notice o sale shall speciy.

\ithin ie ,5, days ater the sale, a return by the distraining or leying oicer o the
proceedings shall be entered upon the records o the Reenue Collection Oicer, the
Reenue District oicer and the Reenue Regional Director. 1he Reenue Collection
Oicer, in consultation with the Reenue district Oicer, shall then make out and delier to
the purchaser a certiicate rom his records, showing the proceedings o the sale, describing
the property sold stating the name o the purchaser and setting out the exact amount o all
taxes, penalties and interest: Proided, howeer, 1hat in case the proceeds o the sale
exceeds the claim and cost o sale, the excess shall be turned oer to the owner o the
property.

1he Reenue Collection Oicer, upon approal by the Reenue District Oicer
may, out o his collection, adance an amount suicient to deray the costs o collection by
means o the summary remedies proided or in this Code, including ,the preseration or
transportation in case o personal property, and the adertisement and subsequent sale, both
in cases o personal and real property including improements ound on the latter. In his
monthly collection reports, such adances shall be relected and supported by receipts.
58


b, Redemption o property sold

\ithin one ,1, year rom the date o sale, the delinquent taxpayer, or any one or
him, shall hae the right o paying to the Reenue District Oicer the amount o the public
taxes, penalties, and interest thereon rom the date o delinquency to the date o sale,
together with interest on said purchase price at the rate o iteen percent ,15, per annum
rom the date o purchase to the date o redemption, and such payment shall entitle the
person paying to the deliery o the certiicate issued to the purchaser and a certiicate rom
the said Reenue District Oicer that he has thus redeemed the property, and the Reenue
District Oicer shall orthwith pay oer to the purchaser the amount by which such

387
Sec 213
173

property has thus been redeemed, and said property thereater shall be ree orm the lien o
such taxes and penalties.

1he owner shall not, howeer, be depried o the possession o the said property
and shall be entitled to the rents and other income thereo until the expiration o the time
allowed or its redemption.
588


c, linal deed o purchaser

In case the taxpayer shall not redeem the property as herein proided the Reenue
District Oicer shall, as grantor, execute a deed coneying to the purchaser so much o the
property as has been sold, ree rom all liens o any kind whatsoeer, and the deed shall
succintly recite all the proceedings upon which the alidity o the sale depends.
589


5, loreiture to goernment or want o bidder

a, Remedy o enorcement o oreitures

,1,Action to contest oreiture o
chattel

In case o the seizure o personal property under claim o oreiture, the owner
desiring to contest the alidity o the oreiture may, at any time beore sale or destruction o
the property, bring an action against the person seizing the property or haing possession
thereo to recoer the same, and upon giing proper bond, may enjoin the sale, or ater the
sale and within six ,6, months, he may bring an action to recoer the net proceeds realized at
the sale.
590


b, Resale o real estate taken or taxes

1he Commissioner shall hae charge o any real estate obtained by the Goernment
o the Philippines in payment or satisaction o taxes, penalties or costs arising under this
Code or in compromise or adjustment o any claim thereore, and said Commissioner may,
upon the giing o not less than twenty ,20, days` notice, sell and dispose o the same o
public auction or with prior approal o the Secretary o linance, dispose o the same at
priate sale. In either case, the proceeds o the sale shall be deposited with the National
1reasury, and an accounting o the same shall rendered to the Chairman o the Commission
on Audit.
591


c, \hen property to be sold or destroyed

Sales o oreited chattels and remoable ixtures shall be eected, so ar as
practicable, in the same manner and under the same conditions as the public notice and the

388
Sec 214
389
Sec 202
390
Sec 231
391
Sec 216
174

time and manner o sale as are prescribed or sales o personal property distrained or the
non-payment o taxes.

Distilled spirits, liquors, cigars, cigarettes, other manuactured products o tobacco,
and all apparatus used I or about the illicit production o such articles may, upon oreiture,
be destroyed by order o the Commissioner, when the sale o the same or consumption or
use would be injurious to public health or prejudicial to the enorcement o the law.

All other articles subject to excise tax, which hae been manuactured or remoed in
iolation o this Code, as well as dies or the printing or making o internal reenue stamps
and labels which are in imitation o or purport to be lawul stamps, or labels may, upon
oreiture, be sold or destroyed in the discretion o the Commissioner.

loreited property shall not be destroyed until at least twenty ,20, days ater
seizure.
592


d, Disposition o unds recoered in legal
proceedings or obtained rom oreiture

All judgments and monies recoered and receied or taxes, costs, oreitures, ines
and penalties shall be paid to the Commissioner or his authorized deputies as the taxes
themseles are required to be paid, and except as specially proided, shall be accounted or
and dealt with the same way.
593


6, lurther distraint or ley

1he remedy by distraint o personal property and ley on realty may be repeated i
necessary until the ull amount due, including all expenses, is collected.
594


, 1ax lien

A legal claim or charge on property, either real or personal, established by law as a
security in deault o the payment o taxes.

1. Nature:

A lien in aor o the goernment o the Philippines when a person liable to pay a
tax neglects or ails to do so upon demand.





392
Sec 223
393
Sec 226
394
Sec 217
CLherwlse a clever Laxpayer who ls also able Lo conceal mosL of Lhe valuable parL of hls properLy
would escape paymenL of hls Lax llablllLy by sacrlflclng an lnslgnlflcanL porLlon of hls holdlngs
173

2. Duration:

Lxists rom time assessment is made by the CIR until paid, with interests, penalties
and costs.

1. Lxtent:
Upon all property and rights to property belonging to the taxpayer.

2. Lectiity against third persons:
Only when notice o such lien is iled by the CIR in the Register o Deeds concerned.

8, Compromise

a, Authority o the Commissioner to
compromise and abate taxes

,A, Compromise the payment o any internal reenue tax, when:

,1, A reasonable doubt as to the alidity o the claim against the taxpayer
exists, or
,2, 1he inancial position o the taxpayer demonstrates a clear inability to pay
the assessed tax.

1he compromise settlement o any tax liability shall be subject to the ollowing
minimum amounts:

lor cases o inancial incapacity, a minimum compromise rate equialent to ten
percent ,10, o the basic assessed tax, and

lor other cases, a minimum compromise rate equialent to orty percent ,40, o
the basic assessed tax.

\here the basic tax inoled exceeds One million pesos ,P1,000.000, or where the
settlement oered is less than the prescribed minimum rates, the compromise shall be
subject to the approal o the Laluation Board which shall be composed o the
Commissioner and the our ,4, Deputy Commissioners

,B, Abate or cancel a tax liability, when:

,1, 1he tax or any portion thereo appears to be unjustly or excessiely
assessed, or

,2, 1he administration and collection costs inoled do not justiy the
collection o the amount due.

176

All criminal iolations may be compromised except: ,a, those already iled in court,
or ,b, those inoling raud.
595


9, Ciil and criminal actions

a, Suit to recoer tax based on alse or
raudulent returns

I tax is collected under an assessment that the list, statement or return is
alse,raudulently made, it cannot be recoered by any suit unless it is proed that the said
list, statement or return was not alse nor raudulent & did not contain any understatement
or underaluation

Not applicable to statements or returns made or to be made in good aith regarding
annual depreciation o oil or gas wells & mines.

c. Reund
596


1, Grounds and requisites or reund

a, 1axes erroneously or illegally receied
b, Penalties imposed without authority
c, Any sum alleged to hae been excessiely or in any manner wrongully collected
d, Reund the alue o internal reenue stamps when returned in good condition
by the purchaser
e, Redeem or change unused stamps rendered unit or use and reund their alue
upon proo o destruction, in the discretion o the Commission

2, Requirements or reund as laid down by cases

a, Necessity o written claim or reund

1his requirement is mandatory.
59




393
Sec 204 (A)(8)
396
A sulL or proceedlngs for Lax refund may be malnLalned wheLher or noL such Lax penalLy or sum has
been pald under proLesL or duress (Sec 229)
Slmllarly paymenL under proLesL ls noL necessary ln refund for local Laxes (Sec 196 LCC)
however under proLesL ls necessary Lo clalm for
(a)real properLy Laxes (Sec 232 LCC)
(b)cusLom duLles (Sec 2308 1CC
397
easons
a) Lo afford Lhe commlssloner an opporLunlLy Lo correcL Lhe acLlon of subordlnaLe offlcer and
(b) Lo noLlfy Lhe governmenL LhaL Lhe Laxes soughL Lo be refunded are under quesLlon and LhaL
Lherefore such noLlce should Lhen be borne ln mlnd ln esLlmaLlng Lhe revenue avallable for
expendlLure(8erme[o vs Cl 87 hll 96)
177

Lxcept:

1ax credit or tax reund where on the ace o the return upon which payment is
made, such payment appears clearly to hae been erroneous.
598


b, Claim containing a categorical demand or
reimbursement

Categorical demand or reimbursement.

c, liling o administratie claim or reund
and the suit,proceeding beore the C1A
within 2 years rom date o payment
regardless o any superening cause
599


Requirement a condition precedent and non-compliance therewith bars recoery.
600


Reers not only to the administratie` claim that the taxpayer should ile within
2years rom date o payments with the BIR, but also the judicial claim or the action or
reund the taxpayer should commence with the C1A.
601


3, Legal basis o tax reunds

Legal principle o quasi-contracts or .ovtio ivaebiti

1he Goernment is within the scope o the principle o .ovtio ivaebiti

4, Statutory basis or tax reund under the 1ax Code

a, Scope o claims or reund

1he Commissioner may credit or reund taxes:

a, Lrroneously or illegally assessed or collected internal reenue taxes
b, Penalties imposed without authority
c, Any sum alleged to hae been excessie or in any manner wrongully collected.
604


b, Necessity o proo or claim or reund

Reund claim partakes o the nature o an exemption which cannot be allowed unless
granted in the most explicit and categorical language.
605


398
Sec 229
399
Secs204 (c) 229
600
lbll Acetyleoe co loc vs commlsslooet C1A Case no 1321 nov 7 1962
601
see Clbbs vs collectot of lotetool keveooe 107 hll 232
602
see ArL 2142 2134 CC
603
clk vs lltemoos looJ losotooce co
604
Secs 204 and 209
178


lailure to discharge burden o giing proo is atal to claim.

It must be shown that payment was an independent single act o oluntary
payment o a tax belieed to be due, collectible and accepted by the goernment, and
which thereore, become part o the state moneys subject to expenditure and perhaps
already spent or appropriated.
606


c, Burden o proo or claim o reund

\ritten claim or reund or tax credit iled by the taxpayer with the Commissioner.

d, Nature o erroneously paid tax,illegally
assessed collected

1axpayer pays under the mistake o act, as or instance in a case where he is not
aware o the existing exemption in his aor at the time payments were made.

A tax is illegally collected i payments are made under duress.

e, 1ax reund is-a-is tax credit
60


A tax reund requires a physical return o the sum erroneously paid by the taxpayer.

1he taxpayer to whom the tax is reunded would hae the option, among others, to
inest or proit the returned sum, an option not proximately aailable i the taxpayer
chooses instead to receie a tax credit.
608


1ax credit generally reers to an amount that is subtracted directly rom one`s total
tax liability, an allowance against the tax itsel, or a deduction rom what is owned.

A tax credit reduces the tax due, including -wheneer applicable - the income tax
that is determined ater applying the corresponding tax rates to taxable income.
609


, Lssential requisites or claim o reund

a. 1he claim is iled with the Commissioner o Internal Reenue within the two-year
period rom the date o the payment o the tax.
b. It is shown on the return o the recipient that the income payment receied was
declared as part o the gross income, and

603
clk vs Iobosoo ooJ 5oos
606
clk vs l oo 11875uec 28 1963
607
lL may be LhaL Lhere ls no essenLlal dlfference beLween a Lax refund and a Lax credlL slnce boLh are
moves of recoverlng Laxes erroneously or lllegally pald Lo Lhe governmenL (Commlssloner of CusLoms v
hlllpplne hosphaLe lerLlllzer CorporaLlon C no 144440 SepLember 1 2004)
608
commlsslooet of costoms v lblllpploe lbospbote lettlllzet cotpototloo lbld
609
commlsslooet of lotetool keveooe v ceottol ozoo utoq cotpototloo C no 139647 Aprll 132003
179

c. 1he act o withholding is established by a copy o a statement duly issued by the
payee showing the amount paid and the amount o tax withheld thererom.
610


5, \ho may claim,apply or tax reund,tax credit

a, 1axpayer,withholding agents o non-
resident oreign corporation

A withholding agent is subject to and liable or deiciency assessments, surcharges
and penalties should the amount o the tax withheld be inally ound to be less than the
amount that should hae been withheld under the law. A person liable or tax` has been
held to be a person subject to tax` and properly considered a taxpayer.` xxx By any
reasonable standard, such a person should be regarded as a party in interest, or as a person
haing suicient legal interest, to bring a suit or reund o taxes.
611


6, Prescriptie period or recoery o tax erroneously
or illegally collected

1wo ,2, years rom the date o payment o the tax or penalty.

, Other consideration aecting tax reunds

a, 1axpayer may ile an action or reund in the C1A een beore the Commissioner
decides his pending claim in the BIR.
612


b, Suspension o the 2-year prescriptie period may be had when:

i. there is a pending litigation between the two parties ,goernment and taxpayer, as
to the proper tax to be paid and o the proper interpretation o the taxpayer`s charter in
relation to the disputed tax, and

ii. the commissioner in that litigated case agreed to abide by the decision o the
Supreme Court as to the collection o taxes relatie thereto.
613


c, Len i the 2-year period has lapsed the same is not jurisdictional and may be
suspended or reasons o equity and other special circumstances.
614


d, 2-year prescriptie period or iling o tax reund or credit claim computed rom
date o payment o tax o penalty except in the ollowing:





610
8anco llllplno Savlngs and MorLgage 8ank v CourL of Appeals eL al C no 133682 March 27 2007
611
clk vs ltoctet ooJ Comble lMc 204 SCA 377
612
commlsslooet of lotetool keveooe vs lolooco It L16626 CcL 29 1966
613
loooy lecttlc co loc vs collectot of lotetool keveooe 103 hll 819
614
clk vs lbll Ametlcoo lfe los co C no 103208 May 29 1993
180

i. Corporations:

2-year prescriptie period or oerpaid quarterly income tax is counted not
rom the date the corporation iles its quarterly income tax return, but rom the date
the inal adjusted return is iled ater the taxable year.
615


ii. 1axes payable in installment:

2-year period is counted orm the payment o the last installment.
616


iii. \ithholding 1axes

Prescriptie period counted not rom the date the tax is withheld and
remitted to the BIR, but rom the end o the taxable year.
61


i. VA1 Registered Person whose sales are zero-rated or eectiely zero-rated

2-year period computed rom the end o the taxable quarter when the sales
transactions were made.
618


e, Interest on 1ax Reund:

1he Goernment cannot be required to pay interest on taxes reunded to the
taxpayer unless:

i. 1he Commissioner acted with patent arbitrariness
619

ii. In case o Income 1ax withheld on the wages o employees.
620














613
commlsslooet of lotetool keveooe vs 1M\ 5oles loc C no83736 !an 13 1992
616
clk vs lolooco It supra
617
Clbbs vs commlsslooet of lotetool keveooe supra
618
Sec 112 (A)
619
ArblLrarlness presupposes lnexcusable or obsLlnaLe dlsregard of legal provlslons (clk vsvlctotlos
Mlllloq cotp loc L19607 nov 291966)
620
Any excess of Lhe Laxes wlLhheld over Lhe Lax due from Lhe Laxpayer shall be reLurned or credlLed
wlLhln 3 monLhs from Lhe flfLeenLh (13Lh) day of Aprll efund or credlL afLer such Llme earn lnLeresL aL
Lhe raLe of 6 per annum sLarLlng afLer Lhe lapse of Lhe 3monLh perlod Lo Lhe daLe Lhe refund or credlL
ls made (Sec 79 (c) (2))
181

2. Goernment Remedies

a. Administratie remedies

1, 1ax lien
621


2, Ley and sale o real property

Ley - Act o seizure o real property in order to enorce the payment o taxes. 1he
property may be sold at public sale, i ater seizure, the taxes are not oluntarily paid.

1he requisites are the same as that o distraint.

Procedure:

1. International Reenue oicer shall prepare a duly authenticated certiicate showing
a. Name o taxpayer
b. Amount o tax and
c. Penalty due.
- enorceable throughout the Philippines
2. Oicer shall write upon the certiicate a description o the property upon which ley is made.
3. Serice o written notice to:
a. 1he taxpayer, and
b. RD where property is located.
4. Adertisement o the time and place o sale.
5. Sale at public auction to highest bidder.
6. Disposition o proceeds o sale.
1he excess shall be turned oer to owner

3, loreiture o real property to the goernment or
want o bidder

loreiture: Implies a diestiture o property without compensation, in consequence
o a deault or oense.

Includes the idea o not only losing but also haing the property transerred to another
without the consent o the owner and wrongdoer.

1. Lect: 1ranser the title to the speciic thing rom the owner to the goernment.
2. \hen aailable:
a. No bidder or the real property exposed or sale.
b. I highest bid is or an amount insuicient to pay the taxes, penalties and costs.
- \ithin two days thereater, a return o the proceeding is duly made.
3. low enorced:
a. In case o personal property - by seizure and sale or destruction o the speciic
oreited property.
b. In case o real property - by a judgment o condemnation and sale in a legal action
or proceeding, ciil or criminal, as the case may require.


621
See (l)(1)(b)(7) supra
182

4, lurther distraint and ley
622


5, Suspension o business operation
623


6, Non-aailability o injunction to restrain collection
o tax

No court shall hae the authority to grant an injunction to restrain the collection o
any national internal reenue tax, ee or charge imposed by this Code.
624


Lxception:

Injunction may be issued by the C1A in aid o its appellate jurisdiction.
625


b. Judicial remedies

Ciil and Criminal Actions:

1. Brought in the name o the Goernment o the Philippines.
2. Conducted by Legal Oicer o BIR
3. Must be with the approal o the CIR, in case o action, or recoery o
taxes, or enorcement o a ine, penalty or oreiture.

A. Ciil Action

Actions instituted by the goernment to collect internal reenue taxes in
regular courts ,R1C or M1Cs, depending on the amount inoled,
\hen assessment made has become inal and executory or ailure or
taxpayer to:
a. Dispute same by iling protest with CIR
b. Appeal aderse decision o CIR to C1A

B. Criminal Action
A direct mode o collection o taxes, the judgment o which shall not only
impose the penalty but also order payment o taxes.
An assessment o a tax deiciency is not necessary to a criminal prosecution
or tax easion, proided there is a prima acie showing o willul attempt to eade.




622
See (l)(1)(b)(6) supra
623
See (L)(1)(a)(6) supra
624
Sec 218
623
under Sec 11 of A 1123 as amended by A 9282 (when ln Lhe oplnlon of Lhe CourL Lhe collecLlon
may [eopardlze Lhe lnLeresL of Lhe CovernmenL and/or Lhe Laxpayer Lhe CourL any sLage of Lhe
proceedlng may suspend Lhe sald collecLlon and requlre Lhe Laxpayer elLher Lo deposlL Lhe amounL
clalmed or Lo flle a sureLy bond for noL more Lhan double Lhe amounL wlLh Lhe CourL)
183

3. Statutory Oenses and Penalties

a. Ciil penalties

1, Surcharge

A ciil penalty imposed by law as an addition to the main tax required to be paid. It
is not a criminal penalty but a ciil administratie sanction proided primarily as saeguard
or the protection o the State reenue and to reimburse the goernment or the expenses o
inestigation and the loss resulting rom the taxpayer`s raud. A surcharge added to the main
tax is subject to interest.

2, Interest

a, In General

1here shall be assessed and collected on any unpaid amount o tax, interest at the
rate o twenty percent ,20, per annum, or such higher rate as may be prescribed by rules
and regulations, rom the date prescribed or payment until the amount is ully paid.
626


b, Deiciency interest

Any deiciency in the tax due, as the term is deined in this Code, shall be subject to
the interest prescribed in Subsection ,A, hereo, which interest shall be assessed and
collected rom the date prescribed or its payment until the ull payment thereo.
62


c, Delinquency interest

In case o ailure to pay:

,1, 1he amount o the tax due on any return to be iled, or

,2, 1he amount o the tax due or which no return is required, or

,3, A deiciency tax, or any surcharge or interest thereon on the due date appearing
in the notice and demand o the Commissioner, there shall be assessed and collected on the
unpaid amount, interest at the rate prescribed in Subsection ,A, hereo until the amount is
ully paid, which interest shall orm part o the tax.
628


d, Interest on extended payment

I any person required to pay the tax is qualiied and elects to pay the tax on
installment under the proisions o this Code, but ails to pay the tax or any installment
hereo, or any part o such amount or installment on or beore the date prescribed or its

626
Sec 249 (A)
627
ld (8)
628
ld (C)
184

payment, or where the Commissioner has authorized an extension o time within which to
pay a tax or a deiciency tax or any part thereo, there shall be assessed and collected interest
at the rate hereinaboe prescribed on the tax or deiciency tax or any part thereo unpaid
rom the date o notice and demand until it is paid.
629


4. Compromise and Abatement o taxes

a. Compromise
630


Inoles a mere reduction o the tax.

b. Abatement

1here is a cancelation o the entire liability.

G. Organization and lunction o the Bureau o Internal Reenue

1. Rule-making authority o the Secretary o linance

a. Authority o secretary o inance to promulgate rules and
regulations

1he Secretary o linance, upon recommendation o the Commissioner, shall
promulgate all needul rules and regulations or the eectie enorcement o the proisions
o this Code.
631


b. Speciic proisions to be contained in rules and regulations

1he rules and regulations o the Bureau o Internal Reenue shall, among other things,
contain proisions speciying, prescribing or deining:

,a, 1he time and manner in which Reenue Regional Director shall canass their respectie
Reenue Regions or the purpose o discoering persons and property liable to national internal
reenue taxes, and the manner in which their lists and records o taxable persons and taxable objects
shall be made and kept,

,b, 1he orms o labels, brands or marks to be required on goods subject to an excise tax,
and the manner in which the labelling, branding or marking shall be eected,

,c, 1he conditions under which and the manner in which goods intended or export, which
i not exported would be subject to an excise tax, shall be labelled, branded or marked,

,d, 1he conditions to be obsered by reenue oicers respecting the institutions and
conduct o legal actions and proceedings,


629
ld (u)
630
See l (A)(7) under Ceneral rlnclples of 1axaLlon supra
631
Sec 244
183

,e, 1he conditions under which goods intended or storage in bonded warehouses shall be
coneyed thither, their manner o storage and the method o keeping the entries and records in
connection therewith, also the books to be kept by Reenue Inspectors and the reports to be made
by them in connection with their superision o such houses,

,, 1he conditions under which denatured alcohol may be remoed and dealt in, the
character and quantity o the denaturing material to be used, the manner in which the process o
denaturing shall be eected, so as to render the alcohol suitably denatured and unit or oral intake,
the bonds to be gien, the books and records to be kept, the entries to be made therein, the reports
to be made to the Commissioner, and the signs to be displayed in the business ort by the person or
whom such denaturing is done or by whom, such alcohol is dealt in,

,g, 1he manner in which reenue shall be collected and paid, the instrument, document or
object to which reenue stamps shall be aixed, the mode o cancellation o the same, the manner in
which the proper books, records, inoices and other papers shall be kept and entries therein made by
the person subject to the tax, as well as the manner in which licenses and stamps shall be gathered up
and returned ater sering their purposes,

,h, 1he conditions to be obsered by reenue oicers respecting the enorcement o 1itle
III imposing a tax on estate o a decedent, and other transers mortis causa, as well as on gits and
such other rules and regulations which the Commissioner may consider suitable or the enorcement
o the said 1itle III,

,i, 1he manner in which tax returns, inormation and reports shall be prepared and reported
and the tax collected and paid, as well as the conditions under which eidence o payment shall be
urnished the taxpayer, and the preparation and publication o tax statistics,

,j, 1he manner in which internal reenue taxes, such as income tax, including withholding
tax, estate and donor's taxes, alue-added tax, other percentage taxes, excise taxes and documentary
stamp taxes shall be paid through the collection oicers o the Bureau o Internal Reenue or
through duly authorized agent banks which are hereby deputized to receie payments o such taxes
and the returns, papers and statements that may be iled by the taxpayers in connection with the
payment o the tax: Proided, howeer, 1hat notwithstanding the other proisions o this Code
prescribing the place o iling o returns and payment o taxes, the Commissioner may, by rules and
regulations, require that the tax returns, papers and statements that may be iled by the taxpayers in
connection with the payment o the tax. Proided, howeer, 1hat notwithstanding the other
proisions o this Code prescribing the place o iling o returns and payment o taxes, the
Commissioner may, by rules and regulations require that the tax returns, papers and statements and
taxes o large taxpayers be iled and paid, respectiely, through collection oicers or through duly
authorized agent banks: Proided, urther, 1hat the Commissioner can exercise this power within six
,6, years rom the approal o Republic Act No. 646 or the completion o its comprehensie
computerization program, whicheer comes earlier: Proided, inally, 1hat separate enues or the
Luzon, Visayas and Mindanao areas may be designated or the iling o tax returns and payment o
taxes by said large taxpayers.

c. Non-retroactiity o rulings

Any reocation, modiication or reersal o any o the rules and regulations
promulgated in accordance with the preceding Sections or any o the rulings or circulars
promulgated by the Commissioner shall not be gien retroactie application i the
186

reocation, modiication or reersal will be prejudicial to the taxpayers, except in the
ollowing cases:

,a, \here the taxpayer deliberately misstates or omits material acts rom his return
or any document required o him by the Bureau o Internal Reenue,

,b, \here the acts subsequently gathered by the Bureau o Internal Reenue are
materially dierent rom the acts on which the ruling is based, or

,c, \here the taxpayer acted in bad aith.
632


2. Power o the Commissioner to suspend the business operation o
a taxpayer
633


III. Local Government Code of J99J as amended

A. Local Goernment 1axation
634


1. lundamental principles

1. 1axation shall be uniorm
635
in each LGU
2. 1axes, ees, charges and other impositions shall be:

a. Lquitable and based on the taxpayer`s ability to pay.
b. lor public purpose.
636

c. Not unjust, excessie, oppressie or coniscatory.
d. Not contrary to law, public policy, national economic policy, or in
restraint o trade.

