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TAXATION LAW 2. Necessit y Theory The power to tax is an attribute of sovereignty
emanating from necessity. It is a nec essary burden to preserve the State's sovereignty and a means to give
I. t he citizenry an army to resist an aggression, a navy GENERAL PRINCIPLES t o defend its shores from invasion, a corps of civil servant s to serve, public improvements designed for
POWER OF TAXATION t he enjoyment of the citizenry and those which come TAXATION – power by which the sovereign through its within the State's territory, and facilities and law-making body raises revenue to defray the protection which a government is supposed to necessary expenses of government from among those provide. (Phil. Guaranty Co., Inc. v. CIR) who in some measure are privileged to enjoy its benefits and must bear its burdens. 3. Benefits-Protection / Reciprocity Theory
Taxation is described as a symbiotic relationship Two Fold Nature of the Power of Taxation whereby in exchange of the benefits and protection
attribute of sovereignty 1. It is an inherent t hat the citizens get from the Government, taxes are 2. It is legislative in charac ter paid. (CIR v. Algue, Inc.)
Note: While taxes are int ended for general benefits, Extent of Taxing Power special benefit s to taxpayers are not required. The
Subject to const itutional and inherent Government renders no special or commensurate rest rictions, the power of taxat ion is regarded as benefit to any particular person or property. comprehensive, unlimited, plenary and supreme.
I P T P D ? S THE OWER TO AX THE OWER TO ESTROY S L T P “Power to tax is the power to destroy” 1. COPE OF EGISLATIVE AXING OWER 1. Amount or rate of t ax ( Marshall Dictum) – refers to the unlimitedness and 2. Apportionment of the tax t he degree or vigor with which the taxing power may 3. Kind of tax be employed to raise revenue. 4. Method of collection - the financial needs of t he State may outrun any 5. Purpose/s of its levy, provided it is for public human calculat ion, so the power to meet those needs
purpose by taxation must not be limited even though taxes 6. Subject to be taxed, provided it is within its bec ome burdensome or confiscatory.
jurisdiction 7. Situs of taxation 2. “Power to tax is not the power to destroy while
the Supreme Court sits” (Holmes Dictum) – the TAXES – enforced proportional contributions from the power to tax knows no limit except those expressly persons and property levied by the law-making body stated in the Constitution. of the State by virtue of its sovereignty in support of government and for public needs. Marshall and Holmes Dictum Reconciled
Although the power to tax is almost unlimited, it C T must not be exercised in an arbit rary manner. If the HARACTERISTICS OF AXES 1. forced charge; abuse is so great so as to destroy the natural and 2. pecuniary burden payable in money; fundamental rights of people, it is the dut y of t he 3. levied by the legislature; judiciary to hold such an act unconstitut ional. 4. assessed with some reasonable rule of
apportionment; (see theoretical justice) P O T URPOSES AND BJECTIVES OF AXATION 5. imposed by the State wit hin its jurisdiction; 1. Revenue – basically, t he purpose of taxation is to
provide funds or property with which the State promotes the general welfare and protection of
6. levied for a public purpose. its citizens. 2. Non-Revenue (Key: PR EP) 2
R A V T a. P romotion of general welfare EQUISITES OF ALID AX 1. should be for a public purpose b. R egulation 2. the rule of taxation shall be uniform c. R eduction of social inequality 3. that either the person or property taxed be d. E ncourage economic growth
within the jurisdiction of the taxing authority e. P rotectionism 4. that t he assessment and collection of certain
kinds of taxes guarantees against injustice to P J R T OWER OF UDICIAL EVIEW IN AXATION individuals, especially by way of notic e and As long as the legislature, in imposing a tax, does opportunity for hearing be provided not violate applicable constitutional limitations or
5. the tax must not impinge on the inherent and restrictions, it is not within the province of the courts Constitutional limitations on the power of t o inquire into t he wisdom or policy of the exaction, taxation t he motives behind it, the amount to be raised or the
persons, property or other privileges to be taxed. T B T The court‘s power in taxation is limited only to HEORIES AND ASES OF AXATION 1. Lifeblood Theory t he applic ation and interpretat ion of the law.
Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed Note: The principle of judicial non-interference for lack of the motive power to activate and operate extends to the administrative realm. it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the A T SPECTS OF AXATION taxing aut horities, every person who is able to must 1. Levy or imposition of the tax (tax legislation) contribute his share in the running of the 2. Enforcement or tax administration (tax government . (CIR v. Algue, Inc.) administration)
E O T L W A R P , XAMPLES F AXES EVIED ITH EGULATORY URPOSE B P S T S (K : FAT) O C E O P P A T P ASIC RINCIPLES OF A OUND AX YSTEM EY R OMBINED XERCISE F OLICE OWER ND HE OWER 1. Fiscal Adequacy – sufficiency to meet O T . F AXATION
government expenditures and other public needs. 2. Administrative Feasibility/ Convenience – a. Motor vehicle registrat ion fees are now
capability of being effectively enforced. considered revenue or tax measures. (Pal v. Edu, G.R 3. Theoretical Justice – based on the taxpayer‘s No. L-41383, August 15,1988)
abilit y to pay; must be progressive. (Ability to This case reversed the doctrine previously held Pay Theory) in Republic v. Philippine Rabbit Bus Lines, Inc., 32
SCRA 211, to the effect that motor vehicle registration fees are regulatory exactions and not
TAXATION POLICE POWER EMINENT revenue measures. DOMAIN
1. Purpose b. The t ax imposed on videogram To raise revenue To promote public To facilitate the
purpose through State‘s need of establishments is not only regulatory but a revenue regulations property for public measure because the earnings of such establishments
use have not been subject to tax depriving the government of an additional source of income. (Tio v.
2. Amount of Exaction Videogram Regulatory Board, 151 SCRA 208)
No limit Limited to the cost No exaction; but of regulation, private property is
c. The coconut levy funds were all raised issuance of the taken by the State under the state‘s taxing and police powers. license or for public purpose
surveillance The state‘s concern to make it a strong and secure source not only in the livelihood of the significant segment of t he population, but also of export earnings, t he sustained growth of which is one 3. Benefits Received of the imperatives of the economic growth. No special or No direct benefit A direct benefit Philippine Coconut Producers Federation, Inc. direct benefit is is received; a results in the form
received by the healthy economic of just Cocofed v. Presidential Commission on Good taxpayer; merely standard of society compensation to Government (178 SCRA 236, 252) general benefit is attained the property owner of protection
C T L ONSTRUCTION OF AX AWS 1. Public purpose is always presumed. 2. If the law is clear, apply the law in accordance to 4. Non-impairment o f Contracts
Contracts may Contracts may be Contracts may be its plain and simple tenor. not be impaired impaired impaired 3. A statute will not be construed as imposing a tax
unless it does so clearly, expressly and 5. Transfer of Property Rights unambiguously.
Taxes paid No transfer but Transfer is 4. In case of doubt, it is construed most strongly become part of only restraint in its effected in favor of
against the Government, and liberally in favor of public funds exercise the State
t he taxpayer. 5. Provisions of a taxing act are not to be extended
6. Scope by implication.
All persons, All persons, Only upon a 6. Tax laws operate prospectively unless the property and property, rights particular property
purpose of the legislature to give retrospective excises and privileges effect is expressly declared or may be implied from the language used.
S T 7. Tax laws are special laws and prevail over a YSTEMS OF AXATION Global Syst em Schedular System general law.
A system employed A system employed where the T L NATURE OF AX AWS where the tax system income tax treatment varies 1. Not political in character views indifferently the and is made to depend on the
2. Civil in nature, not subject to ex post facto law tax base and generally kind or category of taxable
prohibitions treats in common all income of the taxpayer.
3. Not penal in character categories of taxable income of the individual.
T AXES ARE PERSONAL TO THE TAXPAYER 1. A corporation‘s tax delinquency cannot be
enforced against its stockholders. (Corporate Entity Doctrine) A system which taxes all A system which itemizes the Exception: Stockholders may be held liable for categories of income different incomes and
except certain passive provides for varied unpaid taxes of a dissolved corporat ion: incomes and capital percentages of taxes, to be a. if it appears that the corporate assets have gains. It prescribes a applied thereto. passed int o their hands or unitary but progressive
b. when the stockholders have unpaid rate for the taxable
subscriptions to the capital of the aggregate in comes and
corporat ion flat rates for certain passive incomes derived
2. Estate taxes are obligations that must be paid by by individuals. the executor or administrator out of the net assets and cannot be assessed against the heirs. Exception: If prior to the payment of the estate t ax due, the properties of the deceased are
distributed to the heirs, then the latt er is 8. Subsidy – a legislative grant of money in aid of a subsidiary liable for the payment of such portion private enterprise deemed to promote the public of the estate tax as his distributive share bears to welfare. the total value of the net estate. (Sec. 9, Rev. 9. Customs duties and fees – duties charged upon Regs. No. 2-2003; see CIR vs. Pineda G.R. No. L- commodities on their being transported into or 22734. September 15, 1967)) exported from a country.
10. Revenue – a broad term t hat includes taxes and C T income from other sources as well. LASSIFICATION OF AXES 1. As to subject matter: 11. Impost – in its general sense, it signifies any t ax,
a. Personal Tax – taxes are of fixed amount tribute or duty. In its limited sense, it means a upon all persons of a certain class within the duty on import ed goods and merchandise. jurisdiction without regard to property, occupation or business in which they may be Tax Special Assessment engaged.
b. Property Tax – assessed on property of a Imposed on persons, Levied only on land property and excises certain class
c. Excise Tax – imposed on the exercise of a Personal liability attaches Cannot be made a personal
privilege on the person assessed in liability of the person
d. Customs Duties – duties charged upon the case of non-payment assessed commodities on their being imported into or export ed from a country. Not based on any special or Based wholly on benefit
2. As to burden: direct benefit
a. Direct Tax – both the incidence of or liability Levied and paid annually Exceptional both as to time
for the payment of the tax as well as the and locality
impact or burden of the tax falls on the same person. Exemption granted is Exemption does not apply.
b. Indirect Tax - The incidence of or liability applicable (Art. VI, Sec. N.B. If property is exempt for the payment of the tax falls on one 28(3) 1987 Constitution) from Real Property Tax, it
is also exempt from person but the burden thereof can be shifted Special Assessment. or passed on to another.
3. As to purpose: Tax License Fee a. General Tax – levied for the general or
ordinary purposes of the Government Based on the power of Emanates from police b. Special Tax – levied for special purposes taxation power 4. As to manner of computation:
a. Specific Tax – the computat ion of the tax or To generate revenue Regulatory
the rates of the tax is already provided for by law. Amount is unlimited Amount is limited to the
b. Ad Valorem Tax – tax upon the value of the cost of (1) issuing the article or t hing subject to t axation; the license, and (2) inspection intervent ion of another party is needed for and surveillance the computation of t he t ax.
Normally paid after the Normally paid before 5. As to t axing authority: start of a business commencement of a. National Tax – levied by the National
business Government b. Local Tax – levied by the local gov ernment
Taxes, being the lifeblood License fee may be with 6. As to rate: of the State, cannot be or without consideration
a. Progressive Tax – rate or amount of tax surrendered except for increases as the amount of the income or lawfu l consideration earning t o be taxed increases.
b. Regressive Tax – tax rate decreases as the Non-payment does not Non-payment make s the make the business illegal business illegal amount of income to be taxed increases. but maybe a ground for c. Proportionate Tax – based on a fixed criminal prose cution proportion of the value of the property
assessed. T EST IN DETERMINING IF THE IMPOSITION IS A TAX OR A LICENSE
I N S C T FEE MPOSITIONS OT TRICTLY ONSIDERED AS AXES
If the purpose is primarily revenue or if revenue 1. Toll – amount charged for the cost and is, at least, one of the real and substantial purposes, maintenance of the property used. t hen t he exaction is a tax. If the purpose is 2. Penalty – punishment for the commission of a regulatory in nature, it is a license. (PAL v. Edu) crime.
3. Compromise Penalty – amount collect ed in lieu Tax Debt of criminal prosecution in cases of tax violations.
4. Special Assessment – levied only on land based An obligation imposed by Created by contract
wholly on benefit accruing thereon as a result of law
improvements or public works undertaken by government within the v icinity.
Du e to the government in May be due to the 5. License or Fee – regulatory imposition in the its sovereign capacity government but in its
exercise of t he police power. corporate capacity 6. Margin Fee – exaction designed to stabilize the
currency. Payable in money Payable in money, property 7. Debt – a sum of money due upon contract or one or services
which is evidenced by judgment . Does not draw interest Draws interest if
except in case of stipulated or delayed and property consideration which is paid delinquency for the use of a property
which is of a public nature; e.g. road, bridge Not assignable Assignable
A demand of sovereignty A demand of proprietorship Not subject to Subject to compensation or compensation or set-off set-off
No limit as to the amount of Amount of toll depends tax upon the cost of
Non-payment is punished No imprisonment in case of construction or
by imprisonment except in non-payment (Art. III, Sec. maintenance of the public
poll tax 20 1987 Con stitution) improvement used
Imposed only by public Can be imposed by private Imposed only by the State May be imposed by: authority individual (1) Government
T (2) Private individuals or EST IN DETERMINING IF THE IMPOSITION IS A TAX OR A LICENSE entities FEE
If the purpose is primarily revenue or if revenue Tax Penalty is, at least, one of the real and substantial purposes,
then the exaction is a tax. If the purpose is Enforced proportional Sanction imposed as a regulatory in nature, it is a license. (PAL v. Edu) contributions from persons punishment for violation of and property a law or acts deemed
Tax Debt injurious; violation of tax laws may give rise to
An obligation imposed by Created by contract imposition of penalty law
Intended to raise revenue Designed to regulate Due to the government in May be due to the conduct its sovereign capacity government but in its
corporate capacity May be imposed only by May be imposed by: the government (1) Government
Payable in money Payable in money, (2) Private individuals or property or services entities
Does not draw intere st Draws intere st if Tax Tariff except in case of stipulated or delayed
delinquency All embracing term to A kind of tax imposed on include various kinds of articles which are traded Not assignable Assignable enforced contributions internationally upon persons for the Not subject to Subject to compensation attainment of public compensation or set-off or set-off purposes
Non-payment is punished No imprisonment in case T ’ S by imprisonment except in of non-payment (Art. III, AXPAYERS UIT
poll tax Sec. 20 1987 Constitution) A case where the act complained of directly involves the illegal disbursement of public funds
Imposed only by public Can be imposed by private derive from taxation (Justice Melo, dissenting in authority individual Kilosbayan, Inc vs Guingona, Jr.)
C S - T P O L S OMPENSATION OR ET OFF AXPAYERS AND UBLIC FFCIALS HAVE OCUS TANDI General Rule: Taxes cannot be the subject of R T ’ S EQUISITES FOR AXPAYERS UIT compensation or set-off. a. The tax money is being extracted and spent in
Reasons: v iolation of specific constitutional protections 1. lifeblood theory against abuses of legislative power. 2. taxes are not contractual obligation but arise b. That public money is being deflected to any
out of duty to the government improper purpose (Pascual vs Secretary of Public 3. the government and the t axpayer are not Works)
mutually creditors and debtors of eac h other. c. That the petitioner seeks to restrain respondents (Francia v. IAC) from wasting public f unds through the enforcement
Exception: When both obligations are due and of an invalid or unconstitutional law demandable as well as fully liquidated and all the requisites for a valid compensation are present, LIMITATIONS ON THE TAXING POWER compensation takes place by operation of law. (Domingo v. Garlitos) A. I L (K : SPINE) NHERENT IMITATIONS EY
1. Territoriality or S itus of taxat ion D E R N F 2. P ublic purpose of taxes OCTRINE OF QUITABLE ECOUPMENT OT OLLOWED IN
P 3. I nt ernat ional comity THE HILIPPINES A tax presently being assessed against a taxpayer 4. N on-delegability of the taxing power which has prescribed may not be recouped or set-off 5. Tax E xemption of the government against an overpaid tax the refund of which is also barred by prescription. It is against public policy (1) T D P P ESTS IN ETERMINING UBLIC URPOSE sinc e both parties are guilty of negligence. a. Duty Test – whether the thing to be furthered by
the appropriation of public revenue is Tax Toll something, which is the duty of the State, as a
government , to provide. Enforced proportional A sum of money for the use contributions from persons of something, a
b. Promotion of General Welfare Test – whet her the proc eeds of the tax will directly promote the S T I P P ITUS OF AXATION OF NTANGIBLE ERSONAL ROPERTY welfare of the community in equal measure. General Rule: Domicile of the owner pursuant to the
principle of the mobilia sequuntur personam or (2) N -D T P movables follow the person. ON ELEGABILITY OF THE AXING OWER General Rule: The power of taxation is peculiarly Exceptions : and exclusively exercised by the legislature. (See 1. When the property has acquired a business situs Scope of Legislative Taxing Power, supra ) in another jurisdiction; - refers to t ax legislation 2. When an express provision of the stat ute provide Exceptions to Non-delegability: for another rule.
For purposes of estate and donor‘s 1. Flexible Tariff Clause: Authority of the President Illustration: to fix tariff rates, import and export quotas, t axes, the following intangible properties are tonnage and wharfage dues, and other dut ies or deemed with a situs in the Philippines: imposts. (Art. VI, Sec.28(2), 1987 Constitution) (1) franchise which must be exercised in the
2. Power of local gov ernment units to levy taxes, Philippines; fees, and charges. (Art. X, Sec. 5, 1987 (2) shares, obligations or bonds issued by any Constitution) corporation organized or constituted in the
3. Delegation to administrative agencies for Philippines in accordance with its laws; implementation and collection. (3) shares, obligations or bonds by any foreign
- merely refers to tax administration or corporation eighty-five percent (85%) of the implementation business of which is located in the
Philippines; (4) shares, obligations or bonds issued by any (3) S T T ITUS OR ERRITORIALITY OF AXATION
foreign c orporation if such shares, obligations The power to tax is limited only to persons, or bonds have acquired a business situs in the property or businesses within the jurisdiction or Philippines; and territory of the taxing power.
(5) shares or rights in any part nership, business or industry established in the Philippines. F D S : ACTORS THAT ETERMINE THE ITUS (Sec. 104, 1997 NIRC). a. Kind or classification of the tax being levied
b. Situs of the thing or property taxed (4) E G c. Citizenship of the taxpayer XEMPTION OF THE OVERNMENT As a matter of public policy, property of the State d. Residence of the taxpayer and of its municipal subdivisions devoted to e. Source of the income taxed government uses and purposes is deemed to be f. Situs of the excise, privilege, business or exempt from taxation although no express provision occupation being taxed in the law is made therefor.
A S T PPLICATION OF ITUS OF AXATION General Rule: The Government is tax exempt . Kind of Tax Situs - However, it can also tax itself.
Personal or Community Residence or domicile of R : tax the taxpayer ULES 1. Administ rative Agencies
Real property tax Location of property (Lex a. Governmental function - tax exempt unless rei sitae) when the law expressly provides for t ax.
(Sec. 32 B7) Personal property tax -tangible: where it is b. Proprietary function – taxable unless
physically located or exempted by law. (Sec. 27C)
permanently kept (Lex rei 2. GOCCs sitae)
General Rule: Income is taxable at the rate -in tangible: su bject to Sec. imposed upon corporations or associations 104 of the NIRC and the engaged in a similar business, industry, or principle of mobilia
sequuntur personam activity. Exception: GSIS, SSS, PHIC, PCSO and PAGCOR. (Sec. 27(C), NIRC)
Business tax Place of business 3. Government Educational Institut ions a. Property or real estate tax – property
Excise or Privilege tax Where the act is performed actually, directly and exclusively used for
or where occupation is educational purposes – exempt but income of
pursued whatever kind and character from any of t heir properties, real or personal, regardless Sales tax Where the sale is of the disposition, is taxable . (Sec. 30, last consummated par., NIRC)
Income Tax Consider b. Income received by them as such are exempt (1) citizenship, from taxes. However, their income from any (2) residence , and of their activities conducted for profit (3) source of income (Sec.
regardless of t he disposition, is taxable . 42, 1997 NIRC)
(Sec. 30, last par., NIRC) 4. Income derived from any public utility or from Transfer tax Residence or citizenship of
t he exercise of any essential governmental the taxpayer or location of function accruing to the Government of the property Philippines or to any political subdivision thereof is not included in gross income and exempt from Franchise Tax State which granted the
franchise t axation. (Sec. 32(B)(7)(b), NIRC)
5. Donations in favor of governmental institutions are considered as income on the part of the 3. Freedom Of Speech And Of The Press (Art. III, donee. However, it is not considered as taxable Sec. 4, 1987 Constitution) income because it is an exclusion from the There is curtailment of press freedom and computation of gross income. (Sec.32 (B)(3), freedom of thought and expression if a tax is NIRC) levied in order to suppress this basic right and
6. The amount of all bequest s, legacies, devises or impose a prior restraint. (Tolentino vs. Secretary transfers to or for the use of the Government or of Finance, GR No. 115455, August 25, 1994) any political subdivision for exclusiv ely public purposes is deductible from the gross estate. 4. Non-Infringement Of Religious Freedom And (Sec.86 (A)(3), NIRC) Worship ( Art. III, Sec. 5, 1987 Constitution)
7. Gift s made to or for the use of t he National A license tax or fee constitut es a curtailment Government or any entity created by any of its of religious freedom if imposed as a condition for agencies which is not conducted for profit, or to its exercise. (American Bible Society vs. City of any political subdivision of the said Government Manila, GR No. L-9637, April 30, 1957) are exempt from donor‘s tax. (Sec. 101(A)(2), NIRC) 5. Non-Impairment Of Contracts ( Art. III, Sec . 10,
8. Local government units are expressly prohibited 1987 Constitution) by t he LGC from levying tax upon National No law impairing the obligation of contract Government, its agencies, and instrumentalities, shall be passed. (Sec. 10, Art. III, 1987 and local government units. [Sec. 133 (o), LGC] Constitution)
9. Unless otherwise provided in the Local The rule, however, does not apply to public Government Code (LGC), tax exemptions granted utility franchises or right since they are subjec t to all persons, whether nat ural or juridical, t o amendment, alteration or repeal by the including GOCC, except local water district s, Congress when the public int erest so requires. cooperatives duly registered under RA No. 6938, (Cagayan Electric & Light Co., Inc. v. non-stock and non-profit institutions, are Commissioner, GR No. 60216, September 25, withdrawn upon effectivity of the LGC. (Sec. 1985) 193, LGC)
10. Real property owned by the Republic of the R : ULES Philippines or any of it s political subdiv isions a. When the exemption is bilaterally agreed upon except when the beneficial use thereof has been between the government and the taxpayer – it granted, for consideration or otherwise, to a cannot be withdrawn without violating t he non- taxable person shall be exempt from payment of impairment clause. real property tax. (Sec. 234, LGC) b. When it is unilaterally granted by law, and t he
same is withdrawn by virtue of another law – no (5) I C violation. NTERNATIONAL OMITY These principles limit the authority of the c. When the exemption is granted under a government to effectively impose taxes on a franchise – it may be withdrawn at any time sovereign state and its instrumentalities, as well as thus, not a violation of the non-impairment of on its property held and activ ities undertaken in that contracts capacity. Even where one enters the territory of another, there is an implied understanding that the 6. Presidential power to grant reprieves, former does not thereby submit itself to the commut ations and pardons and remit fines and authority and jurisdiction of the other. forfeitures after conviction ( ART. VII, SEC. 19,
1987 CONSTITUTION) B. C L Due Process Equal Protection Uniformity ONSTITUTIONAL IMITATIONS A. GENERAL OR INDIRECT CONSTITUTIONAL Taxpayer may Taxpayers sh all be Taxable articles, LIMITATIONS not be treated alike under or kinds of
deprived of like circumstances property of the life, liberty and conditions both same class, shall 1. Due Process Clause (Art. III, Sec. 1, 1987 or property in the privileges be taxed at the
Constitution) without due conferred and same rate.
Requisites: process of liabilities imposed. There should
a. The interests of the public as distinguished law. Notice therefore, be no from those of a particular class require the must, direct double intervention of the State. (Substantive therefore, be taxation limitation) given in case
b. The means employed must be reasonably of failure to pay taxes necessary to the accomplishment of the
purpose and not unduly oppressiv e. (Procedural . limitation) B SPECIFIC OR DIRECT CONSTITUTIONAL
The constitutionality of a legislative taxing act LIMITATIONS questioned on the ground of denial of due proc ess requires the exist ence of an actual case or 1. Non-Imprisonment For Debt Or Non -Payment Of controversy. Poll Tax ( Art. III, Sec. 20, 1987 Constitution)
2. Equal Protection Clause ( Art. III, Sec. 1, 1987 2. Rule Requiring That Appropriations, Revenue Constitution And Tariff Bills Shall Originate Exclusively From Requisites of a Valid Classification: The House Of Representatives ( Art. VI, Sec. 24,
a. based upon substantial distinctions 1987 Constitution) b. germane to the purposes of the law c. not limit ed t o existing conditions only 3. Uniformity, Equitability And Progressivity Of d. apply equally to all members of the class Taxation (Art. VI, Sec. 28(1), 1987 Constitution)
Uniformity – all taxable articles or kinds of 7. Non-Impairment Of The Jurisdiction Of The property of the same class are taxed at the same Supreme Court In Tax Cases (Art. VIII, Sec. 2 rate. And 5(2)(B), 1987 Constitution)
Equitability – the burden falls to those who are more capable to pay. 8. Exemption From Taxes Of The Revenues And
Progressivity – rate increases as the tax base Assets Of Educational Institutions, Including increases. Grants, Endowments, Donations And
Contributions. (Art. XIV, Sec. 4(3) And (4), Q: Is a t ax law adopting a regressive system of 1987 Constitution)
taxation valid? A: Yes. The Constitution does not really prohibit OTHER SPECIFIC TAX PROVISIONS IN THE
the imposition of indirect taxes which, like the VAT, CONSTITUTION are regressiv e. The Constitutional provision means 1. Power of the President to veto any particular simply that indirect taxes shall be minimized. The item or items in an appropriat ion, revenue, or mandate to Congress is not to prescribe, but to t ariff bill. (Art VI, Sec. 27(2), 1987 Constitution) evolve, a progressive tax system. (EVAT En Banc 2. Necessity of an appropriation before money may Resolution, Tolentino, et al vs Secretary of Finance, be paid out of the public treasury. (Art. VI, Sec. October 30, 1995) 29 (1), 1987 Constitution)
3. Non-appropriation of public money or property 4. Limitations On The Congressional Power To for the use, benefit, or support of any sect,
Delegate To The President The Authority To Fix church, or system of religion. (Art. VI, Sec. 29 Tariff Rates, Import And Export Quot as, Etc. (2), 1987 Constitution) (Art. VI, Sec. 28(2), 1987 Constitution) 4. Treatment of taxes levied for a special purpose.
(Art. VI, Sec. 29 (3), 1987 Constitution) 5. Tax Exemption Of Properties Actually, Directly 5. Internal revenue allotments to local government
And Exclusively Used For Religious, Charitable units. (Art. X, Sec. 6, 1987 Constitution) And Educational Purposes. (Art. VI, Sec. 28(3) 7, 1987 Constitution)
DOUBLE TAXATION The constitutional provision (above cited) which grants tax exemption applies only to property or realty taxes assessed on such D T – taxing the same property twice OUBLE AXATION properties used actually, directly exclusively for when it should be taxed but once. religious, charitable and educat ional purposes. (Lladoc vs. Commissioner, GR No. L-19201, June I P ? S DOUBLE TAXATION PROHIBITED IN THE HILIPPINES 16, 1965) No. There is no constitutional prohibition against
The present Constitution required that for the double taxation. It is not favored but permissible. exemption of lands, buildings and (Pepsi Cola Bottling Co. v. City of Butuan, 1968). improvements , they should not only be exclusively but also actually and direc tly K D T INDS OF OUBLE AXATION used for religious and charitable purposes. (1) Direct Duplicate Taxation / Obnoxious – double (Province of Abra vs. Hernando, GR No. L-49336, t axation in the objectionable or prohibit ed sense. August 31, 1981) This constitutes a violat ion of substantiv e due
The test of exemption from taxation is the process. use of the property for the purposes mentioned in the Constitution. (Abra Valley College Inc. vs. Elements: Aquino, GR No. L-39086, June 15, 1988) a. t he same property or subject matter is taxed
t wice when it should be taxed only once. EXCLUSIVE BUT NOT ABSOLUTE USE b. both taxes are levied for the same purpose
The term exclusively used does not necessarily c. imposed by the same taxing authority mean total or absolute use for religious, charitable d. within the same jurisdiction and educational purposes. If the property is e. during the same taxing period incidentally used for said purposes, the tax f. c overing the same kind or character of tax. exemption may still subsist. (Abra Valley College Inc. (Villanueva vs. City of Iloilo) vs. Aquino, Gr No. L-39086, June 15, 1988)
Corollarily, if a property, although actually (2) Indirect Duplicate Taxation – not legally owned by a religious, charitable and educational objectionable. The absence of one or more of inst itution is used for a non- exempt purpose, the t he above-mentioned elements makes the double exemption from tax shall not attach t axation indirect.
ART. VI, SEC (3) Domestic- this arises when the taxes are imposed ART. XIV, SEC
4(3) 28(3) by the local or national government (within the same state) Grantee Non- stock, non Religious,
profit educational educational, (4) International- refers to the imposition of institution charitable comparable taxes in two or more stat es on the
institutions same taxpayer in respect of the same subject Taxes covered Income tax Property tax
matter and for identical periods. Custom Duties Property tax
R D T (DECS Order No. EMEDIES OF OUBLE AXATION 1. Tax Sparing Rule – same dividend earned by a 137-187)
NRFC within the Phil. is reduced by imposing a lower rate of 15% (in lieu of the 35%), on the 6. Voting Requirement In Connection With The condition that the count ry to whic h the NRFC is Legislative Grant Of Tax Exemption (Art. VI, domiliced shall allow a credit against the tax due Sec. 28(4), 1987 Constitution)
from the NRFC, taxes deemed to have been paid NOTE : Computational illustration between a tax in the Phil. (Sec.28 B 5b) (CIR vs Procter & deduction and a tax credit: Gamble) (GR No. 66838, Dec. 2, 1991 )
2. Tax deductions Tax deduction method Example : vanishing deduction under Sec tion Gross income 86(A)(2), NIRC Less: allowable deduc tions including
3. Tax credits foreign t axes paid Instances under the NIRC: Income subject to tax
For VAT purposes , the tax on inputs or items Multiplied by rate Income tax due that go into the manufacture of finished products
(which are eventually sold) may be credited Tax credit method against or deducted from the output t ax or tax on Gross income the finished product. Less: allowable deductions excluding Foreign income taxes may be credited against foreign taxes paid the Phil. Income tax, subject to cert ain Income subject to tax limitations, by citizens, including members of Multiplied by rate general professional partnerships or beneficiaries Income tax due of estates or trusts ( pro rata ), as well as Less: foreign taxes paid domestic corporations. Net income tax due A tax credit is grant ed for estate taxes paid
to a foreign country on the estate of citizens and resident aliens subject to cert ain limitations.