3. Not let to any priate person
4. Not inure solely to the local goernment leying
5. Lach LGU shall, as ar as practicable, eole a progressie system o taxation.


632
Sec 246
633
See (L)(1)(a)(6) under Compllance equlremenLs (lnLernal evenue 1axes) supra
634
1he power Lo Lax whlch may be exerclsed by local leglslaLlve bodles ls no longer merely by naLure of a
valld delegaLlon as before buL pursuanL Lo dlrecL auLhorlLy conferred by Sec 3 ArL x of Lhe ConsLlLuLlon
(MacLan Ceby lnLn'l AlrporL vs Marcos C no 120082 SepL 11 1996)
Where Lhere ls nelLher a granL nor a prohlblLlon by sLaLuLe Lhe Lax power musL be deemed Lo exlsL
alLhough Congress may provlde sLaLuLory llmlLaLlons and guldellnes 1he baslc raLlonale for Lhe currenL
rule ls Lo safeguard Lhe vlablllLy and selfsufflclency of local governmenL unlLs by dlrecLly granLlng Lhem
general and broad Lax power (MLALCC vs rov of Laguna C no 131339 May 3 1999
633
unlformlLy of 1axaLlon LquallLy and unlformlLy of local LaxaLlon ls LhaL all Laxable arLlcles of Lhe same
class shall be Laxed aL Lhe same raLe wlLhln Lhe same LerrlLorlal [urlsdlcLlon of Lhe Laxlng auLhorlLy
636
ubllc urpose roceeds obLalned are Lo be used Lo supporL Lhe exlsLence of Lhe
LCu

187

Just 1axation - Municipal corporations are allowed a wide range in determining tax
rates o imposable taxes and license ees.

2. Nature and source o taxing power

a. Grant o local taxing power under the Local Goernment
Code

Lach local goernment unit shall exercise its power to create its own sources o
reenue and to ley taxes, ees, and charges subject to the proisions herein, consistent with
the basic policy o local autonomy. Such taxes, ees, and charges shall accrue exclusiely to
the local goernment units.
63


b. Authority to prescribe penalties or tax iolations

1he .avggvviav o a local goernment unit is authorized to prescribe ines or other
penalties or iolation o tax ordinances but in no case shall such ines be less than One
thousand pesos ,P1,000.00, nor more than lie thousand pesos ,P5,000.00,, nor shall
imprisonment be less than one ,1, month nor more than six ,6, months. Such ine or other
penalty, or both, shall be imposed at the discretion o the court. 1he .avggvviavg baravga may
prescribe a ine o not less than One hundred pesos ,P100.00, nor more than One thousand
pesos ,P1,000.00,.
638


c. Authority to grant local tax exemptions

Local goernment units may, through ordinances duly approed, grant tax
exemptions, incenties or relies under such terms and conditions as they may deem
necessary.
639


d. \ithdrawal o exemptions

Unless otherwise proided in this Code, tax exemptions or incenties granted to, or
presently enjoyed by all persons, whether natural or juridical, including goernment-owned
or -controlled corporations, except local water districts, cooperaties duly registered under
R.A. No. 6938, non-stock and non-proit hospitals and educational institutions, are hereby
withdrawn upon the eectiity o this Code.
640









637
Sec 129
638
Sec 316
639
Sec 192 LCC
640
Sec 193
188

e. Authority to adjust local tax rates

LGUs are gien authority to adjust the tax rates, but the adjustment should be made
not otener than once eery 5 years but in no case shall the adjustment exceed 10 o the
rates ixed under the LGC 10 o the rates ixed under the LGC.
641


. Residual taxing power o local goernments

1he power to tax which may be exercised by local legislatie bodies is no longer
merely by nature o a alid delegation as beore but pursuant to direct authority conerred by
Sec. 5, Art X o the Constitution.
642

\here there is neither a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may proide statutory limitations and guidelines. 1he
basic rationale or the current rule is to saeguard the iability and sel-suiciency o local
goernment units by directly granting them general and broad tax power.
643


g. Authority to issue local tax ordinances

1he power to impose a tax, ee, or charge or to generate reenue under this Code
shall be exercised by the .avggvviav o the local goernment unit concerned through an
appropriate ordinance.
644


3. Local taxing authority

a. Power to create reenues exercised thru LGUs

Local goernments are authorized to impose and collect the ollowing charges:

1. Reasonable ees and charges or serices rendered.
645

2. Public Utility Charges i:

a. Owned, operated and maintained
b \ithin their jurisdiction
646


3. 1ools, lees or Charges or:

a. Use o public road, pier or whar, waterway bridge, erry or
telecommunicatio system
b. lunded and constructed by the local goernment
64


641
Sec 191

642
Moctoo ceby lotol Altpott vs Motcos C no 120082 SepL 11 1996
643
MkAcO vs ltov of oqooo C no 131339 May 3 1999
644
Sec 132
643
Sec 133
646
Sec 134
189


b. Procedure or approal and eectiity o tax ordinances

1he procedure or approal o local tax ordinances and reenue measures shall be in
accordance with the proisions o this Code: Proided, 1hat public hearings shall be
conducted or the purpose prior to the enactment thereo: Proided, urther, 1hat any
question on the constitutionality or legality o tax ordinances or reenue measures may be
raised on appeal within thirty ,30, days rom the eectiity thereo to the Secretary o Justice
who shall render a decision within sixty ,60, days rom the date o receipt o the appeal:
Proided, howeer, 1hat such appeal shall not hae the eect o suspending the eectiity
o the ordinance and the accrual and payment o the tax, ee, or charge leied therein:
Proided, inally, 1hat within thirty ,30, days ater receipt o the decision or the lapse o the
sixty-day period without the Secretary o Justice acting upon the appeal, the aggrieed party
may ile appropriate proceedings with a court o competent jurisdiction.
648


4. Scope o taxing power

Not Inherent - Unlike a soereign state, municipal corporations hae no inherent
power to tax. Being mere creatures o law, they may exercise the power only i delegated to
them by the national legislature or conerred by the Constitution itsel.

Limitations o Local 1ax Power - Sec. 5, Art X o the Constitution sought to
saeguard the iability and sel-suiciency o local goernment units. It expressly proides
the power to be subject to such limitations and guidelines as the Congress may proide.

1. 1he taxpayer will not be oer-burdened with unreasonable impositions
2. Local taxation is to be air, uniorm and just.
3. Lach LGU will hae its air share o aailable

5. Speciic taxing power o local goernment unit ,LGUs,

a. 1axing powers o proinces

1, 1ax on transer o real property ownership

Real Property - Reers only to lands, buildings, and machineries intended by the
owner o the land or building or an industry or works which may by carried on in a building
or on a piece o land and which tend directly to meet the needs
o the industry or works.

1ransaction taxed - sale, barter, or any other mode o transerring ownership o, or
title to, real property.

Rate - At not more than 50 o 1 total consideration.


647
Sec 133
648
Sec 187
190

1ax base -
1, total consideration or
2, air market alue, whicheer is higher

Lxception rom tax - 1he sale, transer or other disposition o real property
pursuant to RA 665
649
is exempt rom tax.

2, 1ax on business o printing and publication

1ransaction taxed - business o printing and publication o books, cards, posters,
lealets, handbills, certiicates, receipts, pamphlets, and other similar nature


1ax Rate - Not exceeding 50 o 1 o the gross annual receipts or the preceding
calendar year, in the case o newly started business, not to exceed 1,20 o 1 o the capital
inestment

Lxception - 1he receipts rom the printing and, or publishing o books or other
reading materials prescribed by the DLCS as school text or reerences are not subject to the
tax imposed

3, lranchise tax

lranchise - Generally reers to a priilege conerred by the goernment on an
indiidual or corporation, which does not belong to the citizens by common right

Purpose o lranchise 1ax - to be in addition to the ranchise tax imposed by the
national goernment on business which are holders o ranchise except when otherwise
prohibited by law.
650


1ax Rate - not exceeding 50 o 1 , i newly started business, 1,20 o 1

1ax base - gross annual receipts o preceding calendar year based on:

a, Incoming receipts, or
b, Realized within territorial jurisdiction.

4, 1ax on sand, grael and other quarry serices

1ax Rate - not more than 10 o air market alue


649
Comprehenslve Agrarlan eform Law
630
Sec 267 (b) nlC

191

Issuance o Permit - 1o permit to extract the sand, grael and other quarry resources
shall be issued exclusiely by the proincial goernor pursuant to the ordinance o the
.avggvviavg avaaigav

Distribution o the Proceeds - 1he proceeds o the tax shall be distributed as ollows

a, Proince - 30
b, Component city or municipality where the sand, etc are extracted - 30
c, Barangay where the sand, etc. are extracted - 40

5, Proessional tax

1ax rate - in such as avggvviav may determine in no case to exceed P300

Proession - a calling w,c requires the passing o an appropriate goernment board
or bar examination, such as the practice o law, medicine, public accounting, engineering,
etc.

Nature o 1ax - Proessional tax applies only to natural or physical persons and not
to juridical entities. Said tax is ixed on the priilege o exercising or engaging in a proession.
1he tax is not based on the amount o earnings o the taxpayer .

\hen paid - on or beore Jan. 20
\here: paid on the place where you practice your proession.
651


6, Amusement tax

Amusement - Pleasurable diersion and entertainment

Amusement Place - Includes theaters, cinemas, concert halls, circuses and other
places o amusement where one seeks admission to entertain himsel by seeing or iewing
the show or perormance.
652


1ax Rate - not more than 30 o the gross receipt rom admission ees
Lxemption - operas, concerts, dramas, recitals, painting and art exhibitions, lower shows,
musical programs, literary and oratorical presentation.

Lxceptions to exemption - pop, rock, or similar concert.

, 1ax on deliery truck,an

1ransaction taxed - use o truck, an ehicle in the deliery or distribution o
distilled spirits, ermented liquors, sotdrinks, cigar and cigarettes and other products,
determined by the Sanggunian to sales outlets or consumers.

631
governmenL employees are exempLed from paylng 1
632
Sec 131 (c)
192


1ax rate - not exceeding P500 or eery truck, an or any ehicle used

Lxemption - exempt rom tax on peddlers.

b. 1axing powers o cities

Cities are authorized speciically to impose taxes, ees and charges that proinces and
municipalities may ley.

Rate: 1hat may be aboe the maximum established or proinces and municipalities
but not exceeding 50 o such maximum rates except the rates o proessional and
amusement taxes

c. 1axing powers o municipalities

Municipality may ley taxes, ees and charges not otherwise leied by proinces and
cities

1, 1ax on arious types o businesses

Municipal 1axes - Municipalities may impose taxes on the ollowing business
653


1. Manuacturers, assemblers, repackers o liquors, distilled spirits and wines

2. Rate: At graduated annual ixed tax based on gross sales or receipts or the preceding
calendar year in an amount not to exceed P6.5 M or more, a rate not exceeding 3 ' o 1
is imposed

3. \holesalers, distributors or dealers in any article o Commerce

Rate: Graduated annual ixed rate based on gross sales or receipts not exceeding P2M or
more, the rate not exceeding 50 o 1

4. Lxporters, manuacturers, millers, producers o essential commodities

Rate: Not exceeding ' o the rates prescribed in ,a, and ,b,

5. Contractors and other independent contractors

Rate: Graduated annual ixed rate when the gross receipts exceeds P2M the rate is not
exceeding 50 o 1

6. Banks and other inancial institutions

Rate: Not exceeding 50 o 1 on the gross receipts o preceding calendar year



633
Sec 143 LCC
193

. Peddlers

Rate: Not exceeding 50 per peddler annually

8. Any business not otherwise speciied
Rate: As the avggvviav may deem proper. \hen subject to excise, VA1 or
percentage tax, it shall not exceed 2 o gross receipts o the preceding calendar year

2, Ceiling on business tax impossible on
municipalities within Metro Manila

1he municipalities within the Metropolitan Manila Area may ley taxes at rates which
shall not exceed by ity percent ,50, the maximum rates prescribed in the preceding
Section.
654


3, 1ax on retirement on business

A business subject to tax pursuant to the preceding sections shall, upon termination
thereo, submit a sworn statement o its gross sales or receipts or the current year. I the tax
paid during the year be less than the tax due on said gross sales or receipts o the current
year, the dierence shall be paid beore the business is considered oicially retired.
655


4, Rules on payment o business tax

a. It shall be payable or eery separate or distinct establishment or place where the
business subject to the tax is conducted and one line o business does not become exempt
by being conducted with some other business or which such tax has been paid.

b. 1he tax on a business must be paid by the person conducting the same.

c. In cases where a person conducts or operates 2 or more o the businesses
mentioned in Section 143
656
o LGC:

a. \hich are subject to the same rate o tax, the tax shall be computed on the
combined total gross sales or receipts o the said 2 or more related businesses.

b. \hich are subject to dierent rates o tax, the gross sales or receipts o
each business shall be separately reported or the purpose o computing the tax due
rom each business.






634
Sec 144
633
Sec 143
636
See eference
194

5, lees and charges or regulation & licensing

,a, Municipalities shall hae the exclusie authority to grant ishery priileges in the
municipal waters and impose rentals, ees or charges thereor in accordance with the
proisions o this Section.

,b, 1he sangguniang bayan may:

,1, Grant ishery priileges to erect ish corrals, oysters, mussels or other aquatic
beds or bangus ry areas, within a deinite zone o the municipal waters, as determined by it:
Proided, howeer, 1hat duly registered organizations and cooperaties o marginal
ishermen shall hae the preerential right to such ishery priileges: Proided, urther, 1hat
the sangguniang bayan may require a public bidding in conormity with and pursuant to an
ordinance or the grant o such priileges: Proided, inally, 1hat in the absence o such
organizations and cooperaties or their ailure to exercise their preerential right, other
parties may participate in the public bidding in conormity with the aboe cited procedure.

,2, Grant the priilege to gather, take or catch bangus ry, prawn ry or kawag-kawag
or ry o other species and ish rom the municipal waters by nets, traps or other ishing
gears to marginal ishermen ree o any rental, ee, charge or any other imposition
whatsoeer.

,3, Issue licenses or the operation o ishing essels o three ,3, tons or less or
which purpose the sangguniang bayan shall promulgate rules and regulations regarding the
issuances o such licenses to qualiied applicants under existing laws.

Proided, howeer, 1hat the sanggunian concerned shall, by appropriate ordinance,
penalize the use o explosies, noxious or poisonous substances, electricity, muro-ami, and
other deleterious methods o ishing and prescribe a criminal penalty thereor in accordance
with the proisions o this Code: Proided, inally, 1hat the sanggunian concerned shall hae
the authority to prosecute any iolation o the proisions o applicable ishery laws.
65


6, Situs o tax collected

Rule 1: lor purposes o collection o the taxes under Section 143 ,tax on business,,
businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in
the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and
shall be paid to the municipality where such branch or sales outlet is located.

Rule 2: In case there is no branch or sales outlet in the city or municipality where the
sale is made, the sale shall be recorded in the principal oice and the taxes due shall accrue
and be paid to such city or municipality.

Rule 3: 1he ollowing sales allocation or sales recorded in the principal oice o
businesses with actories, project oices, plants, and plantations:


637
Sec 149
193

30 o all sales recorded in the principal oice shall be taxable by the city or
municipality where the principal oice is located, and 0 o all sales recorded in
the principal oice shall be taxable by the city or municipality where the actory,
project oice, plant, or plantation is located.

Rule 4: \here the plantation located at a place other than the place where the actory
is located, the aboe mentioned 0 shall be diided as ollows:

60 - to the city or municipality where the actory is located, and
40 - to the city or municipality where the plantation is located.

Rule 5: \here there are 2 or more actories, project oices, plants, or plantations
located in dierent localities, the aboe mentioned 0 shall be prorated among the
localities where the actories, project oices, plants, and plantations are located in
proportion to their respectie olumes o production during the period or which the tax is
due.
658


d. 1axing powers o barangays

1, 1axes on stores , retailers with ixed business establishment with gross sales or receipts o
the preceeding calendar year o P50,000 or less in the cities & municipalities

Rate: Not exceeding 1 on such gross sales or receipts

2, Serice lees, Charges - it may collect reasonable ees or charges or serices rendered in
connection with the regulation or the use o barangay owned property or serice acilities

3, Barangay Clearance - no city municipality may issue any license, permit or any business ,
actiity is located. lor such clearance, the sangguniang brgy. May impose reasonable ee.
4, Other ees & charges - the brgy. May ley reasonable ees & charges

a, On commercials breeding o ighting cocks & cockpits,
b, On places o recreation w,c charge admission ees, and
c, On billboards, signs boards, neon signs and outdoor adertisement

e. Common reenue raising powers

1, Serice ees and charges

Reasonable ees and charges or serices rendered.
659


2, Public utility charges

3, Public Utility Charges i:

i. Owned, operated and maintained
ii. \ithin their jurisdiction
660


638
Sec 130
639
Sec 133
196


4, 1oll ess or charges

5, 1ools, lees or Charges or:
i. Use o public road, pier or whar, \aterway Bridge, erry or telecommunication
system
ii. lunded and constructed by the local goernment
661


. Community tax

Nature: 1he community tax, w,c replaced the residence tax, is essentially a poll or capitalization
tax. It is o ixed amount imposed upon certain inhabitants o the Phil. \ithout regard to the
property, occupation in w,c they may be engaged.

\ho are authorized to ley - cities or municipalities may ley a community tax, as well as the
rates & accrual o the proceeds thereo.
662


Persons liable to tax

1, Indiiduals -
Rate: P5.00 an annual additional tax o P1.00 or eery P1,000 income regardless o whether
rom business, exercise o proession or rom property w,c in no case shall exceed P5,000

2, Corporations
Rate: Annual community tax o P500 and an annual additional tax w,c in no case shall
exceed P10,000

Lxemptions rom the 1ax Community

1, Diplomatic and consular representaties and
2, 1ransient isitors when their stay in the Phil. Does not exceed 3 mos.

Lstates o deceased persons, being neither corporations nor indiiduals, are not subject to the
tax, but the heirs must declare their proportionate shares o their income.

Community 1ax Certiicate - shall be issued to eery person or corporation upon payment o
the community tax. It may also be issued to any corporation , person not subject to the community
tax upon payment o P1.00
663










660
Sec 134
661
Sec 133
662
Sec 136
663
Sec 162
197

6. Common limitations on the taxing powers o LGUs
664


Unless otherwise proided herein, the exercise o the taxing power o proinces,
cities, municipalities, and barangays shall not extend to the ley o the ollowing:

1. Income tax
Lxception: banks and other inancial institutions

2. Documentary Stamp 1ax

3. 1ax on estates, inheritance, gits, legacies and other acquisitions mortis causa
Lxception: tax on transer o real property ownership

4. Lxcise taxes on articles enumerated under the NIRC, as amended, and taxes, ees or
charges on petroleum products.

1axable Articles embodied in the NIRC are:

1, Alcoholic products
2, 1obacco products
3, Petroleum products
4, Miscellaneous articles
5, Mineral products

Local goernments can tax the selling o these inished products or the raw materials.

5. Percentage or VA1 on sales, barters or exchanges or similar transactions on goods or
serices exchanges or similar transactions on goods or serices except as otherwise proided herein

Percentage o taxes - imposed when there is set o ration between the amount o tax and the
olume o sales.

6. 1axes on the gross receipts o transportation o contractors and persons engaged in the
transportation o passengers or reight by hire and common carriers by air, land or water except as
proided by the code.

On the other hand, transportation contractors including persons who transport passengers
or hire and other domestic carriers by land, air or water or transport o passengers, except owners
o bancas and owners o animal drawn two-wheeled ehicle are subject to 3 percentage tax on their
gross quarterly receipt.
665


Sec 11 o NIRC, also, speciies that the gross receipt o common carriers deried rom their
incoming and outgoing reight shall not be subjected to local taxes imposed under LGC.

. 1axes, ees and charges imposed under the 1ari and Customs Code and other Special
Laws


664
Sec 133
663
Sec 117 nlC
198

8. Customs duties, registration ees o essels and wharage on whares, tonnage dues and all
other kinds o customs ees, charges and due except wharage on whares constructed and
maintained by LGU concerned.

9. 1axes, ees and charges and other Impositions which contraene Lxisting Goernment
Policies or which are Violatie o the lundamental Principles o 1axation.

10.1axes, ees, and charges and other impositions upon goods carried into or out o, or
passing through, the territorial jurisdiction o LGU in the guise o charges or wharage, tolls or
bridges or otherwise, or other taxes, ees or charges in any orm whateer upon such goods or
merchandise.

11. 1axes, ees, or charges on agricultural and aquatic products when sold by marginal
armers o`r ishermen.

12. 1axes on business enterprises certiied to by the Board o Inestment as pioneer or non-
pioneer who enjoy tax holidays or a period o 6 and 4 years, respectiely rom the date o
registration

-tax holidays reer to exemption rom income tax only.

13. 1axes on premiums paid by way o reinsurance or retrocession.

14. 1axes, ees or other charges on Philippine products actually exported, excepted
otherwise proided herein in the LGC.

15. 1axes, ees or charges on Countryside and Baranggay Business Lnterprises and
Cooperatie duly registered under RA No. 6810 and RA 6938 otherwise known as the Cooperatie
Code o the Phil. Respectiely.

16. 1axes, ees or charges o any kind on the National Goernment, its agencies and
instrumentalities and LGU.

1. 1axes, ees, and charges imposed under special laws.

18. 1axes, ees or charges or registration o motor ehicles.
Lxception: 1ricycles

. Collection o business tax

a. 1ax period and manner o payment

Unless otherwise proided in the LGC, the tax period o all local taxes, ees and
charges shall be the calendar year

Such, taxes, ees and charges may be paid in quarterly installments.
666





666
Sec 163
199

b. Accrual o tax

Unless otherwise proided in the Code, all local taxes, ees and charges shall accrue
on the 1
st
day o January o each year.

New taxes, ees or charges or changes in the rates thereo, shall accrue on the 1
st
day
o the quarter next ollowing the eectiely o the ordinance imposing such new rates.
66


c. 1ime o payment

Unless otherwise proided in the Code, all local taxes, ees & charges shall be paid
within the irst 20 days o January or o each subsequent quarter.