FORMS OF ESCAPE FROM donor’s tax The imposed upon a citizen or a TAXATION resident shall be credited with the amount of any
donor‘s t ax imposed by the authority of a foreign . (1) S – the process by which the tax burden is country, subject to certain limitations HIFTING
t ransferred from the statutory taxpayer (impact of 4. Tax Exemptions taxation) to another (incident of taxation) without 5. Principle of Reciprocity violating the law. 6. Treaties with other states
– I T point on which tax is originally M R T B A T T I O T MPACT OF AXATION ETHODS ESORTED O Y AX REATY N RDER O imposed. E D T LIMINATE OUBLE AXATION
I T – point on which the tax burden FIRST METHOD: The tax treaty sets out the NCIDENCE OF AXATION finally rests or settles down. respec tive rights to tax by the state of source or situs Illustration: Value added tax. The seller is required and by the state of residence with regard to cert ain by law to pay tax, but the burden is actually shifted classes of income or capital. In some cases, an or passed on to the buyer. exclusive right to tax is conferred in one of the
contracting states; however, for other items of KINDS OF SHIFTING income or capital, both states are given t he right to a. Forward shifting- when burden of tax is tax although t he amount of tax that may be imposed
t ransferred from a factor of production through by the state of source is limited. t he factors of distribution until it finally settles SECOND METHOD: The state of source is given a full on the ultimate purchaser or consumer or limited right to tax together with the state of
b. Backward shifting- when burden is transferred residence. In this case, the t reaty makes it from consumer through factors of distribution to incumbent upon the state of residence to allow relief t he factors of production in order to avoid double taxation.
c. Onward shifting- when the tax is shifted 2 or more times either forward or backward T WO METHODS OF RELIEF ARE USED UNDER THE SECOND
: METHOD – (2) C a mere increase in the value of APITALIZATION
t he property is not income but merely an unrealized 1. The exemption method - the income or capital increase in capital. No income until after the actual which is taxable in the state of source or situs is sale or other disposition of the propert y in excess of exempted in the state of residence, although in some its original cost . inst ances it may be taken into account in determining
: if by reason of appraisal, the cost basis of the rate of tax applicable to the tax payer‘s EXCEPT property increased and the resultant basis is used as remaining income or capital.(This may be done using t he new tax base for purposes of computing the the tax deduction method which allows foreign allowable depreciation expense, the net difference income taxes to be deducted from gross income, in bet ween the original cost basis and new basis is effect exempting the payment from being further t axable under t he economic benefit principle. (BIR taxed.) Ruling No. 029, March 19, 1998) 2. The credit method- although t he income or
capital which is taxed in the state of source is still – (3) T the manufacturer or producer taxable in the state of residence. The tax paid in the RANSFORMATION
upon whom the tax has been imposed, fearing the former is credit ed against the tax, levied in the loss of his market if he should add the tax to the latter. (Commissioner of Internal Revenue v. S.C price, pays the tax and endeavors to recoup himself Johnson and Son, Inc. et al., G.R No. 127105, June by improving his process of production, thereby 25, 1999) t urning out his units at a lower cost.
Exemption Method Credit Method (4) T A – the exploitation by the taxpayer Focus is on the income or Focus is on the tax AX VOIDANCE of legally permissible alternative tax rates or capital itself
methods of assessing taxable property or income, in (1) Express – expressly granted by organic or order to avoid or reduce tax liability. statute law Example: estate planning (conveyance of property (2) Implied – when particular persons, property to a family corporation for shares) (Delpher Trades or excises are deemed exempt as they fall Corp. vs. IAC, 157 SCRA 349) outside t he scope of the taxing provision (5) T E – use by the taxpayer of illegal or itself. AX VASION fraudulent means to defeat or lessen the payment of 3. As to extent the tax. (1) Tot al – absolute immunity
(2) Partial – one where a collect ion of a part of F E the tax is dispensed wit h ACTORS IN TAX VASION 1. the end to be achieved, i.e. payment of less than 4. As to object that known by the taxpayer to be legally due, or (1) Personal – granted directly in favor of certain paying no tax when it is shown that the tax is due; persons 2. an accompanying state of mind which is described (2) Impersonal – granted directly in favor of a as being evil, in bad faith, willful, or deliberate and cert ain class of property not coincidental; and 3. a course of action which is unlawful. P G T E RINCIPLES OVERNING AX XEMPTION
a. Exemptions from taxation are highly disfavored I O F I T E in law and are not presumed . NDICIA F RAUD N AX VASION 1. Failure to declare for taxation purposes true and b. He who claims as exemption must be able to actual income derived from business for 2 justify his claim by the clearest grant of organic consecutive years (Republic vs Gonzales, L-17962) or statute law by words too plain to be 2. Substantial under-declaration of income tax mistaken. If ambiguous, there is no exemption. returns of the taxpayer for 4 consecutiv e y ears c. He who claims exemption should prove by coupled with intentional overstatement of deductions convincing proof that he is exempted. (CIR vs Reyes, 104 PHIL 1061) d. Taxation is the rule ; tax exemption is the
exception . TAX e. Tax exemption must be strictly construed
TAX AVOIDANCE EVASION against the taxpayer and liberally in favor of the
taxing authority. Validity Legal and not Illegal and f. Tax exemptions are not presumed.
subject to subject to g. Constitutional grants of tax exempt ion are self- criminal penalty criminal
executing . penalty
h. Tax exemptions are personal .
Effect Minimization of Almost T F P T N O T E taxes always HE OLLOWING ARTAKE HE ATURE F AX XEMPTION 1. Deductions for income tax purposes results in 2. Claims for refund absence of 3. Tax amnesty tax payments 4. Condonation of unpaid tax liabilities
– (6) T E a grant of immunity to NOTE: must be strictly construed against the AX XEMPTION particular persons or corporations from the obligation t axpayer to pay taxes.
W E C L HEN XEMPTIONS ARE ONSTRUED IBERALLY IN FAVOR OF No law grant ing any tax exemption shall G LEGAL BASIS: RANTEE
be passed without the concurrence of a majority of 1. When the law so provides for such liberal all the members of Congress ( . 28(4) construction. ART VI SEC OF THE 1987 ) 2. Exemptions from certain taxes, granted under CONSTITUTION
special circumstances to special classes of K E persons. INDS OF TAX XEMPTION 1. As to source 3. Exemptions in favor of the government, its
a. Constitutional – immunities from taxation political subdiv isions or instrumentalities. that originate from the constitution. 4. Exemptions t o traditional exemptees, such as
b. Statutory – those which emanate from those in favor of religious and charitable legislation institutions.
Examples of Statutory Exemptions 5. If exempt ions refer to the public property Sec. 27, NIRC Sec. 105 Tariff and Customs Code Q: May a tax exemption be revoked? Sec. 234 Local Government Code A: Yes. It is an act of liberality which could be taken Special Laws, such as the Omnibus back by the government unless there are restrictions.
Investment Code of 1987 (EO 226), Philippine Since taxation is the rule and exemption therefrom is Overseas Shipping Act (RA 1407 as amended), t he exception, the exemption may be withdrawn by Fertilizer Industry Act (RA 3050, as amended), t he taxing authority. (Mactan Cebu International Mineral Resources Development Decree of 1974 Airport Authority vs. Marcos, 261 SCRA 667) (PD 463 as amended), Cottage Industry Act (RA 318, as amended) and exemptions in Housing for R O R O T E ESTRICTIONS N EVOCATION F AX XEMPTIONS Low Income Group (PD 1205, as amended) a. Non impairment clause. Where the exemption c. Contract ual- agreed to by the taxing was granted t o private parties based on material
authority in contracts lawfully entered into consideration of a mutual nature, which then by them under enabling laws bec omes contractual and is covered by the non-
d. Treaty impairment clause of the Constitut ion. e. Licensing Ordinance b. Adherence to form- if the tax exemption is
2. As to form granted by the Constitut ion, its revocation may
be effected through Constitutional amendment fraudulent, the period to collect is within ten years only from discov ery without need of an assessment.
c. Where the tax exemption grant is in the form of a special law and not by a general law even if the b.) Tariff and customs code terms of the general act are broad enough to It does not express any general statute of include the codes in the general law unless there limitation; it provided, however, that =‘ when is manifest intent to repeal or alter the special articles have entered and passed free of duty or final law (Province of Misamis Oriental vs Cagayan adjustment of duties made, with subsequent Electric Power and Light Co. Inc) delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of one N O T A (1) year , from the date of the final payment of ATURE F AX MNESTY 1. General or intentional overlooking by the state of duties, in the absence of fraud or protest, be final
its authority to impose penalties on persons and conclusive upon all parties, unless the otherwise guilty of evasion or violat ion of a liquidation of import entry was merely tentative.” revenue or tax law. (Sec 1603,TCC)
2. Partakes of an absolute forgiveness of waiver of the gov ernment of its right t o collec t. c.) Local Government Code
3. To give tax evaders, who wish to relent and are Local Taxes, fees, or charges shall be assessed willing to reform a chance to do so. within five (5) years from the date they became
due. In case of fraud or intent to evade the payment of taxes, fees or charges the same may be assessed RULES ON TAX AMNESTY
1. Tax amnesty within ten (10) years from discovery of the fraud or a) like tax exemption, it is nev er favored nor intent to evade payment. They shall also be
presumed collected either by administrative or judicial action b) const rued strictly against the taxpayer (must within five (5) years from date of assessment (Sec.
show complete compliance with the law) 194. LGC)
2.Government not estopped from questioning the tax TAX ENFORCEMENT AND ADMINISTRATION liability even if amnesty tax payments were already
received. Reason : Erroneous application and enforcement of S T L (Key: SPEC TRA BLT) 2
OURCES OF AX AWS the law by public officers do not block subsequent 1. S t atutes correct application of the statute. The government 2. P residential Decrees is never estopped by mistakes or errors of its 3. E xecutive Orders agents. 4. C onstitution Basis : Lifeblood Theory 5. C ourt Decisions
6. T ax Codes 3.Defense of tax amnesty, like insanity, is a personal 7. R evenue Regulations
defense. 8. A dministrative Issuances Reason : Relates to the circumstances of a 9. B IR Rulings particular accused and not the character of the 10. L oc al Tax Ordinance acts charged in the information. 11. T ax Treaties and Convent ions
Tax amnesty Tax exemption R T R EQUISITES OF AX EGULATIONS 1. Reasonable
Immunity from all Immunity from civil 2. Within the authority conferred criminal, civil and liability only 3. Not contrary to law administrative liabilities 4. Must be published arising from non payment of taxes
NOTE: Administrative regulations must always be in harmony wit h the provisions of the law. In case of Applies only to past tax Prospective application discrepancy between the basic law and the periods, hence retroactive implementing rule or regulation, the former prevails. application
N -R BIR R ON ETROACTIVITY OF ULINGS D O I General Rule : Rulings are not retroactive if they are OCTRINE F MPRESCRIPTIBILTY
As a rule, taxes are imprescriptible as they are prejudicial to the taxpayer. (Sec. 246, NIRC) the lifeblood of the government. However, tax Exceptions: stat utes may provide for statute of limitations. 1. Where the taxpayer deliberat ely misstat es or The rules that have been adopted are as follows: omits material facts from his return or any a.) National Internal Revenue Code doc ument required of him by the BIR. The statut e of limitation for assessment of tax if 2. Where the facts subsequently gathered by the BIR
a ret urn is filed is within three (3) years from the is materially different from the facts on which last day prescribed by law for t he filling of the return t he ruling is based. or if filed after the last day, within three y ears from 3. Where the taxpayer acted in bad faith. date of actual filling. If no return is filed or the return filed is false or fraudulent, the period to P L A A RINCIPLE OF EGISLATIVE PPROVAL OF AN DMINISTRATIVE assess is within ten years from discovery of the I R NTERPRETATION THROUGH EENACTMENT omission, fraud or falsity. Where a stat ute is susceptible of the meaning
The period to collect tax is within three years placed upon it by a ruling of the government agency from date of assessment. In the case, however, of charged with it s enforcement and the legislature omission to file or if the return filed is false or t hereafter reenacts the provision without substantial
change, such action is to some ext ent confirmatory that the ruling carries out t he legislative purpose.
K INDS R N E G 1. - - one in which the tax is assessed ULE OF O STOPPEL AGAINST THE OVERNMENT SELF ASSESSMENT General Rule: The Government is not estopped by by the taxpayer himself the mistakes or errors of its agents; erroneous 2. - made by t he tax assessor DEFICIENCY ASSESSMENT application and enforcement of law by public officers himself whereby the correct amount of t he tax is do not bar the subsequent correct application of det ermined after an examination or investigation stat utes. (E. Rodriguez, Inc. vs. Collector, L-23041, is conducted. The liability is determined and July 31, 1969) assessed for the following reason: Exception: In the interest of just ice and fair play, as a. amount ascertained exceeds that whic h is where injustic e will result to the taxpayer. (see CIR shown as the tax by the taxpayer in his return vs. CA, GR No. 117982, Feb. 6, 1997; CIR vs. CA, GR b. no amount of tax is shown in the return No. 107135, Feb. 3, 1999) c. taxpayer did not file any return at all
3. assessment wherein - ILLEGAL AND VOID ASSESSMENT A T A t ax assessor has no power to assess at all GENCIES INVOLVED IN AX DMINISTRATION 1. Bureau of Internal Revenue 4. assessor has power to ERRONEOUS ASSESSMENT-
– internal revenue taxes assess but errs in the exercise thereof Agents of the CIR a. Commissioner of Customs with respect to taxes B P P - P URDEN OF ROOF IN RE ASSESSMENT ROCEEDINGS on imported goods There is a presumption of correctness and good b. head of the appropriate government office faith on the part of t he CIR; thus, the burden lies on with respect to energy tax t he taxpayer. Otherwise, the finding of the CIR will c. banks duly accredited by t he CIR (Sec. be conclusive and he will assess the taxpayer. The 12, 1997 NIRC) same is true even if the CIR is wrong, if the taxpayer
2. Bureau of Customs – customs law enforcement does not controvert. (Cagayan Robina Sugar Milling 3. Provincial, city and municipal assessors and Co. vs. Court of Appeals, GR. No. 122451, October
treasurers – local and real property taxes 12, 2000) Reasons : a. lifeblood theory
O A F O T b. presumption of regularity in performance RGANIZATION ND UNCTION F HE of public functions B O I R (BIR) UREAU F NTERNAL EVENUE
NOTE: Assessments by the BIR must have on its face BIR shall be under the supervision and control of t he law and facts upon which the presumption is the Dept. of Finance (Sec. 2, NIRC) made.
P D BIR OWERS AND UTIES OF THE P G T A Assessment and collection of all national RINCIPLES OVERNING AX SSESSMENTS 1. Assessments are prima fac ie presumed correct internal revenue taxes, fees, and charges
and made in good faith. 1. Enforcement of all forfeitures, penalties, and 2. It should be based on actual facts. fines connec ted therewith 3. It is discretionary on the part of the 2. Execution of judgments in all cases decided in
Commissioner. its favor by the Court of Tax Appeals (CTA) and the ordinary courts
3. Give effect to and administer the supervisory and police powers conferred to it by the Code or other laws
4. The authorit y of t he Commissioner to assess taxes may be delegated, except the power to make A – a finding by the taxing authority that the SSESSMENT final assessments. taxpayer has not paid the correct t axes. It is also a
5. It must be directed to the right party. written notice to a taxpayer to the effect that the amount stated therein is due as a tax and containing
Authority of a Revenue Officer - pursuant to a a demand for the payment thereof. Letter of Authority issued by the Regional Director General rule: Taxes are self-assessing and thus, do
a. To examine t axpayers within the jurisdiction of not require the issuance of an assessment notice in the district in order to collect the correct order to establish the tax liability of a taxpayer. amount of tax;
Exceptions: b. To recommend the assessment of any deficiency tax due in t he same manner that 1. Tax period of a taxpayer is terminated [Sec. 6(D), the said acts could have been performed by NIRC] the Revenue Regional Direc tor. 2. Deficiency tax liability arising from a tax audit
General Rule: income tax returns are confidential. conducted by the BIR [Sec. 56(B), NIRC] Exception: inquiry into income tax returns may be 3. Tax lien [Sec. 219, NIRC] authorized- 4. Dissolving corporation [Sec. 52(c), NIRC]
1. inspection is authorized upon writt en order of the S A IGNIFICANCE OF SSESSMENT President of the Philippines; a. In the proper pursuit of judicial and ext rajudicial
2. inspection is authorized under Finance remedies to enforce taxpayer liabilities and Regulat ions No. 33 of the Secret ary of Finance; certain matters that relate to it, such as the
3. production of the tax return is material evidence imposition of surcharges and interests, in a criminal case wherein the government is b. In the application of statute of limitations, interested in the result; or c. In the establishment of tax liens, and
4. production or inspection thereof is authorized by d. In estimating the revenues that may be collected t he taxpayer himself. by government in the coming year. (Mamalateo,
Victorino. Reviewer on Taxation, 2004)
Networth Method- inventory method of income tax verification. Nothing in Section 5 shall be construed as
granting the Commissioner t he authority to inquire into bank deposits other than as provided for under Applies the accounting principle: sec. 6 (F) of the Code. assets – liabilities = networth
Condit ion for its use: taxpayer‘s books do not clearly reflect his income III. S 6 (power to make assessments, prescribe 1. ECTION or the taxpayer has no books, or if he has books, additional requirements for tax administration he refuses to produce them; and enforcement)
2. there is evidence of possible source or sources of income to account for increases in networth; 4. Examination of returns and determination of tax
due 3. there is a fixed starting point or opening A. After a return has been filed the networth; and
Commissioner or his representative may 4. there must be proper adjustments t o conform authorize with the income tax laws. i. t he Examination of any taxpayer and ii. t he Assessment of the correct amount of
t ax; P D C OWERS AND UTIES OF THE OMMISSIONER B. Failure to file a return shall not prevent the I. S 4 (power to interpret tax law and decide ECTION
commissioner from authorizing the tax cases) examination of any taxpayer; * Any tax or deficiency tax so assessed shall 1. Interpret provisions of this Code and other tax laws
be paid upon notice and demand from the subject to review of the Secretary of Finance Commissioner or his representative (Quasi-legislative)
D * Any return, statement or declaration filed in 2. ecide: (Quasi-judicial) a) disputed assessment any authorized office shall not be b) refunds of internal revenue taxes, fees and withdrawn; but within three years from
charges date of filing, the same may be modified, changed or amended; provided that no c) penalties imposed in relation thereto
d) other matters arising from this Code or other notice for audit or investigation of such laws or portions thereof administered by the BIR return, has in the meant ime, been actually
served upon the taxpayer. subject to the exclusive appellate jurisdiction of the CTA (Sec. 4)
5. Failure to submit required returns and other II. S 5 (power to obt ain information, summon, documents ECTION
If a person examine and take test imony of persons) i. fails to file a required return or report at the
time prescribed or 3. For the Commissioner to ascertain: ii. willfully or otherwise files a false or (a) correctness of any return or in making a
fraudulent return, return where none has been made (b) liability of any person for any internal revenue The Commissioner shall Make or Amend the
return from tax or in correcting such liability i. his own knowledge or (c) tax compliance ii. from such information as he can obtain
through testimony or ot herwise which shall The Commissioner is authorized: be prima facie correct and sufficient for all 1. to Examine any relevant Book, paper, rec ord or legal purposes other data
2. to Obtain any information (costs, volume of production, receipts, sales, gross income, etc), on 6. Inventory-taking, Surveillance, Presumptive Gross
Sales a regular basis from: A. Commissioner may, at any time during the i. any person other than the person under
taxable year invest igation or (a) order the inventory taking of goods of any ii. any office or officer of the national/local
taxpayer or government, gov‘t agencies and (b) may place the business operations of any instrumentalities (Bangko Sentral, gov‘t owned
person (natural/juridical) under and controlled corporations) (e.g. LTO, Register observat ion or Surv eillance, of Deeds)
if there is reason to believe that such is 3. to Summon not declaring his correct income, sales or i. t he person liable for tax or required to file a receipts for tax purposes. return or The findings may be used as basis for ii. any officer or employee of such person or assessing the taxes and shall be deemed iii. any person having in his prima facie correct. possession/cust ody/care
-- the books of accounts, B. Commissioner may prescribe a Minimum -- accounting records of entries relating to the
amount of gross receipts, sales and taxable business of the person liable for tax or any base (taking into account the sales and other person income of other persons engaged in similar -- to produce such books, papers, rec ords, business): and other data and to give testimony i. When a person has failed to issue receipts 4. to take the Testimony of the person concerned,
as required by sec.113 (Invoice under oath as may be relevant to the inquiry requirements for VAT-registered persons) 5. to cause revenue officers and employees to make and Sec. 237 (Issuance of Receipts or a Canvass of any revenue district or region Commercial Inv oices) or
ii. When the books of accounts or records do - subordinate officials with rank equivalent not correctly reflect the declarations t o Division Chief or higher, subject to made or required to be made in a return, limit ations/restrictions imposed under t he rules
Such minimum amount shall be considered and regulations correct. EXCEPT, (the following powers shall NOT be
delegated) 7. Terminate taxable period Commissioner shall declare the tax period of a a) power to Recommend the promulgation of
taxpayer Terminated and send notice to the rules and regulations by the Sec. of Finance taxpayer of such decision with a request for b) power to Issue rulings of first impression or immediate payment of the tax when it has come to to Reverse, revoke modify any existing rule the knowledge of the Commissioner: of the BIR
a) that a taxpayer is retiring from business c) power to Compromise or Abate any tax subject to t ax or liability
b) is intending to leave the Phils. or c) to remove his property therefrom or d) to hide or conceal his property or e) is performing any act t ending to obstruct the
proceedings for the collection of tax
provided however that the regional 8. Prescribe Real Property Values The Commissioner is aut horized to: evaluation board may compromise: a. Divide the Phils. into different zones or areas 1. assessments issued by regional offices
and involving deficiency taxes of P500,000 or b. Determine the fair market value of real less and
properties located in each zone or area 2. minor criminal violat ions as may be determined by t he rules and regulations
For tax purposes, the value of the property 3. discovered by regional and district shall be whichever is higher of: officials a) Fair market value as determined by the
Commissioner; or Regional Evaluation Board is composed of : b) Fair market value as shown in the schedule of i. Regional Director as Chairman
values of the provincial and city assessors. ii. Asst. Regional Director iii. Heads of the Legal, Assessment and
9. Authority to Inquire into Bank Deposit Collection Div. Notwithstanding R.A. 1405 (Bank Secrecy iv. Revenue District Officer having jurisdiction
Law) the Commissioner is authorized to inquire over the taxpayer int o the Bank deposits of: (a) a decedent to determine his gross estate d) power to Assign or reassign internal (b) a taxpayer who has filed an application to revenue officers to establishments where
compromise payment of tax liability by reason articles subject to excise tax are kept. of financ ial incapacity
V. S 8, 14, 15, 16, 17 (Other Powers) ECTIONS The taxpayer’s application for compromise 13. Duty to ensure the provision and distribution of
shall not be considered unless he waives in forms, receipts, certificates, and appliances, and writing his privilege under RA 1405 and other the acknowledgment of payment of taxes (Sec. general or special laws. Such waiver shall 8) authorize the Commissioner to inquire into his bank deposits. 14. Authority to administer oaths and to take
10. Authority to Register tax agents testimony (Sec. 14) (a) The Commissioner shall accredit and Register,
individuals and general professional 15. Authority to make arrests and seizures (Sec. 15) partnerships and their rep. who prepare and file tax returns and other papers or who 16. Authority to employ, assign or reassign internal appear before the BIR revenue officers involved in excise tax functions
(b) The Commissioner shall create national and to establishments where articles subject to regional accreditation boards. excise tax are produced or kept (Sec. 16)
Those who are denied accreditation may 17. Authority to assign or reassign internal revenue appeal the same to the Sec. Of Finance who shall officers and employees of the BIR to other or rule on the appeal within 60 days from receipt of spec ial duties connected with the enforcement such appeal. Failure to do so within the or administration of the revenue laws (Sec. 17) prescribed period shall be deemed as approval for accreditation. A L O BIR T I RE EGAL FFICERS OF THE AUTHORIZED O NSTITUTE
A P W T P O T PPEAL ROCEEDINGS ITHOUT HE ARTICIPATION F HE 11. Authority to Prescribe Additional Requirements S G ? OLICITOR ENERAL
The Commissioner may prescribe the manner NO. The institution or commencement before a of compliance with any documentary or proper court of civil and criminal actions and procedural Requirement for the submission or proceedings arising under the Tax Reform Act which preparation of financial statements accompanying shall be conducted by legal officers of the BIR is not tax returns. in dispute. An appeal from such court, however, is
not a matt er of right. It is still the Solicitor General 7 (Authority to Delegate Power ) IV. S who has the primary responsibility to appear for the ECTION
12. The Commissioner may delegate the powers government in appellate proceedings. (Commissioner vested in him to
vs. La Suerte Cigar and Cigarette Factory, GR No. 3. Source Principle – An alien is subject to Philippine 144942, July 4, 2002) income tax because he derives income from sources
within the Philippines. Thus, a nonresident alien is S O R liable to pay Philippine income tax on his income OURCES F EVENUE
The following taxes, fees and charges are from sources within the Philippines such as dividend, deemed to be national internal revenue taxes. (Sec. interest, rent, or royalty, despite the fact that he has 21, NIRC) not set foot in the Philippines.
CLASSIFICATION OF TAXPAYERS 1. Income tax 2. Estate and donor's taxes 3. Value-added tax Individuals 4. Other percentage taxes a. citizens 5. Excise taxes (1) resident citizens (RC) 6. Documentary stamp taxes (2) non-resident citizens (NRC) 7. Such other taxes as are or hereafter may be b. aliens
imposed and collec ted by the Bureau of Internal (1) resident aliens (RA) Revenue. (2) non-resident aliens (NRA)
(a) engaged in trade or business within t he Phils. (NRAETB)
II. NATIONAL TAXATION (b) not engaged in trade or business within the Philippines (NRANETB)
A. INCOME TAXATION Corporations
a. Domestic (DC) D EFINITIONS b. Foreign I T – tax on all yearly profits arising from NCOME AX (1) resident foreign corporation (RFC)
property, possessions, trade or business, or as a (2) non-resident foreign corporation (NRFC)
tax on a person‘s income, emoluments, profits Estates
and the like (61 CJS 1559) Trusts – tax on income, whether gross or
Partnerships net. (27 Am. Jur. 308)
A. INDIVIDUALS I – all wealth, which flows into the taxpayer NCOME
other than as a mere return of c apital. W A T ? HO RE AXABLE 1. Resident Citizen
C – resource of person, which can be used in APITAL 2. Non-resident Citizen
producing goods and services. A non-resident citizen means, a Filipino
Income Capital citizen: a. who establishes to the satisfaction of the
All wealth, which flows Fund or property which Commissioner the fact of his physical into the taxpayer other can be used in producing
presence abroad with a definite intention to than as a mere return of goods or services
reside therein; capital. b. who leaves the Philippines during the taxable
year to reside abroad, either as an immigrant Flow of Wealth Fund or property or for employment on a permanent basis;
c. who works and derives income from abroad Source of wealth Wealth and whose employment thereat requires him
R F I T B T t o be physically present abroad most of the EQUISITES OR NCOME O E AXABLE 1. There must be a gain or profit . t ime during the taxable year; 2. The gain must be realized or received. d. who is previously considered as a non- 3. The gain must not be excluded by law or treaty resident and who arrives in the Philippines at
from taxation. anytime during the taxable year to reside t hereat permanently shall be considered non-
T O T O I resident for the taxable year in which he ESTS N AXABILITY F NCOME 1. Flow of Wealth Test – The determining factor for arrives in the Philippines with respect to his
t he imposition of income tax is whether any income derived from sources abroad until the gain was derived from the transaction. date of his arrival [Sec.22 (E), NIRC]
2. Realization Test - unless the income is deemed "realized," t here is no taxable income. NOTE: An overseas contract worker (OCW) is
3. Economic-Benefit Principle Test taxable only on income deriv ed from sources -flow of wealth realized is taxable only to the wit hin the Philippines. [Sec. 23 (B)(C)] extent that the taxpayer is economically A seaman is considered as an OCW provided benefited. the following requirements are met:
1. rec eives compensation for services rendered C I I T abroad as a member of the complement of a RITERIA IN MPOSING NCOME AX 1. Citizenship Principle – A citizen of the Philippines vessel; and is subject to Philippine income tax (a.) on his 2. such vessel is engaged exc lusively in worldwide income, if he resides in the Philippines, or international trade. (b.) only on his income from sources within the Philippines, if he qualifies as nonresident citizen. Based on the above provisions, there are three 2. Residence Principle – resident alien is liable to (3) types of nonresident cit izens, namely: (1) pay income t ax on his income from sources within the immigrants; (2) employees of a foreign entity on a Philippines but exempt from tax on his income from permanent basis; and sources outside the Philippines.
(3) overseas cont ract workers. Immigrants and conducted for profit, regardless of the disposition employees of a foreign entity on a permanent basis made of such income . are treated as nonresident citizens from the time 2. With respect t o GOCCs, the general rule is that they depart from t he Philippines. However, t hese corporations are taxable as any other overseas contract workers must be physically corporation except: present abroad most of the time during the a. GSIS calendar year to qualify as nonresident citizens. b. SSS
3. Resident alien - means an individual whose c. PHIC residence is within the Philippines and who is not d. PCSO a citizen thereof. [Sec.22 (F, NIRC)] e. PAGCOR [Sec. 27 (C)]
4. Non -resident alien engaged in trade or business 3. Regional or Area Headquarters under Sec. 22 within the Philippines. (NRAETB) (DD) – not subject to income tax
A non-resident alien means an individual whose residence is not within the Phili ppines and Regional operating headquarters under Sec. who is not a citizen thereof. [Sec.22 (G)] 22(EE) shall pay a tax of 10% of their taxable
The term trade or business includes the income. performance of the functions of a public office. [Sec. 22 (S)] ONLY DOMESTIC CORPORATIONS are taxable for
The term trade, business or profession shall income derived from sources within and without the not include performance of services by the Philippines. All other corporate income taxpayers are taxpayer as an employee. [Sec. 22 (CC)] t axable only for income derived from sources within
A non-resident alien individual who shall t he Philippines. come to the Philippines and stay t herein for an aggregate period of more than 180 days during Tax Rates : Please ref er to Annex B . any calendar y ear shall be deemed a non-resident
C. ESTATES AND TRUSTS alien doing business in the Philippines Section 22(G) notwithstanding [Sec. 25(A)(1)]
5. Non -resident alien not engaged in trade or E – refers to t he mass of properties left by a STATE business within the Philippines . (NRANETB) dec eased person.
ONLY RESIDENT CITIZENS are t axable for income R O T O E ULES N AXABILITY F STATE derived from sources within and without the When a person who owns property dies, the Philippines . All other individual income taxpayers are following t axes are payable under the provisions of taxable only for income derived from sources within t he income tax law : the Philippines . 1. Income tax for individual under Sec. 24 and 25
(to cover the period beginning January to the Tax Rat es: Please refer to Annex A . t ime of deat h);
2. Estate income t ax under Sec . 60 if the estate is B. CORPORATIONS under administration or judicial settlement.
W A T ? HO RE AXABLE 1. Domestic Corporat ion – created or organized in
the Phils. or under its law [Sec. 22(C), NIRC] E U J S STATES NDER UDICIAL ETTLEMENT 2. Resident Foreign Corporation – engaged in trade A. During the Pendency of the Settlement
or business within the Philippines [Sec. 22(H), General Rule: An est ate under judicial NIRC] settlement is subject to income tax in the same
3. Non -resident Foreign Corporation – not engaged manner as individuals. It s status is the same as in trade or business within the Philippines [Sec. t he status of the decedent prior t o his death. 22(I), NIRC] Exceptions:
A Corporation Includes: 1. The entitlement to personal exemption is 1. Partnerships, no mat ter how created or limit ed only to P20,000.
organized; 2. No additional exemption is allowed. 2. Joint-stock companies; 3. The distribution to the heirs during the 3. Joint accounts (cuentas en participacion) t axable year of estate income is deductible 4. Associations; or from the taxable income of the estate. Such 5. Insurance companies [Sec. 22(B), NIRC]. distributed income shall form part of the
respect ive heirs‘ taxable income. Excludes: Where no such distribution to the 1. General professional partnerships; heirs is made during the taxable y ear that the 2. Joint venture or consortium formed for the income is earned, and such income is
purpose of undertaking construction projects or subjected to inc ome tax payment by the engaging in petroleum, coal, geothermal and estate, the subsequent distribut ion thereof is other energy operations pursuant to an operating no longer taxable on the part of the or consort ium agreement under a service recipient. contract with the Government.
B. T O T J S (W ERMINATION F HE UDICIAL ETTLEMENT HERE C E F I T (F T H S D N D T P ) ORPORATIONS XEMPT ROM NCOME AXATION OR HE EIRS TILL O OT IVIDE HE ROPERTY I R A S ) U N 1. If the heirs contribute to the estate money, NCOME EALIZED S UCH NDER IRC 1. Those enumerat ed under Sec. 30 . property, or indust ry with intention to div ide
Exempt corporations are subject to income the profits between/among themselves, an t ax on their income from any of their properties, unregistered partnership is created and the real or personal, or from any other activities estate becomes liable for the payment of
corporate income tax. (Evangelista vs.