1he .avggvviav concerned may, or a justiiable reason or cause, extend the time or
payment o such charges but only or a period not exceeding 6 months.
668

d. Penalties on unpaid taxes, ees or charges

Surcharges & penalties on unpaid taxes, ees or charges

1he avggvviav may impose a surcharge not exceeding 2 o the amount o taxes,
ees or charges not paid on time and an interest at the rate not exceeding 2 per month o
unpaid taxes, ees or charges including surcharges, until such amount is ully paid

In no case shall the total interest on the unpaid amount or portion thereo exceed 36
months
669

e. Authority o treasurer in collection and inspection o books

All local taxes, ees, and charges shall be collected by the proincial, city, municipal, or
barangay treasurer, or their duly authorized deputies. 1he proincial, city or municipal treasurer may
designate the barangay treasurer as his deputy to collect local taxes, ees, or charges. In case a bond is
required or the purpose, the proincial, city or municipal goernment shall pay the premiums
thereon in addition to the premiums o bond that may be required under this Code.
60


1he proincial, city, municipal or barangay treasurer may, by himsel or through any o his
deputies duly authorized in writing, examine the books, accounts, and other pertinent records o any
person, partnership, corporation, or association subject to local taxes, ees and charges in order to
ascertain, assess, and collect the correct amount o the tax, ee, or charge. Such examination shall be
made during regular business hours, only once or eery tax period, and shall be certiied to by the
examining oicial. Such certiicate shall be made o record in the books o accounts o the taxpayer
examined. In case the examination herein authorized is made by a duly authorized deputy o the local
treasurer, the written authority o the deputy concerned shall speciically state the name, address, and
business o the taxpayer whose books, accounts, and pertinent records are to be examined, the date
and place o such examination, and the procedure to be ollowed in conducting the same. lor this

667
Sec 166
668
Sec 167
669
Sec 168
670
Sec 170
200

purpose, the records o the reenue district oice o the Bureau o Internal Reenue shall be made
aailable to the local treasurer, his deputy or duly authorized representatie.
61


8. 1axpayer`s remedies

a. Periods o assessment and collection o local taxes, ees or
charges
62


1. Prescriptie period o assessment - within ie years rom the date they become
due.
- in case o raud o intent to eade payment - within 10 years

2. Prescriptie period o collection - within 5 years rom the date o assessment by
administratie or judicial action

b. Protest o assessment

a. Assessment made by the local 1reasurer

b. 1axpayer has 60 days rom receipt to ile written protest with 1reasurer, otherwise
it shall become inal and executory

c. 1reasurer has 10 days within which to decide.

1reasurer cancels assessment
1reasurer denies protest
1axpayer appeals within 30 days ater receipt o denial
1reasurer does not act within 60 days
1axpayer has 30 days rom the lapse o 60 days to appeal

c. Claim or reund o tax credit or erroneously or illegally
collected tax, ee or charge

A written claim or reund or credit is iled with the local 1reasurer within 2 years
rom the date o payment o such tax, ee, or charge, or rom the date the taxpayer is entitled
to a reund or credit





671
Sec 171
672
Suspension oI the running oI the prescriptive !eriod -
a Treasurer legally prevented Irom the making the assessment or collection
b Taxpayer requests Ior reinvestigation and executes waiver in writing
c Taxpayer out oI the country
d Taxpayer cannot be located

201

9. Ciil remedies by the LGU or collection o reenues

a. Local goernment`s lien or delinquent taxes, ees or
charges

1. Superior to all items, charges or encumbrances in aor o any person, enorceable
by the administratie o judicial action
2. Coers not only property or rights subject to the lien but also upon property used
in business.

b. Ciil remedies, in general

1, Administratie action

a. Distraint o goods, chattels or eects and other personal property o
whateer character
b. Ley upon real property and interest in or rights to real property

2, Judicial action

Lither o these remedies or all may be pursued concurrently or simultaneously at the
discretion o local goernment unit concerned.
63


c. Procedure or administratie action

1, Distraint o personal property

,a, Seizure - Upon ailure o the person owing any local tax, ee, or charge to pay the same at
the time required, the local treasurer or his deputy may, upon written notice, seize or coniscate any
personal property belonging to that person or any personal property subject to the lien in suicient
quantity to satisy the tax, ee, or charge in question, together with any increment thereto incident to
delinquency and the expenses o seizure. In such case, the local treasurer or his deputy shall issue a
duly authenticated certiicate based upon the records o his oice showing the act o delinquency
and the amounts o the tax, ee, or charge and penalty due. Such certiicate shall sere as suicient
warrant or the distraint o personal property aorementioned, subject to the taxpayer's right to claim
exemption under the proisions o existing laws. Distrained personal property shall be sold at public
auction in the manner hereon proided or.

,b, Accounting o distrained goods. - 1he oicer executing the distraint shall make or cause
to be made an account o the goods, chattels or eects distrained, a copy o which signed by himsel
shall be let either with the owner or person rom whose possession the goods, chattels or eects are
taken, or at the dwelling or place or business o that person and with someone o suitable age and
discretion, to which list shall be added a statement o the sum demanded and a note o the time and
place o sale.

,c, Publication - 1he oicer shall orthwith cause a notiication to be exhibited in not less
than three ,3, public and conspicuous places in the territory o the local goernment unit where the

673
Sec 174
202

distraint is made, speciying the time and place o sale, and the articles distrained. 1he time o sale
shall not be less than twenty ,20, days ater the notice to the owner or possessor o the property as
aboe speciied and the publication or posting o the notice. One place or the posting o the notice
shall be at the oice o the chie executie o the local goernment unit in which the property is
distrained.

,d, Release o distrained property upon payment prior to sale - I at any time prior to the
consummation o the sale, all the proper charges are paid to the oicer conducting the sale, the
goods or eects distrained shall be restored to the owner.

,e, Procedure o sale - At the time and place ixed in the notice, the oicer conducting the
sale shall sell the goods or eects so distrained at public auction to the highest bidder or cash.
\ithin ie ,5, days ater the sale, the local treasurer shall make a report o the proceedings in writing
to the local chie executie concerned.

Should the property distrained be not disposed o within one hundred and twenty ,120, days
rom the date o distraint, the same shall be considered as sold to the local goernment unit
concerned or the amount o the assessment made thereon by the Committee on Appraisal and to
the extent o the same amount, the tax delinquencies shall be cancelled.

Said Committee on Appraisal shall be composed o the city or municipal treasurer as
chairman, with a representatie o the Commission on Audit and the city or municipal assessor as
members.

,, Disposition o proceeds - 1he proceeds o the sale shall be applied to satisy the tax,
including the surcharges, interest, and other penalties incident to delinquency, and the expenses o
the distraint and sale. 1he balance oer and aboe what is required to pay the entire claim shall be
returned to the owner o the property sold. 1he expenses chargeable upon the seizure and sale shall
embrace only the actual expenses o seizure and preseration o the property pending the sale, and
no charge shall be imposed or the serices o the local oicer or his deputy. \here the proceeds o
the sale are insuicient to satisy the claim, other property may, in like manner, be distrained until the
ull amount due, including all expenses, is collected.
64


2, Ley o real property, procedure

Ater the expiration o the time required to pay the delinquent tax, ee, or charge, real
property may be leied on beore, simultaneously, or ater the distraint o personal property
belonging to the delinquent taxpayer. 1o this end, the proincial, city or municipal treasurer, as the
case may be, shall prepare a duly authenticated certiicate showing the name o the taxpayer and the
amount o the tax, ee, or charge, and penalty due rom him. Said certiicate shall operate with the
orce o a legal execution throughout the Philippines. Ley shall be eected by writing upon said
certiicate the description o the property upon which ley is made. At the same time, written notice
o the ley shall be mailed to or sered upon the assessor and the Register o Deeds o the proince
or city where the property is located who shall annotate the ley on the tax declaration and certiicate
o title o the property, respectiely, and the delinquent taxpayer or, i he be absent rom the
Philippines, to his agent or the manager o the business in respect to which the liability arose, or i
there be none, to the occupant o the property in question.

In case the ley on real property is not issued beore or simultaneously with the warrant o
distraint on personal property, and the personal property o the taxpayer is not suicient to satisy

674
Sec 163
203

his delinquency, the proincial, city or municipal treasurer, as the case may be, shall within thirty ,30,
days ater execution o the distraint, proceed with the ley on the taxpayer's real property.

A report on any ley shall, within ten ,10, days ater receipt o the warrant, be submitted by
the leying oicer to the sanggunian concerned.
65


3, lurther distraint or ley

1he remedies by distraint and ley may be repeated i necessary until the ull amount
due, including all expenses, is collected.
66


4, Lxemption o personal property rom distraint or
ley

1he ollowing property shall be exempt rom distraint and the ley, attachment or
execution thereo or delinquency in the payment o any local tax, ee or charge, including
the related surcharge and interest:

,a, 1ools and implements necessarily used by the delinquent taxpayer in his trade or
employment,

,b, One ,1, horse, cow, carabao, or other beast o burden, such as the delinquent taxpayer
may select, and necessarily used by him in his ordinary occupation,

,c, lis necessary clothing, and that o all his amily,

,d, lousehold urniture and utensils necessary or housekeeping and used or that purpose
by the delinquent taxpayer, such as he may select, o a alue not exceeding 1en thousand pesos
,P10,000.00,,

,e, Proisions, including crops, actually proided or indiidual or amily use suicient or
our ,4, months,

,, 1he proessional libraries o doctors, engineers, lawyers and judges,

,g, One ishing boat and net, not exceeding the total alue o 1en thousand pesos
,P10,000.00,, by the lawul use o which a isherman earns his lielihood, and

,h, Any material or article orming part o a house or improement o any real property.
6


5, Penalty on local treasurer or ailure to issue and
execute warrant o distraint or ley

\ithout prejudice to criminal prosecution under the Reised Penal Code and other
applicable laws, any local treasurer who ails to issue or execute the warrant o distraint or
ley ater the expiration o the time prescribed, or who is ound guilty o abusing the

673
Sec 166
676
Sec 184
677
Sec 183
204

exercise thereo by competent authority shall be automatically dismissed rom the serice
ater due notice and hearing.
68


d. Procedure or judicial action

1, In any court o competent jurisdiction
2, liled by local 1reasurer
3, \ithin 5 years rom the date taxes, ees or charges become due

B. Real Property %axation

1 Fundamental principles

a) Real property shall be appraised at its current and air market alue.
b) Real property shall be classiied or assessment purposes on the basis o its actual
use.
c) Real property shall be assessed on the basis o a uniorm standard within each local
goernment unit.
d) 1he appraisal, assessment, and collection o real property tax shall not be let to any
priate person, and
e. , 1he appraisal and assessment o real property shall be equitable
69


2 Nature oI real property tax

Property taxes are assessed on all property, or all property o a certain class located
within a certain territory on a speciied date in proportion to its alue or in accordance with
some other reasonable method o apportionment.
680


In the Philippines, a real property tax is an annual ad alorem tax imposed by LGU`s on
real property within their jurisdiction, determined on the basis o a ixed proportion o the
alue o the property.

3. Imposition o real property tax

a. Power to ley real property tax

A proince or city or a municipality within the Metropolitan Manila Area my ley an
annual ad alorem tax on real property such as land, building, machinery, and other
improement not hereinater speciically exempted.
681





678
Sec 177
679
Sec 198 ld
680
1he funcLlon of a properLy Lax ls Lo ralse revenue Such Lax does noL lmpose any condlLlon nor does lL
place any resLrlcLlon upon Lhe use of Lhe properLy Laxed
681
Sec 232
203

b. Lxemption rom real property tax
682


1. Real property owned by the Republic o the Philippines or any o its political subdiisions
except when the beneicial use thereo has been granted, or consideration or otherwise, to a taxable
person,
2. Charitable institutions, churches, parsonages, or conents appurtenant thereto, mosques,
non proit or religious cemeteries, and all lands, buildings, and improements actva airect ava
ecv.ire used or religious, charitable, or educational purposes.

3. All pieces o machinery and equipment that are actva airect ava ecv.ire used by local
water districts, and goernment - owned or controlled corporations engaged in the supply and
distribution o water and,or generation and transmission o electric power.

4. All real property owned by duly registered cooperaties as proided or under RA 6938,
and
5. Machinery and equipment used or pollution control and enironmental protection.

4. Appraisal and assessment o real property tax

a. Rule on appraisal o real property at air market alue

All real property, whether taxable or exempt, shall be appraised at the current and
air market alue preailing in the locality where the property is situated. 1he Department o
linance shall promulgate the necessary rules and regulations or the classiication, appraisal,
and assessment o real property pursuant to the proisions o this Code.
683


b. Declaration o real property

It shall be the responsibility o the owner, administrator or their representaties to
declare, under oath, the true alue o real property, taxable or exempt, within 60 days ater
the acquisition. 1he sworn declaration shall be iled once eery 3 years beore June 30
th
o
the year commencing 1992. 1he ailure or reusal to make that declaration within the
prescribed period would authorize the proincial or city assessor to declare the property in
the name o the deaulting owner, i known, or against an unknown owner as the case may
be, and to assess the property or taxation.
684




682
eal properLles of revlew schools are sub[ecL Lo Lax (why? Consldered an ordlnary corporaLlon)
nonsLock nonproflL prlvaLe schools are exempL
roprleLary schools (sLock and proflL) duly accredlLed by uLCS or CPLu are exempL lf properLy ls
acLually dlrecLly and excluslvely used for educaLlonal purposes
1he Lerm "exc/usive/y" under Lhe ConsLlLuLlon does noL mean "so/e/y" but on/y "primori/y" (komoo
cotbollc cbotcb v nostloqs 5 lbll 701 ltovloce of Abto v netoooJo 107 SCA 104 oLher cases)
683
Sec 201
684
Secs 201204

206

c. Listing o real property in assessment rolls

,a, In eery proince and city, including the municipalities within the Metropolitan Manila
Area, there shall be prepared and maintained by the proincial, city or municipal assessor an
assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the
territorial jurisdiction o the local goernment unit concerned. Real property shall be listed, alued
and assessed in the name o the owner or administrator, or anyone haing legal interest in the
property.

,b, 1he undiided real property o a deceased person may be listed, alued and assessed in
the name o the estate or o the heirs and deisees without designating them indiidually, and
undiided real property other than that owned by a deceased may be listed, alued and assessed in
the name o one or more co-owners: Proided, howeer, 1hat such heir, deisee, or co-owner shall
be liable seerally and proportionately or all obligations imposed by this 1itle and the payment o
the real property tax with respect to the undiided property.

,c, 1he real property o a corporation, partnership, or association shall be listed, alued and
assessed in the same manner as that o an indiidual.

,d, Real property owned by the Republic o the Philippines, its instrumentalities and political
subdiisions, the beneicial use o which has been granted, or consideration or otherwise, to a
taxable person, shall be listed, alued and assessed in the name o the possessor, grantee or o the
public entity i such property has been acquired or held or resale or lease.
685


d. Preparation o schedules o air market alue

Beore any general reision o property assessment is made pursuant to the
proisions o this 1itle, there shall be prepared a schedule o air market alues by the
proincial, city and municipal assessor o the municipalities within the Metropolitan Manila
Area or the dierent classes o real property situated in their respectie local goernment
units or enactment by ordinance o the .avggvviav concerned. 1he schedule o air market
alues shall be published in a newspaper o general circulation in the proince, city or
municipality concerned or in the absence thereo, shall be posted in the proincial capitol,
city or municipal hall and in two other conspicuous public places therein.
686


1, Authority o assessor to take eidence

lor the purpose o obtaining inormation on which to base the market alue o any
real property, the assessor o the proince, city or municipality or his deputy may summon
the owners o the properties to be aected or persons haing legal interest therein and
witnesses, administer oaths, and take deposition concerning the property, its ownership,
amount, nature, and alue.
68






683
Sec 203
686
Sec 212
687
Sec 213
207

2, Amendment o schedule o air market alue

1he proincial, city or municipal assessor may recommend to the sanggunian
concerned amendments to correct errors in aluation in the schedule o air market alues.
1he sanggunian concerned shall, by ordinance, act upon the recommendation within ninety
,90, days rom receipt thereo.
688


e. Classes o real property

lor purposes o assessment, real property shall be classiied as residential,
agricultural, commercial, industrial, mineral, timberland or special.

1he city or municipality within the Metropolitan Manila Area, through their
respectie sanggunian, shall hae the power to classiy lands as residential, agricultural,
commercial, industrial, mineral, timberland, or special in accordance with their zoning
ordinances.
689


. Actual use o property as basis o assessment

Real property shall be classiied, alued and assessed on the basis o its actual use
regardless o where located, whoeer owns it, and whoeer uses it.
690


g. Assessment o real property

1, Assessment leels

1he assessment leels to be applied to the air market alue o real property to
determine its assessed alue shall be ixed by ordinances o the sangguniang panlalawigan,
sangguniang panlungsod or sangguniang bayan o a municipality within the Metropolitan
Manila Area, at the rates not exceeding the ollowing:

,a, On Lands:

CLASS ASSLSSMLN1 LLVLLS

Residential 20
Agricultural 40
Commercial 50
Industrial 50
Mineral 50
1imberland 20





688
Sec 214
689
Sec 213
690
Sec 217
208

,b, On Buildings and Other Structures:

,1, Residential
lair market Value

Oer Not Oer Assessment Leels

P15,000.00 0
P15,000.00 300,000.00 10
300,000.00 500,000.00 20
500,000.00 50,000.00 25
50,000.00 1,000,000.00 30
1,000,000.00 2,000,000.00 35
2,000,000.00 5,000,000.00 40
5,000,000.00 10,000,000.00 50
10,000,000.00
60

,2, Agricultural

lair Market Value
Oer Not Oer Assessment Leels

P300,000.00 25
P300,000.00 500,000.00 30
500,000.00 50,000.00 35
50,000.00 1,000,000.00 40
1,000,000.00 2,000,000.00 45
2,000,000.00 50

,3, Commercial , Industrial

lair Market Value
Oer Not Oer Assessment Leels

P300,000.00 30
P300,000.00 500,000.00 35
500,000.00 50,000.00 40
50,000.00 1,000,000.00 50
1,000,000.00 2,000,000.00 60
2,000,000.00 5,000,000.00 0
5,000,000.00 10,000,000.00 5
10,000,000.00 80


,4, 1imberland

lair Market Value
Oer Not Oer Assessment Leels

P300,000.00 45
P300,000.00 500,000.00 50
209

500,000.00 50,000.00 55
50,000.00 1,000,000.00 60
5,000,000.00 2,000,000.00 65
2,000,000.00 0

,c, On Machineries

Class Assessment Leels

Agricultural 40
Residential 50
Commercial 80
Industrial 80

,d, On Special Classes: 1he assessment leels or all
lands buildings, machineries and other improements,

Actual Use Assessment Leel

Cultural 15
Scientiic 15
lospital 15
Local water districts 10
Goernment-owned or controlled corporations engaged in the
supply and distribution o water and,or generation and
transmission o electric power 10
691



2, General reisions o assessments and property
classiication

1he proincial, city or municipal assessor shall undertake a general reision o real
property assessments within two ,2, years ater the eectiity o this Code and eery three
,3, years thereater.
692


3, Date o eectiity o assessment or reassessment

All assessments or reassessments made ater the irst ,1st, day o January o any year
shall take eect on the irst ,1st, day o January o the succeeding year: Proided, howeer,
1hat the reassessment o real property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden inlation or delation o real property
alues, or to the gross illegality o the assessment when made or to any other abnormal
cause, shall be made within ninety ,90, days rom the date any such cause or causes
occurred, and shall take eect at the beginning o the quarter next ollowing the
reassessment.



691
Sec 218
692
Sec 219
210

4, Assessment o property subject to back taxes

Real property declared or the irst time shall be assessed or taxes or the period
during which it would hae been liable but in no case o more than ten ,10, years prior to
the date o initial assessment: Proided, howeer, 1hat such taxes shall be computed on the
basis o the applicable schedule o alues in orce during the corresponding period.
693


5, Notiication o new or reised assessment

\hen real property is assessed or the irst time or when an existing assessment is
increased or decreased, the proincial, city or municipal assessor shall within thirty ,30, days
gie written notice o such new or reised assessment to the person in whose name the
property is declared. 1he notice may be deliered personally or by registered mail or through
the assistance o the punong barangay to the last known address o the person to be sered.

h. Appraisal and assessment o machinery

,a, 1he air market alue o a brand-new machinery shall be the acquisition cost. In
all other cases, the air market alue shall be determined by diiding the remaining economic
lie o the machinery by its estimated economic lie and multiplied by the replacement or
reproduction cost.

,b, I the machinery is imported, the acquisition cost includes reight, insurance,
bank and other charges, brokerage, arrastre and handling, duties and taxes, plus charges at
the present site. 1he cost in oreign currency o imported machinery shall be conerted to
peso cost on the basis o oreign currency exchange rates as ixed by the Central Bank.

5. Collection o real property tax

a. Date o accrual o real property tax

1he real property tax or any year shall accrue on the irst day o January and rom
that date it shall constitute a lien on the property which shall be superior to any other lien,
mortgage, or encumbrance o any kind whatsoeer, and shall be extinguished only upon the
payment o the delinquent tax.
694


b. Collection o tax

1, Collecting authority

1he collection o the real property tax with interest thereon and related expenses,
and the enorcement o the remedies proided or in this 1itle or any applicable laws, shall
be the responsibility o the city or municipal treasurer concerned.


693
Sec 222
694
Sec 246
211

1he city or municipal treasurer may deputize the barangay treasurer to collect all
taxes on real property located in the barangay: Proided, 1hat the barangay treasurer is
properly bonded or the purpose: Proided, urther, 1hat the premium on the bond shall be
paid by the city or municipal goernment concerned.
695


2, Duty o assessor to urnish local treasurer with
assessment rolls

1he proincial, city or municipal assessor shall prepare and submit to the treasurer o
the local goernment unit, on or beore the thirty-irst ,31st, day o December each year, an
assessment roll containing a list o all persons whose real properties hae been newly
assessed or reassessed and the alues o such properties.
696


3, Notice o time or collection o tax

1he city or municipal treasurer shall, on or beore the thirty-irst ,31st, day o
January each year, in the case o the basic real property tax and the additional tax or the
Special Lducation lund ,SLl, or any other date to be prescribed by the .avggvviav
concerned in the case o any other tax leied under this title, post the notice o the dates
when the tax may be paid without interest at a conspicuous and publicly accessible place at
the city or municipal hall. Said notice shall likewise be published in a newspaper o general
circulation in the locality once a week or two ,2, consecutie weeks.

c. Periods within which to collect real property tax

1he basic real property tax and any other tax leied under this 1itle shall be collected
within ie ,5, years rom the date they become due. No action or the collection o the tax,
whether administratie or judicial, shall be instituted ater the expiration o such period. In
case o raud or intent to eade payment o the tax, such action may be instituted or the
collection o the same within ten ,10, years rom the discoery o such raud or intent to
eade payment.

1he period o prescription within which to collect shall be suspended or the time
during which:

,1, 1he local treasurer is legally preented rom collecting the tax,

,2, 1he owner o the property or the person haing legal interest therein requests or
reinestigation and executes a waier in writing beore the expiration o the period within
which to collect, and

,3, 1he owner o the property or the person haing legal interest therein is out o the
country or otherwise cannot be located.
69



693
Sec 247
696
Sec 248
697
Sec 270
212

d. Special rules on payment

1, Payment o real property tax in installments

1he owner o the real property or the person haing legal interest therein may pay
the basic real property tax and the additional tax or Special Lducation lund ,SLl, due
thereon without interest in our ,4, equal installments, the irst installment to be due and
payable on or beore March 1hirty-irst ,31st,, the second installment, on or beore June
1hirty ,30,, the third installment, on or beore September 1hirty ,30,, and the last
installment on or beore December 1hirty-irst ,31st,, except the special ley the payment o
which shall be goerned by ordinance o the .avggvviav concerned.

1he date or the payment o any other tax imposed under this 1itle without interest
shall be prescribed by the .avggvviav concerned.

Payments o real property taxes shall irst be applied to prior years delinquencies,
interests, and penalties, i any, and only ater said delinquencies are settled may tax payments
be credited or the current period.
698


2, Interests on unpaid real property tax

In case o ailure to pay the basic real property tax or any other tax leied under this
1itle upon the expiration o the periods as proided in Section 250, or when due, as the case
may be, shall subject the taxpayer to the payment o interest at the rate o two percent ,2,
per month on the unpaid amount or a raction thereo, until the delinquent tax shall hae
been ully paid: Proided, howeer, 1hat in no case shall the total interest on the unpaid tax
or portion thereo exceed thirty-six ,36, months.
699


3, Condonation o real property tax

In case o a general ailure o crops or substantial decrease in the price o agricultural
or agri-based products, or calamity in any proince, city or municipality, the .avggvviav
concerned, by ordinance passed prior to the irst ,1st, day o January o any year and upon
recommendation o the Local Disaster Coordinating Council, may condone or reduce,
wholly or partially, the taxes and interest thereon or the succeeding year or years in the city
or municipality aected by the calamity.
00


1he President o the Philippines may, when public interest so requires, condone or
reduce the real property tax and interest or any year in any proince or city or a municipality
within the Metropolitan Manila Area.
01





698
Sec 230
699
Sec 233
700
Sec 276
701
Sec 277
213

e. Remedies o LGUs or collection o real property tax

1, Issuance o notice o delinquency or real property
tax payment

,a, \hen the real property tax or any other tax imposed under this 1itle becomes
delinquent, the proincial, city or municipal treasurer shall immediately cause a notice o the
delinquency to be posted at the main hall and in a publicly accessible and conspicuous place
in each barangay o the local goernment unit concerned. 1he notice o delinquency shall
also be published once a week or two ,2, consecutie weeks, in a newspaper o general
circulation in the proince, city, or municipality.