Collector, GR No. L-9996, October 15, 1957; (P20,000) and distribution of trust income during the Oña vs. Commissioner, GR No. L-19342, May t axable year to t he beneficiaries is deductible from
the trust‘s taxable income. 25, 1972) 2. If the heirs, without contributing money,
property or industry to improve the estate, R T – the trustor, not the trust itself, is EVOCABLE RUSTS simply divide the fruits thereof subject to the payment of income tax on the trust between/among themselves, a co-ownership income. is created, and individual income tax is
’ imposed on the income received by each of E O E T XEMPTION F MPLOYEES RUST the heirs, payable in their separate and Provided:
the employee‘s trust must be part of a pension, individual capacity . (Pascual vs. 1. Commissioner, GR No. L-78133, October 18, stock bonus or profit sharing plan of the 1988; Obillos vs. Commissioner, GR No. L- employer for the benefit of some or all of his 68118, October 29, 1985) employees;
2. contributions are made to the trust by such E N U J S employer, or such employees, or both; STATES OT NDER UDICIAL ETTLEMENT
Pending the extrajudicial settlement, either of 3. such contributions are made for the purpose of the following situations may arise: distributing to such employees both the earnings 1. If the heirs contribute money, property, or and princ ipal of the fund accumulated by the
industry to t he estat e with t he intention of t rust, and dividing the profits between/among themselves, 4. t hat the trust instrument makes it impossible for an unregistered partnership is created and the any part of the trust corpus or income to be used estate becomes liable for the payment of for, or diverted to, purposes other than the corporate income tax; or exclusive benefit of such employees. (Sec. 60B,
2. If the heirs, wit hout contributing money, NIRC) property or industry to the estate, simply div ide the fruits thereof bet ween/among themselves, a Tax exemption is likewise to be enjoyed by the co-ownership is created and income tax is income of the pension trust ; otherwise, taxation of imposed on the income received by each of the t hose earnings would result in a diminution of heirs, payable in their separate and individual accumulated income and reduce whatever the trust capacity. beneficiaries would receive out of the t rust fund.
(Commissioner vs. Court of Appeals, Court of Tax – Appeals and GCL Retirement Plans, GR No. 95022, T A right to the property, whether real or RUST
March 23, 1992) personal, held by one person for the benefit of another.
D. PARTNERSHIPS
W T A T E HEN RUSTS RE AXABLE NTITIES 1. A trust, the income of which is to be accumulated K O P F T P U T NIRC INDS F ARTNERSHIP OR AX URPOSES NDER HE 2. A trust in which t he fiduciary may, at his 1. General Professional Partnerships (GPP) -
discretion, either distribute or accumulate the formed by persons for: income. a. t he sole purpose of exercising a common
profession and b. no part of the income of which is derived R O T O T I O A T ULES N AXABILITY F HE NCOME F RUST
from engaging in any trade or business. [Sec. 1. The income of the trust for the taxable year 22(B), NIRC]. which is to be dist ributed to the beneficiaries –
2. Taxable or Business Partnership – filing and payment of tax lie on the All other part nerships except general beneficiaries.
professional partnerships no matter, how created 2. The income of the trust which is to be or organized. It includes unregistered joint accumulated or held for future distribution v entures and business partnerships. whet her consisting of ordinary income or gain
However, joint ventures are not taxables as from t he sale of assets included in the "corpus" of c orporations when it is; (a) undertaking the estate – filing of return and payment of tax c onstruction projects (b) engaged in petroleum, become the burden of the trustee or fiduciary. c oal and other energy operation under a service Exceptions : c ontract with the government a. In t he case of a revocable trust, the income
General co-partnerships (GCP) are of the trust will be returned by the grantor. partnerships, which are by law assimilated to be b. In a trust where the income is held for the within the context of, and so legally benefit of the grantor, the income of the contemplated as, corporations. The partnership trust becomes income to the grantor. itself is subject to corporate taxation. The c. In the case of trust administered in a foreign individual partners are considered stockholders country, the income of the trust; and, t herefore, profit s distributed to t hem by the undiminished by any amount distributed to partnership are taxable as dividends. the beneficiaries shall be taxed to the
The taxable income for a taxable year, after trustee. deducting t he corporate income tax imposed t herein, shall be deemed to have been actually I T (irrevocable both as to corpus and RREVOCABLE RUSTS or constructively received by the partners in the as to income) – same taxable year and shall be taxed to them in t heir individual capacity whether actually Trust itself, through the t rustee or fiduciary, is distributed or not . [Sec. 73(D), NIRC] liable for the payment of income tax. Taxed exact ly
in the same way as estates under judicial sett lement L O A P and its status as an individual is that of the trustor. IABILITY F ARTNERSHIP
It is entitled to the minimum personal exemption
1. General Professional Partnership - They are not .
subject to income tax , but are required to file 1. Net Income Tax returns of their income for the purpose of 2. Optional Corporate Income tax furnishing information as to the share of each 3. Minimum Corporate Income Tax partner in the net gain or profit, which each 4. Improperly Accumulat ed Earnings Tax partner shall include in his individual return. The 5. Preferential Rates or Special Rates of Income Tax partnership shall act as the withholding agent. 6. Gross Income Tax
The net income (income for distribution) 7. Final Income Tax shall be computed in the same manner as a 8. Fringe Benefits Tax corporation. Date of filing of the return is April 9. Capital Gains Tax
(1) NET INCOME TAX 15 of eac h year. 2. Taxable or Business Partnership - The income
tax of this type of Part nership is computed and D : Means gross income less deductions EFINITION taxed like that of a corporation . This kind of and/or personal and additional exemptions (Sec. 31, partnership, like a regular corporation, is also NIRC) required to file a quarterly corporate income tax return. Filing and payment of quarterly return is N I T F ET NCOME AX ORMULA within 60 days after the end of each quarter Entire Income while the annual return is on or before April 15 of Less: Exclusions and Income subject to Final Tax the following year. (e.g. Passive Income)
Gross Income L O A P Less: Deductions (and/or additional IABILITY F ARTNER Rules: exemptions, if applicable) 1. Share of a partner in general professional Net Taxable Income
Partnership Multiply by: Tax Rate (%) a. Each part ner shall report as gross income
Net Income Tax Due (business income) his distributed share Less: Tax Credit, if any
actually or constructively received in the net Tax Still due, if any income of the part nership. (Sec. 26, NIRC)
[The same share shall be subjec t to GROSS INCOME creditable withholding tax of 10%.] They are
liable in their separate and individual capacity . D : Means all income derived from whatever EFINITION
source, including but not limited to the following b. Share of a partner in the loss of a general (Sec. 32)
professional partnership may be taken by the a. Compensation; individual partner in his return of inc ome. b. Gross income from profession, trade or business;
c. Gains form dealings in property; d. Interests;
c. Each partner in a general professional e. Rents; partnership shall, report as gross income his f. Royalties; distributed share in the net income of the g. Dividends; GPP, based on his agreed ratio, whether he h. Annuities;
, avails of itemized or optional standard i. Prizes and winnings; deduction. j. Pensions;
k. Partner‘s share in the net income of the general d. Payments made to a partner of a GPP for professional partnership
services rendered shall be considered as ordinary business income subject to Sec. 24A See Annex D for detailed discussion of items. (Effective January 1, 1982)
K O D INDS F IVIDENDS 2. Share of a partner in Taxable or Business 1. Cash and Property Dividends
partnership Individual Taxpayer a. Share of a partner in the net income of a a. From Domestic Corporations
taxable or business partnership (dividend) RC, NRC, RA – 10% (Sec. 24A) shall be subject to a final tax as follows. NRAETB – 20% (Sec. 25A2)
Resident Citizen, Non-resident Citizen NRANETB – 25% on gross income (Sec. and Resident Alien (2000 and onward) – 25B) 10% (Sec. 24B2) b. From Foreign Corporations Non-resident Alien engaged in trade or RC, NRC, RA, NRAETB – 5-32% (Sec. 24, business – 20% (Sec. 25 A2) 25A1) Non-resident alien not engaged in trade NRANETB – 25% on gross income (Sec. or business – 25% (Sec. 25B) 25B)
b. Share of a partner in the loss of a t axable or business partnership maybe taken by the Corporate Taxpayer individual partner in his return of income. a. Foreign to Domestic Corp. – 32% (Sec. 32A)
c. Payments made to a partner of a business or b. Domestic to Domestic Corp. – Exempt ; taxable partnership for services rendered intercorporate dividends (Sec. 27D) shall be considered as compensation income c. Domestic to Foreign Corp. - subject to sec. 24A. Resident Foreign Corp. – Exempt (Sec. 28
[A] 7d) KINDS OF INCOME TAXES Nonresident Foreign Corp. – 15% subject
t o the condition stated in Sec. 28 [B] 5 . UNDER THE NIRC
Otherwise, it shall be taxed at 32%. (See realized on surrender of a life insurance policy for Commissioner vs. Procter and Gamble, it s surrender value. GR No. 66838, December 2, 1991)
3. Gift, bequest or devise 2. Stock Dividends Gifts, bequests, and devises (which are
General rule: Not subject to tax because it does subject to estate or gift taxes) are excluded, but not constitute income ; it represents t ransfer of not t he income from such property. If t he surplus to capital account. (Sec. 73B, 1997 NIRC) amount received is on account of services Exceptions: rendered, whether constituting a demandable a. Sec. 73B, 1997 NIRC debt or not, or the use of the opportunity to use
(1) there is redemption or cancellation of capital, the receipt is income (Pirovano vs. (2) the transaction involves stock dividends, Commissioner, 14 SCRA 832)
and (3) the time and manner of the transaction 4. Compensation for personal injuries or sickness,
makes it essentially equivalent to a whether by suit or agreement distribution of taxable dividends . ( see : The phrase personal injuries should be NOTE Commissioner vs. Court of Appeals, Court given a restrictive meaning to refer only to of Tax Appeals & ANSCOR, GR No. phy sic al injuries. The theory for this is that 108576, Jan. 30, 1999) recoupment on account of such losses is not
b. the recipient is other than the shareholder income, since it is not derived from capital, from (Bachrach vs. Seifert, GR No. L-2659, labor or from both combined. And the fact that October 12, 1950) t he payment of compensation for such loss was
c. change in t he stockholder‘s equity results by voluntary does not change it s exempt status. It virtue of the stock dividend issuance. was in fact compensation for a loss, which
impaired petitioner‘s capital. 3. Liquidating Dividends – When a corporation
distributes all of it s assets in complete 5. Income exempt under Treaty; liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether 6. Retirement benefits, pension, gratuities, etc. individual or corporation, is taxable income a. t hose derived under R.A. 7641 (pertains to or deductible loss, as the case may be. (Sec. private firms wit hout retirement trust fund); 73A) b. t hose received by officials and employees of
A liquidating dividend is not a dividend private employers in accordance with a income . The transaction is considered a sale reasonable private benefit plan; or exchange of property between the Requisites : corporation and the stockholder. (1) in the service of the same employer for
at least 10 years; E F G I (2) at least 50 years old; XCLUSIONS ROM ROSS NC OME
: Under the 1997 Tax Code, the term (3) must be availed of only once NOTE exclusions refers to items that are not included in (4) plan approved by the BIR ( R.R.2-98 ); the determination of gross income either because: c. separation pay because of death, sickness, or
(a) they represent return of capital or are not other physical disability or for any cause income, gain or profit; or bey ond the control of the official or
(b) they are subject to another kind of internal employee (e.g. ret renchment, redundancy or revenue tax; or cessation of business);
(c) they are income, gain or profit that are “for any cause beyond the control of said expressly exempt form income tax under the official or employee” – connotes constitution, tax treaty, Tax Code, or a general or involuntariness on the part of the official or special law. employee; separation must not be asked or
initiated by the official or employee. 1. Proceeds of life insurance paid by reason of the d. social security benefits, retirement
death of the insured t o his estate or to any gratuities, pensions and other similar benefits beneficiary (individual, part nership, or received by citizens and aliens who come to corporation, but not a transferee for a valuable reside permanently here from foreign sources consideration), directly or in trust. private or public;
NOTE : if the proceeds are retained by the e. benefits due to residents under the laws of insurer, the interest thereon is taxable; t he U.S. administered by the U.S. Veterans
Administ ration 2. Return of insurance premium; f. SSS benefits; and
NOTE : if such amounts (when added to amounts g. GSIS benefits. already received before t he taxable year under such contracts) exceed the aggregate premiums or 7. Miscellaneous items considerations paid (whether or not paid during a. Passive income derived in the Philippines by: the t axable year), then the excess shall be (1) Foreign gov ernments; included in the gross income. However, in the (2) Financing institutions owned, cont rolled case of a transfer for a valuable consideration, by or enjoying refinancing from foreign assignment or otherwise, of a life insurance, governments endowment or annuity contract, or any interest (3) International or regional financial therein, only the actual value of such institut ions established by foreign consideration and the amount of the premiums governments and other sums subsequently paid by the b. Income derived from any public utilit y or transferee are exempt from taxation. No loss is from the exercise of any governmental
function;
c. Prizes and awards made primarily in T W C A O D F AXPAYERS HO ANNOT VAIL F EDUCTIONS ROM recognition of religious, charitable, G I ROSS NCOME scientific, educational, artistic, literary, or 1. Citizens and resident aliens whose income is civic achievement purely compensation income (except for premium Requisites : payment s on health and/or hospitalization
(1) recipient was selected without any insurance); act ion on his part; and 2. Non-resident aliens not engaged in trade or
(2) recipient is not required to render business in the Philippines; and substantial future services. 3. Non-resident foreign corporation
d. Prizes and awards granted to athletes in sports competit ions and sanctioned by t heir C O D LASSES F EDUCTIONS national sports association ; 1. Individuals
e. 13 month pay and other benefits up to a. with gross compensation income from th
P30,000.00; employer-employee relationship only f. GSIS,SSS, Medicare and union dues of (1) premium payment s on healt h and/or
individuals; hospitalization insurance g. Gains derived from debt securities with a (2) personal additional exempt ions
maturity of more than 5 years; b. gross income from business or practice of h. Gains from redemption of shares in Mutual profession
Fund. (1) Optional Standard Deduction (OSD) (2) Itemized deductions
E V . D (3) premium payment s on health and/or XCLUSIONS S EDUCTIONS hospitalization insurance
(4) personal additional exemptions Exclusions Deductions 2. Corporations [Sec. 32(B)] [Sec. 34]
Itemized Deductions Refer to flow of wealth Refer to th e amounts which which are not treated as the law allows to be part of gross income subtracted from gross K O D INDS F EDUCTIONS because: income in order to arrive at a. Optional standard deductions (OSD) – 10% of the (1) exempted by the net income gross income. fundamental law; (2)
The OSD may be availed of only by exempte d by statute; (3) do
individuals (except nonresident alien) who are not come within the not purely compensation income earners. definition of income
b. Personal and addit ional exemptions Available only to individuals (business income Pertain to the computation Pe rtain to the computation
and compensation income earners). of gross income of the net income
Something earned or Something spent or paid in NRAETB may be ent itled to personal received by the taxpayer earning of gross income exemptions (only) subject to reciprocity, i.e., which do not form part of a. t he country of which he is a subject or citizen gross income
has an income tax law; and b. t he income tax law of his country allows
personal exemption t o cit izens of the D EDUCTIONS Philippines not residing therein, but deriving
income therefrom and not to exceed the D : Items or amounts which the law allows to amount allowed in NIRC. EFINITION be deducted from gross income in order to arrive at the taxable income. The personal exemption shall be equal to
t hat allowed by the income tax law of his country B P G D t o a citizen of the Philippines not residing ASIC RINCIPLES OVERNING EDUCTIONS a. The taxpayer seeking a deduction must point to t herein, or t he amount provided in the NIRC,
some specific provisions of the statute whichever is lower. authorizing the deduction; and
b. He must be able to prove that he is entitled to Individuals not entitled to these exemptions: the deduction authorized or allowed. (Atlas a. Non-resident Alien not engaged in trade or Consolidated Mining & Dev. Corp. vs. business Commissioner, GR No. L-26911, January 21, b. Alien individual employed by Regional or Area 1981) Headquarters of Multinational Companies
c. Any amount paid or payable which is otherwise c. Alien individual employed by Offshore deductible from, or taken into account in Banking Units computing gross income or for which depreciation d. Alien individual employed by Petroleum or amortization may be allowed, shall be allowed Service Contractor and Subcontractor as deduction only if it is shown that the tax required to be deducted and withheld t herefrom c. Itemized deductions has been paid to the BIR. [Sec. 34(K), NIRC] a. ordinary and necessary expenses
b. interests NOTE: Deductions for income tax purposes partake c. t axes of the nature of tax exemptions; hence, if tax d. losses exemptions are to be strictly construed, then it e. bad debt s follows that deductions must also be strictly f. depreciation of property; construed. g. depletion of oil and gas wells and mines;
h. charitable and other contributions;
i. research and development; 2. at least sixt y 60 years old, including those j. pension t rust cont ributions of employees; and who have retired from bot h government k. premium payments on health and/or offices and private enterprises, and
hospitalization insurance. (This is the only 3. has an income of not more than Sixty deduction which a compensation income t housand pesos (60,000) per annum subject earner may claim as a deduction.) t o the review of the National Economic
Development Aut hority (NEDA) every three d. Special deductions years.
a. private proprietary educational institut ions and hospitals that are non-profit (Sec. 34 A, Parents and dependents qualify the taxpayer, 2) t o the personal exemption of P25,000 as head of
b. insurance companies (Sec. 37) t he family but not to the additional exemption c. estates and trusts (Sec. 61) of P8,000 .
P E NOTE: NRAETB may deduct personal exemption ERSONAL XEMPTIONS (not additional exemption), but only to the extent allowed by his country to Filipinos not A. Amounts of Personal Exemptions [Sec. 35, residing therein, and shall not exceed the NIRC] aforementioned amounts. NRANETB cannot claim 1. P 20,000 – Single individual or married any personal or additional exempt ions. individual judicially decreed l egall y
separated without qualified dependent C. Change of Status [Sec. 35, NIRC] children.
1. If the taxpayer should marry or should have 2. P 25,000 – Head of the family or married additional dependents during the taxable individual judicially decreed legally year, he may claim the corresponding separated with qualified dependent exempt ions in full for such year. children.
2. If the taxpayer should die during the taxable 3. P 32,000 – For each legally married year, his estate may claim the corresponding individual. exempt ions as if he died at the close of such year. Head of the Family
3. If the spouse or any dependent should die or 1. Unmarried or legally separated person with any dependent should marry or become one or both parents, or one or more brothers t wenty-one years old during the year, or or sisters, or one or more legitimate, should become gainfully employed, the recognized natural or legally adopted t axpayer may claim t he exemptions as if the children living with and dependent upon the spouse or dependent died or as if such taxpayer for their chief support ; and dependent married, became twenty one “Chief support” means more than one-half of years old or became gainfully employed at the requirements for support. t he close of such year. 2. Where such brother / sister or chi ldren are
4. For any other event and for which t here are not more than 21 years of age, unmarried and no specific rules applicable from the above- not gainfully employed, or where such mentioned, the status of the taxpayer at the dependents regardless of age, are incapable end of the year shall det ermine his of self – support because of mental or exempt ions. (strictly construed against the physical defect. taxpayer) Examples: Parents, brothers, sisters and senior cit izen with
bec ame legally separated – can only the t ax payer, whether relative or not, may qualify claim P 20,000 the t axpayer, to the personal exemption of P25,000 25 years old child became incapacitated – as head of the family but not to the additional cannot claim additional exemption exemption of P8,000 .
ITEMIZED DEDUCTIONS B. Additional Exemption for Dependents [Sec. 35, NIRC] P 8,000 – For each of the qualified dependent A. ORDINARY AND NECESSARY EXPENSES
children not exceeding four (4) in number. N E – appropriate and helpful in the ECESSARY XPENSE
The additional exemption r efer s only to dev elopment of taxpayer's business and are intended qualified dependent children such as legitimate, t o minimize losses or to increase profits. These are recognized natural , illegitimate and legally adopted. t he day-to-day expenses.
The proper claimant of the additional exempt ion O E – normal or usual in relation to the RDINARY XPENSE is the husband being the head of the family except taxpayer‘s business and the surrounding under the following cases: circumstance.
1. Husband is unemployed 2. Husband is working abroad like an OFW or a R O B E T B D EQUISITES F USINESS XPENSE O E EDUCTIBLE
seaman 1. ordinary and necessary; 3. Husband explicitly waived hi s right of the 2. paid or incurred w/in the taxable year;
exemption in favor of his wife in the 3. paid or incurred in carrying on a trade or withholding exemption certificate. business;
4. substantiated with official receipts or other A Senior Citizen is: adequate records. 1. any resident cit izen of the Philippines 5. if subject to withholding taxes proof of payment
t o the Bureau of Internal Revenue must be shown.
6. must be reasonable (when the expense is not Aim of Limitation: To discourage so-called bac k-to- lavish, extravagant or excessive under the back loans where a taxpayer secures a loan from a circumstances) bank, turns around and invests the loan proceeds in
7. must not be contrary to law, public policy or money market placements. By imposing a limit as to morals. t he amount of int erest expense that can be deduc ted
from gross income, the previous pract ice of tax NOTE: While illegal income will form part of income arbitrage was absolutely nullified. of the taxpayer, expenses which constitute bribe, kickback and other similar payment, being against Tax Arbitrage – is a method of borrowing without law and public policy are not deductible from gross ent ering into a debtor/creditor relationship, often to income. (Subsec. A, 1, c) resolve financing and exchange control problems. In
t ax cases, back-to-back loan is used to take C E – An expenditure that benefits advantage of the lower of tax on int erest income and APITAL XPENDITURE not only the current period but also future periods. It a higher rate of tax on interest expense deduction. is not deductible but depreciable, except , if the taxpayer is a non-profit proprietary educational Illustration: inst itution which may elect either to deduc t the On June 1, 2000 Company X has: capital expense or depreciate it. 1. Obtained a loan from ABC Financing Corporation
in connection with the operation of its business See Annex E – Business Expenses and its interest expense on the loan amounted to
P 120,000. See Annex F – Ceiling on Entertainment, 2. Deposit account in DEF Bank and derived interest Amusement and Recreational Expenses income thereof amounting to P200,000 on which
t he final tax of P40,000 has been withheld. B. INTEREST Assume that Company X‘s net income before
t he deduc tion of interest expense is P500,000.
I – shall refer to the payment for the use or NTEREST The deductible expense shall be computed as forbearance or detent ion of money, regardless of the
follows: name it is called or denominated. It includes the amount paid for the borrower's use of, money during
Year 2000 the term of the loan, as well as for his detention of money after the due date for its repayment.
Net Income before interest expense P500,000 R F D (REV. REG. N . 13-2000) EQUISITES OR EDUCTIBILITY O Less: Interest Expense P120,000 1. There must be an indebtedness;
Less: 38% of interest 2. There should be an interest exp ense p ai d or income from deposit incurred upon such indebtedness; (38% x P200,000) 76,000 3. The indebtedness must be t hat of the taxpayer; Deduct ible Interest 4. The indebtedness must be connected with the Expense 44,000 taxpayer's trade, business or exercise of Taxable Income P456,000 profession;
5. The interest expense must have been paid or incurred during the taxable year;
Deductible Interest Expense 6. The interest must have been stipulated in writing; 1. Interest on taxes, such as those paid for 7. The interest must be legally due;
deficiency or delinquency, since taxes are 8. The interest arrangement must not be between considered indebtedness (provided that the tax is related taxpayers; a deductible tax, except in the case of income 9. The interest must not be incurred to finance t ax). However, fines, penalties, and surcharges petroleum operations; and on account of t axes are not deductible. The 10. In case of interest incurred to acquire property interest on unpaid business tax shall not be used in t rade, business or exercise of profession, subjected to the limitation on deduction. the same, was not treated as a capital
2. Interest paid by a corporation on scrip dividends expenditure. 3. Interest-on deposits paid by authorized banks of 11. The interest is not expressly disallowed by law to
t he B angko Sentral ng Pilipinas to depositors, be deducted from gross income of the taxpayer. if it is shown that the tax on such int erest was w it hhel d. R O D O I E ULES N EDUCTIBILITY F NTEREST XPENSE
4. Interest paid by a corporate taxpayer who is liable General Rule - In general, the amount of interest on a mortgage upon real property of which the expense paid or incurred within a taxable year of said corporation is the legal or equitable owner, indebtedness in connection with the taxpayer's trade even though it is not directly liable for the business or exercise of profession, shall be allowed indebtedness. as a deduction from the taxpayer's gross income.
N -D I E Limitation - The amount of interest expense paid ON EDUCTIBLE NTEREST XPENSE 1. An individual taxpayer report ing income on the incurred by a taxpayer in connection with his trade,
cash basis incurs an indebtedness on which an business or exercise of a profession from an existing int erest is paid in advance through discount or indebtedness shall be reduced by an amount equal ot her wi se: the following percentages of interest income earned
which had been subjected t o final withholding allowed as a deduction in t he year the indebtedness is paid depending on the year when the interest income
earned, viz: if the indebtedness is payable periodic 38% - beginning January 1, 2000 and thereafter amortization on, the amount of interest
which corresponds to the amount of the
principal amort ized or paid during t he year D : right of an income taxpayer to deduct EFINITION shall be allowed as deduction in such taxable from income tax payable the foreign income tax he year. has paid to his foreign country subject to limitation.
2. Interest paid on indebtedness between related taxpayer W C C T C HO AN LAIM AX REDIT
3. If the indebtedness is incurred to finance 1. resident citizens of the Philippines petroleum exploration 2. resident aliens under the principle of reciprocity
4. Interest on preferred stock, which in reality is 3. domestic corporations which include partnerships dividend except general professional partnership
5. Interest on unpaid salaries and bonuses 4. beneficiaries of estates and trusts 6. Interest calculated for cost keeping on account 5. members of beneficiaries of local partnerships
of capital or surplus invested in business which does not represent charges arising under W A N E T T C HO RE OT NTITLED O AX REDIT interest-bearing obligation. 1. non-resident citizens
7. Interest paid when there is no stipulation for the 2. resident aliens, if without reciprocity payment thereof. 3. resident aliens whose inc ome is derived solely
from sources within the Philippines O T O I E 4. foreign corporations (resident and non-resident ) PTIONAL REATMENT F NTEREST XPENSE
At the option of the taxpayer, interest incurred to acquire property used in trade or business may be F F C L ORMULA OR OM PUTING IMITATION allowed as a deduction or t reated as capital 1. Per country limitat ion expenditure . [Sec 34 (B)(3), NIRC] Taxable
income from foreign country X Phil. = Tax Credit C. TAXES Taxable income inc ome tax Limit from all sources
Taxes mean TAXES PROPER, and therefore no deductions are allowed for:
2. Over-all limitation 1. interest
Taxable 2. surcharges
income from 3. penalties or fines incident to delinquency (Sec. outside sources X Phil. = Tax Credit
80, Rev. Reg. 2) Taxable income income tax Limit from all sources
R F D EQUISITES OR EDUCTIBILITY 1. must be in connection with taxpayer‘s business; The allowable tax credit is the “lower amount” 2. tax must be imposed by law on, and payable by between the tax credit computed under No. 1 and No.
taxpayer (direct tax); and 2. 3. paid or incurred during the taxable year.
W HEN CREDIT FOR TAXES MAY BE TAKEN T N D The c redit for taxes provided by Section 30(C)(3) AXES OT EDUCTIBLE 1. income tax; t o (9) may ordinarily be taken either in the return for
estate and donor‘s tax; 2. t he year in which the taxes accrued or on which t he 3. special assessment s; t axes were paid, dependent upon whether the 4. excess electric consumption tax; accounts of the taxpayer are kept and his returns 5. foreign income tax, war profits and excess profits filed upon the accrual basis or upon cash receipts and
tax, if t he t axpayer makes use of tax credit; and disbursements basis. 6. final taxes, being in the nature of income tax.
L IMITATIONS ON CREDIT FOR FOREIGN TAXES NOTE: Taxes allowed as deductions, when refunded 1) The amount of c redit in respect to the taxes paid or credited, shall be included as part of gross income or accrued to any count ry shall not exceed the in the year of receipt to the extent of the income tax same proportion of the tax against which such benefit of said deduc tion. ( Tax Benefit Rule ) credit is taken, which the taxpayer‘s net income
from sources within such country taxable under For NRAETB and RFC, taxes paid or incurred are Title II (income Tax) bears to his entire net allowed as deduct ions only if and to the ext ent that income for the same taxable year; and they are connected from income within the 2) The total amount of the credit shall not exceed Philippines. t he same proportion of the tax against which such
credit is taken, which the taxpayer‘s net income EXCEPTIONS to requirement that only such persons from sources without t he Philippines taxable on whom the tax is imposed by law can claim under Title II (Income Tax) bears to his entire net deduction thereof: income for the same taxable year. 1. Taxes of shareholder upon his interest as such
D. LOSSES and paid by the corporation without reimbursement from him, can be claimed by the corporation as deduction. L – refer to such losses which do not come under OSSES
2. A corporation paying the tax for the holder its t he category of bad debts, inventory losses, bonds or other obligation containing a tax-free depreciation, etc., and which arise in taxpayer's covenant clause cannot claim deduction for such profession, trade or business. taxes paid by it pursuant to such covenant.
R F D EQUISITES OR EDUCTIBILITY TAX CREDIT 1. Actually sust ained during the taxable year
2. Connected with the trade, business or profession 3. Evidenced by a close and complet ed transaction
4. Not compensated for by insurance or other form be capit alized, subject t o depreciation of indemnity over the remaining useful life of the
5. Not claimed as a deduction for estate tax property. purposes
6. Notice of loss must be filed with t he Bureau of 2. C L (L A D O T T APITAL OSSES OSSES RE EDUCTIBLE NLY O HE Internal Revenue within 45 days from the date of E O C G ) XTENT F APITAL AINS discovery of the c asualty or robbery, theft or a. Losses from sale or exchange of capital assets embezzlement. b. Losses resulting from securities becoming
worthless and which are c apital assets. NOTE: The taxpayer‘s failure to record in his books c. Losses from short sales of property . the alleged loss proves that the loss had not been d. Losses due to failure to exercise privilege or suffered, hence, not deductible. (City Lumber vs. opt ion to buy or sell property. Domingo and Court of Tax Appeals, GR No. L-18611, January 30, 1964) 3. S K O L PECIAL INDS F OSSES
a. Wagering losses - deductible only to the extent C A T O L ATEGORY ND YPES F OSSES of gain or winnings. [Sec. 34 (D)(6)]; deemed to 1. O L RDINARY OSSES apply only to individuals
a. Incurred in trade or business, or practice of b. Losses on wash sales of stocks - not deductible
profession bec ause these are considered to be artificial loss.
Net operating loss carry-over (NOLCO) Refers to the excess of allowable deduct ions
Wash sales – a sale or other disposition of stock over gross income of the business for any
or securities where substantially identical taxable year, which had not been previously
securities are acquired or purchased within 61- offset as deduction from gross income.
day period, beginning 30 days before the sale and Can be carried over as a deduction from gross
ending 30 days after the sale. [Sec. 38] income for the next 3 consec utive years immediately following the year of such loss.
General rule: Losses from wash sales are not For mines, other that oil and gas well, net
deductible. operating loss incurred in any of the first ten
Exception: When the sale is made by a dealer in years of operation may be carried over for
stock or securities and with respect to a the next 5 years.
transaction made in the ordinary course of the business of such dealer, losses from such sale is deductible.
Requirements: Elements of Wash Sales:
(1) The taxpayer was not exempt from (1) The sale or other disposition of stock resulted
income tax in the year of such net to a loss;
operating loss; (2) There was an acquisition or contract or option
(2) The loss was not incurred in a taxable for acquisition of stock or securities within 30
year during the taxpayer was exempt days before the sale or 30 days after the sale;
from income tax; and and
(3) There has been no substantial change in (3) The stock or securities sold were substantially
the ownership of the business or the same as those acquired within the 61-day
enterprise. period.
There is no substantial change in the ownership of the business when:
c. Abandonment losses in pet roleum operation and (a) not less than 75% in nominal value of
producing well. t he outstanding issued shares is held
(1) In case a c ontract area where petroleum by or on behalf of the same persons;
operations are undertaken is part ially or or
wholly abandoned, all accumulated (b) not less than 75% of the paid up
exploration and development expenditures capital is held by or on behalf of the
pertaining thereto shall be allowed as a same person.
deduction. (2) In case a producing well is abandoned, the
NOTE: The 3 year period shall continue to run unamortized cost thereof, as well as the
notwithstanding that the corporation paid its undepreciated cost of equipment directly used
taxes under MCIT, or that the individual availed therein, shall be allowed as deduction in the
the 10% OSD. year the well, equipment or facility is abandoned.
See Annex S for illustration.
d. Losses due to voluntary removal of building b. Of propert y connected, with the trade,
incident to renewal or replacement s - deductible business or profession, if the loss arises from
expense from gross income. fires, storms, shipwrec k or other casualties, or from robbery , theft , or embezzlement.
e. Loss of useful value of capital assets due to (1) Total destruction
charges in business condit ions - deductible expense The replacement cost to restore the
only to the extent of actual loss sustained (after property to its normal operating
adjustment for improv ement, deprec iat ion and condition, but in no case shall the
salvage value) deductible loss be more t han the net book value of the property as a whole, immediately before casualty.
(2) Partial Destruction The excess over the net book value immediately before the casualty should
f. Losses from sales or exchanges of property 2. that in so doing, he acted in good faith. between related taxpayers -losses of this nature (Collector vs. Goodrich International Rubber, is not deductible but gains are taxable. GR No. L-22265, Dec. 22, 1967)
Depends upon the particular facts and the g. Losses of farmers - if incurred in the operation of circumstances of the case.
farm business, it is deductible. Good faith does not require that the taxpayer be an incorrigible optimist but on the ot her hand,
– if the stock h. Loss in shrinkage in value of stock he may not be unduly pessimistic. of the corporation becomes worthless, the cost or other basis may be deducted by the owner in the F. DEPRECIATION taxable year in which the stock of its worthlessness is made. Any amount claimed as a loss on account of D – the gradual diminution in the service EPRECIATION shrinkage in value of the stock through fluctuation in or useful value of t angible property due from the market or otherwise cannot be deducted from exhaustion, wear and tear and normal obsolescence. gross income. The term also applies to amortization of
intangible assets, the use of which in trade or E. BAD DEBTS business is of limited duration.
B D shall refer to those debts resulting from – R F D AD EBTS EQUISITES OR EDUCTIBILITY the wort hlessness or uncollectibility, in whole or in 1. The allowance for depreciation must be part, of amounts due t he taxpayer by ot hers, arising reasonable. from money lent or from uncollectible amounts of 2. It must be for property use or employment in income from goods sold or servic es rendered. trade or business or out of its not being used
temporarily during the year. R F D 3. The allowance must be charged off within the EQUISITES OR EDUCTIBILITY 1. Existing indebtedness due to t he taxpayer which taxable, year.
must be v alid and legally demandable; 4. Schedule on the allowance must be attached to 2. Connected with the taxpayer's t rade, business or the return.
practice of profession; 3. Must not be sustained in a transaction entered P H B O P F L W T ROPERTY ELD Y NE ERSON OR IFE ITH HE
into between related parties; R T A P EMAINDER O NOTHER ERSON 4. Actually ascertained to be worthless and The deduction shall be computed as if t he life
uncollectible as of the end of the taxable year.; t enant was the absolute owner of the property and, and as such the expense shall accrue to him.
5. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year. P H I T ROPERTY ELD N RUST
Allowable deduction shall be apportioned E D O T B bet ween the income beneficiaries, and t he trustees QUITABLE OCTRINE F AX ENEFIT
A recovery of bad debts previously deducted from in accordance with the pertinent provisions of the gross income constitutes taxable income if in the instrument creat ing or in the absence of such year the account was written off, the deduction provisions, on the basis of the trust income allowable resulted in a tax benefit. (Tax Benefit Rule) t o each.
M O D ETHODS F EPRECIATION Illustration: The term "reasonable allowance" shall include
(but not limited to) an allowance c omputed in Case A Case B Case C accordance, with the regulations prescribed by the Net income
(loss) before Department of Finance, under any of the following write off for
methods. bad debts
1. Straight-line method 2. Declining-balance method P10,000 (P 9,000) P 5,000 3. Sum of the years-digit method
Less: Accounts 4. Any other method which may be presc ribed by
written off as t he Department of Financ e upon recommendation bad debts of the Commissioner of Internal Revenue.
3,000 2,000 6,000 Final Net
M O D ETHODS F EPRECIATION Income Kind Formula (Loss) P 7,000 (P11,000) (P1,000)
Bad debts 1)Straight-line cost- salvage value recovery estimated life in a subse-
2)Declining balance cost – depreciation x Rate quent year 3,000 2, 000 6, 000 estimated life TAXABLE
3)Sum of the years digits nth period x cost- salvage INCOME upon
(SYD) SYD the bad debt recovery
Illustration: A machine is used in the manufacturing P3,000 P - 0 - P5,000 department of Corporat ion A, compute the
A O W depreciation per annum with the following facts: SCERTAINMENT F ORTHLESSNESS Cost = P15,000 Salvage Proof of Two Facts: Value= P5,000 1. t axpayer did in fact ascertain the debt to be
worthless, in the year for which deduction is sought,
1. Straight Line Method with estimated life = 5 contract agreement for whic h income is derived, and years return of capital expect ed, from the extraction of 15,000 – 5,000 = P2,000 mineral. 5 years Mere economic or pecuniary advant age to be
derived by production by one who has no capital 2. Declining balance with rate of 200% investment in the mineral deposit does not amount to
Year 1: 15,000 – 0 x 200% = P6,000 economic interest . 5 Year 2:15,000–6,000 x 200% =P3,600 F EATURES 5 1. Intangible Exploration and development drilling
cost in petroleum exploration shall be treated 3. Sum of the years digits either as:
SYD for 5 years = 5+4+3+2+1 or 15 a. revenue expenditures; or Year 1: 5/15 x (15,000 – 5,000) b. c apital expenditures
= P3,333.33 2. The total amount deductible for exploration and Year 2: 4/15 x (15,000 – 5,000) dev elopment expenditures shall not exceed 50%
= P2,666.67 of net income from mining operation. The excess shall be c arr ie d forward to the succeeding year
A A T U L O W D unt il fully deducted. GREEMENT S O SEFUL IFE N HICH EPRECIATION R I B ATE S ASED
H. CHARITABLE AND OTHER CONTRIBUTIONS The Bureau of Internal Revenue and the taxpayer may agree in writing on the useful life of the property to be depreciated. The agreed rate may be T T AX REATMENT modified if justified by facts or circumstances. The change shal l not be effect ive before the taxable year A. Deductible B. Deductible on which notice in writing by certified mail or In Full Subject To Limit ation registered mail is served by the party initiating. S T O D 1) Recipient is: 1) Recipient is: PECIAL YPES F EPRECIATION 1. Petroleum Operations (a) Government of (a) Government of
the the Philippines; Depreciation of all properties directly related Philippines; (b) Any of its to production of petroleum shall be allowed
(b) Any of its agencies or under straight -line (SL) or declining balance agencies or political
(DB) method political subdivisions
May shift from DB to SL method subdivisions; Useful life: 10 years or shorter life as allowed or For a non-priority by the Commissioner (c) Any fully- activity in any of the Useful life of property not directly related to owned areas mentioned in A,
government and exclusively for a production: 5 years under straight line corporation public purpose. method
2. Mining Operations For priority
Depreciation on all properties in mining activity in: operations other than petroleum operat ions 1. Science; at the normal rate if expected life is less 2. Education than 10 years. 3. Culture
4. Health If expected life is more than 10 years, 5. Economic depreciation shall be any number of years
Development between 5 years and the expected life. 6. Human
Settleme nt 3. Depreciation deductible by non-resident aliens
7. Youth and engaged in trade/business or non-resident Sports corporation Development
a. Only when such property is located in the Philippines . 2) Recipient is a 2) Non-government
foreign or organizations internation al G. DEPLETION OF OIL AND GAS organization with
WELLS AND MINES an agreement with the
D - exhaustion of natural resources as in Ph ilippine EPLETION mines, oil, and gas wells. The natural resources are Government on called wasting asset s . As the physical units de ductibility, or
in accordance representing such resources are extracted and sold, with special law. such assets move towards exhaustion.
Known as cost of depletion allowance for mines, oil gas wells and other natural deposits starting
3) Recipient is an 3) Recipient is an calendar year 1976 and fiscal y ear beginning Jul y accredited non- accredited domestic 1,1975 government corporation or
organization, association organized/ operated organized/operated
T W A for (purposes): for (purposes): O HOM LLOWED Only mining entities owning economic interest in
mineral deposits. Economic interest means interest in minerals in
place investment therein or secured by operating or
Amount ratably distributed over a period of (a) Scientific; (a) Scientific 60 months beginning with the month taxpayer (b) Educational; (b) Educational; realized benefits from such expenditures. (c) Cultural; (c) Cultural; (d) Character (d) Youth and sports
E F R A D XCLUSION ROM ESEARCH ND EVELOPMENT bu ilding/youth and development E XPENDITURES sports developmen t (e ) Charitable 1. Any expenditure for the acquisition or (e) Charitable (f) Social welfare
improvement of land or for the improvement of (f) Social welfare (g) Religious property to be used in connection with research (g) Health (h ) Rehabilitation of and development subject to depreciation and (h) Research Veterans depletion.
And satisfying the If the conditions in Table 2. Any expenditure paid or incurred for the purpose following conditions: A is not complied with : of asc ertaining the existence, location, extent or
1. The donation must quality of any deposit of ore or other mineral be utilized not later Subject to limitation:
including oil or gas. than the 15 day of (a) Individual - 10% th
rd the 3 month taxable income from J. PENSION TRUST CONTRIBUTIONS following the close trade business or
of its taxable year. profession before – a deduct ion applicable 2. The administrative con tribution P T C ENSION RUST ONTRIBUTIONS
expense must not (b) Corporation - 5% only to the employer on account of its contribution to exceed 30% of total taxable income from a private pension plan for the benefit of its expenses. trade business or employee. This deduction is purely business in
3. Upon dissolution, profession before character.
assets must be con tribution distributed to another non-profit domestic corporation
R F D or to the state. EQUISITES OR EDUCTIBILITY 1. The employer must have established a pension or
retirement plan to provide for the payment of reasonable pensions to his employees;
2. The pension plan is reasonable and actuarially sound;
3. It must be funded by the employer; 4. The amount contributed must be no longer
subject to the control and disposition of the employer;
5. The payment has not yet been allowed as a deduction; and
6. The deduction is apportioned in equal parts over R F D EQUISITES OR EDUCTIBILITY a period of 10 consecutive years beginning with 1. The contribution or gift must be ac tually paid. t he year in which the transfer or payment is 2. It must be given to the organizations specified in made. the code.
3. The net income of the institution must not inure S O R O R B P / to the benefit of any private st ockholder or UMMARY F ULES N ETIREMENT ENEFITS LAN P T individual. ENSION RUST 1. Exempt from Income Tax – employees‘ trust
under Sec. 60(B) V ALUATION 2. Exclusion from Gross Income – amount received
Charitable contribution of property other than by the employee from the fund upon compliance money shall be based on the acquisition cost of said of certain conditions under Sec. 32(B)(6) property.
3. Deduct ion from Gross Income – a. Amounts contributed by the employer during I. RESEARCH AND DEVELOPMENT (R&D)
t he taxable year int o the pension plan to cover the pension liability accruing during the
T T AX REATMENT year – considered as ordinary and necessary
Either as: expenses under Sec. 34(A)(1)
1. Revenue Expenditures b. 1/10 of the reasonable amount paid by the
Requisites: employer to cover pension liability applicable
a. Paid or incurred during the taxable year t o the years prior to the taxable year, or so
b. Ordinary and necessary expenses in paid to place the trust in a sound financial
connection with trade business or profession basis – deductible under Sec. 34(J)
c. Not chargeable to capital account 2. Deferred Expenses
K. PREMIUM PAYMENTS Requisites: ON HEALTH AND/OR a. Paid or incurred in connection with trade,
HOSPITALIZATION INSURANCE business, or profession b. Not treat ed as expense
D : It is an amount of premium on health c. Chargeable to capital acc ount but not EFINITION and/or hospit alizat ion paid by an individual taxpayer chargeable to property subject to (head of family or married), for himself and members depreciation or depletion. of his family during the taxable year.
Amount deductible: R F D EQUISITES OR EDUCTIBILITY 1. Insurance must have actually been taken
2. The amount of premium deductible does not 4. Between the fiduciary of a trust and the fiduciary exceed P2,400 per family or P200 per month of another trust if the same person is a grantor during t he taxable ear. with respect to each trust;
3. That said family has a gr oss income of not more 5. Between a fiduciary of a trust and a beneficiary than P250,000 for the taxable year. of such t rust.
4. In case of married individual, only the spouse claiming additional exemption shall be entitled to T C AX ONSEQUENCES this deduction. The following are not deductible :
1. Interest expense [Sec. 34 (B)(2)] W M A O T D 2. Bad debts [Sec. 34 (E)(1)] HO AY VAIL F HE EDUCTION 1. Individual taxpayers earning purely compensation 3. Losses from sales or exchanges of property [Sec
income during the year. 36 (B)] 2. Individual taxpayer earning business income or in
(2) OPTIONAL CORPORATE practice of hi s profession whether availing of itemized or optional standard deductions during INCOME TAX the year. SECTION 27 (A)
3. Individual taxpayer earning both compensation, and business or practice of profession during the A T : PPLIES O year. 1. Domestic corporations (DC)
2. Resident foreign corporations (RFC) NON-DEDUCTIBLE EXPENSES
R O T A D O E ATE F AX ND ATE F FFECTIVITY R F N -D 15% of the Gross Income effective January 1, EASONS OR ON EDUCTIBILITY 1. Personal expenses 2000 2. Capital expenditures 3. Items not normally subject to income tax and C O R ONDITIONS R EQUIREMENTS
therefore are not deductible. 1. A tax effort ratio of 20% of Gross Nat ional 4. Items taken advant age of by the taxpayer to Product
avoid payment of income tax. 2. A ratio of 40% income tax collection to t otal tax revenues
S I (S 36) 3. A VAT tax effort of 4% of GNP PECIFIC TEMS EC TION 1. Personal, living or family expenses; 4. A 0.9% ratio of Consolidated Public Sector 2. Amount paid out for new buildings or for Financial Position (CPSFP) to GNP
permanent improvements, or betterment made to increase the value of any property or estate, O F THER EATURES
Except that intangible drilling and 1. Available only to firms whose ratio of: development cost incurred in petroleum operations are deductible; Cost of sales
3. Amount expended in restoring property or in 55% <= Gross sales or receipts from all sources making good the exhaustion thereof for which an
allowance has been made; 4. Premiums paid on any life insurance policy 2. The election shall be irrevocable for three (3)
covering the life of any officer or employee, or of consecutive years any person financially interested in any trade or business carried on by the taxpayer, individual or M O G I EANING F ROSS NCOME corporate, when the taxpayer is directly or General concept – indirectly a beneficiary under such policy . [Sec. Gross sales 36] Less:
5. Losses from sales or exchanges of property (1) Sales Return;
between related taxpayers. [S ec. 36] (2) Discount and allowances (3) Cost of goods sold - means all business
T B R P expenses directly incurred to produce the RANSACTIONS ETWEEN ELATED ARTIES 1. Between members of the family; merchandise to bring them to their
“Family” includes only the brothers, present location and use. sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants of (3) MINIMUM CORPORATE the taxpayer.
INCOME TAX (MCIT) 2. Except in the case of distributions in liquidation: SECTION 27 (E) a. between an individual and a corporation
more than 50% in value of the out standing WHO ARE COVERED? stock of which is owned, directly or
indirectly, by or for such individual; MCIT is imposed on domestic and resident foreign b. between t wo corporations more than 50% in corporations
1. Whenever such corporation has zero or negative value of the outstanding stock of each of which is owned, directly or indirectly, by or t axable income; or
2. Whenever the amount of MCIT is great er than the for the same individual, if either one of such corporations, with respect to the taxable normal income tax due from such corporation
det ermined under Section 27[A]. year of the c orporation preceding the date of the sale of exchange was a personal holding company or a foreign personal holding LIMITATIONS company; or
3. Between the grantor and a fiduciary of any t rust; 1. The MCIT shall apply only to domestic and resident foreign corporations subject to the
normal corporate income tax (income tax rates merchandise to bring them to their under Sec 27[A] of the CTRP). present location and use.
2. In the case of a domestic corporation whose operations or activities are partly covered by the KINDS OF BUSINESS regular income tax system and partly covered under a special income t ax system, the MCIT A. Trading or Merchandising Concern shall apply on operations covered by the regular Gross Income = gross Cost of Sales = corporate income tax system . sales/ receipts less sales 1. Invoice cost of the goods
3. In computing for t he MCIT due from a resident returns, discounts and sold; foreign c orporation, only the gross income from allowances and cost of 2. import duties; sources within the Philippines shall be considered goods sold 3. freight in t ransporting for such purpose. the goods to the place
where the goods are WHEN DOES A CORPORATION BECOME LIABLE actually sold; UNDER THE MCIT? 4. insurance while the goods
are in transit. MCIT is imposed beginning on the fourth B. Manufacturing Cost of Sales = All cost of
taxable year immediately following the year in which Gross Income (Same) production of finished such corporation commenced its business. The goods, such as taxable year in which the business operations 1. raw materials used; commenced shall be the year when t he corporation 2. direct labor; registers with the BIR. 3. manufact uring overhead;
4. freight cost; CARRY FORWARD OF THE EXCESS MINIMUM TAX 5. insurance premiums;
6. other costs incurred to Any excess of MCIT over t he normal income tax bring the raw materials can be carried forward on an annual basis. to the factory or The excess can be credited against the normal warehouse. income tax due in the next 3 immediately C. Services Cost of Services = All direct succeeding taxable years. Gross Income = Gross costs and expenses Any amount of t he excess MCIT which cannot be receipts less sales necessarily incurred to credited against the normal income tax due in returns, allowances, provide the services the next 3-year period shall be forfeited. discounts and costs of required by the customers
services and clients including: a. Salaries and employee
RELIEF FROM MCIT benefits of personnel, consultants and
The Sec retary of Finance is authorized to suspend specialists directly the imposition of the MCIT on any corporation which rendering the service; suffers losses because of: b. Cost of facilities directly
a. prolonged labor dispute; utilized in providing the b. force majeure; or service. c. legitimate business reverses. It shall not include
except for interest expense Substantial losses from a prolonged labor banks and other financial
dispute " means losses arising from a st rike staged by institutions. the employees which lasted for more than six (6) months within a taxable period and which has caused Gross income excludes passive income subjec t to the temporary shutdown of business operations. final tax.
Force majeure " means a cause due to an Other income and Extraordinary Income are irresistible force as by "Act of God" like lightning, included since RR 9-98 provides that gross sales earthquake, storm, flood and the like. This term include sales contributory to income taxable shall also inc lude armed conflicts like war and under the regular corporate tax. insurgency.
Legitimate business reverses " shall include See Annex T for interplay of normal tax, optional subst antial losses sustained due to fire, robbery, corporate income tax and MCIT. theft, or embezzlement, or for other ec onomic reason as determined by the Secretary of Finance.
(4) IMPROPERLY ACCUMULATED EARNINGS TAX RATE: 2% of gross income or taxable base (IAE) TAX pertinent to a trading/merchandising concern or a
SECTION 29 service entity
TAX BASE: Gross Income (REVENUE REGULATIONS NO. 2 – 2001) MEANING OF GROSS INOME
DEFINITION: “Improperly accumulated earnings General concept - gross income means: (IAE)” are the profits of a corporation that are
Gross sales permitted to accumulate instead of being distributed Less: by a corporation to its shareholders for the purpose
(1) Sales Return; of avoiding the income tax with respect to its (2) Discount and allowances shareholders or the shareholders of another (3) Cost of goods sold - means all business corporation.
expenses direct ly incurred to produce the
TAX RATE: 10% of the Improperly Accumulated Taxable Income (in addition to other taxes). Exception: The said tax shall not apply to: Rationale behind IAET 1. Publicly held corporat ions (Sec. 29) If the earnings and profit s were distributed, the 2. Banks and other non-banks Financial shareholders would then be liable to income tax intermediaries (Sec. 29) thereon, whereas if the distribution were not made 3. Insurance companies (Sec. 29) to them, they would incur no tax in respec t to the 4. Taxable part nerships (deemed to have actually or undistributed earnings and profits of the corporation. constructively received the taxable income under Thus, a tax is being imposed; Sec. 73D)
a. in the nature of a penalty to the corporation 5. General professional part nerships (exempt; for the improper accumulation of its earnings, taxable against the partners) and 6. Non- t axable joint ventures and
b. 7. Enterprises duly registered with the Philippine as a form of deterrent to the avoidance of tax Economic Zone Authority (PEZA) under R.A. 7916, upon shareholders who are supposed to pay and enterprises registered pursuant to the Bases dividends tax on the earnings distributed to Conversion and Development Act of 1992 under them by the corporation. R.A. 7227, as well as other enterprises duly registered under special economic zones declared “IMPROPERLY ACCUMULATED TAXABLE INCOME” by law which enjoy payment of special tax rate on their registered operations or activities in lieu Taxable income for the year of other taxes, national or local. Add:
8. Foreign corporations [RR No. 02-2001] Income exempt from t ax; Income excluded from gross income;
EVIDENCE OF PURPOSE TO AVOID INCOME TAX Income subject to final tax; Net operating loss carry-over ( NOLCO ) Total 1. The fact that any corporation is a mere holding Less: company or investment company shall be prima Income tax paid/payable for the taxable facie evidence of a purpose to avoid the tax upon year its shareholders or members. Dividends actually or constructively paid/issued from the applicable year‘s Instances indicative of purpose to avoid income taxable income t ax upon shareholders: Amount reserved for the reasonable a. Investment of substantial earnings and needs of the business as defined in the profits of the corporation in unrelated Regulations business or in stock or securit ies of
unrelated business; Tax base of improperly accumulated earnings t ax b. Investment in bonds and other long-term
securities; EXCLUSIONS c. Accumulation of earnings in excess of 100%
of paid-up capital, not otherwise intended for the reasonable needs of the business as For corporations using the calendar basis the defined in these Regulations. accumulated earnings tax shall not apply on IAE
as of Dec. 31, 1997. 2. The fac t that the earnings or profits of a For fiscal year basis, the tax shall not apply to
corporation are permitted to accumulate beyond the 12-month period of fiscal year 1997-1998. t he reasonable needs of the business shall be det erminative of the purpose to avoid the tax IAE as of the end of a calendar or fisc al year upon its shareholders or members unless the period on or after Dec. 31, 1998 shall be subject to corporation, by the clear preponderance of the 10% tax. evidence, shall prove the contrary.
WHO ARE COVERED? “Reasonable needs of the business” includes t he reasonably anticipated needs of the business General Rule: The IAE tax shall apply to every such as: corporation formed or availed for the purpose of a. Allowance for the increase in the avoiding the income tax with respect to its
accumulation of earnings up to 100% of the shareholders or the shareholders of any other paid-up capital of the corporation as of corporation, by permitting earnings and profits to Balance Sheet date, inclusive of accumulate inst ead of being div ided or accumulations taken from other years; distributed. These are:
b. Earnings reserved for definite corporate 1. Domestic corporations as defined under the expansion projects or programs as approved Tax Code; by the Board of Directors or equivalent body ; 2. Corporations which are classified as closely-
c. Reserved for building, plants or equipment held corporations . • acquisition as approved by the Board of those corporations at least fifty percent
Directors or equivalent body; (50%) in value of the out standing capital d. Reserved for compliance with any loan stock or at least fifty percent (50%) of
covenant or pre-existing obligation the total combined voting power of all established under a legitimate business classes of stock entitled to vote is owned agreement; directly or indirectly by or for not more
e. Earnings required by law or applicable than twenty (20) individuals. regulations to be retained by the corporation Domestic corporations not falling under or in respect of which there is legal
the aforesaid definition are, therefore, prohibition against its distribution; publicly-held c orporations.
f. In the case of subsidiaries of foreign 4. The payee is not required to file an income tax corporations in the Philippines, all return for the particular income subjected to undistributed earnings intended or reserved FWT. It is the withholding agent who files the for investments within the Philippines as can return. be proven by corporate records and/or 5. The rat e of the final tax is multiplied to the gross relevant documentary ev idence. income. Thus, deductions and/or personal and
additional exempt ions are not allowed. The controlling intention of the taxpayer is t hat
(8) FRINGE BENEFIT TAX (FBT) which is manifested at the time of accumulation , not subsequently declared intentions, which are merely the product of afterthought. A spec ulative and FRINGE BENEFIT TAX is a final income tax on the indefinite purpose will not suffice. employee which shall be withheld and paid by the
Definiteness of plan/s coupled with action/s employer on a quarterly basis. taken towards its consummation is essential.
FRINGE BENEFIT means any good, service, or other PERIOD FOR PAYMENT OF DIVIDEND/ PAYMENT OF benefit furnished or granted by an employer, in cash IAET or in kind, in addition to basic salaries, to an
Dividends must be declared and paid or issued individual employee (except rank and file employees) not later than one year following the close of the such as, but not limited to the following: taxable year, otherwise, the IAET, if any, should be 1. Housing paid within fifteen (15) days thereafter. 2. Expense Account
3. Vehicle of any kind 4. Household personnel, such as maid, driver and
(5) INCOME SUBJECT TO others
PREFERENTIAL OR SPECIAL RATES 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. Pertains to income derived by a partic ular
6. Membership fees, dues and other expenses borne individual or corporation belonging to a class of by the employer for the employee in social and income taxpayer that is subject to either a athletic clubs and similar organizations preferential or special rate.
7. Expenses for foreign travel 8. Holiday and vacation expenses Tax Rat es : Please refer to Annex C . 9. Educational assistance to the employee or his
dependents; and (6) GROSS INCOME TAX (GIT) 10. Life or health insurance and other non-lire
insurance premiums or similar amounts on excess GROSS INCOME TAX (GIT) FORMULA
of what the law allows.
Entire Income PERSONS LIABLE
Less: Exclusions and Income subject to Final Tax (e.g. Passive Income) The (as a withholding agent), EMPLOYER
Gross Income whether individual, professional partnership or a
Multiply by: Tax Rates (%) corporation, regardless of whether the corporation is t axable or not, or the government and its
Net Income Tax Due instrumentalities
GIT APPLIES TO TAX RATE: 32% (from January 1, 2000 onwards) of t he Grossed up Monetary Value (GMV) of fringe
1. Non-resident alien not engaged in trade or benefits. business (25%); and
In the case of aliens, the tax rates to be applied 2. Non-resident foreign corporation. (32%) on fringe benefit shall be as follows:
1. NRANEBT 25% Tax Rat es: Please refer to Annex A and B .
2. Aliens employed by regional HO 15 % 3. Aliens employed by OBU 15%
(7) FINAL INCOME TAX 4. Aliens employed by Pet roleum Service Cont ractors and Subcont ractors 15%
GENERAL PRINCIPLES “GMV” OF THE FRINGE BENEFIT REPRESENTS
1. It is constituted as a full and final payment of the income t ax due from the payee on a particular 1. The whole amount of income realized by the type of income subject to final withholding tax employee which includes the net amount of (FWT). money or net monetary value of property which
The finality of the withholding tax is limited has been received; plus only to the payee‘s income tax liability and does 2. The amount of fringe benefit tax thereon not extend to other taxes that may be imposed otherwise due from the employee but paid by the on said income. employer for and in behalf of the employee.
2. The income subjected t o final income tax is no longer subject to the net income tax; otherwise, GMV of the fringe benefit shall be there would be a violat ion of prohibited double det ermined by dividing the monet ary value of the taxation. fringe benefit by the Grossed up divisor. The
3. The liability for the payment of the tax rests Grossed up divisor is the difference bet ween 100% primarily on the payor as withholding agent. and the applicable rates.
2. Medical cash allowance to dependents of YEAR GROSSED UP
employees not exceeding P750.00 per employee DIVISOR RATE per semester or P125 per month; 1998 66% 34% FWT
3. Rice subsidy of P1,000.00 or one (1) sack of 50kg. 1999 67% 33% FWT rice per month amounting to not more than
2000 onwards 68% 32% FWT P1,000:00, 4. Uniform and clothing allowance not exceeding
P3,000 per annum; FRINGE BENEFITS NOT SUBJECT TO FBT 5. Actual yearly medic al benefits not exceeding
P10,000 per annum; 1. Fringe benefits not considered as gross income – 6. Laundry allowance not exceeding P300 per a. if it is required or necessary to the business
month; of employer 7. Employees achievement awards e. g. for length b. if it is for the convenience or advantage of
of service or safety achievement, which must be employer in the form of a tangible personal property other 2. Fringe Benefit that is not taxable under Sec . 32 t han cash or gift certificate, with an annual (B) – Exclusions from Gross Income monetary value of not exceeding P10,000 3. Fringe benefits not taxable under Sec. 33 Fringe received by the employee under an est ablished Benefit Tax: written plan which does not discriminat e in favor a. Fringe Benefits which are authorized and paid employees; exempted under special laws, such as the
8. Gifts given during Christmas and major 13th month Pay and Other Benefits wit h the anniversary celebrations not exceeding P3, 000 ceiling of P30,000. per employee per annum; b. Contributions of the employer for the benefit
9. Flowers, fruits, books or similar items given to of the employee to retirement, insurance and employees under special circumst ances hospitalizat ion benefit plans;
10. Daily meal allowance for overtime work not c. Benefits given to the Rank and File exceeding 25% of the basic minimum wage. Employees, whether granted under a
collective bargaining agreement or not; and Time for filing of quarterly remittance return of d. The De minimis benefits – benefits which are final income taxes withheld relativ ely small in value offered by the The tax imposed under Sec. 33 shall be treated employer as a means of promoting goodwill, as a final income tax on the employee that shall be contentment, efficiency of Employees withheld and paid by the employer, whether a large The term Rank and File Employees t axpayer or non-large taxpayer, on or before the shall mean all employees who are holding 10 day of the month following t he calendar quarter t h
neither managerial nor supervisory position in which the fringe benefits were granted (RR 04- as defined in the Labor Code 2002). In t he case of rank and file employees,
fringe benefits other than those excluded For Additional Rules on Fringe Benefits, refer to from gross income under the Tax Code and Annex H . other special laws, are taxable under the
individual normal tax rate. (9) CAPITAL GAINS TAX DEDUCTIBILITY TO THE TAXABLE INCOME OF THE
EMPLOYER SUMMARY OF TAX RATES
General Rule: The amount of taxable fringe benefit and the fringe benefits tax shall constitute allowable 1. Individuals deductions from gross income of the employer. a. On sale of shares of stock of a domestic Exception: corporation not listed and traded thru a local
If the basis for computation of the fringe benefits stock exchange, held as capital asset tax is the depreciation value, the zonal value or the On the Net Capital Gain
Not over P100,000 – FT of 5% fair market value, only the actual fringe benefits tax Amount in excess of P100,000 – FT of 10% paid shall constitute a deductible expense for the
b. On sale of real property in the Philippines employer. The value of the fringe benefit shall not be held as capital asset deductible and shall be presumed to have been
On the gross selling price, or the current fair tacked on or ac tually claimed as depreciation market value at the time of sale, whichever is
expense by t he employer. Provided, however, that if highe r – FT of 6%
the aforesaid zonal value or fair market value of the 2. Corporations
said property is greater than its cost subject to a. On sale of shares of stock of a domestic depreciation, the excess amount shall be allowed as
corporation not listed and traded thru a local a deduction from the employer's gross income as
stock exchange, held as capital asset fringe benefit expense. (Sec. 2.33[D], Rev. Reg. No. 3- On the Net Capital Gain –
) 98 Not over P100,000 – FT of 5% Amount in excess
EXAMPLE OF DE MINIMIS BENEFITS NOT SUBJECT TO of P100,000 – FT of 10% FBT (RR NO. 8-2000 AND 10-2000) b. On sale of land/building held as capital asset
On the gross selling price, or the current fair market value at the time of sale, whichever is 1. Monetized unused vacation leave credits of highe r – FT of 6% PRIVATE employees not exceeding (10) days
(Reyes, Virgilio. Income Tax Law and Accounting – A during the year and the monetized value of leave New Approach, 2002) credits paid to government officials and
employees CAPITAL GAINS AND LOSSES –
IN GENERAL
or loss to be taken into extent of 100%. CONCEPT OF CAPITAL ASSETS account shall be the (There is no holding
following: period) Under the tax code, there is no definition for t he a. 100% - if the capital
assets has been held for term "capital asset s". What it gives is t he meaning of 12 mos. or less; and ordinary assets:
b. 50% - if the capital asset a. Ordinary assets (Sec. 39, NIRC) has been held for more
a. Stock in trade of the taxpayer or ot her than 12 mos. properties of a kind which would properly be included in the inventory of the taxpayer;
Non-deductibility of Capital losses are Net Capital losses b. Property held by the taxpayer primarily for allowed only to extent Capital losses are of the capital gains; sale to customers in the ordinary course of allowed only to extent hence, the net capital business; of the capital gains; loss is not deductible. hence, the net capital Exception : If any
c. Property used in trade or business and loss is not deductible. domestic bank or trust
subject to depreciation; and company, a su bstantial part of whose business is
d. Real property used in trade or business. the receipt of deposits, sells any bond, debenture, note or b. Capital Assets include all property held by the certificate or other taxpayer whether or not connected in trade or evidence of indebtedness business but not including those enumerated issued by any corporation
above (#1) as ordinary assets. (including one issued by a government or political subdivision)
CAPITAL GAIN CAPITAL LOSS
Net Capital Loss Carry – Not allowed The gain derived from the The loss incurred from the Over sale or exchange of capital sale or e xchange of capital Allowed assets. assets. The net capital loss (in an
amou nt not in excess of the taxable income before pe rsonal exemption for such year) shall be treated in the succeeding year (but not NET CAPITAL GAIN NET CAPITAL LOSS be yond 12 months) as a de duction as short-term
The excess of the gains The excess of th e losses capital loss (at 100%) from the
from sales/ exchanges of from sales or exch anges of ne t capital gains.
capital assets over the capital assets over the gains from such sales/ gains from such sales or exchanges. exch anges.