,b, Such notice shall speciy the date upon which the tax became delinquent and
shall state that personal property may be distrained to eect payment. It shall likewise state
that any time beore the distraint o personal property, payment o the tax with surcharges,
interests and penalties may be made in accordance with the next ollowing Section, and
unless the tax, surcharges and penalties are paid beore the expiration o the year or which
the tax is due except when the notice o assessment or special ley is contested
administratiely or judicially pursuant to the proisions o Chapter 3, 1itle II, Book II o this
Code, the delinquent real property will be sold at public auction, and the title to the property
will be ested in the purchaser, subject, howeer, to the right o the delinquent owner o the
property or any person haing legal interest therein to redeem the property within one ,1,
year rom the date o sale.
02


2, Local goernment`s lien

1he basic real property tax and any other tax leied under this 1itle constitutes a lien
on the property subject to tax, superior to all liens, charges or encumbrances in aor o any
person, irrespectie o the owner or possessor thereo, enorceable by administratie or
judicial action, and may only be extinguished upon payment o the tax and the related
interests and expenses.
03


3, Remedies in general

lor the collection o the basic real property tax and any other tax leied under this
1itle, the local goernment unit concerned may aail o the remedies by administratie
action thru ley on real property or by judicial action.
04


4, Resale o real estate taken or taxes, ees or charges

1he .avggvviav concerned may, by ordinance duly approed, and upon notice o not
less than twenty ,20, days, sell and dispose o the real property acquired under the preceding

702
Sec 234
703
Sec 237
704
Sec 236
214

section at public auction. 1he proceeds o the sale shall accrue to the general und o the
local goernment unit concerned.
05


5, lurther ley until ull payment o amount due

Ley may be repeated i necessary until the ull amount due, including all expenses, is
collected.
06


6. Reund or credit o real property tax

a. Payment under protest

,a, No protest shall be entertained unless the taxpayer irst pays the tax. 1here shall
be annotated on the tax receipts the words "paid under protest". 1he protest in writing must
be iled within thirty ,30, days rom payment o the tax to the proincial, city treasurer or
municipal treasurer, in the case o a municipality within Metropolitan Manila Area, who shall
decide the protest within sixty ,60, days rom receipt.

,b, 1he tax or a portion thereo paid under protest, shall be held in trust by the
treasurer concerned.

,c, In the eent that the protest is inally decided in aor o the taxpayer, the
amount or portion o the tax protested shall be reunded to the protestant, or applied as tax
credit against his existing or uture tax liability.

,d, In the eent that the protest is denied or upon the lapse o the sixty day period
prescribed in subparagraph ,a,, the taxpayer may aail o the remedies as proided or in
Chapter 3, 1itle II, Book II o this Code.
0


b. Repayment o excessie collections

\hen an assessment o basic real property tax, or any other tax leied under this
1itle, is ound to be illegal or erroneous and the tax is accordingly reduced or adjusted, the
taxpayer may ile a written claim or reund or credit or taxes and interests with the
proincial or city treasurer within two ,2, years rom the date the taxpayer is entitled to such
reduction or adjustment.

1he proincial or city treasurer shall decide the claim or tax reund or credit within
sixty ,60, days rom receipt thereo. In case the claim or tax reund or credit is denied, the
taxpayer may aail o the remedies as proided in Chapter 3, 1itle II, Book II o this Code.
08





703
Sec 264
706
Sec 263
707
Sec 232
708
Sec 233
213

. 1axpayer`s remedies

a. Contesting an assessment o alue o real property

1, Appeal to the Local Board o Assessment Appeals
,LBAA,

Any owner or person haing legal interest in the property who is not satisied with
the action o the proincial, city or municipal assessor in the assessment o his property may,
within sixty ,60, days rom the date o receipt o the written notice o assessment, appeal to
the Board o Assessment Appeals o the proincial or city by iling a petition under oath in
the orm prescribed or the purpose, together with copies o the tax declarations and such
aidaits or documents submitted in support o the appeal.
09


2, Appeal to the Central Board o Assessment
Appeals ,CBAA,

1he owner o the property or the person haing legal interest therein or the assessor
who is not satisied with the decision o the Board, may, within thirty ,30, days ater receipt
o the decision o said Board, appeal to the Central Board o Assessment Appeals, as herein
proided. 1he decision o the Central Board shall be inal and executory.
10


3, Lect o payment o tax

Appeal on assessments o real property made under the proisions o this Code
shall, in no case, suspend the collection o the corresponding realty taxes on the property
inoled as assessed by the proincial or city assessor, without prejudice to subsequent
adjustment depending upon the inal outcome o the appeal.
11


b. Payment o real property under protest

1, lile protest with local treasurer
12


2, Appeal to the LBSS
13


3, Appeal to the CBAA
14


4, Appeal to the C1A


709
Sec 226
710
Sec 229 (c) lasL par
711
Sec 231
712
See 8 (6)(a) under efund or credlL of real properLy Lax supra
713
See (a)(1) supra
714
See (a)(2) supra
216

Appeal shall be made by iling a petition or reiew
15
with the C1A within thirty ,30,
days rom the receipt o the decision or ruling or in the case o inaction, rom the expiration
o the period ixed by law to act thereon.
16


5, Appeal to the SC
No judicial proceeding against the Goernment inoling matters arising under the
National Internal Reenue Code, the Customs Law or the Assessment Law shall be
maintained, except as herein proided, until and unless an appeal has been preiously iled
with the Court o 1ax Appeals and disposed o in accordance with the proisions o this
Act.
Any party adersely aected by any ruling, order or decision o the Court o tax
Appeals may appeal thererom to the Supreme Court by iling with the said Court a notice o
appeal and with the Supreme Court a petition or reiew, within thirty days rom the date he
receies notice o said ruling, order or decision. I, within the aoresaid period, he ails to
perect his appeal, the said ruling, order or decision shall become inal and conclusie against
him
I no decision is rendered by the Court within thirty days rom the date a case is
submitted or decision, the party adersely aected by said ruling, order or decision may ile
with said Court a notice o his intention to appeal to the Supreme Court, and i, within thirty
days rom the iling o said notice o intention to appeal, no decision has as yet been
rendered by the Court, the aggrieed party may ile directly with the Supreme Court an
appeal rom said ruling, order or decision, notwithstanding the oregoing proisions o this
section.
I any ruling, order or decision o the Court o 1ax Appeals be aderse to the
Goernment, the Collector o Internal Reenue, the Commissioner o Customs, or the
proincial or city Board o Assessment Appeals concerned may likewise ile an appeal
thererom to the Supreme Court in the manner and within the same period as aboe
prescribed or priate parties.
Any proceeding directly aecting any ruling, order or decision o the Court o 1ax
Appeals shall hae preerence oer all other ciil proceedings except habeas corpus,
workmen's compensation and election cases.








713
under a procedure analogous Lo LhaL provlded for under ule 42 of Lhe 1997 ules of Clvll rocedure
716
Sec 11 A no 1123
217

I'. %ariff and Customs Code of J978 as amended (%CC)

A. 1ari and duties, deined

J. Custom duties:

Are duties which are one charged upon commodities on their being imported into or
exported out o a country.

. %ariff:

Means a book o rates, a table or catalogue drawn usually in alphabetical order
containing the names o seeral kinds o merchandise with the duties to be paid or
the same as settled or agreed upon between seeral states that holds commerce
together.


B. General rule: All imported articles are subject to duty. Importation by the
goernment taxable.

All articles when imported rom a oreign country including those preiously
exported rom the Philippines are subject to duty unless otherwise speciically
proided or in the 1ari and Customs Code or other laws. ,Sec. 100, 1CS,

C. Purpose or imposition

lor the protection o consumers and manuacturers, as well as Phil. products rom
undue competition posed by oreign-made products.

D. llexible tari clause

1he lexible tari clause is a proision in the 1ari and Customs Code,
1
which
implements the constitutionally delegated power to the Congress to urther delegate to the
President o the Philippines, in the interest o national economy, general welare and,or
national security upon recommendation o the NLDA ,a, to increase, reduce or remoe
existing protectie rates o import duty, proided that, the increase should not be higher
than 100 ad alorem, ,b, to establish import quota or to ban imports o any commodity,
and ,c, to impose additional duty on all imports not exceeding 10 ad alorem, among
others.








717
Sec 401
218

L. Requirements o importation

1. Beginning and ending o importation

Importation begins when the carrying essel or aircrat enters the jurisdiction o the
Philippines with the intention to unload
18
therein.

Importation is deemed terminated upon payment o duties, taxes and other charges
due upon the articles or secured to be paid at a port o entry and the legal permit or
withdrawal shall gae been granted or in case said articles are ree o duties, taxes and other
charges, until they hae legally let the jurisdiction o the customs.
19


2. Obligations o importer

a. Cargo maniest

A cargo maniest shall in no case be changed or altered, except ater entry o the
essel, by means o an amendment by the master, consignee, or agent thereo, under oath,
and attached to the original maniest.
20


b. Import entry

It is a declaration to the BOC showing particulars o the imported article that will
enable the customs authorities to determine the correct duties. An importer is required to
ile an import entry. It must be accomplished rom disembarking o last cargo rom essel.

c. Declaration o correct weight or alue

1he declaration, ascertainment or eriication o the correct weight o the cargo at
the port o loading is the duty or obligation o the master, pilot, owner, oicer or employee
o the essel.
21
I he omits or disregards this duty and a punishable discrepancy between the
declared weight and actual weight o the cargo exists, the ineitable conclusion is that he is
negligent or careless.
22
Similarly, i in the exercise or perormance o this duty, he is
negligent or careless resulting in the commission o excessie discrepancy in the weight o
the ship's cargo penalized under the law, carelessness or incompetency is, nonetheless,
imputable to him.


d. Liability or payment o duties

718
Lven lf noL yeL unloaded and Lhere ls unmanlfesLed cargo forfelLure may Lake place because
lmporLaLlon has already begun
719
Sec 1202
720
Sec 1228 3
rd
par ev Adm Code
721
Sec 2323
722
See uelqoJo 5blpploq Aqeocles loc vs commlsslooet of costoms C1A Case no 2683 leb 13 1977
MocooJtoy co loc vs commlsslooet of costoms C1A Case no 274 1 leb 3 1977 MocooJtoy
co loc vs commlsslooet of costoms C1A Case no 2636 !anuary 21 1977 and cases clLed Lhereln
219

Unless relieed by laws or regulations, the liability or duties, taxes, ees and other
charges attaching on importation constitutes a personal debt due rom the importer to the
goernment which can be discharged only by payment in ull o all duties, taxes, ees and
other charges legally accruing. It also constitutes a lien upon the articles imported which may
be enorced while such articles are in custody or subject to the control o the goernment.
23


e. Liquidation o duties

I the Collector shall approe the returns o the appraiser and the report o the
weights, gauge or quantity, the liquidation shall be made on the ace o the entry showing the
particulars thereo, initiated by the liquidating clerk, approed by the chie liquidator, and
recorded in the record o liquidations.

A daily record o all entries liquidated shall be posted in the public corridor o the
customhouse, stating the name o the essel or aircrat, the port rom which she arried, the
date o her arrial, the name o the importer, and the serial number and date o the entry. A
daily record must also be kept by the Collector o all additional duties, taxes and other
charges ound upon liquidation, and notice shall promptly be sent to the interested parties.
24


I to determine the exact amount due under the law in whole or in part some uture
action is required, the liquidation shall be deemed to be tentatie as to the item or items
aected and shall to that extent be subject to uture and inal readjustment and settlement.
1he entry in such case shall be stamped "1entatie liquidation".
25


\hen articles hae been entered and passed ree o duty or inal adjustment o duties
made, with subsequent deliery, such entry and passage ree o duty or settlement o duties
will, ater the expiration o one year, rom the date o the inal payment o duties, in the
absence o raud or protest, be inal and conclusie upon all parties, unless the liquidation o
the import entry was merely tentatie.
26


In determining the total amount o duties, taxes, surcharges, wharage and,or other
charges to be paid on entries, a raction o a peso less than ity centaos shall be
disregarded, and a raction o a peso amounting to ity centaos or more shall be considered
as one peso. In case o oerpayment or underpayment o duties, taxes, surcharges, wharage
and,or other charges paid on entries, where the amount inoled is less than ie pesos, no
reund or collection shall be made.
2


. Keeping o records





723
Sec 1204
724
Sec 1601
723
Sec 1602
726
Sec 1603
727
Sec 1604
220

l. Importation in iolation o 1CC

1. Smuggling

1. An act o any person who shall:

a. lraudulently import any article contrary to law, or
b. Assist in so doing, or
c. Receie, conceal, buy, sell, acilitate, transport, conceal or sell such
article knowing its illegal importation.
28

d. Lxport contrary to law.
29


2. 1he Philippines is diided into arious ports o entry - entry other than port o
entry, will be smuggling.

2. Other raudulent practices

Any person who makes or attempts to make any entry o imported or exported
article by means o any alse or raudulent inoice, declaration, aidait, letter, paper, or by
means o any alse statement, written or erbal, or by means o any alse or raudulent
practice whatsoeer, or shall be guilty o any willul act or omission by means o whereo the
Goernment might be depried o the lawul duties, taxes and other charges, or any portion
thereo, accruing rom the article or any portion thereo, embraced or reerred to in such
inoice, declaration, aidait, letter, paper, or statement, or aected by such act or omission,
shall, or each oense, be punished by a ine o not less than six hundred pesos nor more
than ie thousand pesos and by imprisonment or not less than six months nor more than
two years and i the oender is an alien, he shall be deported ater sering the sentence.
30


G. Classiication o goods

1. 1axable importation

All articles, when imported rom any oreign country into the Philippines, shall be
subject to duty upon each importation, een though preiously exported rom the
Philippines, except as otherwise speciically proided or in this Code or in other laws.
31


2. Prohibited importation
1he importation into the Philippines o the ollowing articles is prohibited:
a. Dynamite, gunpowder, ammunitions and other explosies, irearm and weapons o
war, and detached parts thereo, except when authorized by law.abi

728
Sec 3601
729
Sec 3314
730
Sec 3602
731
Sec 101
221

b. \ritten or printed article in any orm containing any matter adocating or inciting
treason, rebellion, insurrection or sedition against the Goernment o the Philippines, o
orcible resistance to any law o the Philippines, or containing any threat to take the lie o or
inlict bodily harm upon any person in the Philippines.
c. \ritten or printed articles, photographs, engraings, lithographs, objects,
paintings, drawings or other representation o an obscene or immoral character.
d. Articles, instruments, drugs and substances designed, intended or adapted or
preenting human conception or producing unlawul abortion, or any printed matter which
adertises or describes or gies directly or indirectly inormation where, how or by whom
human conception is preented or unlawul abortion produced.
e. Roulette wheels, gambling outits, loaded dice, marked cards, machines, apparatus
or mechanical deices used in gambling, or in the distribution o money, cigars, cigarettes or
other articles when such distribution is dependent upon chance, including jackpot and
pinball machines or similar contriances.
. Lottery and sweepstakes tickets except those authorized by the Philippine
Goernment, adertisements thereo and lists o drawings therein.
g. Any article manuactured in whole or in part o gold siler or other precious metal,
or alloys thereo, the stamps brands or marks o which do not indicate the actual ineness or
quality o said metals or alloys.
h. Any adulterated or misbranded article o ood or any adulterated or misbranded
drug in iolation o the proisions o the "lood and Drugs Act."
i. Marihuana, opium poppies, coca leaes, or any other narcotics or synthetic drugs
which are or may hereater be declared habit orming by the President o the Philippines,
any compound, manuactured salt, deriatie, or preparation thereo, except when imported
by the Goernment o the Philippines or any person duly authorized by the Collector o
Internal Reenue, or medicinal purposes only.
j. Opium pipes and parts thereo, o whateer material.
k. All other articles the importation o which is prohibited by law.
32









732
Sec 102 ld
222

l. Classiication o duties

1. Ordinary,Regular duties

1hese are duties imposed on imported articles that enter the country o the
Philippines in aoidance with the schedules and classiications proided under the 1ari and
Customs Code.

a. Ad alorem, Methods o aluation

1, 1ransaction alue

1he price actually paid or payable or the goods when sold or export to the Philippines,
adjusted by adding:

,1, 1he ollowing to the extent that they are incurred by the buyer but are not included in the
price actually paid or payable or the imported goods:

,a, Commissions and brokerage ees ,except buying commissions,,

,b, Cost o containers,

,c, 1he cost o packing, whether or labour or materials,

,d, 1he alue, apportioned as appropriate, o the ollowing goods and serices:
materials, components, parts and similar items incorporated in the imported goods, tools,
dies, moulds and similar items used in the production o imported goods, materials
consumed in the production o the imported goods, and engineering, deelopment, artwork,
design work and plans and sketches undertaken elsewhere than in the Philippines and
necessary or the production o imported goods, where such goods and serices are supplied
directly or indirectly by the buyer ree o charge or at a reduced cost or use in connection
with the production and sale or export o the imported goods,

,e, 1he amount o royalties and license ees related to the goods being alued that
the buyer must pay, either directly or indirectly, as a condition o sale o the goods to the
buyer,

,2, 1he alue o any part o the proceeds o any subsequent resale, disposal or use o the
imported goods that accrues directly or indirectly to the seller,

,3, 1he cost o transport o the imported goods rom the port o exportation to the port o
entry in the Philippines,

,4, Loading, unloading and handling charges associated with the transport o the imported
goods rom the country o exportation to the port o entry in the Philippines, and

,5, 1he cost o insurance.
33




733
Sec 1 (A) A 9133 amendlng Sec 201 of 1CC
223

2, 1ransaction alue o identical goods

\here the dutiable alue cannot be determined under method one, the dutiable
alue shall be the transaction alue o identical goods sold or export to the Philippines and
exported at or about the same time as the goods being alued. "Identical goods" shall mean
goods which are the same in all respects, including physical characteristics, quality and
reputation. Minor dierences in appearances shall not preclude goods otherwise conorming
to the deinition rom being regarded as identical.
34


3, 1ransaction alue o similar goods
\here the dutiable alue cannot be determined under the preceding method, the
dutiable alue shall be the transaction alue o similar goods sold or export to the
Philippines and exported at or about the same time as the goods being alued. "Similar
goods" shall mean goods which, although not alike in all respects, hae like characteristics
and like component materials which enable them to perorm the same unctions and to be
commercially interchangeable. 1he quality o the goods, their reputation and the existence o
a trademark shall be among the actors to be considered in determining whether goods are
similar.
I the dutiable alue still cannot be determined through the successie application o
the two immediately preceding methods, the dutiable alue shall be determined under
method our or, when the dutiable alue still cannot be determined under that method,
under method ie, except that, at the request o the importer, the order o application o
methods our and ie shall be reersed Proriaea boerer, 1hat i the Commissioner o
Customs deems that he will experience real diiculties in determining the dutiable alue
using method ie, the Commissioner o Customs may reuse such a request in which eent
the dutiable alue shall be determined under method our, i it can be so determined.
35

4, Deductie alue
1he dutiable alue o the imported goods under this method shall be the deductie alue
which shall be based on the unit price at which the imported goods or identical or similar imported
goods are sold in the Philippines, in the same condition as when imported, in the greatest aggregate
quantity, at or about the time o the importation o the goods being alued, to persons not related to
the persons rom whom they buy such goods, subject to deductions or the ollowing:
,1, Lither the commissions usually paid or agreed to be paid or the additions usually made
or proit and general expenses in connection with sales in such country o imported goods o the
same class or kind,
,2, 1he usual costs o transport and insurance and associated costs incurred within the
Philippines, and

734
Sec 1 (8) ld
733
Sec 1 (C) ld
224

,3, \here appropriate, the costs and charges reerred to in subsection ,A, ,3,, ,4, and ,5,,
and
,4, 1he customs duties and other national taxes payable in the Philippines by reason o the
importation or sale o the goods.
I neither the imported goods nor identical nor similar imported goods are sold at or about
the time o importation o the goods being alued in the Philippines in the conditions as imported,
the customs alue shall, subject to the conditions set orth in the preceding paragraph hereo, be
based on the unit price at which the imported goods or identical or similar imported goods sold in
the Philippines in the condition as imported at the earliest date ater the importation o the goods
being alued but beore the expiration o ninety ,90, days ater such importation.
I neither the imported goods nor identical nor similar imported goods are sold in the
Philippines in the condition as imported, then, i the importer so requests, the dutiable alue shall be
based on the unit price at which the imported goods, ater urther processing, are sold in the greatest
aggregate quantity to persons in the Philippines who are not related to the persons rom whom they
buy such goods, subject to allowance or the alue added by such processing and deductions
proided under Subsections ,D,,1,, ,2,, ,3, and ,4, hereo.
36

5, Computed alue
1he dutiable alue under this method shall be the computed alue which shall be the sum o:
,1, 1he cost or the alue o materials and abrication or other processing employed in
producing the imported goods,
,2, 1he amount or proit and general expenses equal to that usually relected in the sale o
goods o the same class or kind as the goods being alued which are made by producers in the
country o exportation or export to the Philippines,
,3, 1he reight, insurance ees and other transportation expenses or the importation o the
goods,
,4, Any assist, i its alue is not included under paragraph ,1, hereo, and
,5, 1he cost o containers and packing, i their alues are not included under paragraph ,1,
hereo.
1he Bureau o Customs shall not require or compel any person not residing in the
Philippines to produce or examination, or to allow access to, any account or other record or the
purpose o determining a computed alue. loweer, inormation supplied by the producer o the
goods or the purposes o determining the customs alue may be eriied in another country with the
agreement o the producer and proided they will gie suicient adance notice to the goernment
o the country in question and the latter does not object to the inestigation.
3



736
Sec 1 (u) ld
737
Sec 1 (L) ld
223

6, lallback alue

I the dutiable alue cannot be determined under the preceding methods described
aboe, it shall be determined by using other reasonable means and on the basis o data
aailable in the Philippines.

I the importer so requests, the importer shall be inormed in writing o the dutiable
alue determined under Method Six and the method used to determine such alue.

No dutiable alue shall be determined under Method Six on the basis o:

,1, 1he selling price in the Philippines o goods produced in the Philippines,
,2, A system that proides or the acceptance or customs purposes o the higher o
two alternatie alues,
,3, 1he price o goods in the domestic market o the country o exportation,
,4, 1he cost o production, other than computed alues, that hae been determined
or identical or similar goods in accordance with Method lie hereo,
,5, 1he price o goods or export to a country other than the Philippines,
,6, Minimum customs alues, or
,, Arbitrary or ictitious alues.
38


b. Speciic

Duty based on the dutiable weight o goods number or measurement.

2. Special duties

Imposed in addition to regular or ordinary duties principally in order to protect local
industries against unair competition rom oreign manuacturers or procedures, consumer
against possible deceptions, and national interest.

a. Dumping duties

Imposed by the Secretary o linance upon the recommendation o the 1ari
Commission when:

a. 1he price o the imported article is deliberately or continually ixed at less
than the air market alue or cost o production, and

b. Importation would cause or likely cause and injury to local industries engaged
in the manuacture or production o the same or similar articles or preent
their establishment.

Amount o special duty: extent o the underpricing.



738
Sec 1 (l) ld
226

b. Counterailing duties

Special duty imposed on imported articles which are granted any kind or orm o
subsidy by the goernment in the country or origin or exportation, the importation o which
has caused or threatens to cause material injury to a domestic industry or has materially
relaided the growth or, preents the establishment o a domestic industry.
39


c. Marking duties

Special duty o ie percent ,5, ad alorem imposed or articles properly marked,
collected by the commissioner, except when such article is exported or destroyed under the
customs superision and prior to inal liquidation o the corresponding entry.

Purpose: 1o preent possible deception o the consumers.

d. Retaliatory,Discriminatory duties

Imposed on imported goods wheneer it is ound as a act that the country o origin
discriminates against the commerce o the Philippines in such a manner as to place the
commerce o the Philippines at a disadantage compared with the commerce o any oreign
country.

e. Saeguard

Saeguard measures are emergency measures, including taris, to protect domestic
industries and producers rom increased imports which inlict or could inlict serious injury
on them.
40

1he C1A is ested with jurisdiction to reiew decisions o the Secretary o 1rade
and Industry imposing saeguard measures as proided under Rep. Act No. 8800 the
Saeguard Measures Act ,SMA,.
41


1he D1I Secretary cannot impose the saeguard measures i the 1ari Commission
does not aorably recommend its imposition.