See Annex U for illustration.
S E C A ALE OR XCHANGE OF APITAL SSETS
T R T G N - RANSACTION ESULTING IN AXABLE AINS BUT ON The following are considered as sale or exchange R L ECOGNITION OF OSSES of capital assets: a. Sale or exchange between related parties;
1. Retirement of bonds b. Wash sales by non-dealers of securities and
2. Short sales of property when not subject to the stock t ransfer tax;
3. Failure to exercise privilege or option to buy or c. Exchanges not solely in kind in merger and
sell property consolidation; and
4. Securities becoming worthless d. Sales or exchanges that are not at arms
5. Distribution in liquidation of corporations length.
6. Readjustment of interest in a general professional partnership.
REQUISITES FOR RECOGNITION OF CAPITAL T F E AX REE XCHANGES GAIN/LOSS
Sales or exchanges resulting in non-recognition of gains or losses:
1. The transaction must involve property 1. Exchange solely in kind in legitimate mergers
classified as capital asset; and and consolidation ; includes: a. Between the c orporations which are parties
2. The transaction must be a sale or exchange or t o the merger or consolidation (property for
one considered as equivalent to a sale or stocks);
exchange. b. Between a stockholder of a corporation party
t o a merger or consolidation and the other RULES ON THE RECOGNITION OF CAPITAL GAINS OR
party corporation (stock for stoc k); LOSSES
c. Between a security holder of a corporation party to a merger or consolidation and the other party corporation (securities for
INDIVIDUAL CORPORATION securities)
Holding Period Capital gains and losses 2. Transfer to a controlled corporation – exchange The percentages of gain are recognized to the of property for stocks resulting in acquisition of
corporate control by a person, alone or together 2. Shares of stock listed through a local stock with others not exceeding four. exchange – ½ of 1% of the gross selling price of
“Control” means ownership of stocks in a t he stock. corporation amounting to at least 51% of the E T XCEPTIONS TO THE AX total voting power of all classes of stocks entitled 1. Gains derived by dealers in securities. to vote. 2. All other gains which are specifically exempt
from income tax under existing investment S E O A incentives and other special laws. ALE OR XCHANGE OF RDINARY SSETS
General rules of income taxation apply to both B (BIR R 146-98) ASIS FOR COMPUTING GAIN OR LOSS ULING gain and loss.
The fair market v alue (FMV) of the sale of shares See Annex D (Gross Income – Gains from dealings not traded but listed in the stock exchange is the in property) highest closing price on the day the shares were
sold, transferred or exchanged. SUMMARY OF TAX TREATMENT OF GAINS/LOSSES IN When no sale is made in the stock exchange, the THE EXCHANGE OF PROPERTIES FMV shall be the highest selling price on the day
nearest to the day of sale, transfer or exchange. General Rule: Upon the sale or exchange of For shares not listed in the exchange, the FMV property, the entire gain or loss, as the c ase may be, shall be the book value nearest the valuation shall be recognized. [Sec. 40 (C, 1)] date
Exceptions: The above rules shall be used in computing 1. Transactions where gains and losses are not for the net capit al gain/loss for disposition of
recognized – shares. a. Exchange solely in kind in legitimate
mergers and consolidation I F MPORTANT EATURES b. Transfer to a controlled corporation [Sec.
40(C, 2)] 1. Sale of shares of stock of a domestic corporation 2. Transactions where gain is rec ognized but not the listed and traded in a local stock exchange and
loss – t hat of initial public offering shall be subject to a. Transactions between related taxpayers Percentage tax (Business Tax)
[Sec. 36] 2. Capital losses sustained during the year (not b. Illegal transact ions [Sec. 96, Rev. Reg. 2] listed and traded in a loc al stock exchange) shall c. Exchanges of property, not solely in kind, be allowed as a capital loss deductible on the
in pursuance of corporate mergers and same taxable year only (no carry-over) consolidations [Sec. 40, (C, 3)] 3. The entire amount of capital gain and capital loss
(not listed and traded in a local stock exchange) IMPORTANT DISTINCTION shall be considered without taking into account If it is an ordinary asset , the ordinary gains and holding period irrespective of who is the taxpayer losses are considered in determining income or loss (all 100%) from trade, business or profession. (See Secs. 32A, 4. Non-deduct ibility of losses on wash sales. 34D) If it is a capital asset , determine further whether F P T ILING AND AYMENT OF AX or not it is a real property located in the Philippines. If it is, then it is subject to capital gains tax. (See 1. - The Listed and Traded in the Stock Exchange Secs. 24D, 27D5) (See also Sec s. 24C, 27D2) If not, stockbroker shall turn over the tax collected to the capital gains and losses are considered in t he B.I.R. within five (5) banking days from the determining the taxable income. (Sec. 39) date of collection.
CAPITAL GAINS AND LOSSES – 2. - It shall be Not traded through the stock exchange SHARES OF STOCK paid by the seller on a per transaction basis upon
filing of the required return within 30 days The taxation of shares of stock whether or not following each sale or other disposition of shares of
listed and traded in the stock exchange is subject to stock. final tax .
CAPITAL GAINS AND LOSSES W HO ARE LIABLE TO THE TAX
(REAL PROPERTY) 1. Individual taxpayer, citizen or alien 2. Corporate taxpayer, domestic or foreign
P L A T A 3. Other taxpayers such as estate, trust, trust funds ERSONS IABLE ND RANSACTIONS FFECTED and pension among others.
1. Individual taxpayers, est ates and trusts Sale or exchange or other disposition of real R ATES OF TAX
property considered as capital assets. The said sale shall include "pacto de retro 1. Shares of stock not traded through a local stock
sale " and other conditional sale. exchange – Net capital gains derived during the 2. Domestic Corporation taxable year from sale, exchange, or transfer
Sale or exchange or disposition of lands shall be taxed as follows (on a per transac tion and/or building which are not actually used in basis): business and are t reated as capital asset. Not over P 100,000 - 5%
Over P 100,000 - 10% E T XCEPTIONS TO THE AX
1. Gains derived by dealers in real estate
accounted for in a different period under R A B O T methods of accounting permitt ed ATE ND ASIS F AX
A final tax of 6% is based on the gross selling In case of death of taxpayer: inc lude for the price or fair market value or zonal value whichever is t axable year in which falls the date of his higher . death, all amounts which accrued up to the
Note : Gain or loss is immaterial, there being a date of his death; if not otherwise properly conclusive presumption of gain. includible in respect of such period or a prior
period See Annex G – Guidelines in Determining Whether a Real Property is a Capital or an Ordinary Asset. C. Period for which deduction and credits taken
(Sec. 45) E Deductions prov ided in this Title shall be XEMPTION OF CERTAIN INDIVIDUALS FROM THE CAPITAL GAINS
P R taken for the taxable year in which =paid or TAX ON THE SALE OR DISPOSITION OF A RINCIPAL ESIDENCE incurred, dependent upon the method of
Conditions: accounting upon the basis of which the net a. Sale or disposition of the old princ ipal residence; income is computed, unless, in order to b. By - citizens or aliens provided natural persons reflect the income, deductions should be
that they are residents taxable under Sec. 24 of t aken as of a different period. the Code (does not include an estat e or a trust); In case of death of taxpayer: deductions
c. The proceeds of which is fully utilized in (a) allowed for the taxable period in which falls acquiring or (b) constructing a new principal t he date of his death, amounts accrued up to residence within eighteen (18) calendar months t he date of his death if not otherwise from date of sale or disposition; properly allowable in respect of such period
d. Notify the Commissioner within thirty (30) days or a prior period. from the date of sale or disposition through a prescribed return of his intention to avail the tax D. Change of accounting period (Sec.46) exemption; Kinds of changes:
e. Can only be availed of only once every ten (10) - from fiscal year to calendar year years; - from calendar year to fiscal year
f. The historical cost or adjust ed basis of his old - from one fiscal year to another principal residence sol d, exchanged or disposed Effect of change: Net income, shall, with the shall be carried over to the cost basis of his new approval of the Commissioner, be computed principal residence on the basis of the new accounting period,
g. If there is no full utilization, the portion of the subject to Sec. 47. gains presumed to have been realized shall be subject to capital gains tax. E. Final or adjustment returns for a period of
less than 12 months G I D S (S . 42) (1) Returns for short period resulting from ROSS NCOME FROM IFFERENT OURCES EC
Please refer to Annex I. change of accounting period t axpayer is other than an individual
A P M CCOUNTNG ERIODS AND ETHODS OF ACCOUNTING with the approval of the Commissioner If change is from fiscal year to calendar year:
I. A P CCOUNTING ERIODS - separate final or adjustment return be A. General rule (Sec. 43)
made for the period bet ween t he close of Taxable income is computed upon the basis
t he last fiscal year for which return was of taxpayer‘s annual accounting period (fiscal
made and t he following December 31 or calendar year) in accordance with the
If change is from calendar year to fiscal year: method of accounting employed.
- separate final or adjustment return be If no method of accounting employed or
made for the period bet ween t he close of method does not clearly reflect the income,
t he last calendar for whic h return was computation shall be made in accordance w/
made and the date designated as the such method as the opinion of the
close of the fiscal year Commissioner clearly reflects the income.
If change is from one fiscal year to another: Taxable income is computed based on
- separate final or adjustment return be calendar year if:
made for the period bet ween t he close of 1. accounting period is other than a fiscal
t he former fiscal year and the date year
designated as the close of the new fiscal 2. taxpayer has no accounting period
year 3. taxpayer does not keep books
(2) Income comput ed on basis of short period 4. taxpayer is an individual
In what cases? : accounting period of 12 months Fiscal year
a. Where a separate final or adjustment ending on the last day of any month other
return is made on account of a change than December
in accounting period : accounting period from Calendar year b. In all other cases where a separate
January 1 to December 31 final or adjustment return is require or permitted by R&R prescribed by Sec. of
B. Periods in which items of gross income Finance. upon recommendation of included (Sec. 44)
Commissioner Amount of all items of gross income shall be Bot h shall be made for a fractional part of a included in the gross income for t he taxable
year. year in which received by the taxpayer,
Then income is computed on the basis of the unless, any such amounts are to be properly
short period for which separate final or adjust ment return is made.
Installments payable in 2 equal annual II. M installments ETHODS OF ACCOUNTING
GP/CP ratio = 50,000/200,000 = 25% A. Cash method Collections in 2000=P100,000 Recognition of income and expense Income for 2000 dependent on inflow or outflow of cash. = P100,000 x 25% = P25,000
B. Accrual method Method under which income, gains (2) Sales of realty and casual sales of
Personalty and profits are included in gross income when In cases of: earned whether received or not, and a. c asual sale or other casual expenses are allowed as deductions when
incurred: although not yet paid. It is the right disposition of personal property (other than inventory on hand of to rec eive and not the actual receipt that
determines the inclusion of the amount in t he taxpayer at the close of the t axable year) for a price > gross income P1,000, or Examples:
b. sale or other disposition of real 1. int erest or rent income earned but property, if in either case the not yet received initial payments do not exceed 2. rent expense accrued but not yet 25% of the selling price paid
3. wages due to workers but remaining How may income be returned : same as in sales of dealer in personal unpaid property above
C. Accounting for long-term contracts Initial payments: payments received in cash or property other than Long-term contracts : building,
inst allation or construction contracts evidences of indebtedness of the purchaser during the taxable period covering a period in excess of 1 yr in which the sale or other disposition Persons whose gross income is derived in is made. whole or in part from such contracts shall
report such income upon the basis of (3) Sales of real property considered as percentage of completion
capital asset by individuals The return is accompanied by a return Individual who sells of disposes of certificate of architects or engineers real property, c onsidered as capital showing the percentage of completion asset and is otherwise qualified to during the taxable year of the entire report the gain under (2) above may work performed under the cont ract pay the capital gains tax in Deductions from gross income: all installments under rules and expenditures made during the taxable regulations to be promulgated by the year on account of the contract: account Sec. of Finance. being taken of the material and supplies
on hand at the beginning and end of the (4) Change from accrual to installment basis taxable period for use in connection with
the work under the contract but not yet t axpayer must be entitled to benefits so applied. under (1) hereof sales of dealers in Amended return may be permitted personal property /required by the Commissioner: if upon in computing income for the year of completion of contract, taxable income change or any subsequent year: has not been clearly reflected for any amount s actually received during any year(s). such year on account of sales or other dispositions of property made D. Installment basis in any prior year shall not be (1) Sales of dealers in personal property excluded. Under rules and regulations
prescribed by the Sec. of Finance, a E. Allocation of income and deductions person who regularly sells or ot herwise
disposes of personal property on the Applicable to: cases of 2 or more organizations, trades or businesses inst allment plan may return as income
there from in any t axable year that (incorporated and organized within the Philippines) owned or controlled directly proportion of the installment payments /indirectly by the same interest actually received in that year, which the
gross profit realized or to be realized Commissioner is authorized to distribute, when payment is completed, bears to the apportion or allocate gross income or contract price. deductions between or among such
organization, trade or business, if he Example: Sale in 2000 det ermines that such distribution, Contract price (CP) apportionment or allocation is necessary (installments in order to prevent evasion of taxes or to
receivable) P200, 000 clearly reflect the income of any such Cost 150,000 organization, trade or business. Gross profit (GP) 50,000
F T R PA T ILING OF AX ETURN AND YMENT OF AX
T R – This is a report made by the taxpayer to Example: employee whose pure AX ETURN the BIR of all gross income received during the compensation income does not exceed taxable year, the allowable deductions including P60,000 and has only one employer for the exemptions, the net taxable income, the income tax t axable year and whose tax withheld is rate, t he income tax due, the income tax withheld, if equivalent to his tax due. any, and the income tax still to be paid or refundable. S I R E UBSTITUTED FILING OF NCOME TAX ETURNS BY MPLOYEES
R P C I . [S 4, RR ECEIVING URELY OMPENSATION NCOME ECTION 3-2002; RMC 01-03]
P R F I T R Requisit es: ERSONS EQUIRED TO ILE NCOME AX ETURN 1. The employee receives purely compensation
a. Individual income (regardless of amount) during the taxable 1. Resident citizen; year. 2. Non-resident citizen on income from within 2. The employee receives the income only from one
the Phil.; employer during the taxable y ear. 3. Resident alien on income from within the 3. The amount of tax due from the employee at the
Phil.; end of the year equals the amount of tax 4. NRAETB on income from within t he Phil. withheld by the employer . 5. An individual (citizens / aliens) engaged in 4. The employee's spouse also complies with all
business or practice of a profession within t hree (3) conditions stated above. the Phil. regardless of the amount of gross 5. The employer files the annual information return income; (BIR Form No. 1604-CF)
6. Individual deriv ing compensation income 6. The employer issues BIR Form 2316 (Oct 2002 concurrently from two or more employers at ENCS) version to each employee any time during the t axable year;
7. Individual whose pure compensation income I N Q F S F (S NDIVIDUALS OT UALIFIED OR UBSTITUTED ILING TILL derived from sources within the Phil. exceeds R T F ) EQUIRED O ILE P60,000.
b. Taxable Estate and Trust 1. Individuals deriving compensation from two or c. General Professional Partnership more employers concurrent ly or successively d. Corporation during the taxable year.
1. Not exempt from income tax; 2. Employees deriving compensation income, 2. Exempt from income tax under Sec. 30 of regardless of the amount, whether from a single
NIRC but has not shown proof of exemption. or several employers during the calendar year, t he income tax of which has not been withheld
I E F F I T R correctly (i.e. tax due is not equal to the tax NDIVIDUALS XEMPT ROM ILING NCOME AX ETURN withheld) resulting to collectible or refundable
1. Individual whose gross income does not exceed return. total personal and additional exemptions; 3. Employees whose monthly gross compensation
2. Individual with respect to pure compensation income does not exceed P5,000 or t he statutory income derived from sources within the minimum wage, whichever is higher, and opted Philippines, the income tax on which has been for non-withholding of tax on said income. correctly withheld; 4. Individuals deriving other non-business, non-
3. Individual whose sole income has been subjected profession-related income in addit ion to to final withholding income t ax; compensation income not otherwise subject to
4. Individual who is exempt from income tax. final tax. 5. Individuals receiving purely compensation income
– is when the employer‘s annual from a single employ er although the income tax SUBSTITUTED FILING return may be considered as the substitute Income of which has been correctly wit hheld, but whose Tax Ret urn (ITR) of employee inasmuch as the spouse falls under 1 to 4 above. information provided in his income tax return would 6. Non-resident aliens engaged in trade or business exactly be the same information contained in the in the Philippines deriving purely compensation employer‘s annual return. income, or compensation income and ot her non-
business, non-profession-related income. H I “S F ” D F “N - OW S UBSTITUTED ILING IFFERENT ROM ON
”? F NOTE: Non-filing of ITR, for employees who are ILING qualified for the substituted filing shall be OPTIONAL
– an individual taxpayer for the taxable year 2001, the returns for which shall Substituted Filing although required under the law to file his be filed on or before April 15, 2002. Thereafter,
substituted filing where applicable shall be income tax return, will no longer have to MANDATORY. [Sec 5 RR 3-2002) personally file his own income tax return.
– but instead the employer’s annual information return filed is the considered substitute income t ax return of the
R O B F S O A I F employee inasmuch as the information in the EQUIREMENT F ANKS OR UBMISSION F N TR OR employer‘s return is L O C C A exactly the same OAN R REDIT ARD PPLICATIONS information contained in the employee‘s
Banks may require the submission of BIR Form No. return. 1700 (for employees not entitled to substituted filing of ITR). However, for employees entitled to Non -filing – applicable to c ertain types of substituted filing of ITR, t he submission of the Joint individual taxpayers who are not required Certification will suffice. under the law to file an income tax return.
: each spouse If impracticable to file one return J C - It is a sworn statement made by file a separate return of income but the return so OINT ERTIFICATION the employer and employee, which serve the filed shall be consolidated by the Bureau for the following purposes: purposes of verification for t he year. 1. It contains the employee's consent that BIR Form
No. 1604CF may be considered his substituted U M NMARRIED INOR return, in lieu of BIR Form No. 1700, which the employee no longer filed. Income of unmarried minors derived from
2. It contains the employer's certification that he property received by the living has reported the employee's income to the BIR and that he has remitted the t axes on the parent shall be included in the return of the employee's income, as indicated in BIR Form No. parent, except: 1604-CF. a. when donor‘s tax has been paid on such
3. It serves as proof of financial capacity in case the property, or employee decides to apply for a bank loan or a b. when transfer of such property is exempt credit-card, or for any other purpose, as if he had from donor‘s tax in fact filed a BIR Form No. 1700.
P U D ERSONS NDER ISABILITY I R T F A I R NDIVIDUALS EQUIRED O ILE N NFORMATION ETURN
If a taxpayer is unable to make his own return, it Individuals not required to file an income tax may be made by his
return may nevertheless be required to file an 1. duly authorized agents; information return pursuant to rules and, regulations 2. representative; prescribed by t he Secretary of Finance upon 3. by guardian; recommendation of the Commissioner. 4. other person charged with the care of his person
or propert y; P O F who will assume the responsibility of making the LACE F ILING
return and incurring penalties provided for 1. Legal residence - authorized agent bank; Revenue erroneous, false or fraudulent return.
District Officer; Collection agent or duly authorized treasurer R , T P ETURN OF ESTATE RUST AND ARTNESHIP
2. Principal place of business 3. With the Office of the Commissioner
Estate and Trust with gross income of P20,000 or more and partnership (whether professional or business) shall file their income tax return on or before April 15.
T F F (P ) IME OR ILING AY AS YOU FILE SYSTEM T R G P P AX ETURNS OF ENERAL ROFESSIONAL ARTNERSHIPS (GPP)
April 15 – for those earning sole compensation Each GPP shall file in duplicate, a return of its
income or solely business, practice of profession or income (except those income exempt )
combination of business and compensation. Shall set forth: a. items of gross income and deductions allowed
R P E I T ETURN AND AYMENT OF STIMATED NCOME AX BY b. names of partners I (S -E P P ) NDIVIDUAL ELF MPLOYED OR RACTICE OF ROFESSION c. TIN
d. address and share of each partner 1. First quarter - April 15 of current year 2. Second quarter -August 15 of current year
T R C AX ETURN OF A ORPORATION 3. Third quarter – November 15 of current year Those required to file:
4. Final quarter - April 15 of the following year. 1. Corporation subject to tax having existed during
t he taxable year, whether with income or not. Note : When the tax due is in excess of P2, 000 - the
2. Corporation in the process of liquidation or taxpayer may elect to pay in two (2) equal installments:
receivership. 1 installment - April 15 st
3. Insurance company doing business in the 2 installment - on or before July 15 nd
Philippines or deriving income therein 4. Foreign corporation hav ing income from within the
E T F R XTENSION OF IME TO ILE ETURN Philippines
The Commissioner may on meritorious cases grant F (P ) ILING OF RETURN AY AS YOU FILE SYSTEM a reasonable extension of time for filing income tax
Quarterly returns for the first three (3) quarters on return and may subjec t the imposition of t wenty (20)
a strictly sixty (60) day basis and the final or adjusted percent interest per annum from the original due
return on the 15th day of the fourth (4th) month date.
following the close of either a fiscal on c alendar year. -
R O H A W ETURN F USBAND ND IFE See Annex V for Illustration.
for the taxpayer year if File one (1) return W ? HO SHALL FILE following requisites complied;
The return shall be filed by the president, vice- a. Married individuals (citizens, resident or
president, or other principal officer, and shall be nonresident aliens) sworn to by such officer and by the treasurer or
b. Do not derived income purely from assistant treasurer.
compensation.
WITHHOLDING TAXES
E W C LEMENTS OF ITHHOLDING ON OM PENSATION W T 1. There must be an employer-employee ITHHOLDING AXES
Kinds: relationship 1. Withholding Tax at Sourc e: 2. There must be payment of compensation or
a. Final Withholding Tax wages for services rendered There must be a payr oll per iod. b. Creditable Withholding Tax (Expanded 3.
withholding t ax) C E OMPENSATION XEMPTED 2. Withholding Tax on Compensation (Wages) 3. Withholding Tax on Creditable Value-Added Tax 1. Remunerations received as an inc ident of 4. Withholding of Percentage Tax employment
2. Remunerations paid for agriculture labor CREDITABLE 3. Remunerations paid for domestic services
FINAL WITHHOLDING WITHHOLDING TAX 4. Remunerations for casual not in the course of an
TAX SYSTEM SYSTEM employer's trade or business.
5. Compensation for services of a citizen, resident of The amount of income tax Taxes withheld on certain t he Philippines, for a foreign government or an withheld by the income payments are international organization withholding agent is intended to equal or at 6. Damages constituted as a full and least approximate the tax
7. Life insurance final payment of the due from the payee on the
8. Amount received by the insured as return of income due from the payee said income. premium on the said income . [Sec.
9. Compensation for injuries and sickness 2.57 (a), Rev. Reg. 2-98] 10. Income exempt under treaty 11. Thirt eenth (13t h) month pay and other benefits 12. GSIS; SSS; Philhealt h and other contributions, The liability for payment of The income recipient is still
the tax rests primarily on required to file an income the payor or the tax return and/or pay the T -F C BOND [ S . 57(C)] AX REE OVENANT EC withholding agent. difference between the tax The payee is n ot required withheld and the tax due – C B bonds, mortgages, deeds of trust OVENANT ONDS to file an income tax return on the income. [Sec.
and other similar obligations of domestic/resident for the particular income. 2.57(B), Rev. Regs. 2-98]
foreign corporation, which contain a contract/provision by which t he obligor agrees; 1. t o pay any portion of the tax imposed upon the
obligee; T W T S IME TO ITHHOLD AX AT OURCE 2. t o reimburse the obligee for any portion of the
t ax; or - arises at the time an income is paid or payable,
3. t o pay the interest without deduction for any tax whichev er comes first. The term payable refers to which the obligor may be required/permitted to
the date the obligation becomes due, demandable or pay or to retain therefrom. legally enforceable. (Sec. 2.54.4 Rev. Regs. 2.98)
Obligor shall deduct and withhold a tax = 30% of ’ N W A L ATURE OF ITHHOLDING GENT S IABILITY t he interest and other payments whether interest The withholding agent is directly and or other payments are payable annually or at a
independently liable for the correct amount of the shorter period; whether bonds, securities, tax that should be withheld from the dividend obligations had been/will be issued/ marketed remitt ance. (Commissioner vs. Procter and Gamble, and the interest and other payments paid within
GR No. 66838, December 2, 1991) and without the Philippines if t he interest or other payment is payable to a non-resident alien
C F W : ONSEQUENCES FOR AILURE TO ITHHOLD or a citizen or resident of the Philippines 1. liable for surcharges and penalties;
I R [S . 58 ( )] 2. liable upon conviction to a penalty equal to the NCOME OF ECIPIENT EC D
tot al amount of the tax not withheld, or not Income which any creditable tax is required to be accounted for and remitted. (Sec. 251, 1997 withheld at source shall be inc luded in the return NIRC) of its recipient. 3. any income payment which is otherwise The excess of the amount of t ax withheld over deductible from the payor‘s gross income will t he tax due on his ret urn shall be refunded to not be allowed as a deduction if it is shown him, subject to Section 204 (abatement, that the income tax required to be wit hheld is refund/credit taxes). not paid to the BIR. (Sec. 2.58.5, Rev. Reg. 2- If amount withheld at source is less than the t ax 98) due on his return, the difference is paid in accordance with Section 56 (payment and W T O C ITHHOLDING AX N OMPENSATION assessment of income tax). Every employer must withhold from All taxes withheld shall be considered as trust compensation paid, an amount comput ed in funds and maintained in a separate account and accordance with the regulations. not commingled wit h any other funds of the withholding agent. Exception:
Where such compensation income of an B. TRANSFER TAXES individual:
1. Does not exceed the statutory minimum wages; or
2. Five thousand (P5,000) monthly (P60,000 a year) TRANSFER TAX INCOME TAX whichever is higher .
5. Shares or rights in any partnership, business or Tax on transfer of property. Tax on income industry established in the Philippines.
Rates are lower Rates are higher --5% to 20% - estate tax -- 5% to 32% -- 2% to 15 % or 30% -
I , NTANGIBLE PERSONAL PROPERTY WITH A SITUS IN THE donor‘s tax P , - HILIPPINES OF A DECEDENT WHO IS A NON RESIDENT ALIEN
( SHALL NOT FORM PART OF THE GROSS ESTATE IF RECIPROCITY Lesser exemptions More exemptions ) (S . 104) CLAUSE EC
1. t he decedent at the t ime of his death was a (1) ESTATE TAXES citizen and resident of a foreign country which at
t he time of his death a. of did not impose a transfer tax or death tax D : an excise tax on the right of transmitting EFINITION
any character property at the t ime of death and on the privilege b. in respect of int angible personal property of that a person is given in controlling to a certain
citizens of the Philippines not residing in that extent the disposition of his property to take effect foreign country ; or upon death.
2. t he laws of the foreign country of which t he dec edent was a citizen and resident at the time E T F STATE AX ORMULA of his death a. from transfer taxes allow a similar exemption Gross Estate (Sec. 85)
or death t axes of every character Less: (1) Deductions (Sec. 86) b. in respect of intangible personal property (2)Net share of the SS in t he CPP
owned by citizens of the Philippines not Net Taxable Estate residing in that foreign country (Reciprocity).
Multiply by: Tax rate (Sec. 84)
Estate Tax due V ALUATION OF THE GROSS ESTATE Less: Tax Credit [if any] (Sec. 86[E] or 110[B]
Estate Tax Due, if any The properties comprising the gross estate shall be valued based on their fair market value as of the t ime of deat h.
GROSS ESTATE
PROPERTY VALUATION A ’ (S . 85) DECEDENT S GROSS ESTATE INCLUDES EC
1) Real Property - fair market value a) as de termined by the RESIDENT & NON-
Commissioner or RESIDENT CITIZEN, NON-RESIDENT ALIEN b) as shown in the sche dule of RESIDENT ALIEN DECEDENT
values fixed by the provincial DECEDENT
and city assessors W HI CH EV ER I S H I GH E R
1. Real property 1. Real property situated in wherever situated the Philippines.
2) Shares of Stock Unlisted
2. Personal prope rty 2. Personal property Common Shares - book value
wherever situated a) Tangible property Preferred Shares -par value
a) Tangible, and situated in the - arithmetic mean between the
b) Intangible Philippines Listed highest and lowest quotation at
b) Intangible personal a date neare st the date of
property with a situs death, if none is available on
in the Philippines the date of death itself.
unless exempted on the basis of
3)Right to usufruct, use - shall be taken into account reciprocity.
or h abitation, as well as the probable life of the that of annuity beneficiary in accordance with
T the latest basic standard HE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX mortality table, to be approved
The statut e in force at the time of death of the by the Secretary of Fin ance, decedent shall govern estate t axation. upon recommendation of the
Insurance Commissioner.
I P . NTANGIBLE PERSONAL PROPERTIES WITH A SITUS IN THE HIL 4) Personal property - whether tangible or intangible, (S . 104, 1997 NIRC) EC
appraised at FMV. Sentimental value is practically
1. Franchise which must be exercised in the disregarded.
Philippines; 2. Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or I G E (S . 85) constituted in the Philippines in accordance with NCLUSIONS IN THE ROSS STATE EC
its laws; 1. DECEDENT’S INTEREST 3. Shares, obligations or bonds issued by any foreign
To the extent of the interest in propert y of the corporation eighty-five per centum (85%) of the dec edent at the time of his death. business of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign 2. TRANSFER IN CONTEMPLATION OF DEATH corporation, if such shares, obligations or bonds 1. A transfer motivated by the thought of impending have acquired a business situs in the Philippines;
death although death may not be imminent; or
7. PRIOR INTERESTS 2. A transfer by which the decedent ret ained for his All transfers, trusts, estates, interests, rights,
life or for any period which does not in fact end powers and relinquishment of powers made, created, before his death: arising, existing, exerc ised or relinquished before or a. the possession or enjoy ment of, or the right after the effectivity of t he NIRC.
to t he income from the propert y, or b. the right, either alone or in conjunction with P H W ROPERTY RELATIONS BETWEEN USBAND AND IFE
any person, t o designate the person who shall The property relations between the spouses shall possess or enjoy the property or the income be governed by contract (marriage settlement) therefrom. executed before the marriage.