I. Drawbacks

739
A 8731
equlslLes
1 1he levy of an exclse Lax or lnland Lax or local goods of Lhe same or slmllar class as Lhe arLlcle
lmporLed or Lhe granL of subsldy Lo Lhe forelgn exporLer by hls governmenL and
2 1he lmporLaLlon ls llkely Lo lnsure maLerlally esLabllshed local lndusLrles or prevenL Lhelr
esLabllshmenLs
AmounL of speclal duLy Lqual Lo Lhe bounLy or subsldy or subvenLlon
740
Safeguards measures LhaL may be lmposed AddlLlonal Larlffs lmporL quoLas or bannlng of lmporLs
741
5ootbeto ctoss cemeot cotpototloo v 1be lblllpploe cemeot Mooofoctotets cotp eL al C no
138340 !uly 8 2004
227


A drawback is a deice resorted to or enabling a commodity aected by taxes to be
exported and sold in oreign markets upon the same terms as i it had not been taxed at all.
It reers to duties or taxes paid back or remitted by the goernment on the exportation o
that on which they were leied under the 1ari and Customs Code. It reers to reund o
duties on imported uel used or proision o essels.

J. Remedies

1. Goernment

a. Administratie,Lxtrajudicial

1, Search, seizure, oreiture, arrest

lor the enorcement o the customs and tari laws, the ollowing persons are
authorized to eect searches, seizures and arrests conormably with the proisions o said
laws:

a. Oicials o the Bureau o Customs, collectors, assistant collectors, deputy collectors,
sureyors, security and secret-serice agents, inspectors, port patrol oicers and guards o the Bureau
o Customs.

b. Oicers o the Philippine Nay when authorized by the Commissioner.

c. Any person especially authorized in writing by the Commissioner.

d. Oicers generally empowered by law to eect arrests and execute processes o courts,
when acting under direction o the Collector.

e. Any person especially authorized by a Collector, subject to the restrictions stated in the
next succeeding section.

Persons exercising the powers hereinaboe conerred shall, in the exercise thereo, hae the
same authority, be entitled to the proper protection, and shall be goerned by the same law, not
inconsistent with the proisions o this section, as other oicers exercising police authority in
general.
42


Place \here Authority May Be Lxercised. Persons acting under authority conerred
pursuant to subsection ,e, o the preceding section may exercise their authority within the limits o
the collection district only and in or upon the particular essel or aircrat, or in the particular place, or
in respect to the particular article speciied in the appointment. All such appointments shall be in
writing, and the original shall be iled in the customhouse o the district where made.

All other persons exercising the powers hereinaboe conerred may exercise the same at any
place within the jurisdiction o the Bureau o Customs.
43



742
Sec 2203
743
Sec 2204
228

It shall be within the power o a customs oicial or person authorized as aoresaid, and it
shall be his duty, to make seizure o any essel, aircrat, cargo, articles, animal or other moable
property when the same is subject to oreiture or liable or any ine imposed under customs and
tari laws, and also to arrest any person subject to arrest or iolation o any customs and tari laws,
such power to be exercised in conormity with the law and the proisions o this Code.
44


It shall be the duty o any person exercising authority as aoresaid, upon being questioned at
the time o the exercise thereo, to make known his oicial character as an oicer or oicial o the
Goernment, and i his authority is deried rom special authorization in writing to exhibit the same
or inspection, i demanded.
45


Any person exercising police authority under the customs and tari laws may demand
assistance o any police oicer when such assistance shall be necessary to eect any search, seizure
or arrest which may be lawully made or attempted by him. It shall be the duty o any police oicer
upon whom such requisition is made to gie such lawul assistance in the matter as may be
required.
46


lor the more eectie discharge o his oicial duties, any person exercising the powers
herein conerred, may at anytime enter, pass through, or search any land or enclosure or any
warehouse, store or other building, not being a dwelling house.
4


A warehouse, store or other building or enclosure used or the keeping o storage o articles
does not become a dwelling house within the meaning hereo merely by reason o the act that a
person employed as watchman lies in the place, nor will the act that his amily stays there with him
alter the case.

A dwelling house may be entered and searched only upon warrant issued by a judge or
justice o the peace, upon sworn application showing probable case and particularly describing the
place to be searched and person or thing to be seized.
48


It shall be lawul or any oicial or person exercising police authority under the proisions
o this Code to go abroad any essel or aircrat within the limits o any collection to go aboard any
essel or aircrat within the limits o any collection district, and to inspect, search and examine said
essel or aircrat and any trunk, package, box or enelope on board, and to search any person on
board the said essel or aircrat and to this end to hail and stop such essel or aircrat i under way,
to use all necessary orce to compel compliance, and i it shall appear that any breach or iolation o
the customs and tari laws o the Philippines has been committed, whereby or in consequence o
which such essels or aircrats, or the article, or any part thereo, on board o or imported by such
essel or aircrat, is liable to oreiture, to make seizure o the same or any part thereo.

1he power o search hereinaboe gien shall extend to the remoal o any alse bottom,
partition, bulkhead or other obstruction, so ar as may be necessary to enable the oicer to discoer
whether any dutiable or oreitable articles may be concealed therein.

No proceeding herein shall gie rise to any claim or the damage thereby caused to article or
essel or aircrat.
49


744
Sec 2203
743
Sec 2206
746
Sec 2207
747
Sec 2208
748
Sec 2209
229


It shall also be lawul or a person exercising authority as aoresaid to open and examine any
box, trunk, enelope or other container, whereer ound where he has reasonable cause to suspect
the presence therein o dutiable or prohibited article or articles introduced into the Philippines
contrary to law, and likewise to stop, search and examine any ehicle, beast or person reasonably
suspected o holding or coneying such article as aoresaid.
50


All persons coming into the Philippines rom oreign countries shall be liable to detention
and search by the customs authorities under such regulations as may be prescribed relatie thereto.

lemale inspectors may be employed or the examination and search o persons o their own
sex.
51


Upon making any seizure, the Collector shall issue a warrant or the detention o the
property, and i the owner or importer desires to secure the release o the property or legitimate use,
the Collector may surrender it upon the iling o a suicient bond, in an amount to be ixed by him,
conditioned or the payment o the appraised alue o the article and,or any ine, expenses and costs
which may be adjudged in the case: Proided, 1hat articles the importation o which is prohibited by
law shall not be released under bond.
52


\hen a seizure is made or any cause, the Collector o the district wherein the seizure is
eected shall immediately make report thereo to the Commissioner and to the Auditor General.
53


1he Collector shall gie the owner or importer o the property or his agent a written notice
o the seizure and shall gie him an opportunity to be heard in reerence to the delinquency which
was the occasion o such seizure.

lor the purpose o giing such notice and o all other proceedings in the matter o such
seizure, the importer, consignee or person holding the bill o lading shall be deemed to be the
"owner" o the article included in the bill.

lor the same purpose, "agent" shall be deemed to include not only any agent in act o the
owner o the seized property but also any person haing responsible possession o the property at
the ,missing, o the seizure, i the owner or his agent in act is unknown or cannot be reached.
54


Notice to an unknown owner shall be eected by posting a notice or iteen days in the
public corridor o the customhouse o the district in which the seizure was made, and, in the
discretion o the Commissioner, by publication in a newspaper or by such other means as he shall
consider desirable.
55


1he Collector shall also cause a list and particular description o the property seized to be
prepared and an appraisement or classiication o the same at its wholesale alue in the local market
in the usual wholesale quantities to be made by at least two appraising oicials, i there are such
oicials at or near the place o seizure, in the absence o such oicials, then by two competent and

749
Sec 2210
730
Sec 2211
731
Sec 2212
732
Sec 2301
733
Sec 2302
734
Sec 2303
733
Sec 2304
230

disinterested citizens o the Philippines, to be selected by him or that purpose, residing at or near the
place o seizure, which list and appraisement shall be properly attested to by such Collector and the
persons making the appraisal.
56


I, within iteen days ater the notiication prescribed in section twenty-three hundred and
our o this Code, no owner or agent can be ound or appears beore the Collector, the latter shall
declare the property oreited to the goernment to be sold at auction in accordance with law.
5


I, in any seizure case, the owner or agent shall, while the case is yet beore the Collector o
the district o seizure, pay to such Collector the ine imposed by him or, in case o oreiture, shall
pay the appraised alue o the property, or, i ater appeal o the case, he shall pay to the
Commissioner the amount o the ine as inally determined by him, or, in case o oreiture, shall pay
the appraised alue o the property, such property shall be orthwith surrendered, and all liability
which may or might attach to the property by irtue o the oense which was the occasion o the
seizure and all liability which might hae been incurred under any bond gien by the owner or agent
in respect to such property shall thereupon be deemed to be discharged.

Redemption o oreited property shall not be allowed in any case where the importation is
absolutely prohibited or where the surrender o the property to the person oering to redeem the
same would be contrary to law.
58


b. Judicial

1, Rules on appeal including jurisdiction

1he party aggrieed by a ruling o the Commissioner in any matter brought beore
him upon protest or by his action or ruling in any case o seizure may appeal to the Court o
1ax Appeals, in the manner and within the period prescribed by law and regulations.

Unless an appeal is made to the Court o 1ax Appeals in the manner and within the
period prescribed by laws and regulations, the action or ruling o the Commissioner shall be
inal and conclusie.
59


2, 1axpayer

a. Protest

\hen a ruling or decision o the Collector is made whereby liability or duties, ees, or other
money charge is determined, except the ixing o ines in seizure cases, the party adersely aected
may protest such ruling or decision by presenting to the Collector at the time when payment o the
amount claimed to be due the Goernment is made, or within thirty days thereater, a written protest
setting orth his objections to the ruling or decision in question, together with the reasons thereor.
No protest shall be considered unless payment o the amount due ater inal liquidation has irst been
made.
60


736
Sec 2303
737
Sec 2306
738
Sec 2307
739
Sec 2402
760
Sec 2308
231


In all cases subject to protest, the interested party who desires to hae the action o the
Collector reiewed, shall make a protest, otherwise, the action o the Collector shall be inal and
conclusie against him, except as to matters correctible or maniest error in the manner prescribed
in section one thousand seen hundred and seen hereo.
61


Lery protest shall be iled in accordance with the prescribed rules and regulations
promulgated under this section and shall point out the particular decision or ruling o the Collector
to which exception is taken or objection made, and shall indicate with reasonable precision the
particular ground or grounds upon which the protesting party bases his claim or relie.

1he scope o a protest shall be limited to the subject matter o a single adjustment or other
independent transaction, but any number o issue may be raised in a protest with reerence to the
particular item or items constituting the subject matter o the protest.

"Single adjustment", as hereinaboe used, reers to the entire content o one liquidation,
including all duties, ees, surcharges or ines incident thereto.
62


I the nature o the articles permit, importers iling protests inoling questions o act must,
upon demand, supply the Collector with samples o the articles which are the subject matter o the
protests. Such samples shall be eriied by the custom oicial who made the classiication against
which the protest are iled.
63


\hen a protest in proper orm is presented in a case where protest in required, the Collector
shall reexamine the matter thus presented, and i the protest is sustained, in whole or in part, he shall
enter the appropriate order, the entry reliquidated i necessary.

In seizure cases, the Collector, ater a hearing, shall in writing make a declaration o
oreiture or ix the amount o the ine or take such other action as may be proper.
64


1he person aggrieed by the decision or action o the Collector in any matter presented
upon protest or by his action in any case o seizure may, within iteen days ater notiication in
writing by the Collector o his action or decision, gie written notice to the Collector o his desire to
hae the matter reiewed by the Commissioner. 1hereupon the Collector shall orthwith transmit all
the records o the proceedings to the Commissioner, who shall approe, modiy or reerse the action
or decision o the Collector and take such steps and make such orders as may be necessary to gie
eect to his decision.
65


Notice o the decision o the Commissioner shall be gien to the party by whom the case
was brought beore him or reiew, and in seizure cases such notice shall be eected by personal
serice i practicable.
66


I in any case inoling the assessment o duties the importer shall ail to protest the ruling
o the Collector, and the Commissioner shall be o the opinion that the ruling was erroneous and
unaorable to the Goernment, the latter may order a reliquidation, and i the ruling o the

761
Sec 2309
762
Sec 2310
763
Sec 2311
764
Sec 2312
763
Sec 2313
766
Sec 2314
232

Commissioner in any unprotested case should, in the opinion o the department head, be erroneous
and unaorable to the Goernment, the department head may require the Commissioner to order a
reliquidation.

Lxcept as in the preceding paragraph proided, the superisory authority o the department
head oer the Bureau o Customs shall not extend to the administratie reiew o the ruling o the
Commissioner in matters appealed to the Court o 1ax Appeals.
6


b. Abandonment

Abandonment is express when it is made direct to the Collector by the interested
party in writing, and it is implied when, rom the action or omission o the interested party,
an intention to abandon can be clearly inerred. 1he ailure o any interested party to ile the
import entry within iteen days or any extension thereo rom the discharge o the essel or
aircrat, shall be implied abandonment. An implied abandonment shall not be eectie until
the article is declared by the Collector to hae been abandoned ater notice thereo is gien
to the interested party as in seizure cases.

Any person who abandons an imported article renounces all his interests and
property rights therein.
68


1he owner or importer o any articles may, within ten days ater iling o the import entry,
abandon to the Goernment all or a part o the articles included in an inoice, and, thereupon, he
shall be relieed rom the payment o duties, taxes and all other charges and expenses due thereon:
Proided, 1hat the portion so abandoned is not less than ten per cent o the total inoice and is not
less than one package, except in cases o articles imported or personal or amily use. 1he article so
abandoned shall be deliered by the owner or importer at such place within the port o arrial as the
Collector shall designate, and upon his ailure to so comply, the owner or importer shall be liable or
all expenses that may be incurred in connection with the disposition o the articles.

Nothing in this section shall be construed as relieing such owner or importer rom any
criminal liability which may arise rom any iolation o law committed in connection with the
importation o the abandoned article.
69


1he owner or importer o an article impliedly abandoned may, at any time beore it is sold or
otherwise disposed o, reclaim such article proided all legal requirements regarding its importation
are complied with and the corresponding duties, taxes and other charges as well as all expenses
incurred as a consequence o the abandonment, are paid.
0


c. Abatement and reund
Lxcept as herein specially proided, no abatement o duties shall be made on account o
damage incurred or deterioration suered during the oyage o importation, and duties will be

767
Sec 2313
768
Sec 1801
769
Sec 1802
770
Sec 1803
233

assessed on the actual quantity imported, as shown by the return o weighers, gaugers, measures,
examiners or appraisers, as the case may be.
1

\hen any package or packages appearing on the maniest or bill o lading are missing, a
remission or reund o the duty thereon shall be made i it is shown by proo satisactory to the
Collector that the package or packages in question hae not been imported into the Philippines.
2

I, upon opening any package, a deiciency or absence o any article, or o part o the
contents thereo, as called or by the inoice shall be ound to exist, such deiciency shall be certiied
to the Collector by the appraiser, and upon the production o proo satisactory to the Collector
showing that the shortage occurred beore the arrial o the article in the Philippines, the proper
abatement or reund o the duty shall be made

A Collector may abate or reund the amount o duties accruing or paid, and may likewise
make a corresponding allowance or credit on the entry bond, or other document, upon satisactory
proo o the injury, destruction, or loss by thet, ire or other causes o any article as ollows:
a. \hile within the limits o any port o entry prior to unlading under customs superision.
b. \hile remaining in customs custody ater unlading.
c. \hile in transit under bond rom the port o entry to any port in the Philippines.
d. \hile released under bond to export, except in case o loss by thet.
4

\here it is satisactorily shown to the Collector that an animal which is the subject o
importation dies or suers injury beore arrial, or while in customs custody, the duty shall be
correspondingly abated by him, proided the carcass o any dead animal remaining on board or in
customs custody be remoed in the manner required by the Collector and at the expense o the
importer.
5

1he Collector shall in all cases o allowances, abatements or reunds o duties, cause an
examination and report in writing to be made as to any act discoered during such examination
which tends to account or the discrepancy or dierence and cause the corresponding adjustment to
be made on the import entry.
6

Maniest clerical errors made in an inoice or entry, errors in return o weight, measure and
gauge, when duly certiied to by the sureyor or examining oicial ,when there are such oicials at
the port,, and errors in the distribution o charges on inoices not inoling any question o law and
certiied to by the examining oicial, may be corrected in the computation o duties, i such errors be
discoered beore the payment o duties, or, i discoered within one year ater the inal liquidation,
upon written request and notice o error rom the importer, or upon statement o error certiied by
the Collector.

771
Sec 1701
772
Sec 1702
773
Sec 1703
774
Sec 1704
773
Sec 1703
776
Sec 1706
234

lor the purpose o correcting errors speciied in the next preceding paragraph the Collector
is authorized to reliquidate entries and collect additional charges, or to make reunds on statement o
error within the statutory time limit.

All claims or reund o duties shall be made in writing, and orwarded to the Collector to
whom such duties are paid, who upon receipt o such claim shall eriy the same by the records o
his oice, and i ound to be correct and in accordance with law, shall certiy the same to the
Commissioner with his recommendation together with all necessary papers and documents. Upon
receipt by the Commissioner o such certiied claim he shall cause the same to be paid i ound
correct.
8

'. Judicial Remedies, Republic Act JJ %e Act tat Created te Court of %ax
Appeals (C%A)
779
as amended and te Revised Rules of te Court of %ax Appeals

A. Jurisdiction o the Court o 1ax Appeals

1. Lxclusie appellate jurisdiction oer ciil tax cases

a. Cases within the jurisdiction o the Court en banc

1he Court en banc shall exercise exclusie appellate jurisdiction to reiew by appeal the
ollowing:

,a, Decisions or resolutions on motions or reconsideration or new trial o the Court in
Diisions in the exercise o its exclusie appellate jurisdiction oer:

,1, Cases arising rom administratie agencies - Bureau o Internal Reenue, Bureau
o Customs, Department o linance, Department o 1rade and Industry, Department o
Agriculture,

,2, Local tax cases decided by the Regional 1rial Courts in the exercise o their
original jurisdiction, and

,3, 1ax collection cases decided by the Regional 1rial Courts in the exercise o their
original jurisdiction inoling inal and executory assessments or taxes, ees, charges and

777
Sec 1707
778
Sec 1708
779
1he CourL of 1ax Appeals ls a courL of speclal appellaLe [urlsdlcLlon and a parL of our [udlclal sysLem
1he proceedlngs Lhereln are [udlclal ln naLure alLhough Lhe CourL ls noL bound by Lhe Lechnlcal rules of
evldence (lotokoo lloototloo co vs uomloqo L18371 29 CcL 1966)
lL ls a regular courL vesLed wlLh excluslve appellaLe [urlsdlcLlon over cases arlslng under Lhe
1naLlonal lnLernal evenue Code
21arlff and CusLoms Code
3AssessmenL law
1he C1A ls a hlghly speclallzed body speclally creaLed for Lhe purpose of revlewlng Lax cases lLs flndlngs
wlll noL be ordlnarlly be revlewed absenL a showlng of gross error or abuse on lLs parL 1hese flndlngs are
blndlng upon Lhe Supreme CourL and ln Lhe absence of sLrong reasons for Lhe courL Lo delve on faLcs only
quesLlons of law are open for deLermlnaLlon

233

penalties, where the principal amount o taxes and penalties claimed is less than one million
pesos,

,b, Decisions, resolutions or orders o the Regional 1rial Courts in local tax cases decided or
resoled by them in the exercise o their appellate jurisdiction,

,c, Decisions, resolutions or orders o the Regional 1rial Courts in tax collection cases
decided or resoled by them in the exercise o their appellate jurisdiction,

,d, Decisions, resolutions or orders on motions or reconsideration or new trial o the Court
in Diision in the exercise o its exclusie original jurisdiction oer tax collection cases,

,e, Decisions o the Central Board o Assessment Appeals ,CBAA, in the exercise o its
appellate jurisdiction oer cases inoling the assessment and taxation o real property originally
decided by the proincial or city board o assessment appeals,

,, Decisions, resolutions or orders on motions or reconsideration or new trial o the Court
in Diision in the exercise o its exclusie original jurisdiction oer cases inoling criminal oenses
arising rom iolations o the National Internal Reenue Code or the 1ari and Customs Code and
other laws administered by the Bureau o Internal Reenue or Bureau o Customs,

,g, Decisions, resolutions or orders on motions or reconsideration or new trial o the Court
in Diision in the exercise o its exclusie appellate jurisdiction oer criminal oenses mentioned in
the preceding subparagraph, and

,h, Decisions, resolutions or orders o the Regional trial Courts in the exercise o their
appellate jurisdiction oer criminal oenses mentioned in subparagraph ,,.
80


b. Cases within the jurisdiction o the Court in diisions

,a, Lxclusie original or appellate jurisdiction to reiew by appeal the ollowing:

,1, Decisions o the Commissioner o Internal Reenue in cases inoling disputed
assessments, reunds o internal reenue taxes, ees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Reenue Code or other laws
administered by the Bureau o Internal Reenue,

,2, Inaction by the Commissioner o Internal Reenue in cases inoling disputed
assessments, reunds o internal reenue taxes, ees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Reenue Code or other laws
administered by the Bureau o Internal Reenue, where the National Internal Reenue Code
or other applicable law proides a speciic period or action: Proided, that in case o
disputed assessments, the inaction o the Commissioner o Internal Reenue within the one
hundred eighty day-period under Section 228 o the National Internal reenue Code shall be
deemed a denial or purposes o allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a ormal decision o the Commissioner o Internal Reenue
on the tax case, Proided, urther, that should the taxpayer opt to await the inal decision o
the Commissioner o Internal Reenue on the disputed assessments beyond the one
hundred eighty day-period aboementioned, the taxpayer may appeal such inal decision to

780
ule 4 Sec 2 evlsed ules of Lhe CourL Cf 1ax Appeals
236

the Court under Section 3,a,, Rule 8 o these Rules, and Proided, still urther, that in the
case o claims or reund o taxes erroneously or illegally collected, the taxpayer must ile a
petition or reiew with the Court prior to the expiration o the two-year period under
Section 229 o the National Internal Reenue Code,

,3, Decisions, resolutions or orders o the Regional 1rial Courts in local tax cases
decided or resoled by them in the exercise o their original jurisdiction,

,4, Decisions o the Commissioner o Customs in cases inoling liability or
customs duties, ees or other money charges, seizure, detention or release o property
aected, ines, oreitures o other penalties in relation thereto, or other matters arising
under the Customs Law or other laws administered by the Bureau o Customs,

,5, Decisions o the Secretary o linance on customs cases eleated to him
automatically or reiew rom decisions o the Commissioner o Customs aderse to the
Goernment under Section 2315 o the 1ari and Customs Code, and

,6, Decisions o the Secretary o 1rade and Industry, in the case o nonagricultural
product, commodity or article, and the Secretary o Agriculture, in the case o agricultural
product, commodity or article, inoling dumping and counterailing duties under Section
301 and 302, respectiely, o the 1ari and Customs Code, and saeguard measures under
Republic Act No. 8800, where either party may appeal the decision to impose or not to
impose said duties,

,b, Lxclusie jurisdiction oer cases inoling criminal oenses, to wit:

,1, Original jurisdiction oer all criminal oenses arising rom iolations o the
National internal Reenue Code or 1ari and Customs Code and other laws administered by
the Bureau o Internal Reenue o the Bureau o Customs, where the principal amount o
taxes and ees, exclusie o charges and penalties, claimed is one million pesos or more, and

,2, Appellate jurisdiction oer appeals rom the judgments, resolutions or orders o
the Regional 1rial Courts in their original jurisdiction in criminal oenses arising rom
iolations o the National Internal Reenue Code or 1ari and Customs Code and other
laws administered by the Bureau o Internal Reenue or Bureau o Customs, where the
principal amount o taxes and ees, exclusie o charges and penalties, claimed is less than
one million pesos or where there is no speciied amount claimed,

,c, Lxclusie jurisdiction oer tax collections cases, to wit:

,1, Original jurisdiction in tax collection cases inoling inal and executory
assessments or taxes, ees, charges and penalties, where the principal amount o taxes and
ees, exclusie o charges and penalties, claimed is one million pesos or more, and


,2, Appellate jurisdiction oer appeals rom the judgments, resolutions or orders o
the Regional 1rial Courts in tax collection cases originally decided by them within their
respectie territorial jurisdiction.
81




781
Sec 3 ld
237

2. Criminal cases

a. Lxclusie original jurisdiction

,a, Lxclusie original jurisdiction oer all criminal cases arising rom iolations o the NIRC
or 1ari and Customs Code and other laws administered by the BIR or the Bureau o Customs

Proriaea boerer here the principal amount o taxes and ees, exclusie o charges and
penalties claimed is less than one million pesos ,P1,000, 000. 00, or where there is no speciied
amount claimed - the oenses or penalties shall be tried by the regvar covrt. and the jurisdiction o the
C1A shall be appellate.

Any proision o law or the Rules o Court to the contrary notwithstanding, the criminal
action and the corresponding ciil action or the recoery o ciil liability or taxes and penalties shall
at all times be simultaneously instituted with, and jointly determined in the same proceeding by the
C1A, the iling o the criminal action being deemed to necessarily carry with it the iling o the ciil
action, and no right to resere the iling o such ciil action separately rom the criminal action will
be recognized.

b. Lxclusie appellate jurisdiction in criminal cases

Oer appeals rom the judgments, resolutions or orders o the R1C in tax cases
originally decided by them, in their respectie territorial jurisdiction.

Oer petitions or reiew o the judgments, resolutions, or orders o the R1C in the
exercise o their appellate jurisdiction oer tax cases originally decided by the Metropolitan
1rial Courts, Municipal 1rial Courts, and Municipal Circuit 1rial Courts in their respectie
jurisdiction.

B. Judicial Procedures

1. Judicial action or collection o taxes

a. Internal reenue taxes

Upon the issuance o any ruling, order or decision by the C1A aorable to the
national goernment, the C1A shall issue an order authorizing the Bureau o Internal
Reenue, through the Commissioner to seize and distraint any goods, chattels, or eects,
and the personal property, including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property and,or ley the real property o
such persons in suicient quantity to satisy the tax or charge together with any increment
thereto incident to delinquency. 1his remedy shall not be exclusie and shall not preclude
the Court rom aailing o other means under the Rules o Court.
82






782
Sec 13 of A no 1123 as amended by Sec 9 of A no 9282
238

b. Local taxes

1, Prescriptie period

lie ,5, years rom date o assessment.

2. Ciil cases

a. \ho may appeal, mode o appeal, eect o appeal
Any party adersely aected by a decision, ruling or inaction o the Commissioner o
Internal Reenue, the Commissioner o Customs, the Secretary o linance, the Secretary o 1rade
and Industry or the Secretary o Agriculture or the Central Board o Assessment Appeals or the
Regional 1rial Courts may ile an appeal with the C1A within thirty ,30, days ater the receipt o
such decision or ruling or ater the expiration o the period ixed by law or action as reerred to in
Section ,a,,2, herein.
Appeal shall be made by iling a petition or reiew under a procedure analogous to that
proided or under Rule 42
83
o the 199 Rules o Ciil Procedure with the C1A within thirty ,30,
days rom the receipt o the decision or ruling or in the case o inaction as herein proided, rom the
expiration o the period ixed by law to act thereon. A Diision o the C1A shall hear the appeal:
Proided, howeer, 1hat with respect to decisions or rulings o the Central Board o Assessment
Appeals and the Regional 1rial Court in the exercise o its appellate jurisdiction appeal shall be made
by iling a petition or reiew under a procedure analogous to that proided or under Rule 43 o the
199 Rules o Ciil Procedure with the C1A, which shall hear the case en banc.
All other cases inoling rulings, orders or decisions iled with the C1A as proided or in
Section shall be raled to its Diisions. A party adersely aected by a ruling, order or decision o
a Diision o the C1A may ile a motion or reconsideration o new trial beore the same Diision o
the C1A within iteens ,15, days rom notice thereo: Proide, howeer, 1hat in criminal cases, the
general rule applicable in regular Courts on matters o prosecution and appeal shall likewise apply.
No appeal taken to the C1A rom the decision o the Commissioner o Internal Reenue or
the Commissioner o Customs or the Regional 1rial Court, proincial, city or municipal treasurer or
the Secretary o linance, the Secretary o 1rade and Industry and Secretary o Agriculture, as the case
may be shall suspend the payment, ley, distraint, and,or sale o any property o the taxpayer or the
satisaction o his tax liability as proided by existing law: Proided, howeer, 1hat when in the
opinion o the Court the collection by the aorementioned goernment agencies may jeopardize the
interest o the Goernment and,or the taxpayer the Court any stage o the proceeding may suspend
the said collection and require the taxpayer either to deposit the amount claimed or to ile a surety
bond or not more than double the amount with the Court.
In criminal and collection cases coered respectiely by Section ,b, and ,c, o this Act, the
Goernment may directly ile the said cases with the C1A coering amounts within its exclusie and
original jurisdiction.
84



783
See eference
784
Sec 11 of A no 1123 ld
239

1, Suspension o collection o tax

a, Injunction not aailable to restrain
collection

Sec. 11 o RA No. 1125
85
grants C1A power to suspend collection o tax i such
collection works to serious prejudice o either taxpayer or goernment.

loweer, Sec. 218 o the 1ax Code proides that no court may grant injunction to
restrain collection o any tax, ee or charge imposed by 1ax Code.

1he proision in 1ax Code reers to courts other than the C1A.
86


Appeal to the C1A does not automatically suspend collection unless C1A issues
suspension order at any stage o proceedings.

2, 1aking o eidence

1he Court may, upon proper motion on or its initiatie, direct that a case, or any
issue thereo, be assigned to one o its members or the taking o eidence, when the
determination o a question o act arises upon motion or otherwise in any stage o the
proceedings, or when the taking o an account is necessary, or when the determination o an
issue o act requires the examination o a long account. 1he hearing beore such member
shall proceed in all respects as though the same had been made beore the Court.

Upon the recommendation o such hearing such member, he shall promptly submit
to the Court his report in writing, stating his indings and conclusions, and thereater, the
Court shall render its decisions on the case, adopting, modiying, or rejecting the report in
whole or in part, as the case may be, or the Court may, in its discretion recommit it with
instructions, or receie urther eidence.
8


3, Motion or reconsideration or New trial

A party adersely aected by a decision or resolution o a Diision o the Court on a
motion or reconsideration or new trial may appeal to the Court by iling beore it a petition
or reiew within iteen days rom receipt o a copy o the questioned decision or
resolution. Upon proper motion and the payment o the ull amount o the docket and other
lawul ees and deposit or costs beore the expiration o the reglementary period herein
ixed, the Court may grant an additional period not exceeding iteen days rom the
expiration o the original period within which to ile the petition or reiew.
88



783
as amended by Sec 9 of A no 9282
786
8lopoeto vs koJtlqoez C no L11293 March 29 1938
787
Sec 12 A 1123
788
Sec 3 (b) evlsed ules of Lhe C1A
240

An appeal rom a decision or resolution o the Court in Diision on a motion or
reconsideration or new trial shall be taken to the Court by petition or reiew as proided in
Rule 43 o the Rules o Court. 1he Court en banc shall act on the appeal.
89


b. Appeal to the C1A, en banc
No ciil proceeding inoling matter arising under the National Internal Reenue
Code, the 1ari and Customs Code or the Local Goernment Code shall be maintained,
except as herein proided, until and unless an appeal has been preiously iled with the C1A
and disposed o in accordance with the proisions o this Act.
90

"A party adersely aected by a resolution o a Diision o the C1A on a motion or
reconsideration or new trial, may ile a petition or reiew with the C1A en banc.
c. Petition or reiew on certiorari to the Supreme Court

A party adersely aected by a decision or ruling o the C1A en banc may ile with
the Supreme Court a eriied petition or reiew on certiorari pursuant to Rule 45 o the
199 Rules o Ciil Procedure.
91


3. Criminal cases

a. Institution and prosecution o criminal actions

1, Institution on ciil action in criminal action

In cases within the jurisdiction o the Court, the criminal action and the
corresponding ciil action or the recoery o ciil liability or taxes and penalties shall be
deemed jointly instituted in the same proceeding. 1he iling o the criminal action shall
necessarily carry with it the iling o the ciil action. No right to resere the iling o such
ciil action separately rom the criminal action shall be allowed or recognized.
92


b. Appeal and period to appeal

1, Solicitor General as counsel or the People and
goernment oicials sued in their oicial capacity

1he Solicitor General shall represent the People o the Philippines and goernment
oicials sued in their oicial capacity in all cases brought to the Court in the exercise o its
appellate jurisdiction. le may deputized the legal oicers o the Bureau o Internal Reenue
in cases brought under the National Internal Reenue Code or other laws enorced by the
Bureau o Internal Reenue, or the legal oicers o the Bureau o Customs in cases brought
under the 1ari and Customs Code o the Philippines or other laws enorced by the Bureau

789
Sec 4 (b) ld
790
SLC 18 ld
791
Sec 19
792
ule 9 Sec 11 ld ule 111 sec 1a par 1a ules of CourL
241

o Customs, to appear in behal o the oicials o said agencies sued in their oicial capacity:
Proided, howeer, such duly deputized legal oicers shall remain at all times under the
direct control and superision o the Solicitor General.
93


c. Petition or reiew on certiorari to the Supreme Court

A party adersely aected by a decision or ruling o the Court en banc may appeal
thererom by iling with the Supreme Court a eriied petition or reiew on certiorari within
iteen days rom receipt o a copy o the decision or resolution, as proided in Rule 45 o
the Rules o Court. I such party has iled a motion or reconsideration or or new trial, the
period herein ixed shall run rom the party`s receipt o a copy o the resolution denying the
motion or reconsideration or or new trial.
94


C. 1axpayer`s suit impugning the alidity o tax measures or acts o taxing
authorities

a. 1axpayer`s suit, deined

1axpayers` suit is a case where the act complained o directly inoles the illegal
disbursement o public unds deried rom taxation.
95


b. Distinguished rom citizen`s suit

1he plainti in a taxpayer`s suit is in a dierent category rom the plainti in a
citizen`s suit. In the ormer, the plainti is aected by the expenditure o public unds, while
in the latter, he is but the mere instrument o the public concern.
96


As held by the New \ork Supreme Court in People ex rel Case . Collins: "In matter
o mere public right, howeer.the people are the real parties.It is at least the right, i not
the duty, o eery citizen to interere and see that a public oence be properly pursued and
punished, and that a public grieance be remedied." \ith respect to taxpayer`s suits, 1err .
Jordan held that "the right o a citizen and a taxpayer to maintain an action in courts to
restrain the unlawul use o public unds to his injury cannot be denied."



793
Sec 10 ld
794
ule 16 Sec 1 ld
793
!usLlce Melo dlssenLlng ln kllosbayan lnc v Culngona !r 232 SCA 110
equlslLes for a Laxpayers peLlLlon
1) 1haL money ls belng exLracLed and spenL ln vlolaLlon of speclflc consLlLuLlonal
proLecLlons agalnsL abuses of leglslaLlve power
2) 1haL publlc money ls belng deflecLed Lo any lmproper purpose
3) 1haL Lhe peLlLloner seeks Lo resLraln respondenLs from wasLlng publlc funds
Lhrough Lhe enforcemenL of an lnvalld or unconsLlLuLlonal law
1he Supreme CourL has dlscreLlon wheLher or noL Lo enLerLaln Laxpayers
sulL and could brush aslde lack of locus sLandl (kllos 8ayan vs Culngona)
796
8eauchamp v Sllk
242

c. Requisites or challenging the constitutionality o a tax
measure or act o taxing authority

1, Concept o ocv. .tavai as applied in taxation

It is a party`s personal and substantial interest in the case, such that the party has
sustained or will sustain direct injury as a result o the goernment act being challenged. It
calls or more than just a generalized grieance.
9


A party need not be a party to the contract to challenge its alidity.
98


2, Doctrine o transcendental importance

\hen paramount public interest is inoled.

3, Ripeness or judicial determination

In our jurisdiction, the issue o ripeness is generally treated in terms o actual injury
to the plainti. lence, a question is ripe or adjudication when the act being challenged has
had a direct aderse eect on the indiidual challenging it.
99
An alternatie road to reiew
similarly taken would be to determine whether an action has already been accomplished or
perormed by a branch o goernment beore the courts may step in.
800

1o be ripe or judicial adjudication, the petitioner must show a personal stake in the
outcome o the case or an injury to himsel that can be redressed by a aorable decision o
the Court.
801











797
Aboyo v bJooe C no 167919 lebruary 14 2007
798
lbld
799
Coloqooo It v coott of Appeols 334 hll 413 427428 (1998)
800
ltooclsco It v noose of kepteseototlves 460 hll 830 901902 (2003)
801
A8AkAuA Curo arLy LlsL eLc supra v urlslma eLc clLlng Cruz v SecreLary of LnvlronmenL and
naLural esources 400 hll 904 (2000) vlLug ! separaLe oplnlon
243










#010703.0

Sec. 24

(B) Rate oI Tax on Certain !assive Income

(1) Interests, Royalties, !rizes, and Other Winnings - Iinal tax at the rate oI twenty
percent (20) is hereby imposed upon the amount oI interest Irom any currency bank deposit and
yield or any other monetary beneIit Irom deposit substitutes and Irom trust Iunds and similar
arrangements; royalties, except on books, as well as other literary works and musical
compositions, which shall be imposed a Iinal tax oI ten percent (10); prizes (except prizes
amounting to Ten thousand pesos (!10,000) or less which shall be subject to tax under Subsection
() oI Section 24; and other winnings (except !hilippine Charity Sweepstakes and Lotto
winnings), derived Irom sources within the !hilippines: !rovided, however, That interest income
received by an individual taxpayer (except a nonresident individual) Irom a depository bank
under the expanded Ioreign currency deposit system shall be subject to a Iinal income tax at the
rate oI seven and one-halI percent ( 1/2) oI such interest income: !rovided, Iurther, That
interest income Irom long-term deposit or investment in the Iorm oI savings, common or
individual trust Iunds, deposit substitutes, investment management accounts and other
investments evidenced by certiIicates in such Iorm prescribed by the Bangko Sentral ng !ilipinas
(BS!) shall be exempt Irom the tax imposed under this Subsection: !rovided, Iinally, That should
the holder oI the certiIicate pre-terminate the deposit or investment beIore the IiIth (5th) year, a
Iinal tax shall be imposed on the entire income and shall be deducted and withheld by the
depository bank Irom the proceeds oI the long-term deposit or investment certiIicate based on the
remaining maturity thereoI:

Four (4) years to less than Iive (5) years - 5;
Three () years to less than (4) years - 12; and
Less than three () years - 20

(2) Cash and/or !roperty Dividends - Iinal tax at the Iollowing rates shall be imposed upon
the cash and/or property dividends actually or constructively received by an individual Irom a
domestic corporation or Irom a joint stock company, insurance or mutual Iund companies and
regional operating headquarters oI multinational companies, or on the share oI an individual in
244

the distributable net income aIter tax oI a partnership (except a general proIessional partnership)
oI which he is a partner, or on the share oI an individual in the net income aIter tax oI an
association, a joint account, or a joint venture or consortium taxable as a corporation oI which he
is a member or co-venturer:

Six percent (6) beginning January 1, 1998;
Eight percent (8) beginning January 1, 1999; and
Ten percent (10 beginning January 1, 2000

!rovided, however, That the tax on dividends shall apply only on income earned on or aIter
January 1, 1998 Income Iorming part oI retained earnings as oI December 1, 199 shall not,
even iI declared or distributed on or aIter January 1, 1998, be subject to this tax
(C) Capital Gains Irom Sale oI Shares oI Stock not Traded in the Stock Exchange - The
provisions oI Section 9(B) notwithstanding, a Iinal tax at the rates prescribed below is hereby
imposed upon the net capital gains realized during the taxable year Irom the sale, barter,
exchange or other disposition oI shares oI stock in a domestic corporation, except shares sold, or
disposed oI through the stock exchange
Not over !100,000........... 5
On any amount in excess oI !100,000.... 10
(D) Capital Gains Irom Sale oI Real !roperty -
(1) In General - The provisions oI Section 9(B) notwithstanding, a Iinal tax oI six percent
(6) based on the gross selling price or current Iair market value as determined in accordance
with Section 6(E) oI this Code, whichever is higher, is hereby imposed upon capital gains
presumed to have been realized Irom the sale, exchange, or other disposition oI real property
located in the !hilippines, classiIied as capital assets, including pacto de retro sales and other
Iorms oI conditional sales, by individuals, including estates and trusts: !rovided, That the tax
liability, iI any, on gains Irom sales or other dispositions oI real property to the government or
any oI its political subdivisions or agencies or to government-owned or controlled corporations
shall be determined either under Section 24 () or under this Subsection, at the option oI the
taxpayer
Section 25

()
(2) Cash and/or !roperty Dividends Irom a Domestic Corporation or Joint Stock
Company, or Insurance or Mutual Fund Company or Regional Operating Headquarters or
Multinational Company, or Share in the Distributable Net Income oI a !artnership (Except a
General !roIessional !artnership), Joint ccount, Joint Venture Taxable as a Corporation or
ssociation, Interests, Royalties, !rizes, and Other Winnings - Cash and/or property dividends
Irom a domestic corporation, or Irom a joint stock company, or Irom an insurance or mutual Iund
company or Irom a regional operating headquarters oI multinational company, or the share oI a
nonresident alien individual in the distributable net income aIter tax oI a partnership (except a
general proIessional partnership) oI which he is a partner, or the share oI a nonresident alien
individual in the net income aIter tax oI an association, a joint account, or a joint venture taxable
as a corporation oI which he is a member or a co-venturer; interests; royalties (in any Iorm); and
prizes (except prizes amounting to Ten thousand pesos (!10,000) or less which shall be subject to
tax under Subsection (B)(1) oI Section 24) and other winnings (except !hilippine Charity
Sweepstakes and Lotto winnings); shall be subject to an income tax oI twenty percent (20) on
243

the total amount thereoI: !rovided, however, that royalties on books as well as other literary
works, and royalties on musical compositions shall be subject to a Iinal tax oI ten percent (10)
on the total amount thereoI: !rovided, Iurther, That cinematographic Iilms and similar works
shall be subject to the tax provided under Section 28 oI this Code: !rovided, Iurthermore, That
interest income Irom long-term deposit or investment in the Iorm oI savings, common or
individual trust Iunds, deposit substitutes, investment management accounts and other
investments evidenced by certiIicates in such Iorm prescribed by the Bangko Sentral ng !ilipinas
(BS!) shall be exempt Irom the tax imposed under this Subsection: !rovided, Iinally, that should
the holder oI the certiIicate pre-terminate the deposit or investment beIore the IiIth (5th) year, a
Iinal tax shall be imposed on the entire income and shall be deducted and withheld by the
depository bank Irom the proceeds oI the long-term deposit or investment certiIicate based on the
remaining maturity thereoI:



Four (4) years to less than Iive (5) years - 5;
Three () years to less than Iour (4) years - 12; and
Less than three () years - 20

() Capital Gains - Capital gains realized Irom sale, barter or exchange oI shares oI stock
in domestic corporations not traded through the local stock exchange, and real properties shall be
subject to the tax prescribed under Subsections (C) and (D) oI Section 24

(B) Nonresident lien Individual Not Engaged in Trade or Business Within the !hilippines -
There shall be levied, collected and paid Ior each taxable year upon the entire income received
Irom all sources within the !hilippines by every nonresident alien individual not engaged in trade
or business within the !hilippines as interest, cash and/or property dividends, rents, salaries,
wages, premiums, annuities, compensation, remuneration, emoluments, or other Iixed or
determinable annual or periodic or casual gains, proIits, and income, and capital gains, a tax equal
to twenty-Iive percent (25) oI such income Capital gains realized by a nonresident alien
individual not engaged in trade or business in the !hilippines Irom the sale oI shares oI stock in
any domestic corporation and real property shall be subject to the income tax prescribed under
Subsections (C) and (D) oI Section 24

(C) lien Individual Employed by Regional or rea Headquarters and Regional Operating
Headquarters oI Multinational Companies - There shall be levied, collected and paid Ior each
taxable year upon the gross income received by every alien individual employed by regional or
area headquarters and regional operating headquarters established in the !hilippines by
multinational companies as salaries, wages, annuities, compensation, remuneration and other
emoluments, such as honoraria and allowances, Irom such regional or area headquarters and
regional operating headquarters, a tax equal to IiIteen percent (15) oI such gross income:
!rovided, however, That the same tax treatment shall apply to Filipinos employed and occupying
the same position as those oI aliens employed by these multinational companies For purposes oI
this Chapter, the term 'multinational company' means a Ioreign Iirm or entity engaged in
international trade with aIIiliates or subsidiaries or branch oIIices in the sia-!aciIic Region and
other Ioreign markets

(D) lien Individual Employed by OIIshore Banking Units - There shall be levied, collected and
paid Ior each taxable year upon the gross income received by every alien individual employed by
oIIshore banking units established in the !hilippines as salaries, wages, annuities, compensation,
remuneration and other emoluments, such as honoraria and allowances, Irom such oII-shore
246

banking units, a tax equal to IiIteen percent (15) oI such gross income: !rovided, however, That
the same tax treatment shall apply to Filipinos employed and occupying the same positions as
those oI aliens employed by these oIIshore banking units

(E) lien Individual Employed by !etroleum Service Contractor and Subcontractor - n lien
individual who is a permanent resident oI a Ioreign country but who is employed and assigned in
the !hilippines by a Ioreign service contractor or by a Ioreign service subcontractor engaged in
petroleum operations in the !hilippines shall be liable to a tax oI IiIteen percent (15) oI the
salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria
and allowances, received Irom such contractor or subcontractor: !rovided, however, That the
same tax treatment shall apply to a Filipino employed and occupying the same position as an
alien employed by petroleum service contractor and subcontractor

ny income earned Irom all other sources within the !hilippines by the alien employees
reIerred to under Subsections (C), (D) and (E) hereoI shall be subject to the pertinent income tax,
as the case may be, imposed under this Code


Section 27
xxx
(D) Rates oI Tax on Certain !assive Incomes -

(1) Interest Irom Deposits and Yield or any other Monetary BeneIit Irom Deposit
Substitutes and Irom Trust Funds and Similar rrangements, and Royalties - Iinal tax at the
rate oI twenty percent (20) is hereby imposed upon the amount oI interest on currency bank
deposit and yield or any other monetary beneIit Irom deposit substitutes and Irom trust Iunds and
similar arrangements received by domestic corporations, and royalties, derived Irom sources
within the !hilippines: !rovided, however, That interest income derived by a domestic
corporation Irom a depository bank under the expanded Ioreign currency deposit system shall be
subject to a Iinal income tax at the rate oI seven and one-halI percent ( 1/2) oI such interest
income

(2) Capital Gains Irom the Sale oI Shares oI Stock Not Traded in the Stock Exchange -
Iinal tax at the rates prescribed below shall be imposed on net capital gains realized during the
taxable year Irom the sale, exchange or other disposition oI shares oI stock in a domestic
corporation except shares sold or disposed oI through the stock exchange:

Not over !100,000.......... 5
mount in excess oI !100,000..... 10

() Tax on Income Derived under the Expanded Foreign Currency Deposit System -
Income derived by a depository bank under the expanded Ioreign currency deposit system Irom
Ioreign currency transactions with local commercial banks, including branches oI Ioreign banks
that may be authorized by the Bangko Sentral ng !ilipinas (BS!) to transact business with Ioreign
currency depository system units and other depository banks under the expanded Ioreign currency
deposit system, including interest income Irom Ioreign currency loans granted by such depository
banks under said expanded Ioreign currency deposit system to residents, shall be subject to a Iinal
income tax at the rate oI ten percent (10) oI such income
ny income oI nonresidents, whether individuals or corporations, Irom transactions with
depository banks under the expanded system shall be exempt Irom income tax
247

(5) Capital Gains Realized Irom the Sale, Exchange or Disposition oI Lands and/or Buildings -
Iinal tax oI six percent (6) is hereby imposed on the gain presumed to have been realized on the
sale, exchange or disposition oI lands and/or buildings which are not actually used in the business
oI a corporation and are treated as capital assets, based on the gross selling price oI Iair market
value as determined in accordance with Section 6(E) oI this Code, whichever is higher, oI such
lands and/or buildings

Section 28

()Tax on Resident Foreign Corporations -

xxx

(4) OIIshore Banking Units - The provisions oI any law to the contrary notwithstanding,
income derived by oIIshore banking units authorized by the Bangko Sentral ng !ilipinas (BS!) to
transact business with oIIshore banking units, including any interest income derived Irom Ioreign
currency loans granted to residents, shall be subject to a Iinal income tax at the rate oI ten percent
(10) oI such income
ny income oI nonresidents, whether individuals or corporations, Irom transactions with said
oIIshore banking units shall be exempt Irom income tax