Exception: bona fide sale for an adequate and full In the absence of such contract, or if the considerat ion in money or money‘s worth. contract is void:
On marriages contracted before August 3, 1988, the 3. REVOCABLE TRANSFER system of conjugal partnership of gains shall
A transfer whereby the terms of enjoyment of the govern; property may be altered, amended, revoked or On marriages contract ed on or after August 3, 1988 terminated by the decedent alone or in conjunc tion (effectivity of the Family Code of the with any other person, or where any suc h power is Philippines), the system of absolute community relinquished in contemplation of the decedent‘s of property shall govern. death. It is enough that t he decedent had the power to alter, amend or revoke though he did not exercise E T (S . 87) XEMPT RANSMISSIONS EC such power. 1. The merger of usufruct in the owner of the naked
t itle; Exception: bona fide sale for an adequate and full 2. Fideicommisary substitution; consideration in money or money‘s worth. 3. The transmission from the first heir, legatee or
donee in favor of another beneficiary, in 4. TRANSFER UNDER GENERAL POWER OF accordance with the will of the predecessor; and APPOINTMENT All bequests, devices, legacies or transfers to social
A power of appointment is the right to designate welfare, cultural and charitable inst itutions no part the person or persons who will succeed to the of the net income of which inures to the benefit of property of the prior decedent. any individual; Provided, that not more than 30% of
The general power of appointment may be t he said bequests, legacies or transfers shall be used exercised by the decedent: by such institutions for administration purposes. 1. by will; or
D O G E A T 2. by deed executed in cont emplation of his death; EDUCTIONS N ROSS STATE PPLICABLE O or R A A C ESIDENT LIENS ND ITIZENS
3. by deed under which he has retained for his life (R R 2-2003) EVENUE EGULATIONS or for any period not ascertainable without reference to his death or for any period which The following are deductible from the gross does not in fact end before his death: estate of citizens and resident aliens: a. the possession or enjoyment of, or the right 1. Expenses, losses, indebtedness, taxes, etc.
to t he income from the propert y; or (ordinary deductions) b. the right, either alone or in conjunction with 2. Transfer for public use
any person, to designate the persons who 3. Vanishing deduction shall possess or enjoy the property or the 4. Family home income therefrom. 5. Standard deduction equivalent to one million
pesos (P1,000,000) Exception: bona fide sale for an adequate and full 6. Medical expenses considerat ion in money or money‘s worth. 7. Amounts received by heirs under RA 4917
(Retirement Benefits) 5. PROCEEDS OF LIFE INSURANCE 8. Net share of the surviving spouse in the conjugal
Proceeds of life insurance taken by the decedent or communit y property on his own life shall be included in the gross est ate if the beneficiary is: 1. ORDINARY DEDUCTIONS a. the estate of t he decedent, his executor or
administrator (regardless whether the A. F E UNERAL XPENSES designation is revocable or irrevocable); or
The amount deductible is the lowest among t he b. a third person other than the estate, executor or
following: administrator where the designation of the 1. actual funeral expenses beneficiary is revocable.
2. 5% of the gross estate 3. P200,000.
6. TRANSFERS FOR INSUFFICIENT CONSIDERATION The value to be included in the gross estate is the
It includes the following: excess of the fair market value of the property at the 1. Mourning apparel of the surviving spouse and time of the decedent‘s death over the consideration
unmarried minor children of the deceased, received. This is applicable in cases of transfer in
bought and used in t he occasion of the burial. contemplation of death, revoc able transfer and 2. Expenses of the wake preceding the burial transfer under general power of appoint ment made
including food and drinks. for a consideration but is not a bona fide sale for an
3. Publication charges for death notices. adequate and full consideration in money or money‘s
4. Telecommunication expenses in informing worth.
relatives of the deceased.
5. Cost of burial plot. Tombstone monument or 2. The incapacity of the debtors to pay their mausoleum but not their upkeep. In case obligation is proven. deceased owns a family estate or several burial lots, only the value corresponding to the plot C. U M NPAID ORTGAGE where he is buried is deductible. In case unpaid mortgage payable is being claimed
6. Interment fees and charges. by the estate, verification must be made as to 7. All other expenses incurred for t he performance who was the beneficiary of the loan proceeds.
of the ritual and ceremonies incident to the If the loan is found to be merely an interment. accommodation loan where the loan proceeds Expenses incurred after the interment, such as went to another person, the value of the unpaid
for prayers, masses, entertainment, or the like are loan must be included as a receivable of the not deductible . estate.
Any port ion of the funeral and burial expenses If there is a legal impediment to recognize the borne or defrayed by relatives and friends of the same as receivable of the estate, said unpaid deceased are not deductible . obligation/ mortgage payable shall not be
allowed as a deduction from the gross estate. B. J E O T T O In all instances, the mortgaged property , to the UDICIAL XPENSES F HE ESTAMENTARY R
I P extent of the decedent's interest therein, NTESTATE ROCEEDINGS Expenses allowed as deduct ion under this should always form part of the gross taxable
category are those: estate. 1. incurred in the inventory-taking of assets
comprising the gross estate, F. T AXES 2. administration, Taxes which have accrued as of the death of the 3. payment of debts of the estate, dec edent which were unpaid as of the t ime of death. as well as the distribution of the estat e among
the heirs. The following are not deductible: In short, these deductible items are expenses 1. income tax on income received after death
incurred during the settlement of the estate but not 2. property taxes not accrued before death beyond the last day prescribed by law, or the 3. estate tax extension thereof, for the filing of the estate tax return. G. L OSSES
Requisit es: C. C A T E 1. It should arise from fire, storm, shipwreck, or LAIMS GAINST HE STATE
The word "claims" is generally const rued to mean other casualty, robbery, theft or debts or demands of a pecuniary nature which could embezzlement; have been enforced against the deceased in his 2. Not compensated by insurance or otherwise; lifetime and could have been reduced to simple 3. Not claimed as deduction in an income tax money judgment s. return of the taxable estate;
4. Occurring during the settlement of the Claims against the estate or indebtedness in estate; and
respec t of property may arise out of: 5. Occurring before the last day for the 1. Cont ract ; payment of the estate tax (last day to pay: 2. Tort; or six months after the decedent‘s death). 3. Operation of Law.
2. TRANSFER FOR PUBLIC USE
Requisites: Requisit es: 1. The liability represents a personal obligation 1. The disposition is in a last will and testament
of the deceased existing at the time of his 2. To take effect after death death except unpaid obligations incurred 3. In fav or of the government of the Phil., or any incident to his death such as unpaid funeral political subdivision thereof expenses (i.e., expenses incurred up to the 4. For exclusive public purposes. time of interment ) and unpaid medical expenses which are classified under a Note: This should also include bequests, devices, or different category of deductions; t ransfers to social welfare, c ultural and charitable
2. The liability was contracted in good fait h and institutions. for adequate and full consideration in money or money's worth; 3. VANISHING DEDUCTION
3. The claim must be a debt or claim which is valid in law and enforceable in court;
D : The deduction allowed from the gross EFINITION 4. The indebtedness must not have been estate for properties that were subject t o donor‘s or
condoned by the creditor or the action to estate taxes. It is called vanishing deduction because
collect from the decedent must not have t he deduction allowed diminishes over a period of
prescribed. five years. The rate of deduction depends on the period from the date of transfer to the death of t he
D. C A I P LAIMS GAINST NSOLVENT ERSONS dec edent, as follows:
Requisites: PERIOD DEDUCTION
1. The amount thereof has been initially inc luded as 1 year or less 100% part of his gross estate (for otherwise they would 1 year – 2 years 80% constitute double deductions if they were to be 2 years – 3 years 60% deducted) 3 years – 4 years 40%
8. NET SHARE OF THE SURVIVING SPOUSE 4 years – 5 years 20% IN THE CONJUGAL PARTNERSHIP OR
COMMUNITY PROPERTY Requisites: 1. the present decedent died within 5 years from
transfer of the property from a prior decedent or After deducting the allowable deductions (only donor. the ordinary deductions) appertaining to t he conjugal
2. The property must be located in the Phils. or community properties included in the gross estate, 3. The property formed part of the taxable estat e of t he share of t he surviving spouse must be removed to
the prior decedent, or of t he taxable gift of the ensure that only the decedent's interest in the estate donor. is taxed.
4. The estate tax or donor‘s tax on the gift must have been finally determined and paid. D O G EDUCTIONS N ROSS
5. The property must be identified as the one E A T STATE PPLICABLE O received from the prior decedent, or something N -R A ON ESIDENT LIENS acquired in exchange therefor.
6. No vanishing deduction on the propert y was allowable to the estate of the prior decedent. The following are deductible from the gross estate of non-
resident aliens:
4. FAMILY HOME 1. Expenses, losses, indebtedness and taxes (ELIT) (ordinary deductions)
Conditions: 1. The family home must be the actual residential Formula:
home of the decedent and his family at the t ime Tax = Phil. Gross of his death, as certified by the Barangay Credit Estate X World Captain of the locality where the family home is Limit World Gross ELIT situated; Est ate
2. The total value of the family home must be included as part of the gross estate of the 2. Transfer for public use decedent; and
3. Allowable deduction must be in an amount 3. Vanishing deduction on property in the equivalent to Philippines.
the current fair market value of the family home as declared or included in the gross 4. Conjugal share of the surviving spouse estate, or
E T C the extent of the decedent's interest STATE AX REDIT (whether conjugal/community or exclusive property), , but not whichever is lower A tax credit is granted for estate taxes paid exceeding P1,000,000 t o a foreign country on the estate of citizens and
5. STANDARD DEDUCTION resident aliens subject to the following limitations
A deduction in the amount of One Million Pesos 1. One foreign country only (P1,000,000) shall be allowed as an additional The t ax credit is whichever is lower between: deduction without need of substantiation . 4. Estate tax paid to t he foreign country
The full amount of P1,000,000 shall be allowed as 5. Tax Credit Limit = deduction for the benefit of the decedent. NTE, foreign country X Phil. estat e
NTE, world Tax 6. MEDICAL EXPENSES
( NTE - Net Taxable Estate)
Any amount of medical expenses incurred within 2. More than one foreign country one year from death in excess of Five Hundred
The credit shall be that which is the lower Thousand Pesos (P500,000) shall no longer be amount bet ween Limit A and Limit B. allowed as a deduction under this subsec tion.
Neither can any unpaid amount thereof in exc ess Limit A . Whichever is lower between: of t he P500,000 threshold nor any unpaid amount
Estate tax paid to a foreign country for medical expenses incurred prior to the one- Tax Credit Limit = year period from date of death be allowed to be
NTE, foreign country X Phil. estate deducted from the gross estate as claim against NTE, world Tax the estate.
Limit B . Whichever is lower between: 7. AMOUNT RECEIVED BY HEIRS UNDER Total of estate taxes paid to all foreign REPUBLIC ACT NO. 4917 countries Tax Credit Limit = Any amount received by the heirs from the
NTE outside Phil. X Phil. estate decedent's employer as a consequence of the death
NTE, world Tax of the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction provided t hat the amount of the separation benefit is
SETTLEMENT OF THE included as part of the gross estate of the decedent. ESTATE TAX
A. FILING
N O D T B F a. t he payment of the estate tax may be OTICE F EATH O E ILED In all cases of transfers subject to tax, or where, extended for a period not t o exceed five (5)
though exempt from tax, the gross value of the years if there is a judicial set tlement of the estate exceeds P20,000 , the executor, administrator estate; or or any of t he legal heirs, within two months after the b. t he payment of the estate tax may be decedent ‘s death, or within a like period after extended for a period not to exceed two (2) qualifying as such executor or administrator, shall years if there is an extra-judic ial settlement give a written notice thereof to the Commissioner. of the estate. (Sec. 89) NOTE: In case the available cash is not sufficient to
pay its total estate tax liability, the estate may be A E T R I R T B F allowed to pay tax by installment. (Sec. 9F, Rev. N STATE AX ETURN S EQUIRED O E ILED 1. when the estate is subject to estate tax; or Reg. 2-2003) 2. when the estate is not subject to estate tax but
the gross estate exceeds P 200,000; or L P IABILITY FOR AYMENT 3. regardless of the amount of t he gross estate, The estate tax shall be paid by the executor or
where the gross estate consists of registered or administrator before delivery to any beneficiary of his registrable property such as motor vehicle or distributive share of the estate. shares of st ock or ot her similar property for Such beneficiary to the extent of his distributive which clearance from the BIR is required as a share of the estate shall be subsidiarily liable for the condition precedent for the transfer of ownership payment of such portion of the estate tax as his thereof in the name of the transferee. distributive share bears to the value of the total net
estate. (Sec. 9G, Rev. Reg. 2-2003) T F No judge shall authorize the distribution of the IME FOR ILING OF THE ESTATE TAX RETURN
estate unless a certification from the Commissioner The estate tax return shall be filed within six (6) after the death of the decedent. t hat tax has been paid is shown. (Sec. 94) months
No shares or other forms of securities shall be Extension: The BIR may, in meritorious cases, grant t ransferred in the books of any corporation, an ext ension of not exceeding thirty (30) days for the partnership, business or industry organized in the
Philippines, unless a similar certification by the filing of the est ate tax return. Commissioner is shown. (Sec. 97)
W T G E E P2,000,000, T When a bank has knowledge of the death of a HEN HE ROSS STATE XCEEDS HE E T R S B A B A person who maintained a joint account, it shall not STATE AX ETURN HALL E CCOMPANIED Y S W I C B A I allow any withdrawal by the surviving depositor TATEMENT HICH S ERTIFIED Y N NDEPENDENT C P A S without the above certification. (Sec. 97) ERTIFIED UBLIC CCOUNTANT TATING 1. the itemized assets of the decedent with its Provided: that the administrator of the estate or
corresponding gross value at the time of his any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an death, or in the case of a non-resident, not
citizen of the Philippines, that part of his gross amount not exceeding twenty thousand pesos estate situated in the Philippines; (P20,000) without the said certification.
2. the itemized deductions from the gross estate; 3. the amount of tax due, whether paid or still due
and outstanding.
P W F E T R LACE HERE TO ILE THE STATE AX ETURN
1. Resident Citizen - with the Accredited Agent Bank (AAB), There is not hing in the Tax Code and in the
Revenue District Offic er, Collection Officer or duly pertinent remedial law that implies the necessity of the probate court or estate settlement of court‘s authorized Treasurer of the city or municipality approval of the State‘s claim for estate taxes before where the decedent was domiciled at the time of
his death. t he same can be enforced and collected by t he BIR. On the contrary, under Section 94, it is the probate
2. Non -resident (citizen or alien) or settlement court which is bidden not to authorize a. has registered executor or administrator t he delivery of the distributive share to any
interested party without a certification from the CIR - with the Revenue District Office where such executor or administrator is registered showing the payment of the estate t ax. (Marcos II vs.
Court of Appeals, GR No. 120880, June 5, 1997) b. executor or administrator is not regist ered - with t he Revenue District Office having
jurisdiction over the executor‘ or C O T F T H OLLECTION F AX ROM HE EIRS administrator‘s residence An estate or inheritanc e tax, whether assessed
c. no executor or administrator before or after the death of the deceased, can be - with the Office of the Commissioner (Sec. collected from the heirs ev en after the distribution of
t he properties of the decedent . (Palanca vs. 9C, Rev. Reg. 2-2003) Commissioner of Internal Revenue, GR No. 16661, January 31, 1962) B. PAYMENT
The Government has two ways of collecting taxes P AYMENT OF THE ESTATE TAX DUE due from the estate. The estate tax due shall paid at the time when
a. By going after all the heirs and collecting the estate tax return is filed. from each one of them the amount of the tax When the Commissioner finds t hat the payment proportionate t o the inheritance received, or of the estate tax on the due date would impose
b. Pursuant to the lien created by Section 219 of undue hardships upon the estate or any heir: t he Tax Code upon all property and rights to
property belonging to the taxpay er for unpaid Whereas general renunciation by an heir, income t ax, is by subjecting said property of including the surviving spouse, of his/her the estate which is in the hands of an heir or share in the hereditary estate left by the transferee to the payment of the t ax due the decedent is not subject to donor's tax, unless estate. (Commissioner of Internal Revenue specifically and categorically done in favor of vs. Pineda, GR No. L –22734, September 15, identified heir/s to the exclusion or 1967) disadvantage of the other co-heirs in the
hereditary estate. (Sec. 11, Rev. Reg. 2- 2003)
S - a person who is not a brother, sister, TRANGER spouse, ancestor and lineal descendant, or of a relative by consanguinity in the collateral within the 4 civil degree. th
A legally adopt ed child is entitled to all the rights and obligations provided by law to legitimate children , and therefore, donation to
(2) DONOR’S TAXES him shall not be considered as donation made to stranger. Donation made between business organizations D : A tax on the privilege of transmitting EFINITION and those made between an individual and a one‘s property or property rights to another or others business organization shall be considered as without adequate and full valuable consideration. donation made to a stranger.
C O T T (SEC. 104) OVERAGE F HE AX V ALUATION OF GIFTS OF PROPERTY
The fair market value of the property given at the RESIDENT & NON- NON-RESIDENT ALIEN t ime of the gift shall be the value of the gift. RESIDENT CITIZEN,
DONOR RESIDENT ALIEN DONOR
1. Real property wherever 1. Real property situated in I P . situate d the Philippines. NTANGIBLE PERSONAL PROPERTIES WITH A SIT US IN THE HIL ( ) SAME AS IN ESTATE TAX SUBJECT TO THE RECIPROCITY RULE
2. Personal property 2. Pe rsonal property (S . 104) EC wherever situated a. Tangible property
a. Tangible, and situated in th e Formula: (On a cumulative basis over a period of one Intangible Philippines calendar year)
b. Intangible personal property with a situs in
1. On the 1 donation of a year s t the Philippines unless exempted on the basis of
Gross gifts xxx reciprocity. Less: Deductions from gross gifts xxx
R Net gifts xxx EQUISITES Multiply by: Tax Rate xxx
1. Capacity of the donor Donor‘s tax on the net gifts xxx 2. Donative Intent 3. Delivery, whether actual or constructive, of the 2. On donation of a subsequent date during
subject gift t he year 4. Acceptance by the donee
Gross gifts made on this date XX ’ L D T Less: Deductions from gross gifts XX AW THAT GOVERNS THE IMPOSITION OF ONOR S AX
Net gifts XX The donor‘s tax shall not apply unless and until
Add : All prior net gifts within the year XX there is a completed gift. The transfer is perfected
Aggregate net gifts XX from the moment the donor knows of the acceptance
Multiply by : Tax Rate XX by the donee; it is completed by the deliver, either
Donor‘s tax on aggregate net gifts XX actually or const ructively, of the donated property to
Less: Donor‘s tax on all prior net gift s XX the donee. Thus, the law in force at the time of the
Donor‘s tax on the net gifts on this date XX perfection/completion of the donation shall govern the imposition of the donor‘s tax.
E XEMPTION OF CERTAIN GIFTS A gift that is incomplete because of reserved
1. Gifts made by a resident powers, becomes complete when either: a. Dowries or gifts made on account of marriage 1. the donor renounces the power; or
and before its celebrat ion or within one year 2. his right t o exercise the reserved power ceases thereafter by parents to each of their because of the happening of some event or legitimate, illegitimate or adopted children contingency or the fulfillment of some condition, to the extent of the first P10, 000. other than bec ause of the donor's death.
b. Gifts made to or for t he use of the Nat ional Renunciation by the surviving spouse of Government or any entity created by any of his/her share in the conjugal part nership or its agencies which is not conducted for absolute community after the dissolution of profit, or to any political subdivision of the the marriage in favor of the heirs of the said government . deceased spouse or any other person/s is
subject to donor's tax.
SETTLEMENT OF THE DONOR’S TAX c. Gifts in favor of educational, charitable, religious, cultural or social welfare corporation, institutions, foundations, trust ’ T F R D IME FOR ILING OF ETURN AND PAYMENT OF THE ONOR S or philanthropic organization, research T AX inst itution or organization, accredited non- The donor‘s tax return is filed and the donor‘s tax government organization (NGO). Provided, due is paid within thirty (30) days after t he date the that no more than 30% of said gifts shall be gift is made. used by such donee for administrat ion The return shall be under oath in duplicate purposes. setting forth:
2. Gift s made by a non-resident not a citizen of 1. Each gift made during the calendar year whic h is the Phil. t o be included in computing net gifts;
a. same as (b) 2. The deductions claimed and allowable; b. same as (c) except accredited non- 3. Any previous net gift s made during the same
government organization (NGO) calendar year; 4. The name of the donee;
A - / 5. Relationship of the donor to t he donee; and NON PROFIT EDUCATIONAL AND OR CHARITABLE , , - 6. Such further information as may be required by CORPORATION INSTITUTION ACCREDITED NON GOVERNMENT , , rules and regulations made pursuant to law. ORGANIZATION TRUST OR PHILANTROPHIC ORGANIZATION
RESEARCH INSTITUTION OR ORGANIZATION IS NOTE: The filing of a notic e of donation is not
1. one incorporated as a non-stock entity required, unlike in estate tax where notice of death 2. paying no div idends is required. 3. governed by trustees who receive no
compensation, and ’ P F R D LACE FOR ILING OF ETURN AND PAYMENT OF THE ONOR S 4. devoting all its income whet her students‘ fees or T AX
gifts, donations, subsidies or other forms of philantrophy to the accomplishment and 1. Resident promotion of the purposes enumerated in its With an authorized agent bank, the Revenue Articles of Incorporation. District Officer, Revenue Collection Officer or
duly aut horized Treasurer of t he city or ’ T municipality where the donor was domiciled at AX CREDIT FOR DONOR S TAXES PAID TO A FOREIGN COUNTRY
the time of the transfer, or if there be no legal 1. Donor was a Filipino citizen or resident alien residence in the Philippines, with the Office of 2. At time of foreign donation the Commissioner . 3. Donor‘s t axes of any character and description 2. Non-resident 4. Are imposed and paid by the authority of a Filed with the Philippine Embassy or Consulate
foreign country. in the country where he is domiciled at t he time of the transfer, or directly with the Office
L of the Commissioner . IMITATIONS ON TAX CREDIT
1. The amount of the credit in respect to the tax T AX RATE paid to any country shall not exceed the same proportion of the tax against which such credit is If the donee is , t he rate of tax shall be a stranger taken, which t he decedent‘s net gifts situated 30% of the net gifts. within such country taxable under the NIRC bears If the donee is , the rate shall not a stranger to his entire net gift; and be from 2% to 15% of the net gifts.
2. The total amount of the credit shall not exceed the same proportion of the tax against which such See Annex W - Donor‘s Tax credit is taken, whic h the decedent ‘s net gift situated outside the Philippines taxable under the
C. TAX REMEDIES NIRC bears to his entire net gift . UNDER THE NIRC
F T C L ORMULA OF AX REDIT IMIT
For donor’s taxes paid t o one foreign country 1. I. TAX REMEDIES OF THE GOVERNMENT
NG situated Tax I in a foreign country X PDT = Credit MPORTANCE
Entire net gift Limit 1. They enhance and support the government‘s tax
collection. (NG - Net Gifts; PDT - Phil. Donor's Tax) 2. They are safeguards of t axpayer‘s rights against
arbitrary action. For donor’s taxes paid to two or more foreign 2. country
T AX COLLECTION CANNOT BE RESTRAINED BY COURT (S . 218, 1997 NIRC) NG outside the Phil. X PDT = Tax INJUNCTION EC
Entire net gifts Credit Justification: Lifeblood Theory
Limit
Exception: Injunction may be issued by the CTA in The allowable tax credit is the lower amount
aid of its appellate jurisdiction under RA 1125 (as between the tax credit limit under (a) and (b). amended by RA 9282).
Conditions for the Issuance of an Injunction by the v iolations of the Tax Code [Secs. 7(C) and 204, Court of Tax Appeals 1997 NIRC] . This power of the CIR is The CTA may enjoin collection of taxes: discretionary and once exercised by him cannot a. If in its opinion the same may jeopardize the be reviewed or interfered with by the Courts. interest of the gov ernment and/or the taxpayer. (Koppel, Philippines vs. Commissioner, GR No. L- b. In this instance, the court may require the 1977, September 21, 1950) taxpayer either to deposit the amount claimed or file 2. By the Regional Evaluation Board composed of: a surety bond for not more than double the amount a. the Regional Director as Chairman, with the court . b. Assistant Regional Director,
the heads of the Legal, Assessment and * Before enforcement of remedies, assessment is Collection Divisions, and necessary to trigger the process. If no return is filed, c. the Revenue District Officer hav ing the Commissioner is empowered to obt ain jurisdiction over t he taxpayer, as members; information, and to summon/examine, and take on assessments issued by the regional offices testimony of persons to determine t he amount of tax involving basic taxes of P500,000 or less, and due. (Sec. 5, 1997 NIRC) minor criminal violations.
T R U T 1997 T C : C AX EMEDIES NDER HE AX ODE ASES WHICH MAY BE COMPROMISED
1. Summary – remedies at the administrative level or 1. Delinquent accounts regulation that are executed without ceremony or 2. Cases under administrative protests delay; short or concise 3. Civil tax cases being disputed before the courts 2. Substantive – remedies provided for by law or 4. Collection cases filed in courts regulation; an essential part or c onstituent or 5. Criminal violations, other than those already filed relating to what is essential in court or t hose involving c riminal tax fraud; 3. Procedural – remedies involving law of pleading, and, evidence, jurisdiction, etc. 6. Cases covered by pre-assessment notices but 4. Administrative – remedies available at the taxpayer is not agreeable to the findings of the administration (BIR) level audit office as confirmed by the review office. 5. Judicial – remedies that are enforced through (Sec.2, Rev. Reg. 7-2001)
judicial action, which may be civil or criminal E XCEPTIONS
TAX REMEDIES OF THE GOVERNMENT TO EFFECT COLLECTION OF 1. Withholding tax cases; TAXES 2. Criminal tax fraud cases;
1. Compromise (Sec. 204) 3. Criminal violations already filed in court; 2. Distraint (Actual and Constructive ) (Secs. 205- 4. Delinquent accounts with duly approved schedule
208) of installment payments; 3. Levy (Sec. 207B) 5. Cases where final reports of reinvestigation or 4. Tax Lien (Sec. 219) reconsideration have been issued resulting to 5. Civil Action (Sec. 221) reduction in the original assessment and the 6. Criminal Action (Secs. 221, and 222) t axpayer is agreeable to such decision.
7. Forfeiture of Property (Sec. 224-225) 6. Cases which become final and executory after 8. Suspension of business operations in final judgment of a court, where compromise is
violation of VAT (Sec. 115) request ed on the ground of doubtful validity of 9. Enforcement of Administrative Fine t he assessment (RR. 30–2002) ;
7. Estate tax cases where compromise is requested The remedies of distraint and levy as well as on the ground of financial incapacity of the
collection by civil and criminal actions may, in the t axpayer. (RR. 30–2002) discretion of the Commissioner, be pursued singly or independently of each other, or all of them C OMMISSIONER MAY COMPROMISE THE PAYMENT OF ANY simultaneously.
INTERNAL REVENUE TAX WHEN
1. A reasonable doubt as to the validity of the (1) COMPROMISE claim against the taxpayer exists; or
a. The delinquent account or disputed D : A contract whereby the part ies, by assessment is one resulting from a jeopardy EFINITION reciprocal concessions, avoid litigation or put an end assessment. to one already commenced (Art. 2028, New Civil b. The assessment seems to be arbitrary in Code). nature, appearing to be based on
presumptions, and there is reason to believe that its is lacking in legal and/or factual R EQUISITES basis; or 1. The taxpayer must have a tax liability.
c. The taxpayer failed to file an administrative 2. There must be an offer (by the taxpayer of an protest on account of the alleged failure to amount to be paid by the taxpayer) receive notice of assessment or preliminary 3. There must be an acceptance (by the assessment and there is reason to believe Commissioner or t axpayer as the case may be) of that its is lacking in legal and/or factual the offer in t he settlement of the original claim. basis; or
d. The taxpayer failed to file a request for O FFICERS AUTHORIZED TO COMPROMISE reinvest igat ion/reconsideration within 30 days from receipt of final assessment notice 1. The (CIR) with Commissioner of Internal Revenue
respect to criminal and civil cases arising from
and there is reason to believe that its is total assets (net of prepaid expenses, deferred lacking in legal and/or factual basis; or charges, pre-operating expenses, as well as
e. The taxpayer failed to elevate to the CTA an appraisal increases in fixed assets), taken from adverse decision of the Commissioner, or his the latest audit ed financial statements, authorized representative, in some cases, provided that in the case of an individual within 30 days from receipt thereof and taxpayer, he has no other lev iable properties there is reason to believe that its is lacking under the law other than his family home; in legal and/or factual basis; or (Sec. 3, RR. 30–2002) .
f. The assessment were issued on or after Jan. 1, 1998, where the demand notice allegedly c. The taxpayer is a compensation earner with no
other source of income and the family‘s gross failed to comply with the formalities prescribed under Sec. 228 of the 1997 NIRC; mont hly compensation does not exceed or (P10,500/month if single; P21,000/month if
g. Assessments made based on the Best married), and that it appears that the taxpayer Evidence Obtainable Rule and there is possesses no other leviable/ distrainable reason to believe that the same can be assets, other than his family home; or disputed by sufficient and competent evidence. d. The taxpayer has been granted by the SEC or
h. The assessment was issued within the by any competent tribunal a moratorium or prescriptive period for assessment as suspension of payments to creditors, or extended by the taxpayer's execution of otherwise declared bankrupt or insolvent . (Sec. Waiver of the Statute of Limitations the 3, RR. 07-2001) validity or authenticity of which is being quest ioned or at issue and there is strong The Congressional Oversight Committee, under reason t o believe and evidence to prove that Section 290 of the 1997 NIRC is empowered to require it is not authent ic . (RR. 30– 2002) t he BIR:
i. The assessment is based on an issue where a 1. The submission of all pertinent information, court of competent jurisdiction made an including but not limited to industry audits, adverse decision against the Bureau, but for collection performance data, status report s which the Supreme Court has not decided on criminal actions initiated against persons; upon with finality. (RR. 08-2004). and
2. The submission of taxpayer returns. 2. The financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax [Sec. 204(A), 1997 NIRC). In such case, the taxpayer should waive the M C R (MCR) INIMUM OMPROMISE ATES OF ANY TAX LIABILITY confidentiality privilege on bank deposits under a. In case of financial incapacit y: RA No. 1405 [Sec. 6(F)(2), NIRC]. MCR = 10% of the basic assessed tax
Financ ial Incapacity. — The offer to b. Other cases: compromise based on financial incapacity may be MCR = 40% of the basic assessed tax [Sec. 204(A), acc epted upon showing that: 1997 NIRC]
a. The corporation ceased operation or is already dissolved. Provided, that tax liabilities A E B PPROVAL OF THE COMPROMISE BY THE VALUATION OARD IS corresponding to the Subscription Receivable REQUIRED WHEN or Assets distribut ed/distributable to the a. t he basic tax involved exceeds P1,000,000.00, or stockholders representing return of capital at b. t he settlement offered is less than the MCR. the time of cessation of operation or dissolution of business shall not be considered NOTE: The MCR may be less than the prescribed for compromise; or rates of 10% or 40%, as the case may be, provided it
is approved by the Evaluation Board (composed of the b. The taxpayer, as reflected in its latest Balance BIR Commissioner and the four BIR Deput y
Sheet supposed to be filed with the Bureau of Commissioners). Internal Revenue, is suffering from surplus or earnings deficit resulting to impairment in the C C V OMPROMISE OF RIMINAL IOLATIONS original capital by at least 50%, provided that General Rule: All criminal violations under the CTRP amounts payable or due to stockholders other may be compromised. than business-related transactions which are properly includible in the regular "accounts Exceptions: payable" are by fict ion of law considered as 1. Those already filed in court part of capital and not liability, and provided 2. Those involving fraud [Sec. 204(B), 1997 NIRC]. further t hat the taxpayer has no sufficient liquid asset to satisfy the tax liability; or E C ’ D C XTENT OF THE OMMISSIONER S ISCRETION TO OMPROM ISE
C V RIMINAL IOLATIONS
1. Before the complaint is filed with the Prosecutor’s Office: The CIR has full discretion t o compromise except those involving fraud.
c. The t axpayer is suffering from a networth deficit (total liabilities exceed total 2. After the complaint is filed with the
Prosecutor’s Office but before the information assets) computed by deducting total liabilities (net of deferred credits and amount s payable is filed with the court : The CIR can still to stockholders/owners reflected as liabilities, compromise provided the prosecutor must give except business-related transactions) from consent.
the interest imposed under Sec. 249 of the 3. After information is filed with the court : The Code;
CIR is no longer permitted to compromise with or d. When the assessment is brought about or the without the consent of the Prosecutor. (People result of taxpayer‘s non-compliance with the vs. Magdaluyo, GR No. L-16235, April 20, 1961) law due to a difficult interpretation of said
This is more so, when the court has rendered law. a final judgment . As a mere agent of the e. When the taxpayer fails to file the return and Government, the Commissioner is not authorized pay the correct tax on time due to to accept anything less than what is adjudicated circumstances beyond his control, provided, in favor of the Government. By virtue of such however, the abatement shall only cover the final judgment , the Government has already surcharge and the compromise penalty and not acquired a vested right . the interest imposed under Sec. 249 of the
Code; N C E S f. Late payment of the tax under meritorious ATURE OF A OMPROMISE IN XTRAJUDICIAL ETTLEMENT OF
T ’ C L V circumstances (ex. Failure to beat bank cut-off THE AXPAYER S RIMINAL IABILITY FOR HIS IOLATION time, surcharge erroneously imposed, etc.)