(5) Tax on Branch !roIits Remittances - ny proIit remitted by a branch to its head
oIIice shall be subject to a tax oI IiIteen (15) which shall be based on the total proIits applied or
earmarked Ior remittance without any deduction Ior the tax component thereoI (except those
activities which are registered with the !hilippine Economic Zone uthority) The tax shall be
collected and paid in the same manner as provided in Sections 5 and 58 oI this Code: provided,
that interests, dividends, rents, royalties, including remuneration Ior technical services, salaries,
wages premiums, annuities, emoluments or other Iixed or determinable annual, periodic or casual
gains, proIits, income and capital gains received by a Ioreign corporation during each taxable year
Irom all sources within the !hilippines shall not be treated as branch proIits unless the same are
eIIectively connected with the conduct oI its trade or business in the !hilippines
xxx
() Tax on Certain Incomes Received by a Resident Foreign Corporation -

(a) Interest Irom Deposits and Yield or any other Monetary BeneIit Irom Deposit
Substitutes, Trust Funds and Similar rrangements and Royalties - Interest Irom any currency
bank deposit and yield or any other monetary beneIit Irom deposit substitutes and Irom trust
Iunds and similar arrangements and royalties derived Irom sources within the !hilippines shall be
subject to a Iinal income tax at the rate oI twenty percent (20) oI such interest: !rovided,
however, That interest income derived by a resident Ioreign corporation Irom a depository bank
under the expanded Ioreign currency deposit system shall be subject to a Iinal income tax at the
rate oI seven and one-halI percent ( 1/2) oI such interest income

(b) Income Derived under the Expanded Foreign Currency Deposit System - Income
derived by a depository bank under the expanded Ioreign currency deposit system Irom Ioreign
currency transactions with local commercial banks including branches oI Ioreign banks that may
be authorized by the Bangko Sentral ng !ilipinas (BS!) to transact business with Ioreign currency
deposit system units, including interest income Irom Ioreign currency loans granted by such
depository banks under said expanded Ioreign currency deposit system to residents, shall be
subject to a Iinal income tax at the rate oI ten percent (10) oI such income
248

ny income oI nonresidents, whether individuals or corporations, Irom transactions with
depository banks under the expanded system shall be exempt Irom income tax

(c) Capital Gains Irom Sale oI Shares oI Stock Not Traded in the Stock Exchange -
Iinal tax at the rates prescribed below is hereby imposed upon the net capital gains realized during
the taxable year Irom the sale, barter, exchange or other disposition oI shares oI stock in a
domestic corporation except shares sold or disposed oI through the stock exchange:

Not over !100,000.......... 5
On any amount in excess oI !100,000.. 10

(B) Tax on Nonresident Foreign Corporation -

(1) n General - Except as otherwise provided in this Code, a Ioreign corporation not
engaged in trade or business in the !hilippines shall pay a tax equal to thirty-Iive percent (5)
oI the gross income received during each taxable year Irom all sources within the !hilippines,
such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums),
annuities, emoluments or other Iixed or determinable annual, periodic or casual gains, proIits and
income, and capital gains, except capital gains subject to tax under subparagraphs (C) and (d):
Provided, That eIIective 1, 1998, the rate oI income tax shall be thirty-Iour percent (4);
eIIective January 1, 1999, the rate shall be thirty-three percent (); and, eIIective January 1,
2000 and thereaIter, the rate shall be thirty-two percent (2)

(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. -
cinematographic Iilm owner, lessor, or distributor shall pay a tax oI twenty-Iive percent (25) oI
its gross income Irom all sources within the !hilippines

() Nonresident Owner or Lessor of Jessels Chartered by Philippine Nationals. -
nonresident owner or lessor oI vessels shall be subject to a tax oI Iour and one-halI percent (4
1/2) oI gross rentals, lease or charter Iees Irom leases or charters to Filipino citizens or
corporations, as approved by the Maritime Industry uthority

(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. -
Rentals, charters and other Iees derived by a nonresident lessor oI aircraIt, machineries and other
equipment shall be subject to a tax oI seven and one-halI percent ( 1/2) oI gross rentals or Iees

(5) Tax on Certain ncomes Received by a Nonresident Foreign Corporation. -

(a) nterest on Foreign Loans - Iinal withholding tax at the rate oI twenty percent
(20) is hereby imposed on the amount oI interest on Ioreign loans contracted on or aIter ugust
1, 1986;

(b) ntercorporate Dividends. - Iinal withholding tax at the rate oI IiIteen percent
(15) is hereby imposed on the amount oI cash and/or property dividends received Irom a
domestic corporation, which shall be collected and paid as provided in Section 5 () oI this
Code, subject to the condition that the country in which the nonresident Ioreign corporation is
domiciled, shall allow a credit against the tax due Irom the nonresident Ioreign corporation taxes
deemed to have been paid in the !hilippines equivalent to twenty percent (20) Ior 199,
nineteen percent (19) Ior 1998, eighteen percent (18) Ior 1999, and seventeen percent (1)
thereaIter, which represents the diIIerence between the regular income tax oI thirty-Iive percent
(5) in 199, thirty-Iour percent (4) in 1998, and thirty-three percent () in 1999, and
249

thirty-two percent (2) thereaIter on corporations and the IiIteen percent (15) tax on
dividends as provided in this subparagraph;
(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - Iinal tax at
the rates prescribed below is hereby imposed upon the net capital gains realized during the
taxable year Irom the sale, barter, exchange or other disposition oI shares oI stock in a domestic
corporation, except shares sold, or disposed oI through the stock exchange:
Not over!100,000..........5
On any amount in excess oI !100,000.... .10








Sec. 32 (B)(6)(a)

Retirement beneIits received under Republic ct No 641 and those received by
oIIicials and employees oI private Iirms, whether individual or corporate, in accordance with a
reasonable private beneIit plan maintained by the employer: !rovided, That the retiring oIIicial or
employee has been in the service oI the same employer Ior at least ten (10) years and is not less
than IiIty (50) years oI age at the time oI his retirement: Provided, further, That the beneIits
granted under this subparagraph shall be availed oI by an oIIicial or employee only once For
purposes oI this Subsection, the term 'reasonable private beneIit plan' means a pension, gratuity,
stock bonus or proIit-sharing plan maintained by an employer Ior the beneIit oI some or all oI his
oIIicials or employees, wherein contributions are made by such employer Ior the oIIicials or
employees, or both, Ior the purpose oI distributing to such oIIicials and employees the earnings
and principal oI the Iund thus accumulated, and wherein its is provided in said plan that at no
time shall any part oI the corpus or income oI the Iund be used Ior, or be diverted to, any purpose
other than Ior the exclusive beneIit oI the said oIIicials and employees


SEC. 33. Special 1reatment of Fringe Benefit.-
(A) mposition of 1ax. Iinal tax oI thirty-Iour percent (4) eIIective January 1,
1998; thirty-three percent () eIIective January 1, 1999; and thirty-two percent (2) eIIective
January 1, 2000 and thereaIter, is hereby imposed on the grossed-up monetary value oI Iringe
beneIit Iurnished or granted to the employee (except rank and Iile employees as deIined herein)
by the employer, whether an individual or a corporation (unless the Iringe beneIit is required by
the nature oI, or necessary to the trade, business or proIession oI the employer, or when the Iringe
beneIit is Ior the convenience or advantage oI the employer) The tax herein imposed is payable
by the employer which tax shall be paid in the same manner as provided Ior under Section 5 ()
oI this Code The grossed-up monetary value oI the Iringe beneIit shall be determined by dividing
the actual monetary value oI the Iringe beneIit by sixty-six percent (66) eIIective January 1,
1998; sixty-seven percent (6) eIIective January 1, 1999; and sixty-eight percent (68)
eIIective January 1, 2000 and thereaIter: Provided, however, That Iringe beneIit Iurnished to
employees and taxable under Subsections (B), (C), (D) and (E) oI Section 25 shall be taxed at the
applicable rates imposed thereat. Provided, further, That the grossed -Up value oI the Iringe
230

beneIit shall be determined by dividing the actual monetary value oI the Iringe beneIit by the
diIIerence between one hundred percent (100) and the applicable rates oI income tax under
Subsections (B), (C), (D), and (E) oI Section 25
(B) Fringe Benefit defined- For purposes oI this Section, the term fringe benefit
means any good, service or other beneIit Iurnished or granted in cash or in kind by an employer
to an individual employee (except rank and Iile employees as deIined herein) such as, but not
limited to, the Iollowing:
(1) Housing;
(2) Expenseaccount;
() Vehicle oI any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent oI the diIIerence between the
market rate and actual rate granted;
(6) Membership Iees, dues and other expenses borne by the employer Ior the employee
in social and athletic clubs or other similar organizations;
() Expenses Ior Ioreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) LiIe or health insurance and other non-liIe insurance premiums or similar amounts in
excess oI what the law allows

(C) Fringe Benefits Aot 1axable - The Iollowing Iringe beneIits are not taxable under this
Section:
(1) Iringe beneIits which are authorized and exempted Irom tax under special laws;
(2) Contributions oI the employer Ior the beneIit oI the employee to retirement,
insurance and hospitalization beneIit plans;
() BeneIits given to the rank and Iile employees, whether granted under a collective
bargaining agreement or not; and
(4) De minimis beneIits as deIined in the rules and regulations to be promulgated by the
Secretary oI Finance, upon recommendation oI the Commissioner
SEC. 58. Returns and Payment of 1axes Withheld at Source. -
(A) "uarterly Returns and Payments of 1axes Withheld. - Taxes deducted and withheld
under Section 5 by withholding agents shall be covered by a return and paid to, except in cases
where the Commissioner otherwise permits, an authorized Treasurer oI the city or municipality
where the withholding agent has his legal residence or principal place oI business, or where the
withholding agent is a corporation, where the principal oIIice is located
The taxes deducted and withheld by the withholding agent shall be held as a special Iund
in trust Ior the government until paid to the collecting oIIicers
The return Ior Iinal withholding tax shall be Iiled and the payment made within twenty-
Iive (25) days Irom the close oI each calendar quarter, while the return Ior creditable withholding
taxes shall be Iiled and the payment made not later than the last day oI the month Iollowing the
close oI the quarter during which withholding was made: Provided, That the Commissioner, with
the approval oI the Secretary oI Finance, may require these withholding agents to pay or deposit
231

the taxes deducted or withheld at more Irequent intervals when necessary to protect the interest oI
the government
(B) Statement of ncome Payments Made and 1axes Withheld. - Every withholding
agent required to deduct and withhold taxes under Section 5 shall Iurnish each recipient, in
respect to his or its receipts during the calendar quarter or year, a written statement showing the
income or other payments made by the withholding agent during such quarter or year, and the
amount oI the tax deducted and withheld thereIrom, simultaneously upon payment at the request
oI the payee, but not late than the twentieth (20th) day Iollowing the close oI the quarter in the
case oI corporate payee, or not later than March 1 oI the Iollowing year in the case oI individual
payee Ior creditable withholding taxes For Iinal withholding taxes, the statement should be given
to the payee on or beIore January 1 oI the succeeding year
(C) nnual nformation Return - Every withholding agent required to deduct and
withhold taxes under Section 5 shall submit to the Commissioner an annual inIormation return
containing the list oI payees and income payments, amount oI taxes withheld Irom each payee
and such other pertinent inIormation as may be required by the Commissioner In the case oI Iinal
withholding taxes, the return shall be Iiled on or beIore January 1 oI the succeeding year, and Ior
creditable withholding taxes, not later than March 1 oI the year Iollowing the year Ior which the
annual report is being submitted This return, iI made and Iiled in accordance with the rules and
regulations approved by the Secretary oI Finance, upon recommendation oI the Commissioner,
shall be suIIicient compliance with the requirements oI Section 68 oI this Title in respect to the
income payments
The Commissioner may, by rules and regulations, grant to any withholding agent a
reasonable extension oI time to Iurnish and submit the return required in this Subsection
(D) ncome of Recipient - Income upon which any creditable tax is required to be
withheld at source under Section 5 shall be included in the return oI its recipient but the excess
oI the amount oI tax so withheld over the tax due on his return shall be reIunded to him subject to
the provisions oI Section 204; iI the income tax collected at source is less than the tax due on his
return, the diIIerence shall be paid in accordance with the provisions oI Section 56
ll taxes withheld pursuant to the provisions oI this Code and its implementing rules and
regulations are hereby considered trust Iunds and shall be maintained in a separate account and
not commingled with any other Iunds oI the withholding agent
(E) Registration with Register of Deeds. - No registration oI any document transIerring
real property shall be eIIected by the Register oI Deeds unless the Commissioner or his duly
authorized representative has certiIied that such transIer has been reported, and the capital gains
or creditable withholding tax, iI any, has been paid: Provided, however, That the inIormation as
may be required by rules and regulations to be prescribed by the Secretary oI Finance, upon
recommendation oI the Commissioner, shall be annotated by the Register oI Deeds in the
TransIer CertiIicate oI Title or Condominium CertiIicate oI Title: Provided, further, That in cases
oI transIer oI property to a corporation, pursuant to a merger, consolidation or reorganization, and
where the law allows deIerred recognition oI income in accordance with Section 40, the
inIormation as may be required by rules and regulations to be prescribed by the Secretary oI
Finance, upon recommendation oI the Commissioner, shall be annotated by the Register oI Deeds
at the back oI the TransIer CertiIicate oI Title or Condominium CertiIicate oI Title oI the real
property involved: Provided, finally, That any violation oI this provision by the Register oI Deeds
232

shall be subject to the penalties imposed under Section 269 oI this Code

SEC. 75.
Declaration of "uarterly Corporate ncome 1ax. Every corporation shall Iile in
duplicate a quarterly summary declaration oI its gross income and deductions on a cumulative
basis Ior the preceding quarter or quarters upon which the income tax, as provided in Title II oI
this Code, shall be levied, collected and paid The tax so computed shall be decreased by the
amount oI tax previously paid or assessed during the preceding quarters and shall be paid not later
than sixty (60) days Irom the close oI each oI the Iirst three () quarters oI the taxable year,
whether calendar or Iiscal year



Sec. 106

(a) Export Sales - The term "export sales" means:

(1) The sale and actual shipment oI goods Irom the !hilippines to a Ioreign country,
irrespective oI any shipping arrangement that may be agreed upon which may inIluence or
determine the transIer oI ownership oI the goods so exported and paid Ior in acceptable Ioreign
currency or its equivalent in goods or services, and accounted Ior in accordance with the rules and
regulations oI the Bangko Sentral ng !ilipinas (BS!);

(2) Sale oI raw materials or packaging materials to a nonresident buyer Ior delivery to a
resident local export-oriented enterprise to be used in manuIacturing, processing, packing or
repacking in the !hilippines oI the said buyer's goods and paid Ior in acceptable Ioreign currency
and accounted Ior in accordance with the rules and regulations oI the Bangko Sentral ng !ilipinas
(BS!);

() Sale oI raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (0) oI total annual production;

(4) Sale oI gold to the Bangko Sentral ng !ilipinas (BS!); and

(5) Those considered export sales under Executive Order NO 226, otherwise known as
the Omnibus Investment Code oI 198, and other special laws

(b) Foreign Currency Denominated Sale - The phrase foreign currency denominated
sale means sale to a nonresident oI goods, except those mentioned in Sections 149 and 150,
assembled or manuIactured in the !hilippines Ior delivery to a resident in the !hilippines, paid Ior
in acceptable Ioreign currency and accounted Ior in accordance with the rules and regulations oI
the Bangko Sentral ng !ilipinas (BS!)

(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the !hilippines is a signatory eIIectively subjects such sales to zero rate
233


Sec. 108

(B) Transactions Subject to Zero !ercent (0) Rate - The Iollowing services perIormed in the
!hilippines by VT- registered persons shall be subject to zero percent (0) rate

(1) !rocessing, manuIacturing or repacking goods Ior other persons doing business outside the
!hilippines which goods are subsequently exported, where the services are paid Ior in acceptable
Ioreign currency and accounted Ior in accordance with the rules and regulations oI the Bangko
Sentral ng !ilipinas (BS!);

(2) Services other than those mentioned in the preceding paragraph, the consideration Ior
which is paid Ior in acceptable Ioreign currency and accounted Ior in accordance with the rules
and regulations oI the Bangko Sentral ng !ilipinas (BS!);

() Services rendered to persons or entities whose exemption under special laws or
international agreements to which the !hilippines is a signatory eIIectively subjects the supply oI
such services to zero percent (0) rate; `

(4) Services rendered to vessels engaged exclusively in international shipping; and

(5) Services perIormed by subcontractors and/or contractors in processing, converting, oI
manuIacturing goods Ior an enterprise whose export sales exceed seventy percent (0) oI total
annual production

SEC. 111 Transitional/!resumptive Input Tax Credits -

() Transitional Input Tax Credits - person who becomes liable to value-added tax or
any person who elects to be a VT-registered person shall, subject to the Iiling oI an inventory
according to rules and regulations prescribed by the Secretary oI Iinance, upon recommendation
oI the Commissioner, be allowed input tax on his beginning inventory oI goods, materials and
supplies equivalent Ior eight percent (8) oI the value oI such inventory or the actual value-
added tax paid on such goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax

(B) !resumptive Input Tax Credits -

(1) !ersons or Iirms engaged in the processing oI sardines, mackerel and milk, and in
manuIacturing reIined sugar and cooking oil, shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to one and one-halI percent (1 1/2) oI the gross value in
money oI their purchases oI primary agricultural products which are used as inputs to their
production

s used in this Subsection, the term "processing" shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or Iorm or inner
substance oI a product in such manner as to prepare it Ior special use to which it could not have
been put in its original Iorm or condition

(2) !ublic works contractors shall be allowed a presumptive input tax equivalent to one
and one-halI percent (1 1/2) oI the contract price with respect to government contracts only in
lieu oI actual input taxes thereIrom
234


SEC. 112. Refunds or 1ax Credits of nput 1ax. -
(A) Zero-Rated or Effectively Zero-Rated Sales. - any VT-registered person, whose
sales are zero-rated or eIIectively zero-rated may, within two (2) years aIter the close oI the
taxable quarter when the sales were made, apply Ior the issuance oI a tax credit certiIicate or
reIund oI creditable input tax due or paid attributable to such sales, except transitional input tax,
to the extent that such input tax has not been applied against output tax: !rovided, however, That
in the case oI zero-rated sales under Section 106()(2)(a)(1), (2) and (B) and Section 108 (B)(1)
and (2), the acceptable Ioreign currency exchange proceeds thereoI had been duly accounted Ior
in accordance with the rules and regulations oI the Bangko Sentral ng !ilipinas (BS!): !rovided,
Iurther, That where the taxpayer is engaged in zero-rated or eIIectively zero-rated sale and also in
taxable or exempt sale oI goods oI properties or services, and the amount oI creditable input tax
due or paid cannot be directly and entirely attributed to any one oI the transactions, it shall be
allocated proportionately on the basis oI the volume oI sales
(B) Capital Coods. - VT-registered person may apply Ior the issuance oI a tax credit
certiIicate or reIund oI input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes The application may be
made only within two (2) years aIter the close oI the taxable quarter when the importation or
purchase was made
(C) Cancellation of J1 Registration. - person whose registration has been cancelled due to
retirement Irom or cessation oI business, or due to changes in or cessation oI status under Section
106(C) oI this Code may, within two (2) years Irom the date oI cancellation, apply Ior the
issuance oI a tax credit certiIicate Ior any unused input tax which may be used in payment oI his
other internal revenue taxes

(D) Period Within Which Refund or 1ax Credit of nput 1axes Shall be Made. - In proper
cases, the Commissioner shall grant a reIund or issue the tax credit certiIicate Ior creditable input
taxes within one hundred twenty (120) days Irom the date oI submission oI compete documents
in support oI the application Iiled in accordance with Subsections () and (B) hereoI

In case oI Iull or partial denial oI the claim Ior tax reIund or tax credit, or the Iailure on the part oI
the Commissioner to act on the application within the period prescribed above, the taxpayer
aIIected may, within thirty (0) days Irom the receipt oI the decision denying the claim or aIter
the expiration oI the one hundred twenty day-period, appeal the decision or the unacted claim
with the Court oI Tax ppeals-

(E) Manner of Civing Refund. - ReIunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity oI being
countersigned by the Chairman, Commission on audit, the provisions oI the dministrative Code
oI 198 to the contrary notwithstanding: !rovided, That reIunds under this paragraph shall be
subject to post audit by the Commission on udit

SEC. 113.

nvoicing and ccounting Requirements for J1-Registered Persons. -
233

(A) nvoicing Requirements. - VT-registered person shall, Ior every sale, issue an
invoice or receipt In addition to the inIormation required under Section 2, the Iollowing
inIormation shall be indicated in the invoice or receipt:
(1) statement that the seller is a VT-registered person, Iollowed by his taxpayer's
identiIication number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax

(B) ccounting Requirements. - Notwithstanding the provisions oI Section 2, all
persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular
accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal
on which the daily sales and purchases are recorded The subsidiary journals shall contain such
inIormation as may be required by the Secretary oI Finance


Section 143. Tax on Business. - The municipality may impose taxes on the Iollowing
businesses:
(a) On manuIacturers, assemblers, repackers, processors, brewers, distillers, rectiIiers,
and compounders oI liquors, distilled spirits, and wines or manuIacturers oI any article oI
commerce oI whatever kind or nature, in accordance with the Iollowing schedule:
With gross sales or receipts Ior the
preceding calendar year in the amount oI:
mount oI Tax !er
nnum
Less than 10,00000 16500
! 10,00000 or more but less than 15,00000 22000
15,00000 or more but less than 20,00000 20200
20,00000 or more but less than 0,00000 44000
0,00000 or more but less than 40,00000 66000
40,00000 or more but less than 50,00000 82500
50,00000 or more but less than 5,00000 1,2000
5,00000 or more but less than 100,00000 1,65000
100,00000 or more but less than 150,00000 2,20000
150,00000 or more but less than 200,00000 2,5000
200,00000 or more but less than 00,00000 ,85000
00,00000 or more but less than 500,00000 5,50000
500,00000 or more but less than 50,00000 8,00000
50,00000 or more but less than 1,000,00000 10,00000
236

1,000,00000 or more but less than
2,000,00000
1,5000
2,000,00000 or more but less than
,000,00000
16,50000
,000,00000 or more but less than
4,000,00000
19,00000
4,000,00000 or more but less than
5,000,00000
2,10000
5,000,00000 or more but less than
6,500,00000
24,500
6,000,00000 or more at a rate not exceeding thirty-seven and a halI percent
() oI one percent (1)
(b) On wholesalers, distributors, or dealers in any article oI commerce oI whatever kind
or nature in accordance with the Iollowing schedule:
With gross sales or receipts Ior the preceding
calendar year in the amount oI:
mount oI Tax
!er nnum
Less than 1,00000 1800
! 1,00000 or more but less than 2,00000 00
2,00000 or more but less than ,00000 5000
,00000 or more but less than 4,00000 200
4,00000 or more but less than 5,00000 10000
5,00000 or more but less than 6,00000 12100
6,00000 or more but less than ,00000 1400
,00000 or more but less than 8,00000 16500
8,00000 or more but less than 10,00000 1800
10,00000 or more but less than 15,00000 22000
15,00000 or more but less than 20,00000 2500
20,00000 or more but less than 0,00000 000
0,00000 or more but less than 40,00000 44000
40,00000 or more but less than 50,00000 66000
50,00000 or more but less than 5,00000 99000
5,00000 or more but less than 100,00000 1,2000
100,00000 or more but less than 150,00000 1,8000
150,00000 or more but less than 200,00000 2,42000
200,00000 or more but less than 00,00000 ,0000
237

00,00000 or more but less than 500,00000 4,40000
500,00000 or more but less than 50,00000 6,60000
50,00000 or more but less than 1,000,00000 8,80000
1,000,00000 or more but less than 2,000,00000 10,00000
2,000,00000 or more at a rate not exceeding IiIty percent (50) oI one
percent (1)
(c) On exporters, and on manuIacturers , millers, producers, wholesalers, distributors,
dealers or retailers oI essential commodities enumerated hereunder at a rate not exceeding one-
halI () oI the rates prescribed under subsection (a), (b) and (d) oI this Section:
(1) Rice and corn;
(2) Wheat or cassava Ilour, meat, dairy products, locally manuIactured, processed
or preserved Iood, sugar, salt and other agricultural, marine, and Iresh water
products, whether in their original state or not;
() Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) gricultural implements equipment and post-harvest Iacilities, Iertilizers,
pesticides, insecticides, herbicides and other Iarm inputs;
(6) !oultry Ieeds and other animal Ieeds;
() School supplies; and
(8) Cement
(d) On retailers
With gross sales or receipts Ior the preceding
calendar year in the amount oI:
Rate oI Tax !er
nnum
!400,00000 or less 2
more than !400,00000 1
!rovided, however, That barangays shall have the exclusive power to levy taxes, as
provided under Section 152 hereoI, on gross sales or receipts oI the preceding calendar
year oI FiIty thousand pesos (!50,00000) or less, in the case oI cities, and Thirty
thousand pesos (!0,00000) or less, in the case oI municipalities
(e) On contractors and other independent contractors, in accordance with the Iollowing
schedule:
238