It is consensual in character, hence, may not be (Sec. 2, Rev . Reg. 13-2001) imposed on the taxpayer without his consent. The BIR may only suggest settlement of his tax liability 2. The administration and collection costs through a compromise. The extra-judicial settlement involved do not justify the collection of the and t he amount of the suggested compromise penalty amount due [Sec. 204(B), 1997 NIRC]. should conform with the schedule of compromise a. Abatement of penalties on assessment penalties provided under the relevant BIR regulations confirmed by the lower court but appealed by or orders. the taxpayer t o a higher court
b. Abatement of penalties on withholding tax R assessment under meritorious circumstances EMEDY IN CASE THE TAXPAYER REFUSES OR FAILS TO ABIDE
c. Abatement of penalties on delayed installment THE TAX COMPROMISE payment under meritorious circumstances
1. Enforce the compromise d. Abatement of penalties on assessment reduced a. If it is a judicial compromise, it can be after reinvestigation but taxpayer is still
enforced by mere execution. A judicial contesting reduced assessment; and compromise is one where a decision based on e. Such ot her circumstances which the the compromise agreement is rendered by the Commissioner may deem analogous to the court on request of the parties. enumeration above. (Sec. 3, Rev. Reg. 13-
b. Any other compromise is extrajudicial and like 2001) any other contract can only be enforced by court action. 3. The Commissioner may also, even without a
2. Regard it as rescinded and insist upon original claim therefor, refund or credit any tax where on demand (Art. 2041, Civil Code). t he face of the return upon which payment was
made such payment appears clearly to have C P been erroneously paid (Sec. 229, 1997 NIRC)). OMPROMISE ENALTY
It is an amount of money that the taxpayer pays (2) DISTRAINT to compromise a tax violation. This is paid in lieu of
criminal prosecution. A taxpayer cannot be compelled to pay a compromise penalty. If he does D : It is the seizure by the government of EFINITION not want to pay, the CIR must institute a c riminal personal property, tangible or int angible, to enforce action. t he payment of t axes. The property may be offered
in a public sale, if taxes are not voluntarily paid. It is COMPROMISE VS. ABATEMENT a summary remedy.
Compromise involves a reduction of the N W D L ATURE OF THE ARRANT OF ISTRAINT OR EVY taxpayer‘s liability, while abatement means that the entire tax liability of the t axpayer is cancelled. The warrant is a summary procedure forcing the
ABATEMENT t axpayer to pay. The receipt of a warrant may or may not partake the character of a final decision. If it is
T C an indication of a final decision, the taxpayer may HE OMMISSIONER MAY ABATE OR CANCEL A TAX LIABILITY appeal to the CTA within 30 days from service of t he WHEN warrant.
1. The tax or any portion thereof appears to be unjustly or excessively assessed ; [Sec. 204(B), Duties of the officer serving the warrant of 1997 NIRC]. distraint: a. When the filing of the return/payment is made 1. Make an account of the personal properties
at the wrong venue; distrained; b. When the taxpayer‘s mistake in payment of his 2. Sign the list of personal propert ies distrained
tax is due to erroneous written official advice t o which shall be added, a stat ement of the of a revenue officer; sum demanded and note of the time and
c. When the taxpayer fails to file the return and place of sale; pay the tax on time due to substant ial losses 3. Leave either with the owner or person from from prolonged labor dispute, force majeure, whose possession such personal properties legitimate business reverses, provided, were taken, or at the dwelling or place of however, the abatement shall only cover the business of suc h person with someone of surcharge and the compromise penalty and not suitable age and discretion (Sec. 208, CTRP)
Notwithstanding any contrary provision of RA T D 1405, the Commissioner is authorized to inquire into WO TYPES OF ISTRAINT
t he bank deposits of: 1. Actual: t here is taking of possession of the 1. a decedent to determine his gross estate
personal property from the t axpayer by the 2. a taxpayer who waives his right by reason of government . Physical transfer of possession is financial incapacity to pay his tax liability (Sec.5, not always required. This is true in the case NIRC) of int angible property such as stocks and credits.
2. Constructive: the owner is merely prohibited P A D G ROCEDURES FOR THE CTUAL ISTRAINT OR ARNISHMENT from disposing of his property.
I A . C D Commencement of distraint CTUAL VS ONSTR UCTIVE ISTRAINT
proceedings
ACTUAL DISTRAINT CONSTRUCTIVE DISTRAINT
Either by the CIR or his duly authorized Made only on the property Made on the prope rty of any
representative; or by the Revenue Dist rict Officer of a delinquent taxpayer taxpayer, whether
delinquent or not
There is taking of possession The taxpayer is merely prohibited from disposing II of his property
Service of Warrant of Distraint (Sec. 208) Effecte d by leaving a list of Effecte d by requiring the
distrained property or by taxpayer to sign a receipt of service of a warrant of the property or by the
With respect to: distraint or garnishment revenue officer preparing
1. Personal property – and leaving a list of such (a) upon the owner of the goods, chattels, or property
other personal property; or (b) upon the person from whose possession such An immediate step for Not necessarily so
collection of taxes properties are taken. 2. Stocks and ot her securities
(a) upon the taxpayer; and (b) upon the president, manager, treasurer or
other responsible officer of the corporation, company or association which issued the said stock and securities. Both
3. Bank account s shall be garnished by serving a Are summary remedies for the collection of taxes; warrant of distraint – NOTE : Refer only to personal property; and
(a) upon the taxpayer; and cannot be availed of where the amount of the tax involved is not more than P100 (b) upon the president, manager, treasurer, or
other responsible officer of the bank. Note: Upon receipt of the warrant of distraint, the
R bank shall turn over to the Commissioner so much of EQUISITES FOR THE EXERCISE OF THE REMEDY OF DISTRAINT t he bank account s as may be sufficient to satisfy t he
1. The taxpayer must be delinquent (except in claim of the government. constructive distraint) in the payment of tax; 4. Debts and credits –
2. There must be a subsequent for its (a) persons owing or having in his possession the demand payment (assessment); debt s;
3. The t axpayer must the tax at the t ime fail to pay (b) or under his control such credits; or required; and (c) upon his agent.
4. The period within which to assess or collect the tax has . not yet prescribed Note: The warrant of distraint shall be sufficient
authority to the person owing the debts or having in P his possession or under his control any credit s ERSONS WHO SHALL SEIZE AND DISTRAINT PERSONAL
( ) belonging to the taxpayer to pay to the Commissioner PROPERTY ACTUAL DISTRAINT t he amount of such debts or credits.
1. Amount of delinquent tax is more than P1,000,000 – Commissioner or his duly authorized representat ives.
2. Amount of delinquent tax is P1,000,000 or less – Revenue District Officer. (Sec. 207(A), 1997 NIRC)
Taxpayer must sign receipt
A O T C T I I B UTHORITY F HE OMMISSIONER O NQUIRE NTO ANK D A EPOSIT CCOUNTS
Distraint includes garnishment of money even in bank deposits because RA 1405 (Bank Secrecy Law)
III covers only divulging of information of deposits. No
Posting of Notice inquiry is made on garnishment for it only earmarks a
(Sec. 209, NIRC) portion of the deposits.
Notice specifying the time and place of sale and Same as in the remedy of distraint. the articles distrained. The posting shall be made in not less than two (2) public places in the city or muni-cipality where the distraint is made. One place for posting of such notice is at t he Office of the W L E ? HEN MAY EVY BE FFECTED Mayor of such cit y or municipality.
Real property may be levied upon before, simultaneously, or after the distraint of personal property belonging to the delinquent [Sec. 207(B), 1997
; and the remedy by distraint and levy may be NIRC] repeated if necessary until the full amount, including IV all expenses, is collected . (Sec. 217, 1997 NIRC)
Sale of Property Distrained
P L R P ROCEDURE OF EVY ON EAL ROPERTY
’ T I HE TAXPAYER S PROPERTY MAY BE PLACED UNDER Prepare Certificat e of Levy CONSTRUCTIVE DISTRAINT WHEN HE
I 1. is from any business subject to tax; retiring Preparation of a duly authen-ticated certificate 2. is intending to –
containing: a. the Philippines, leave (a) description of the property levied; b. his property therefrom, remove (b) name of the taxpayer, and c. or conceal his property, hide (c) the amounts of tax and penalty due from him.
3. is performing any act tending to t the obstruc This certificate shall operate with the force of a proceeding for collecting the tax due or which legal execut ion throughout the Philippines (Sec. may be due from him (Sec. 223, 1997 NIRC). 207B, 1997 NIRC).
P C D P ROCEDURE FOR THE ONSTRUCTIVE ISTRAINT OF ERSONAL P ROPERTY
II Taxpayer’s obligation to preserve Service of Notice
CIR shall require the taxpayer or any person having Service of written notice to: possession or cont rol of such property to (a) t he delinquent taxpayer; or (a) sign a receipt covering the property distrained (b) if he is absent from the Philippines, to his agent and or manager of the business in respect to which the (b) obligate himself to liability arose; or 1. preserve the same intact and unaltered and c. t o the occupant of the property. 2. not to dispose of the same in any manner d. t he proper Register of Deeds shall also be notified whatsoever without the express authority of of the levy (Sec. 207B, 1997 NIRC). t he Commissioner of Internal
Revenue.
III Remedy when taxpayer didn’t sign Advertisement of the Time and
receipt Place of Sale
The advertisement shall contain: If the taxpayer or person in possession of the
1. t he amount of tax and penalties due; property refuses or fails to sign the receipt referred
2. name of the taxpayer against whom taxes are to, t he revenue officer effecting t he const ructive
levied; distraint shall (a) proceed to prepare a list of such
3. short desc ription the property to be sold. property and (b) in the presence of two (2) witnesses leave a copy
The advertisement shall be made within 20 days thereof in the premises where the property
after the levy, and the same shall be for a period of distrained is located, after which the said property
at least 30 days. It shall be effectuated by : shall be deemed t o have been placed under
a. posting a not ice at the main ent rance of the constructive distraint.
municipal building or city hall and in a public and conspicuous place in the barrio or district in which
(3) LEVY the real property lies; and b. by publication once a week for 3 weeks in a
D : It refers to the act of seizure of real newspaper of general circulation in the EFINITION in order to enforce the payment of taxes. property municipality or cit y where the property is located
The property may be offered in a public sale, if after (Sec. 213, CTRP). seizure, the taxes are not voluntarily paid.
R E R EQUISITES FOR THE XERCISE OF THE EMEDY OF LEVY
province or city where the property of the taxpayer is situated or located (Sec. 219, 1997 NIRC). IV
Sale
W A ? HEN DOES IT TTACH
D . L Not only from the service of the warrant of ISTRAINT VS EVY distraint but from the time tax became due and
DISTRAINT LEVY payable.
Refers to personal property Refers to real property L . D IEN VS ISTRAINT
Forfeiture by the Forfeiture is authorized LIEN DISTRAINT
government is not provided
Directed against the Need not be directed The taxpayer is not given The right of redemption is property subject to the against the property
the right of redemption with granted in case of real tax subject to tax
respect to distrained property levied upon and personal property. sold, or forfeited to the
Regardless of the owner Property seized must be government. of the property owned by the taxpayer
Both Are summary remedies for the collection of taxes; an d
(5) CIVIL ACTIONS Cannot be availed of where the amount of the tax involved is not more than P100
D : For tax remedy purposes, these are EFINITION R P S EDEMPTION OF ROPERTY OLD actions instituted by the government to collect
internal revenue taxes. It includes filing by the Within 1 year from the date of sale, the
government with the probate court claims against the property may be redeemed by the delinquent dec eased taxpayer. taxpayer or anyone from him, upon payment of the taxes, penalties and interest thereon from the date W ? HEN RESORTED TO of delinquency to the date of sale, together with interest on purchase price at 15% per annum from the
1. When a tax is assessed but the assessment date of sale to the date of redemption. (Sec. 214, bec omes final and unappealable because the NIRC). t axpayer fails to file an administrative protest
with the CIR within 30 days from receipt; or F G 2. When a prot est against assessment is filed and a ORFEITURE TO THE OVERNMENT
dec ision of the CIR was rendered but the said If there is no bidder in the public sale or if the dec ision becomes final, executory, and
amount of the highest bid is insufficient to pay the demandable for failure of the taxpayer to taxes, penalties and costs, t he real property shall be
appeal t he decision to the CTA within 30 days forfeited to the Government. from receipt of the decision.
F D L NOTE: Judicial action may be resorted to even URTHER ISTRAINT AND EVY
before assessment although impractical, as stated in The remedy of distraint and levy may be , … and no proceeding in court Sec. 203, 1997 NIRC
repeated if necessary until the full amount of the tax without assessment for the collection of suc h taxes delinquency due including all expenses is collected shall be begun after the expiration of such (3year) from the taxpayer. Ot herwise, a clever taxpayer who period. is able to conceal most of t he valuable part of his It should be noted that no civil or criminal property would escape payment of his tax liability by
action for the recovery of taxes shall be filed in court sacrificing an insignificant portion of his holdings. without the approval of the Commissioner.
(4) TAX LIEN W HERE TO FILE
D : It is a legal claim or charge on property , 1. Court of Tax Appeals – where the principal EFINITION either real or personal, established by law as a amount of taxes and fees, exclusive of charges security in default of the payment of taxes (51 AmJur and penalties claimed is One million pesos and 881). Generally, it at taches to the property above . irrespective of ownership or transfer thereof. 2. Regional Trial Court, Municipal Trial Court,
Metropolitan Trial Court – where the principal E amount of taxes and fees, exclusive of charges XTENT AND NATURE
and penalties claimed is less than One million The tax, together with interests, penalties, and pesos . (Sec. 7, RA No. 9282)
costs that may accrue in addition thereto is a lien upon all property and rights to property belonging to T CIR E . HE APPROV AL OF THE IS SSENTIAL IN CIVIL CASES the taxpayer . However, under Sec. 7, 1997 NIRC , the Commissioner
may delegate such power to a Regional Director. The lien shall not be valid against any mortgagee,
purchaser, or judgment creditor until notice of such D EFENSES WHICH ARE PRECLUDED BY FINAL AND EXECUTORY lien shall be filed by the Commissioner of Internal
ASSESSMENTS Revenue in the Offic e of the Register of Deeds of the
1. Invalidity or illegality of the assessment; and
2. Presc ription of the government‘s right to of the tax, since what is involved in the criminal assess. action is not the collection of tax but a criminal
prosecution for the violation of the NIRC . Provided, (6) CRIMINAL ACTIONS however, that there is a prima facie showing of a
willful attempt to evade taxes. (See Ungab vs. Cusi, GR Nos. L-41919-24, May 30, 1980 in relation to The judgment in the criminal case shall not only Commissioner vs. Court of Appeals, GR No. 119322, impose the penalty but shall also order the payment June 4, 1996) of taxes subject of the criminal case as finally
decided by the Commissioner (Sec. 205, NIRC). (7) FORFEITURE
W HERE TO FILE DEFINITION: divestiture of property without
1. Court of Tax Appeals – on criminal offenses compensation, in consequence of a default or arising from violations of the NIRC or TCC and offense. other laws administered by the BIR and the BOC, where the principal amount of taxes and fees, ENFORCEMENT OF THE REMEDY OF FORFEITURE exclusive of charges and penalties claimed is One million pesos and above . a. In case of personal property – The forfeiture of
2. Regional Trial Court, Municipal Trial Court, c hattels and removable fixtures of any sort is Metropolitan Trial Court – on criminal offenses enforced by seizure and sale or destruction of arising from violations of the NIRC or TCC and t he specific forfeited property. other laws administered by the BIR and the BOC, b. In case of real property – The forfeiture of real where the principal amount of taxes and fees, property is enforced by a judgment of exclusive of charges and penalties claimed is less condemnation and sale in a legal action or than One million pesos or where there is no proceeding, civil or criminal, as the case may specified amount claimed. (Sec. 7, RA No. 9282) require.
c. In case of distilled spirits, liquors, cigars, IMPORTANT CONSIDERATIONS cigarettes manufactured, products of tobacco
and apparatus used for their production – Upon 11. No criminal action shall be begun without the forfeiture, may be destroy ed by order of the
approval of the Commissioner . (Sec. 220, 1997 Commissioner where the sale may be injurious to NIRC) public health or prejudicial to law enforcement.
12. It shall be brought in the name of the Government and shall be conducted by the legal officers of the BIR.
EFFECT OF ACQUITTAL OF THE TAXPAYER IN A CRIMINAL ACTION
It does not necessarily result in the exoneration of said taxpayer from his civil liability t o pay taxes. Rationale: The duty to pay tax is imposed by statute d. Other articles subject to excise tax which have prior to and independent of any attempt on the part been manufactured or removed in violation of of the taxpayer to evade payment. It is not a mere t he Code, dies for printing or making fake consequence of the felonious acts charged, nor is it a revenue stamps and labels – Upon forfeiture may mere civil liability derived from a crime. (Republic be sold or destroyed at the discretion of the vs. Patanao, GR No. L-14142, May 30, 1961) Commissioner. Forfeited property shall not be
destroyed until at least 20 days from seizure. EFFECT OF SUBSEQUENT SATISFACTION OF CIVIL LIABILITY EFFECT OF THE FORFEITURE OF PROPERTY
The subsequent satisfaction of civil liability by The effect is to t ransfer the title to the specific payment or prescription does not extinguish the t hing from the owner to the government. All t he taxpayer‘s criminal liability . proceeds in case of a sale go to the coffers of t he
government (U.S. vs. Surla, GR No. 6536, September NO SUBSIDIARY IMPRISONMENT 2, 1911). In seizure for the enforcement of a tax
lien, the residue, after deducting t he t ax liability and In case of insolvency on the part of the taxpayer, expenses will go to the taxpayer (Bank of the Phil.
subsidiary imprisonment cannot be imposed as Island vs. Trinidad, GR No. 16014, October 4, 1941). regards the tax which he is sentenced to pay.
INFORMER’S REWARD (Sec 282) However, it may be imposed in cases of failure to pay the fine imposed. (Sec. 280, 1997 NIRC) A . For violations of the NIRC, a reward of 10% of t he
revenues, surcharges, or fees recovered and/or fine or penalty imposed and collected or P 1 M per case, whichever is lower shall be given to: 1. any person who volunt arily gives definite and
sworn information not yet in the possession of CRIMINAL ACTION MAY BE FILED DURING THE the BIR leading to the discovery of fraud upon PENDENCY OF AN ADMINISTRATIVE PROTEST IN THE the Internal Revenue Laws and/or any BIR violations thereof
2. an informer where the offender has offered to It is not a requirement for the filing thereof compromise t he violation of law comiited by that there be a precise computation and assessment him and his offer has been accepted and
collected by the CIR . This excludes an Fraud must be alleged and proved as a fact . Internal Revenue Officer/employee or other It must be the product of a deliberate intent public official/employee, or his relative within to evade taxes. It may be established by the: the sixth degree a. Intentional and substantial
understatement of tax liabilit y by the * This shall not refer to a case already pending or taxpayer; examined by the CIR b. Intentional and substantial overstatement
of deductions of exemptions; and/or B . For the discovery and seizure of smuggled goods c. Recurrence of the above circumst ances
- a reward of 10% of the FMV of the smuggled Falsity constitutes a deviation from the truth and confiscated goods or P 1 M per case, due to mistake, carelessness or ignorance . whichever is lower, shall be given to persons instrumental in the discovery and seizure of There is fraud in the following decided cases: such smuggled goods. 1. Fraud must be the product of a deliberate intent
to evade taxes ( Jalandoni vs. Republic ) * This does not apply to all public officials whether 2. Simple statement that return filed was not incumbent or retired, who acquired the information fraudulent does not disprove existence of fraud in the course of performance of their duties during ( Tay engco vs. Collector ) their incumbency. 3. Substantial under-declarations of income for six
consecutive five years demonstrate fraudulence of return ( Perez vs. CTA )
PRESCRIPTIVE PERIODS FOR THE 4. Presence of fictitious expenses, with no evidence presented, proves existence of fraud ( Tan Guan ASSESSMENT AND COLLECTION OF vs. Commissioner )
TAXES
However, the courts did not consider the tax returns filed as false or fraudulent with intent to
RATIONALE OF PRESCRIPTIVE PERIODS evade payment of tax in the following cases: a. Mere underst atement in the tax return will not
Such periods are designated to secure the necessarily imply fraud (Jalandoni vs. Republic) taxpayers against unreasonable investigation after b. Sale of a real property for a price less than it s the lapse of the period prescribed. They are also fair market value is not necessarily a false beneficial to the government because tax officers return (Commissioner vs. Ayala Securities) will be obliged to act promptly. c. Fraud is a question of fact and the
circumstanc es constitut ing fraud must be RULES ON PRESCRIPTION alleged and proved in the trial court
(Commissioner vs. Ayala Securities) 1. When the t ax law itself is silent on d. Fraud is never imputed and t he courts never
prescription, the t ax is imprescriptible; sustain findings of fraud upon circumstances 2. When no return is required, tax is that only create suspicion (Commissioner vs.
imprescriptible; Javier) Note: Remedy of taxpayer is to file a return. e. Mistakes of revenue officers on three different 3. Defense of prescription is waivable; occasions remove element of fraud ( Aznar vs.
CTA and Collector) WHAT CONSTITUTES ASSESSMENT?
3. Agreement in writing to the extension of the An assessment contains not only a period to assess between the CIR and the
computation of tax liabilities but also a demand for t axpayer before the expiration of the 3-year payment within a prescribed period. period. NB: The extended period agreed upon
can further be extended by a subsequent written agreement made before the
PRESCRIPTIVE PERIOD FOR THE ASSESSMENT OF expiration of the extended period previously TAXES agreed upon (Sec. 222[b]).
4. Written waiver of renunciation of the General Rule: original three (3) year limitation, signed by
Three (3) years after t he date the return is t he taxpayer (Sambrano vs. Court of Tax due or filed, whichever is later (Sec. 203, 1997 NIRC). Appeals, GR No. L-8652, March 30, 1957).
Exceptions: Note: Notice of the assessment is released, mailed 1. Failure to file a return: t en (10) years from or sent to the taxpayer also within the 3 year period.
the date of the discovery of the omission to It is not required that the notice be received by the file the return (Sec.222[A]); taxpayer within the prescribed period. But the
2. False or fraudulent return with intention to sending of the notice must clearly be proven. evade the tax: ten (10) years from the date (Basilan Estate, Inc. vs. Commissioner, GR No. L- of the discovery of the falsity or fraud 22492, September 5, 1967) (Sec.222 [A]);
Note: Nothing in Section 222(A) shall be AMENDMENT OF RETURN construed to authorize the examination and investigation or inquiry into any tax return filed If the amended return is substantially in accordance wit h the provisions of any tax different from the original return, the prescriptive amnesty law or decree. period shall be counted from the filing of the
amended return. But the said period shall run from t he filing of the original return if the same is
sufficiently complete to enable the Commissioner to judicial proceedings for its investigation and make a proper assessment . (Commissioner vs. punishment. Phoenix Assurance Co., GR No. L-19727, May 20, 1965) 2. Illustrative case: (Lim vs. Court of Appeals GR
When Substantive: Nos. 48134-37, Ocober 18 , 1990) a. substantial under declaration (exceeding 30% a. charge is failure or refusal to pay deficiency
of that declared) of taxable sales, receipts or income tax – committed only after the income, finality of the assessment coupled with the
taxpayer‘s willful refusal to pay the taxes b. or a substantial overstatement ( exceeding 30% of deductions) (Sec. 248) within the allotted period. (i.e. cannot be
committed upon filing the return) PRESCRIPTIVE PERIOD FOR THE COLLECTION OF b. charge is filing of false or fraudulent return TAXES with intent to evade the assessment – in
addition to the fact of discovery, there must General Periods: be a judicial proceeding for t he investigation
Five (5) years – from assessment or within and punishment of the tax offense before period for collect ion agreed upon in writing before t he 5 year prescriptive period begins to run. expiration of the 5-year period (Sec. 222, 1997 NIRC).
Ten (10) years – without assessment in case of false or fraudulent return with intent to evade or II. TAX REMEDIES OF THE TAXPAYER failure to file return (Sec. 222, 1997 NIRC).
WHAT IS THE PRESCRIPTIVE PERIOD WHERE THE G R ENERAL EMEDIES GOVERNMENT’S ACTION IS ON A BOND WHICH THE
TAXPAYER EXECUTES IN ORDER TO SECURE THE A. ADMINISTRATIVE
PAYMENT OF HIS TAX OBLIGATION? Before Payment
a. Protest – filing a petition for Ten (10) years under Art. 1144(1) of the Civil
reconsideration or reinv estigation within Code and not three (3) years under the NIRC. In this
30 days from receipt of assessment case, the Government proceeds by court action to
Within 60 days from filing of protest, all forfeit a bond. The action is for the enforcement of a
relevant supporting documents should contractual obligation. (Republic vs. Araneta, GR
hav e been submitted, otherwise, the No. L-14142, May 30, 1961)
assessment shall become final – cannot be appealed (Sec. 228, 1997 NIRC).
GROUNDS FOR SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS
Note: Submission of documents within the 60 day period is optional to the taxpayer .
a. When the CIR is prohibited from making the assessment or beginning the distraint or levy
"That the relevant supporting documents or a proceeding in court, and for sixty (60)
mentioned in the law refers to such days thereafter;
doc uments which t he taxpayer feels b. When the taxpayer requests for a
would be necessary to support his protest reconsideration which is granted by the CIR;
and not what the Commissioner feels c. When the t axpayer cannot be located in the
should be submitted, otherwise, taxpayer address given by him in the return, unless he
would always be at the mercy of the BIR informs the CIR of any change in his address.
which may require production of such d. When the warrant of distraint or levy is duly
doc uments which taxpayer could not served, and no property is located; and
produce." (Standard Chartered Bank vs. e. When the taxpayer is out of the Philippines
CIR, CTA Case No. 5696, August 16, 2001) (Sec. 223, 1997 NIRC).
A protest is a vital document which is a formal declaration of resistance of
A TAX RETURN IS CONSIDERED FILED FOR PURPOSES t he taxpayer. It is a repository of all
OF STARTING THE RUNNING OF THE PERIOD OF arguments. It can be used in court in case
LIMITATIONS IF administrative remedies have been exhausted. It is also the formal act of the
a. The return is valid – it has complied substantially t axpayer questioning the official
with the requirements of the law; and actuation of t he CIR. This is equivalent to a pleading.
b. The return is appropriate – it is a return for the b. Entering into a compromise (Sec. 204,
particular tax required by law. 1997 NIRC).
After Payment Note: A defective tax return is the same as if no
Filing of claim for refund or tax credit return was filed at all.
within 2 years from date of payment regardless of any supervening cause (Sec. 229, 1997 NIRC).
PRESCRIPTIVE PERIOD FOR THE VIOLATION OF ANY PROVISION OF THE TAX CODE (SEC. 281, 1997
B. JUDICIAL NIRC)
Civil Action a. Appeal t o the Court of Tax Appeals – within
1. Should be filed within five (5) years from the (a) 30 days from receipt of decision on the protest
day of the commission of the violation of the or from the lapse of 180 day s due to inaction
law, and if the same be not known, from the (b) of t he Commissioner (Sec. 228, 1997 NIRC).
discovery thereof and the institution of the
b. Action to contest forfeiture of chattel, at any waiver (Commissioner vs. Ayala Securities time before the sale or destruction thereof, Corp.) to recover the same, and upon giving proper d. Preliminary collection letter may serve as bond, enjoin the sale; or after t he sale and assessment notice (United International within 6 months, an action to recover the net Pictures vs. Commissioner) proceeds realized at the sale (Sec. 231, 1997 NIRC); and ACTS OF BIR COMMISSIONER CONSIDERED AS DENIAL
c. Action for damages against a revenue officer OF PROTEST WHICH SERVE AS A BASIS FOR APPEAL by reason of any act done in the performance TO THE COURT OF TAX APPEALS of official duty (Sec. 227, 1997 NIRC) .
Criminal Action 1. filing by the BIR of a civil suit for collection of the a. Filing of criminal complaint against erring BIR deficiency tax (Commissioner vs. Union Shipping
officials and employees. Corporation, GR No. 66160, May 21, 1990) b. Injunction – when the CTA in its opinion, the 2. indication to the taxpayer by the Commissioner
collect ion by the BIR may jeopardize taxpayer. in clear and unequivocal language of his final denial. (Commissioner vs. Union Shipping
Note: With the enactment of the new CTA law (RA Corporation, GR No. 66160, May 21, 1990) No. 9282) amending RA No. 1125, CTA now has 3. BIR demand letter reiterating his previous jurisdiction over criminal cases. (See Chapter VI - demand to pay, sent to the taxpayer after his Court of Tax Appeals.) protest of the assessment. (Surigao Electric Co.,
Inc. vs. CTA, GR No. L-25289, June 28, 1974; Substantive Remedies Commissioner vs. Ayala Securities Corporation, 1. Questioning the const itutionality or validity of tax GR No. L-29485, March 31, 1976)
statutes or regulations 4. The actual issuance of a warrant of distraint and 2. Non-retroactivity of rulings (Sec.246, NIRC) levy in cert ain cases cannot be considered a final 3. Failure to inform the t axpayer in writing of the dec ision on a disputed settlement . (Commissioner
legal and factual bases of assessment makes it v s. Union Shipping Corporation, GR No. 66160, void (Sec. 228, NIRC) May 21, 1990)
4. Preservation of books of accounts and once a year examination (Sec. 235, NIRC)
ASSESSMENT AND PROTEST FILING OF CLAIM FOR
Assessment TAX REFUND OR TAX CREDIT General rule: Taxes are self assessing and thus, do
not require the issuance of an assessment notice in GROUNDS FOR FILING A CLAIM FOR TAX REFUND OR order to establish the tax liability of a taxpayer. TAX CREDIT Exceptions:
1. Tax period of a taxpayer is terminated (Sec. 1. Tax is collected erroneously or illegally. 6(D), NIRC) 2. Penalty is collected without authority. 2. Deficiency tax liability arising from a tax 3. Sum collected is excessive. audit conducted by t he BIR (Sec. 56(B), NIRC)
3. Tax lien (Sec. 219, NIRC) TAX REFUND VS. TAX CREDIT 4. Dissolving Corporation (Sec. 52(c), NIRC)
Protest TAX REFUND TAX CREDIT 1. Direct denial of protest
The taxpayer asks for The taxpayer asks that the Admnistrativ e decision on a disputed assessment - restitution of the money money so paid be applied to The decision of t he Commissioner or his duly paid as tax his existing tax liability
authorized representative shall (a) state the facts, the applicable law, rules and regulation or
Two-year period to file Two-year period starts from jurisprudence on which such decision is based
claim with the CIR starts the date such credit was otherwise, the dec ision shall be void, in which case after the payment of the allowed (in case credit is the same shall not be considered a decision a tax or penalty wrongly made). disputed assessment and (b) that the same is his final decision (Sec. 3.1.5, Rev. Regs. No. 12-99) REQUISITES OF TAX REFUND OR TAX CREDIT
2. Indirect denial of protest 1. Claim must be in writing; a. Commissioner did not rule on the t axpayer‘s 2. It must be filed with the Commissioner within
motion for reconsideration of the assessment t wo (2) years after the payment of the tax or – it was only when respondent receiv ed the penalty. summons on Note: No suit or proceeding shall be begun after
t he expiration of the said two (2) years regardless the civil action for the collection of of any supervening cause that may arise after
deficiency income tax that the period to payment . appeal commenced to run (Commissioner v s. 3. Show proof of payment. Union Shipping Corp.)
b. Referral by the Commissioner of request for COMMENCEMENT OF THE TWO (2) YEAR PERIOD reinvestigation t o the Solicitor General (JURISPRUDENCE) (Republic vs Lim Tian Teng Sons)
c. Reiterating the demand for immediate 1. Tax sought to be refunded is illegally or payment of the deficiency tax due to erroneously collected t axpayer‘s continued refusal to execute
- from the date the tax was paid. However, payment under protest is necessary in (Commissioner vs. Victorias Milling, GR No. L- claim for refund for real property taxes (Sec. 252, 24108, January 31, 1968) LGC) and for customs duties (Sec. 2308, TCC) .