With gross sales or receipts Ior the preceding
calendar year in the amount oI:
mount oI Tax !er
nnum
Less than 5,00000 250
! 5,00000 or more but less than ! 10,00000 6160
10,00000 or more but less than 15,00000 10450
15,00000 or more but less than 20,00000 16500
20,00000 or more but less than 0,00000 2500
0,00000 or more but less than 40,00000 8500
40,00000 or more but less than 50,00000 55000
50,00000 or more but less than 5,00000 88000
5,00000 or more but less than 100,00000 1,2000
100,00000 or more but less than 150,00000 1,98000
150,00000 or more but less than 200,00000 2,64000
200,00000 or more but less than 250,00000 ,6000
250,00000 or more but less than 00,00000 4,62000
00,00000 or more but less than 400,00000 6,16000
400,00000 or more but less than 500,00000 8,25000
500,00000 or more but less than 50,00000 9,25000
50,00000 or more but less than 1,000,00000 10,25000
1,000,00000 or more but less than 2,000,00000 11,50000
2,000,00000 or more at a rate not exceeding IiIty percent (50) oI one
percent (1)
(I) On banks and other Iinancial institutions, at a rate not exceeding IiIty percent (50) oI
one percent (1) on the gross receipts oI the preceding calendar year derived Irom
interest, commissions and discounts Irom lending activities, income Irom Iinancial
leasing, dividends, rentals on property and proIit Irom exchange or sale oI property,
insurance premium
(g) On peddlers engaged in the sale oI any merchandise or article oI commerce, at a rate
not exceeding FiIty pesos (!5000) per peddler annually
(h) On any business, not otherwise speciIied in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax: !rovided, That on any business subject to
the excise, value-added or percentage tax under the National Internal Revenue Code, as
amended, the rate oI tax shall not exceed two percent (2) oI gross sales or receipts oI
the preceding calendar year
The sanggunian concerned may prescribe a schedule oI graduated tax rates but in no case to
exceed the rates prescribed herein
239

SEC 26 Registration Requirements -
() Requirements - Every person subject to any internal revenue tax shall register once with the
appropriate Revenue District OIIicer:

(1) Within ten (10) days Irom date oI employment, or

(2) On or beIore the commencement oI business,or

() BeIore payment oI any tax due, or

(4) Upon Iiling oI a return, statement or declaration as required in this Code

The registration shall contain the taxpayer's name, style, place oI residence, business and such
other inIormation as may be required by the Commissioner in the Iorm prescribed thereIor

person maintaining a head oIIice, branch or Iacility shall register with the Revenue District
OIIicer having jurisdiction over the head oIIice, brand or Iacility For purposes oI this Section, the
term "Iacility" may include but not be limited to sales outlets, places oI production, warehouses
or storage places

(B) nnual Registration Fee - n annual registration Iee in the amount oI Five hundred pesos
(!500) Ior every separate or distinct establishment or place oI business, including Iacility types
where sales transactions occur, shall be paid upon registration and every year thereaIter on or
beIore the last day oI January: !rovided, however, That cooperatives, individuals earning purely
compensation income, whether locally or abroad, and overseas workers are not liable to the
registration Iee herein imposed

The registration Iee shall be paid to an authorized agent bank located within the revenue district,
or to the Revenue Collection OIIicer, or duly authorized Treasurer oI the city oI municipality
where each place oI business or branch is registered

(C) Registration oI Each Type oI Internal Revenue Tax - Every person who is required to register
with the Bureau oI Internal Revenue under Subsection () hereoI, shall register each type oI
internal revenue tax Ior which he is obligated, shall Iile a return and shall pay such taxes, and
shall updates such registration oI any changes in accordance with Subsection (E) hereoI

(D) TransIer oI Registration - In case a registered person decides to transIer his place oI business
or his head oIIice or branches, it shall be his duty to update his registration status by Iiling an
application Ior registration inIormation update in the Iorm prescribed thereIor

(E) Other Updates - ny person registered in accordance with this Section shall, whenever
applicable, update his registration inIormation with the Revenue District OIIice where he is
registered, speciIying therein any change in type and other taxpayer details

(F) Cancellation oI Registration - The registration oI any person who ceases to be liable to a tax
type shall be cancelled upon Iiling with the Revenue District OIIice where he is registered an
application Ior registration inIormation update in a Iorm prescribed thereIor

260

(G) !ersons Commencing Business - ny person, who expects to realize gross sales or receipts
subject to value-added tax in excess oI the amount prescribed under Section 109(z) oI this Code
Ior the next 12-month period Irom the commencement oI the business, shall register with the
Revenue District OIIice which has jurisdiction over the head oIIice or branch and shall pay the
annual registration Iee prescribed in Subsection (B) hereoI

(H) !ersons Becoming Liable to the Value-added Tax - ny person, whose gross sales or
receipts in any 12-month period exceeds the amount prescribed under Subsection 109(z) oI this
Code Ior exemption Irom the value-added tax shall register in accordance with Subsection ()
hereoI, and shall pay the annual registration Iee prescribed within ten (10) days aIter the end oI
the last month oI that period, and shall be liable to the value-added tax commencing Irom the Iirst
day oI the month Iollowing his registration

(I) Optional Registration oI Exempt !erson - ny person whose transactions are exempt Irom
value-added tax under Section 109(z) oI this Code; or any person whose transactions are exempt
Irom the value-added tax under Section 109(a), (b), (c), and (d) oI this Code, who opts to register
as a VT taxpayer with respect to his export sales only, may update his registration inIormation
in accordance with Subsection (E) hereoI, not later than ten (10) days beIore the beginning oI the
taxable quarter and shall pay the annual registration Iee prescribed in Subsection (B) hereoI

In any case, the Commissioner may, Ior administrative reasons, deny any application Ior
registration including updates prescribed under Subsection (E) hereoI

For purposes oI Title IV oI this Code, any person who has registered value-added tax as a tax
type in accordance with the provisions oI Subsection (C) hereoI shall be reIerred to as VT-
registered person who shall be assigned only one Taxpayer IdentiIication Number

(J) Supplying oI Taxpayer IdentiIication Number (TIN) - ny person required under the
authority oI this Code to make, render or Iile a return, statement or other document shall be
supplied with or assigned a Taxpayer IdentiIication Number (TIN) which he shall indicate in such
return, statement or document Iiled with the Bureau oI Internal Revenue Ior his proper
identiIication Ior tax purposes, and which he shall indicate in certain documents, such as, but not
limited to the Iollowing:

(1) Sugar quedans, reIined sugar release order or similar instruments;
(2) Domestic bills oI lading;
() Documents to be registered with the Register oI Deeds oI ssessor's OIIice;
(4) Registration certiIicate oI transportation equipment by land, sea or air;
(5) Documents to be registered with the Securities and Exchange Commission;
(6) Building construction permits;
() pplication Ior loan with banks, Iinancial institutions, or other Iinancial intermediaries;
(8) pplication Ior mayor's permit;
(9) pplication Ior business license with the Department oI Trade & Industry; and
(10) Such other documents which may hereaIter be required under rules and regulations to be
promulgated by the Secretary oI Finance, upon recommendation oI the Commissioner

In cases where a registered taxpayer dies, the administrator or executor shall register the
estate oI the decedent in accordance with Subsection () hereoI and a new Taxpayer
IdentiIication Number (TIN) shall be supplied in accordance with the provisions oI this Section

In the case oI a nonresident decedent, the executor or administrator oI the estate shall
register the estate with the Revenue District OIIice where he is registered: !rovided, however,
261

That in case such executor or administrator is not registered, registration oI the estate shall be
made with the Taxpayer IdentiIication Number (TIN) supplied by the Revenue District OIIice
having jurisdiction over his legal residence

Only one Taxpayer identiIication Number (TIN) shall be assigned to a taxpayer ny
person who shall secure more than one Taxpayer IdentiIication Number shall be criminally liable
under the provision oI Section 25 on 'Violation oI Other !rovisions oI this Code or Regulations
in General'

Section 237.
Issuance oI Receipts or Sales or Commercial Invoices ll persons subject to an internal
revenue tax shall, Ior each sale or transIer oI merchandise or Ior services rendered valued at
Twenty-Iive pesos (!2500) or more, issue duly registered receipts or sales or commercial
invoices, prepared at least in duplicate, showing the date oI transaction, quantity, unit cost and
description oI merchandise or nature oI service: !rovided, however, That in the case oI sales,
receipts or transIers in the amount oI One hundred pesos (!10000) or more, or regardless oI the
amount, where the sale or transIer is made by a person liable to value-added tax to another person
also liable to value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or Iees, receipts or invoices shall be issued which shall show the
name, business style, iI any, and address oI the purchaser, customer or client: !rovided, Iurther,
That where the purchaser is a VT-registered person, in addition to the inIormation herein
required, the invoice or receipt shall Iurther show the Taxpayer IdentiIication Number (TIN) oI
the purchaser
The original oI each receipt or invoice shall be issued to the purchaser, customer or client
at the time the transaction is eIIected, who, iI engaged in business or in the exercise oI proIession,
shall keep and preserve the same in his place oI business Ior a period oI three () years Irom the
close oI the taxable year in which such invoice or receipt was issued, while the duplicate shall be
kept and preserved by the issuer, also in his place oI business, Ior a like period
The Commissioner may, in meritorious cases, exempt any person subject to internal
revenue tax Irom compliance with the provisions oI this Section
SEC. 248. Civil Penalties. -
xxx

(B) In case oI willIul neglect to Iile the return within the period prescribed by this Code
or by rules and regulations, or in case a Ialse or Iraudulent return is willIully made, the penalty to
be imposed shall be IiIty percent (50) oI the tax or oI the deIiciency tax, in case, any payment
has been made on the basis oI such return beIore the discovery oI the Ialsity or Iraud: Provided,
That a substantial underdeclaration oI taxable sales, receipts or income, or a substantial
overstatement oI deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary oI Finance, shall constitute prima Iacie evidence
oI a Ialse or Iraudulent return: Provided, further, That Iailure to report sales, receipts or income in
an amount exceeding thirty percent (0) oI that declared per return, and a claim oI deductions
in an amount exceeding (0) oI actual deductions, shall render the taxpayer liable Ior
262

substantial underdeclaration oI sales, receipts or income or Ior overstatement oI deductions, as
mentioned herein

SEC. 282.

InIormer's Reward to !ersons Instrumental in the Discovery oI Violations oI the National Internal
Revenue Code and in the Discovery and Seizure oI Smuggled Goods -

() For Violations oI the National Internal Revenue Code - ny person, except an
internal revenue oIIicial or employee, or other public oIIicial or employee, or his relative within
the sixth degree oI consanguinity, who voluntarily gives deIinite and sworn inIormation, not yet
in the possession oI the Bureau oI Internal Revenue, leading to the discovery oI Irauds upon the
internal revenue laws or violations oI any oI the provisions thereoI, thereby resulting in the
recovery oI revenues, surcharges and Iees and/or the conviction oI the guilty party and/or the
imposition oI any oI the Iine or penalty, shall be rewarded in a sum equivalent to ten percent
(10) oI the revenues, surcharges or Iees recovered and/or Iine or penalty imposed and collected
or One Million !esos (!1,000,000) per case, whichever is lower The same amount oI reward
shall also be given to an inIormer where the oIIender has oIIered to compromise the violation oI
law committed by him and his oIIer has been accepted by the Commissioner and collected Irom
the oIIender: !rovided, That should no revenue, surcharges or Iees be actually recovered or
collected, such person shall not be entitled to a reward: !rovided, Iurther, That the inIormation
mentioned herein shall not reIer to a case already pending or previously investigated or examined
by the Commissioner or any oI his deputies, agents or examiners, or the Secretary oI Finance or
any oI his deputies or agents: !rovided, Iinally, That the reward provided herein shall be paid
under rules and regulations issued by the Secretary oI Finance, upon recommendation oI the
Commissioner

(B) For Discovery and Seizure oI Smuggled Goods - To encourage the public to extend
Iull cooperation in eradicating smuggling, a cash reward equivalent to ten percent (10) oI the
Iair market value oI the smuggled and conIiscated goods or One Million !esos (!1,000,000) per
case, whichever is lower, shall be given to persons instrumental in the discovery and seizure oI
such smuggled goods

The cash rewards oI inIormers shall be subject to income tax, collected as a Iinal
withholding tax, at a rate oI ten percent (10)
The provisions oI the Ioregoing Subsections notwithstanding, all public oIIicials, whether
incumbent or retired, who acquired the inIormation in the course oI the perIormance oI their
duties during their incumbency, are prohibited Irom claiming inIormer's reward

-------------------------------------------------------------------------------------------------------------------

RULES OF COURT

RULE 42
Petition for Review From the Regional Trial Courts to the Court of Appeals
263

Section 1. How appeal taken; time for filing party desiring to appeal Irom a
decision oI the Regional Trial Court rendered in the exercise oI its appellate jurisdiction may Iile
a veriIied petition Ior review with the Court oI ppeals, paying at the same time to the clerk oI
said court the corresponding docket and other lawIul Iees, depositing the amount oI !50000 Ior
costs, and Iurnishing the Regional Trial Court and the adverse party with a copy oI the petition
The petition shall be Iiled and served within IiIteen (15) days Irom notice oI the decision sought
to be reviewed or oI the denial oI petitioner's motion Ior new trial or reconsideration Iiled in due
time aIter judgment Upon proper motion and the payment oI the Iull amount oI the docket and
other lawIul Iees and the deposit Ior costs beIore the expiration oI the reglementary period, the
Court oI ppeals may grant an additional period oI IiIteen (15) days only within which to Iile the
petition Ior review No Iurther extension shall be granted except Ior the most compelling reason
and in no case to exceed IiIteen (15) days (n)
Section 2. Form and contents The petition shall be Iiled in seven () legible copies,
with the original copy intended Ior the court being indicated as such by the petitioner, and shall
(a) state the Iull names oI the parties to the case, without impleading the lower courts or judges
thereoI either as petitioners or respondents; (b) indicate the speciIic material dates showing that it
was Iiled on time; (c) set Iorth concisely a statement oI the matters involved, the issues raised, the
speciIication oI errors oI Iact or law, or both, allegedly committed by the Regional Trial Court,
and the reasons or arguments relied upon Ior the allowance oI the appeal; (d) be accompanied by
clearly legible duplicate originals or true copies oI the judgments or Iinal orders oI both lower
courts, certiIied correct by the clerk oI court oI the Regional Trial Court, the requisite number oI
plain copies thereoI and oI the pleadings and other material portions oI the record as would
support the allegations oI the petition
The petitioner shall also submit together with the petition a certiIication under oath that
he has not theretoIore commenced any other action involving the same issues in the Supreme
Court, the Court oI ppeals or diIIerent divisions thereoI, or any other tribunal or agency; iI there
is such other action or proceeding, he must state the status oI the same; and iI he should thereaIter
learn that a similar action or proceeding has been Iiled or is pending beIore the Supreme Court,
the Court oI ppeals, or diIIerent divisions thereoI, or any other tribunal or agency, he undertakes
to promptly inIorm the aIoresaid courts and other tribunal or agency thereoI within Iive (5) days
thereIrom (n)
Section 3. Effect of failure to comply with requirements The Iailure oI the petitioner
to comply with any oI the Ioregoing requirements regarding the payment oI the docket and other
lawIul Iees, the deposit Ior costs, prooI oI service oI the petition, and the contents oI and the
documents which should accompany the petition shall be suIIicient ground Ior the dismissal
thereoI (n)
Section 4. Action on the petition The Court oI ppeals may require the respondent to
Iile a comment on the petition, not a motion to dismiss, within ten (10) days Irom notice, or
dismiss the petition iI it Iinds the same to be patently without merit, prosecuted maniIestly Ior
delay, or that the questions raised therein are too insubstantial to require consideration (n)
Section 5. Contents of comment The comment oI the respondent shall be Iiled in
seven () legible copies, accompanied by certiIied true copies oI such material portions oI the
record reIerred to therein together with other supporting papers and shall (a) state whether or not
he accepts the statement oI matters involved in the petition; (b) point out such insuIIiciencies or
inaccuracies as he believes exist in petitioner's statement oI matters involved but without
264

repetition; and (c) state the reasons why the petition should not be given due course copy
thereoI shall be served on the petitioner (a)
Section 6. Due course II upon the Iiling oI the comment or such other pleadings as
the court may allow or require, or aIter the expiration oI the period Ior the Iiling thereoI without
such comment or pleading having been submitted, the Court oI ppeals Iinds prima facie that the
lower court has committed an error oI Iact or law that will warrant a reversal or modiIication oI
the appealed decision, it may accordingly give due course to the petition (n)
Section 7. Elevation of record Whenever the Court oI ppeals deems it necessary, it
may order the clerk oI court oI the Regional Trial Court to elevate the original record oI the case
including the oral and documentary evidence within IiIteen (15) days Irom notice (n)
Section 8. Perfection of appeal; effect thereof. (a) Upon the timely Iiling oI a petition
Ior review and the payment oI the corresponding docket and other lawIul Iees, the appeal is
deemed perIected as to the petitioner
The Regional Trial Court loses jurisdiction over the case upon the perIection oI the appeals Iiled
in due time and the expiration oI the time to appeal oI the other parties
However, beIore the Court oI ppeals gives due course to the petition, the Regional Trial Court
may issue orders Ior the protection and preservation oI the rights oI the parties which do not
involve any matter litigated by the appeal, approve compromises, permit appeals oI indigent
litigants, order execution pending appeal in accordance with section 2 oI Rule 9, and allow
withdrawal oI the appeal (9a, R41)
(b) Except in civil cases decided under the Rule on Summary !rocedure, the appeal shall stay the
judgment or Iinal order unless the Court oI ppeals, the law, or these Rules shall provide
otherwise (a)
Section 9. Submission for decision II the petition is given due course, the Court oI
ppeals may set the case Ior oral argument or require the parties to submit memoranda within a
period oI IiIteen (15) days Irom notice The case shall be deemed submitted Ior decision upon the
Iiling oI the last pleading or memorandum required by these Rules or by the court itselI (n)
RULE 43
Appeals From the Court of Tax Appeals and Quasiudicial Agencies to the Court of
Appeals
Section 1. Scope This Rule shall apply to appeals Irom judgments or Iinal orders oI
the Court oI Tax ppeals and Irom awards, judgments, Iinal orders or resolutions oI or authorized
by any quasi-judicial agency in the exercise oI its quasi-judicial Iunctions mong these agencies
are the Civil Service Commission, Central Board oI ssessment ppeals, Securities and
Exchange Commission, OIIice oI the !resident, Land Registration uthority, Social Security
Commission, Civil eronautics Board, Bureau oI !atents, Trademarks and Technology TransIer,
National ElectriIication dministration, Energy Regulatory Board, National Telecommunications
Commission, Department oI grarian ReIorm under Republic ct No 665, Government Service
Insurance System, Employees Compensation Commission, gricultural Invention Board,
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Insurance Commission, !hilippine tomic Energy Commission, Board oI Investments,
Construction Industry rbitration Commission, and voluntary arbitrators authorized by law (n)
Section 2. Cases not covered This Rule shall not apply to judgments or Iinal orders
issued under the Labor Code oI the !hilippines (n)
Section 3. here to appeal n appeal under this Rule may be taken to the Court oI
ppeals within the period and in the manner herein provided, whether the appeal involves
questions oI Iact, oI law, or mixed questions oI Iact and law (n)
Section 4. Period of appeal The appeal shall be taken within IiIteen (15) days Irom
notice oI the award, judgment, Iinal order or resolution, or Irom the date oI its last publication, iI
publication is required by law Ior its eIIectivity, or oI the denial oI petitioner's motion Ior new
trial or reconsideration duly Iiled in accordance with the governing law oI the court or agency a
quo Only one (1) motion Ior reconsideration shall be allowed Upon proper motion and the
payment oI the Iull amount oI the docket Iee beIore the expiration oI the reglementary period, the
Court oI ppeals may grant an additional period oI IiIteen (15) days only within which to Iile the
petition Ior review No Iurther extension shall be granted except Ior the most compelling reason
and in no case to exceed IiIteen (15) days (n)
Section 5. How appeal taken ppeal shall be taken by Iiling a veriIied petition Ior
review in seven () legible copies with the Court oI ppeals, with prooI oI service oI a copy
thereoI on the adverse party and on the court or agency a quo The original copy oI the petition
intended Ior the Court oI ppeals shall be indicated as such by the petitioner
Upon the Iiling oI the petition, the petitioner shall pay to the clerk oI court oI the Court oI
ppeals the docketing and other lawIul Iees and deposit the sum oI !50000 Ior costs Exemption
Irom payment oI docketing and other lawIul Iees and the deposit Ior costs may be granted by the
Court oI ppeals upon a veriIied motion setting Iorth valid grounds thereIor II the Court oI
ppeals denies the motion, the petitioner shall pay the docketing and other lawIul Iees and
deposit Ior costs within IiIteen (15) days Irom notice oI the denial (n)
Section 6. Contents of the petition The petition Ior review shall (a) state the Iull
names oI the parties to the case, without impleading the court or agencies either as petitioners or
respondents; (b) contain a concise statement oI the Iacts and issues involved and the grounds
relied upon Ior the review; (c) be accompanied by a clearly legible duplicate original or a certiIied
true copy oI the award, judgment, Iinal order or resolution appealed Irom, together with certiIied
true copies oI such material portions oI the record reIerred to therein and other supporting papers;
and (d) contain a sworn certiIication against Iorum shopping as provided in the last paragraph oI
section 2, Rule 42 The petition shall state the speciIic material dates showing that it was Iiled
within the period Iixed herein (2a)
Section 7. Effect of failure to comply with requirements The Iailure oI the petitioner
to comply with any oI the Ioregoing requirements regarding the payment oI the docket and other
lawIul Iees, the deposit Ior costs, prooI oI service oI the petition, and the contents oI and the
documents which should accompany the petition shall be suIIicient ground Ior the dismissal
thereoI (n)
Section 8. Action on the petition The Court oI ppeals may require the respondent to
Iile a comment on the petition not a motion to dismiss, within ten (10) days Irom notice, or
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dismiss the petition iI it Iinds the same to be patently without merit, prosecuted maniIestly Ior
delay, or that the questions raised therein are too unsubstantial to require consideration (6a)
Section 9. Contents of comment The comment shall be Iiled within ten (10) days Irom
notice in seven () legible copies and accompanied by clearly legible certiIied true copies oI such
material portions oI the record reIerred to therein together with other supporting papers The
comment shall (a) point out insuIIiciencies or inaccuracies in petitioner's statement oI Iacts and
issues; and (b) state the reasons why the petition should be denied or dismissed copy thereoI
shall be served on the petitioner, and prooI oI such service shall be Iiled with the Court oI
ppeals (9a)
Section 10. Due course II upon the Iiling oI the comment or such other pleadings or
documents as may be required or allowed by the Court oI ppeals or upon the expiration oI the
period Ior the Iiling thereoI, and on the records the Court oI ppeals Iinds prima facie that the
court or agency concerned has committed errors oI Iact or law that would warrant reversal or
modiIication oI the award, judgment, Iinal order or resolution sought to be reviewed, it may give
due course to the petition; otherwise, it shall dismiss the same The Iindings oI Iact oI the court or
agency concerned, when supported by substantial evidence, shall be binding on the Court oI
ppeals (n)
Section 11. Transmittal of record Within IiIteen (15) days Irom notice that the
petition has been given due course, the Court oI ppeals may require the court or agency
concerned to transmit the original or a legible certiIied true copy oI the entire record oI the
proceeding under review The record to be transmitted may be abridged by agreement oI all
parties to the proceeding The Court oI ppeals may require or permit subsequent correction oI or
addition to the record (8a)
Section 12. Effect of appeal The appeal shall not stay the award, judgment, Iinal
order or resolution sought to be reviewed unless the Court oI ppeals shall direct otherwise upon
such terms as it may deem just (10a)
Section 13. Submission for decision II the petition is given due course, the Court oI
ppeals may set the case Ior oral argument or require the parties to submit memoranda within a
period oI IiIteen (15) days Irom notice The case shall be deemed submitted Ior decision upon the
Iiling oI the last pleading or memorandum required by these Rules or by the court oI ppeals (n)