2. Tax is paid only in installments or only in part - from the date the last or final inst allment or SUSPENSION OF THE TWO-YEAR PRESCRIPTIVE payment because for tax purposes, there is no PERIOD payment until the whole or entire tax liability is fully paid. (Collector vs. Prieto, GR No. L-11976, 1. There is a pending litigation between the August 29, 1961) Government and the taxpayer; and
3. Taxpayer merely made a deposit 2. CIR in that litigated case agreed to abide by the - dec ision of the SC as to the collection of taxes counted from the conversion of the deposit to
relative thereto (Panay Electric Co. vs. Collector, payment (Union Garment vs. Collector, CTA Case GR No. L-10574, May 28, 1958). No. 416, November 17, 1958)
- Merely making a deposit is not equivalent to INTEREST ON TAX REFUNDS payment unt il the amount is actually applied to
the specific purpose for which it was deposited. General Rule: 4. Tax has been withheld from source (through Government cannot be required to pay the withholding tax system) interest on taxes refunded to the taxpayer in the - counted from the date it falls due at the end of absence of a statutory provision clearly or expressly the taxable y ear directing or authorizing such payment. - A taxpayer who contributes to the withholding (C ommissioner vs. Sweeney, GR No. L-12178, August tax system does not really deposit an amount to 29, 1959) the government, but in truth, performs and
ext inguishes his tax obligation for the year concerned. (Gibbs vs. Commissioner, GR No. L-
Exceptions: 17406, November 29, 1965) 1. When the CIR acted wit h patent arbitrariness. 5. End of taxable year vs. date of the filing of the
Arbitrariness presupposes inexcusable or final adjusted ret urn obstinate disregard of legal provisions. - from the date when the final adjusted return (Commissioner vs. Victorias Milling, GR No. L- was filed. 19667, Nov. 29, 1966) - the rationale in computing this period is the
2. Under Sec. 79(C)(2) with respect to income taxes fact that it is only then the corporation can withheld on the wages of the employees. ascertain whether it made profits or incurred
losses in its business operations. (ACCRA TAX CREDIT CERTIFICATE Investments vs. Court of Appeals, GR No. 96322,
December 20, 1991) 1. May be applied against any internal revenue tax 6. Date when quarterly income tax was paid vs.
except withholding taxes, date when final adjusted return was filed 2. Original copy is surrendered to the revenue - from the date when final adjusted return was
office, filed 3. No tax refund will be given resulting from - The filing of the quart erly income tax return
availment of incentives granted by law where no (Sec. 68) and payment of quarterly income tax actual payment was made ( Sec. 204C, 1997 should only be considered mere installments of NIRC). the annual tax due. (Commissioner vs. TMX Sales,
GR No. 83736, January 15, 1992) FORFEITURE OF CASH REFUND/TAX CREDIT 7. Date when the final adjustment return was
actually filed (ex. Apr. 2) vs. Last day when the 1. Forfeiture of refund in favor of the government adjustment return could still be filed (ex. Apr.
when a refund chec k or warrant remains 15) unclaimed or uncashed within five (5) years from - from the date the final adjustment return was date of mailing or delivery. actually filed. (Commissioner vs. Court of
2. Forfeiture of Tax Credit – a tax credit certificate Appeals, GR No 117254, January 21, 1999) which remains unutilized after five (5) years from 8. Tax was not erroneously or illegally paid but date of issue, shall be invalid, unless revalidated the taxpayer became entitled to refund (Sec. 230, 1997 NIRC). because of supervening circumstances
- from the date the taxpayer becomes entitled to refund and not from the date of payment.
REGLEMENTARY PERIODS (Commissioner vs. Don Pedro Central Azucarera, IN INCOME TAX IMPOSED GR No. L-28467, Feb. 28, 1973)
PAYMENT UNDER PROTEST IS NOT NECESSARY BY LAW UPON THE TAXPAYER UNDER NIRC (PURSUANT TO REV. REG. NO. 12-99, SEC. 228 OF
THE 1997 NIRC, AND RA NO. 1125 AS AMENDED BY A suit or proceeding for tax refund may be
RA NO. 9282) maintained whether or not such tax, penalty or sum has been paid under protest or duress (Sec. 229,
BIR makes a t ax assessment NIRC).
If taxpayer is not satisfied with the assessment file a Note: Similarly, payment under protest is not protest within 30 days from receipt thereof necessary in refund for local taxes. (See Sec. 196,
LGC).
Submit supporting documents within 60 days from date of the filing of t he protest
If protest is denied , elevate the matter to the See Assessment Process and Appeal Annex N – Commissioner of Internal Revenue (CIR ) within 30
from receipt of the decision of the CIR‘s duly days ADDITIONS TO THE TAX authorized representative officer
(SECS. 247-252 NIRC)
Appeal to the Division of the Court of Tax Appeals (CTA) within 30 days from receipt of final decision D : increments to the basic tax incident due EFINITION
of CIR or his duly authorized representat ive (the to the t axpayer‘s non-compliance with c ertain legal taxpayer has t he option to appeal straight to the CTA requirements.
upon receipt of the decision of the CIR‘s duly 1. CIVIL PENALTY / SURCHARGE authorized representative) 1. 25% surcharge
a. Failure to file any ret urn and pay the tax due thereon as required under the If the CIR or his duly authorized representative fails provisions of this Code or rules and to act on the protest within 180 days from date of regulations on the date prescribed; or submission by taxpayer, the latter may appeal within
b. Unless otherwise authorized by the 30 days from lapse of the Commissioner, filing a return with an 180-day period with the CTA Division internal revenue officer other than those with whom the return is required to be
The Part y adversely affected by the CTA Division‘s filed; or
decision may file one motion for reconsideration/new c. Failure to pay the deficiency t ax within
trial within 15 days from receipt of dec ision. If the the time prescribed for it s payment in
MR is denied file a petition for review with the CTA the not ice of assessment; or
en banc d. Failure to pay the full or part of the
amount of tax shown on any return Appeal to the Supreme Court within 15 days from required to be filed under the provisions
receipt of the CTA en banc decision under Rule 45 of of this Code or rules and regulations, or the Rules of Court the full amount of tax due for which no
return is required to be filed, on or P -A N , W N R (S . 228, before the date prescribed for its RE SSESSMENT OTICE HEN OT EQUIRED EC NIRC) payment . (Sec. 248)
2. 50% surcharge 1. When the finding for any deficiency tax is the a. in case of willful neglect to file the
result of mathematical error in the return within the period prescribed by computation of the tax as appearing on the the Code, or face of the return; or will not apply in case a t axpayer,
2. When a discrepancy has been determined without notice from the between the t ax withheld and the amount Commissioner, or his duly authorized actually remitted by the withholding agent; representative, voluntarily files the or said return (only 25% shall be
3. When a t axpayer who opted to claim a refund imposed) or tax credit of excess creditable withholding 50% surcharge shall be imposed in tax for a taxable period was determined to case the taxpayer files the return have carried over and automatically applied only after prior notice in writing from the same amount claimed against the the Commissioner or his duly estimated tax liabilit ies for the taxable authorized representa-tive (Sec. 4.2, quarter or quarters of the suc ceeding taxable Rev. Reg. 12-99) year; or
4. When the excise t ax due on excisable articles has not been paid;
5. When an article locally purchased or imported by an exempt person, such as, but b. in case a false or fraudulent return is not limited to, vehicles, capital equipment,
willfully made machineries and spare parts, has been sold, Prima Facie evidence traded or transferred to non-exempt persons.
substantial underdeclaration (exceeding 30% of that declared) of taxable sales,
Notes: receipts or income,
As a general rule, payment under protest or a substantial overstatement
is not required under the NIRC, except (exceeding 30% of actual deductions) of
when partial payment of uncontroverted deductions (Sec. 248) taxes is required under RR 12-99. The Commissioner may, even without a
2. INTEREST written claim therefor, refund or credit
- 20% per annum or such higher rate as may be any tax, where on the face of the return
prescribed by the rules and regulations upon which payment was made, such payment appears clearly to have been
a. Deficiency int erest (Sec. 249B) erroneously paid.
b. Delinquency interest (Sec. 249C) In case of the CIR‘s final denial of the c. Interest on Extended Payment (Sec. 249D) claim for refund, the 30-day period to appeal wit h the CTA must be within the
3. OTHER CIVIL PENALTIES OR ADMINISTRATIVE 2-y ear peremptory period for instit uting FINES judicial action.
a. Failure to file certain information returns (Sec. 250) L T A (S . 132, ) OCAL AXING UTHORITY EC LGC
b. Failure of a withholding agent to collect and Shall be exercised by the Sanggunian of the LGU remit tax (Sec. 251) concerned through an appropriate ordinance.
c. Failure of a withholding agent of refund excess withholding tax (Sec. 252) P P T V OWER TO PRESCRIBE ENALTIES FOR AX IOLATIONS AND
L (S . 516, ) IMITATIONS THEREON EC LGC 1. The Sanggunian is authorized to prescribe fines or
III. LOCAL TAXATION other penalties for violations of tax ordinances. a. in no case shall fines be less than P1,000 nor
more than P5,000 P L OWERS AND IMITATIONS b. nor shall the imprisonment be less than one
(1) month nor more than six (6) month. NATURE AND SOURCE OF LOCAL TAXING POWER
2. Such fine or other penalty shall be imposed at (SEE. SEC 5, ART. X, 1987 CONSTITUTION AND SEC.
the discretion of the court. 129, LGC)
3. The Sangguniang Barangay may prescribe a fine of not less than P100 nor more than P1,000.
The Local Government Unit has the power: a. to create its own sources of revenue and
P A L T R (S . 191, ) OWER TO DJUST OCAL AX ATE EC LGC b. to levy taxes, fees and charges.
Adjustment of the tax rates as prescribed herein should not be oftener than once every five (5) years, and in no case shall such adjustment exceed ten percent (10%) of the rates fixed under the LGC.
P G L T E (S . 192, ) OWER TO RANT OCAL AX XEMPTIONS EC LGC Local government units may, through ordinances
duly approved, grant t ax exemptions, incentives or Congress cannot enact laws depriving LGU
reliefs under such terms and conditions, as they may from exercising such power to tax but it may set
deem necessary. guidelines and limit ations for t he exercise.
Such taxes, fees, and charges shall accrue T E E B E AX XEMPTIONS XISTING EFORE THE FFECTIVITY OF THE exclusively to the local government units. LGC A (S . 193, ) HAS BEEN BOLISHED EC LGC
Unless ot herwise provided in this Code, tax N T P ATURE OF THE AXING OWER exemptions or incentives grant ed to, or presently
a. Not inherent; enjoyed by all persons, whether natural or juridical,
b. Exercised only if delegated to them by law or including government-owned or controlled
Constitution; corporations are hereby withdrawn upon the
c. Not absolut e; subject to limitations provided effectively of the LGC
for by law. except the following: 8. local water districts,
Under the present constitutional rule, where 9. cooperat ives duly registered under R.A. No. 6938,
there is neither a grant nor a prohibition by statute, non-stock and non-profit hospitals and
the tax power must be deemed to exist although 10. educational institutions.
Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is
The power to grant tax exemptions, tax to safeguard the viability and self-sufficiency of local
incentives and tax reliefs shall not apply to government units by directly granting them general
regulatory fees which are levied under the police and broad tax powers. ( Manila Electric Co. vs.
power of the LGU. Province of Laguna, G.R. No. 131359 )
Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption
A L T P SPECTS OF OCAL AXING OWER certificate. a. local t axation b. real property taxation
G G T E , T UIDELINES FOR THE RANTING OF AX XEMPTIONS AX I T R (A . 282[ ], R NCENTIVES AND AX ELIEFS RT B ULES AND
F P L T (S . UNDAMENTAL RINCIPLES GOVERNING OCAL AXATION EC R I L ) EGULATIONS MPLEMENTING THE GC 130, ) LGC a. Shall be uniform in each local sub-unit
1. On the grant of tax exemptions or tax reliefs: b. Shall be equitable and based as much as
a. the same may be granted in cases of natural possible on the taxpayer‘s abilit y to pay
calamities, civil disturbanc e, general failure c. Levied for public purposes
of crops, or adverse economic conditions such d. Shall not be unjust , excessive, oppressive, or
as substantial decrease in prices of confiscatory
agricultural or agri-based products. e. Shall not be contrary to law, public policy,
b. The grant shall be through an ordinance. national economic policy, or in restraint of
c . Any exemption or relief granted to a type or trade
kind of business shall apply to all business f. Collection of local taxes and other
similarly situated. impositions shall not be let to any person
d. The same shall take effect only during the g. The revenues collec ted under the Code shall
next calendar year for a period not exceeding inure solely to the benefit of, and subject to
12 months as may be provided in t he disposition by, the LGU levying the tax or
ordinance. other imposition unless otherwise
e. In the case of shared revenues, the exemption specifically provided therein
or relief shall only extend to the LGU granting h. Each LGU shall, as far as practicable, evolve
such exemption or relief. a progressive system of taxation.
2. On the grant of tax incentives: Excluded impositions (pursuant to the doct rine of a. The same shall be granted only to new preempt ion):
investments in the locality and t he ordinance a. Taxes which are levied under the NIRC, shall prescribe the t erms and conditions unless otherwise provided by LGC of 1991; therefore. b. Taxes, fees, etc. which are imposed under
b. The grant shall be for a definite period of not t he Tariffs and Customs Code; exceeding 1 calendar year. c. Taxes, fees, etc., the imposition of which
c. The grant shall be by ordinance passed prior contravenes existing gov ernmental policies or to t he 1 day of January of any year. which violates the fundamental principles of st
d. Any grant to a type or kind of business shall t axation; apply to all businesses similarly situated. d. Taxes, fees and other charges imposed under
special law. LEVYING OF LOCAL TAXES (LOCAL TAX ORDINANCE) Requisites : COMMON LIMITATIONS ON LOCAL TAXING POWER 1. The procedure applicable to local government (SEC. 133, LGC)
ordinances in general should be observed (Sec. Local government units cannot levy: 187, LGC) 1. I ncome tax, except on banks and other
2. Procedural det ails (Secs. 54, 55, and 59, LGC): financial institutions; a. necessity of a quorum 2. D ocumentary stamp tax; b. submission for approval by the local chief 3. E state tax, inheritance, gift s, legacies and
executive other acquisitions mortis causa except as c. he matter of veto and overriding the same otherwise provided d. the publication and affect ivity 4. C ustoms dut ies, regist ration fees of vessels
3. Public hearings are required before any local tax and wharfage on wharves, tonnage dues and ordinance is enac ted (Sec.187, LGC) all other kinds of customs fees, charges and
4. Within 10 days after their approval, publication in dues except wharfage on wharves full for 3 consecutive days in a newspaper of constructed and maintained by the local general circulation. In absence of such newspaper government unit concerned; in the province, cit y or municipality, then the 5. T axes, fees, charges and other impositions ordinances may be posted in at least 2 upon goods carried into or out of, or passing conspicuous and public ly accessible places (Sec. t hrough, the territorial jurisdictions of local 189, LGC) government units in the guise of charges for
wharfage, tolls for bridges or otherwise. R T P L 6. T axes, fees or charges on agricultural and ESIDUAL AXING OWERS OF THE OCAL GOVERNMENT UNITS (S . 186, ) aquatic products when sold by marginal EC LGC
To levy taxes, fees or charges on any base or farmers or fishermen; subject NOT: 7. T axes on business enterprises cert ified by the
1. Specifically enumerated in LGC Board of Investments as pioneer or 2. Taxed under the provisions of the NIRC, as non-pioneer for a period of 6 and 4 years,
amended, and respectively, from the date of registration; 3. Other applicable laws 8. E xcise taxes on articles enumerat ed under
t he NIRC, as amended, and taxes, fees or Conditions : charges on petroleum products; 1. That the taxes, fees, or charges shall not be 9. P ercentage or value-added tax (VAT) on
unjust, excessive, oppressive, confiscatory or sales, barters or exchanges or similar contrary to declared national policy t ransactions on goods or services except as
otherwise provided herein; 2. The ordinance levying such taxes, fees or charges 10. T axes on the gross rec eipts of transportation
shall not be enacted without any prior public contractors and persons engaged in the hearing conducted for the purpose. t ransportation of passengers or freight by
hire and common carriers by air, land or water, except as provided in the Code;
11. T axes on premiums paid by way of LIMITATIONS OF THE RESIDUAL POWER Reinsurance or retrocession;
1. Const itutional limitations on taxing power 12. T axes, fees or charges for the registration of 2. Common limitations prescribed in Sec . 133 motor vehicles and for the issuance of all
of the LGC kinds of licenses or permits for the driving 3. Fundamental principles governing the t hereof, except tricyc le;
exerc ise of the taxing power of the LGUs 13. T axes, fees or other charges on Philippine prescribed under Sec. 130 of the LGC products actually exported, except as
4. The ordinance levying such residual taxes otherwise provided in the Code; shall not be enacted without any prior 14. T axes, fees or charges on Countryside and public hearing conducted for t he purpose barangay business enterprises and and cooperatives duly registered under R.A. 6810
5. The principle of preemption. and R.A. 6938, (Cooperatives Code of the Philippines) ; and
P P E 15. T axes, fees or charges of any kind on the RINCIPLE OF REEMPTION OR XCLUSIONARY DOCTRINE Where the National Government elect s to tax a National Government, its agencies and
particular area, it impliedly withholds from the local instrumentalit ies, and local government government the delegated power to tax the same units. field. This doctrine principally rests on the intention of the Congress. CLASSIFICATION OF COMMON LIMITATIONS
1. Taxes which are levied under the NIRC unless - Not t o exceed by 50% the maximum rates otherwise provided by the LGC prescribed in the preceding Sect ion.
Numbers 1, 2, 3, 8, 9, 10 2. Taxes, fees, etc. which are imposed under the
Tariffs and Customs Code Number 4
3. Taxes, fees and charges where the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation
Numbers 5, 6, 7, 11, 13, 14, 15 P B T 4. Taxes, fees, and charges imposed under special AYMENT OF USINESS AXES
a. It shall be payable for every separate or laws. distinct establishment or place where Number 12 business subject to the tax is conducted and one line of business does not become exempt TAXES AND OTHER IMPOSITIONS THAT THE LOCAL by being conducted with some other business
GOVERNMENT MAY LEVY for which such tax has been paid.
b. The tax on a business must be paid by the (A) PROVINCES
person conducting the same. (SECS. 134-141, LGC)
c. In cases where a person conducts or operates 1. Tax on Transfer of Real Property
2 or more of the businesses mentioned in 2. Tax on Business of Printing and Publication
Sec tion 143 of LGC 3. Franchise Tax
- which are subject to the same rate of 4. Tax on Sand, Gravel and other Quarry tax , the tax shall be computed on the combined
Resources extracted from Public Land t otal gross sales or receipt s of t he said 2 or more
5. Professional Tax related businesses.
6. Amusement Tax - which are subject to different rates of
7. Annual Fixed Tax for every Delivery Truck or tax , the gross sales or receipts of each business Van of Manufacturers or Producers, shall be separately reported for the purpose of
Wholesalers of, Dealers, or Retailers in, computing the tax due from each business.
certain products
See Annex K for the rates and details. See Annex J for the rat es and details.
(C) CITIES (SEC. 151, LGC)
The city may levy the t axes, fees, and charges which the province or municipality may impose. The tax rates that the city may levy may exceed (B) MUNICIPALITIES t he maximum rates allowed for the province or (SEC. 143, LGC) municipality by not more than 50% except the rates of professional and amusement taxes. 1. Municipal Taxes- taxes on the businesses of the
following: (D) BARANGAYS a. On manufacturers, assemblers, repackers, (SEC. 152, LGC) processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and Barangays may levy the following taxes, fees, and wines or manufacturers of any article of charges which shall accrue exclusively to them: commerce of whatever kind or
b. On wholesalers, distribut ors, or dealers in any article of commerce of whatever kind or – On stores or retailers with fixed a. Taxes
c. On exporters, and on manufacturers, millers, business establishments with the gross sales producers, wholesalers, distributors, dealers or receipts for the preceding calendar year of or retailers of essential commodities P50,000 or less (for barangays in the cities)
d. On retailers and P30,000 or less (for barangays in e. On contractors and other independent municipalities) f. On banks and other financial b. = not exceeding 1% of such gross sales or Rate g. On peddlers engaged in t he sale of any receipts.
merchandise or article of commerce c. Service Fees or Charges – For services h. On any business, not otherwise specified in rendered in connection with the regulat ion or
the preceding paragraphs, which the t he use of barangay-owned properties or sanggunian concerned may deem proper to service facilities such as palay, copra or tax. tobacco dryers
d. Barangay Clearance – No city or municipality 2. Municipal non-revenue fees and charges may issue any license or permit fee for any
The municipality may impose and collect business or activity unless a clearanc e is first such reasonable fees and charges on business and obt ained from the barangay where such occupation except professional taxes reserved for business or activit y is located or conducted. provinces. (Sec. 147. LGC) e. Other Fees and Charges – The barangay may
levy reasonable fees and charges: R T M M A 1. On Commercial breeding of fighting ATES OF AX WITHIN THE ETROPOLITAN ANILA REA ( . 144, ) cocks, cockfights and cockpits; SEC LGC
2. On places of Recreation which charge t elecommunication system funded and admission fees; and c onstructed by the local government unit
3. On Billboards, signboards, neon signs and c oncerned outdoor advertisements. Exceptions:
a. Officers and enlisted men of t he AFP and SITUS OF LOCAL TAXATION PNP;
b. Post office personnel delivering mail; and A. Situs According to the Cases c. Physically handicapped and disabled citizens
With respect to excise tax, the tax is upon who are sixty-five (65) years or older.(Sec. the performance of an act, enjoyment of a privilege 152, LGC) or the engaging in an occupation. The power to levy such tax is not dependent on the domicile of the When public safety and welfare so requires, the taxpayer, but on t he place in which the act is sanggunian concerned may discontinue the collection performed or the occupation is engaged in; not upon of the tolls, and thereafter the said facilit y shall be the location of the office, but t he place where the free and open for public use. sale is perfected. ( Allied Thread Co., Inc. v. City Mayor of Manila, L-40296 ) COMMUNITY TAX
Cities or munic ipalities may levy a community With respect to sale, it is the place of the t ax. consummation of the sale, associated with the delivery of the things which are the subject matter of A. Individuals Liable (Sec. 157) the contract that determines the situs of the contract a. ev ery inhabitant of the Philippines; for purposes of taxation, and not merely the place of b. eighteen (18) years of age or over; the perfection of the cont ract . ( Shell Co., Inc. v. c. under any of the following instances: Municipality of Sipocot, Camarines Sur 105 Phil 1263 ) d. who has been regularly employed on a
wage or salary basis for at least thirty (30) B. Situs According to Sec. 150, LGC consecutive working days during any
calendar year; or Branch or sales office – a fixed place in the locality e. who is engaged in business or occupation; which conducts the operation of the business as an or extension of the principal office f. who owns real property with an aggregate
assessed value of P1,000 or more; or Principal office - t he head or the main office of the g. who is required by law to file an income business; the city or the municipality specifically tax return mentioned in the Articles of Incorporation or official registration papers as being the official address of Tax Rate = P5.00 and an annual additional tax of said principal office shall be considered the situs P1.00 for every P1,000 of income regardless of thereof. whether from business, exercise of profession or
from property which in no case shall exceed 1. Place of sale (with branch or sales outlet P5,000.
therein): In case of husband and wife, the Municipality or city where the branch or additional tax herein imposed shall be based
upon the total property owned by them and the outlet is located. t otal gross receipts or earnings derived by them. 2. Place of sale (no branch or sales outlet):
Municipality or c ity of principal office (not in B. Juridical Persons (Sec. 158) the place of sale)
Every c orporation no matter how created or 3. If manufacturer, assembler, contrac tor, producer, organized, whether domestic or resident foreign, or export er (MACPE) with factory, project office, engaged in or doing business in the Philippines plant or plantation (FPPP) shall pay an annual community tax. 4. 30% of recorded sales in the principal office: city
or municipality where the principal office is Tax Rate = P500 and an annual additional tax which located in no case shall exceed P10,000 in accordance with 5. 70% of recorded sales in the princ ipal office: city t he following schedule: or municipality where the FPPP is located
1. For every P5,000 worth of real property pro rata if FPPP are located in different owned by it during the preceding year based municipalities or cities in proportion to their on the valuation used for the payment of t he respect ive volumes of production. real property tax - P2.00; and 6. If plantation is located in some other place than
2. For every P5,000 of gross receipts or earnings where the factory is located, the foregoing 70% derived by it from its business in the shall be subdivided as follows: Philippines during t he preceding year - P2.00. 60% to the city or municipality where the
factory is located The dividends received by a corporation shall, 40% to the city or municipality where the
for the purpose of the additional tax, be considered plantation is located. as part of the gross receipt s or earnings of said corporation. COMMON REVENUE-RAISING POWERS OF LGUs (SEC.
153 TO 155) THE FOLLOWING ARE EXEMPT FROM THE 1. Service fees and charges for services rendered COMMUNITY TAX (SEC. 159) 2. Public Utility Charges for the operation of public 1. Diplomatic and consular representatives; and utilities owned, operated and maintained by LGUs 2. Transient v isitors when their stay in the within their jurisdiction.
Philippines does not exceed three (3) months. 3. Toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or
PLACE OF PAYMENT: place of residence of the first day of the quarter next following the individual, or in the place where the principal office effectivity of the ordinance imposing such new of the juridic al entity is located. levies or rates.
TIME OF PAYMENT: accrues on t he 1 day of January Time of Payment – (Sec. 167, LGC) s t
of each year which shall be paid not later t han the Unless otherwise provided shall be paid last day of February of each year. within the first twenty (20) days of January or of
each subsequent quarter as the case may be. PENALTIES FOR DELINQUENCY: an interest of 24% May, for a justifiable reason or cause, be per annum from the due date until it is paid shall be extended without surcharges or penalties, but added t o the amount due. only for a period not exceeding six (6) months .
A community tax certific ate may also be issued to Surcharges and Penalties on Unpaid Taxes, Fees or any person or corporation not subject to the Charges – (Sec. 168, LGC) community tax upon payment of P1.00 (Sec. 162, Surcharge not exceeding 25% of the amount LGC). of taxes, fees or charges including surcharges,
unt il such amount is fully paid. P C T C C But in no case shall the total interest on the RESENTATION OF OMMUNITY AX ERTIFICATE ON ERTAIN O – (S . 163) unpaid amount or portion thereof exceed CCASIONS EC
A. Individual t hirty-six (36) months. 1. When an individual subject to the
community tax acknowledges any Interests on Other Unpaid Revenues – (Sec. 169, document before a notary public; LGC)
2. takes the oath of office upon election or An interest thereon at the rate not exceeding appointment to any position in the 2% per month from the date it is due until it is government service; paid, but in no case shall the total interest on the
3. receives any license, certificate or permit unpaid amount or portion thereof exceed thirty-six from any public authorit y; pays any tax or (36) months. fee;
4. receives any money from any public fund; C L R T – (S . OLLECTION OF OCAL EVENUES BY THE REASURER EC 5. transacts other official business; or 170 LGC) 6. receives any salary or wage from any All local taxes, fees and charges shall be
person or corporation. collected by the provincial, city, municipal or The presentation of the community tax certificate barangay treasurer, or their duly authorized
shall not be required in connection with the deputies. registration of a voter. The provincial, city or municipal treasurer may
designate the barangay treasurer or his deputy to B. Corporation collect local taxes, fees or charges.
1. receives any license, certificate or permit In case a bond is required for the purpose, the from any public authority; provincial, city or municipal government shall pay the
2. pays any tax or fee; premiums thereon in addition to the premiums of t he 3. receives money from public funds; or bond that may be required under the Code. 4. transacts other official business.
The city of municipal t reasurer deputizes the barangay treasurer to collect the community tax in LOCAL TAX REMEDIES their respective jurisdictions. (Sec. 164, LCG) UNDER THE LGC
The proceeds of the community tax actually and directly collected by the city or municipal treasurer
1. TAX REMEDIES OF THE shall accrue entirely to the general fund of the city or
LOCAL GOVERNMENT UNITS (LGUs) municipality concerned.
Proceeds of the community tax collected through C R O T L G U (LGU) IVIL EMEDIES F HE OCAL OV ERNMENT NITS the barangay treasurers shall be apportioned as
T E C O T O FFECT OLLECTION F AXES follows: (1) Local Government’s Lien – Local taxes, fees,
50% accrues to t he general fund of the city or charges and other revenues constitute a lien, municipality concerned; and superior to all liens, charges or encumbrances in 50% accrues to the barangay where the tax is favor of any person, enforceable by any collected. appropriate administrative or judic ial action.
C O L T (2) Civil Remedies OLLECTION F OCAL AXES
Tax Period and Manner of Payment – (Sec. 165, (a) by administrative act ion through distraint of LGC) personal property and by levy upon real
Unless otherwise provided, the tax period property shall be the calendar year .
Such taxes, fees, and charges may be paid in (b) by judic ial action quarterly installments.
Accrual of Tax – (Sec. 166, LGC) Either of these remedies or all may be pursued Unless otherwise provided, shall accrue on concurrently or simultaneously at the discretion of
the first day of January of each y ear. t he LGU concerned. However, new taxes, fees or charges, or
changes in the rates thereof, shall accrue on the
JURISDICTION OF COURTS OVER LOCAL TAXATION treasurer (Sec. 196 LGC). It is to be noted that, CASES unlike in internal revenue taxes, the supervening
cause applies in local taxation because the a. period for the filing of claims for refund or credit With the amendment brought by RA No. 9282,
of local taxes is counted not necessarily from the the Court of Tax Appeals now has appellate date of payment but from the date the taxpayer jurisdiction over local taxation cases decided is entitled to a refund or credit. by the Regional Trial Court in the exercise of
its appellate or original jurisdiction. b. c. Right of redemption – 1 year from the date of Regular judicial court s are not prohibited
sale or from the date of forfeiture (Sec. 179, from enjoining the collection of local taxes, LGC) . subject to Rule 58 (Preliminary Injunction) of
the Rules of Court . B. JUDICIAL
Note: Unlike the NIRC, the Local Tax Code does not 1. Court action contain any specific provision prohibiting courts from within 30 days after receipt of decision or
lapse of 60 days of Secretary of Justice‘s enjoining the collection of loc al taxes. Such stat utory lapse or intent may have allowed inaction (Sec. 187 LGC) preliminary injunction where local taxes are within 30 days from receipt when protest of involved. But it cannot negate the procedural rules assessment is denied (Sec. 195 LGC) and requirements under Rule 58 of the Rules of if no action is taken by the treasurer in Courts. (Valley Trading Co. vs. CFI of Isabela, GR No. refund cases and the two year period is about 49529, March 31, 1989) t o lapse (Sec. 195 LGC)
if remedies available does not provide plain, speedy and adequate remedy.
2. Action for declaratory relief P P FOR A RESCRIPTIVE ERIODS THE SSESSMENT AND C 3. Injunction – if irreparable damage would be OLLECTION
c aused to the taxpayer and no adequate remedy L T OF OCAL AXES PRESCRIPTIVE PERIODS OF ASSESSMENT is available. 1. Local t axes, fees, or charges – five (5) years
from the date they became due. (Sec. 194, LGC). IV. REAL PROPERTY TAXATION 2. When there is fraud or intent t o evade the
payment of taxes, fees or charges – ten (10) years from discovery of the fraud or intent to evade the payment (Sec. 194 , LGC). D : EFINITIONS
REAL PROPERTY TAXATION – A direct tax on PRESCRIPTIVE PERIOD OF COLLECTION
ownership of lands and buildings or other Local taxes, fees, or charges may be improvements thereon payable regardless of
collected within five (5) years from the date of whether the property is used or not, although assessment by administrative or judicial action. No t he value may vary in accordance with such such action shall be instituted after t he expiration of factor. such period (Sec. 194, LGC).
Under the LGC, it covers the GROUNDS FOR THE SUSP ENSION OF THE RUNNING administration, appraisal, assessment, levy OF THE PRESCRIPTIVE PERIODS and collection of Real Property Tax, i.e. tax
a. The treasurer is legally prevented from the on land and building and other structures and
assessment or collection of the tax; improvements on it, including machineries. b. The t axpayer requests for a reinvest igat ion
and executes a waiver in writ ing before the REAL PROPERTY – subject to the definition given by expiration of t he period within which to Art. 415 of the Civil Code . assess or collect; and
c. The taxpayer is out of the country or IMPROVEMENT – valuable addition made to a otherwise cannot be located (Sec. 194, property or amelioration in its condition LGC). amount ing to more than a mere replacement
of part s involving capital expenditures and 2. TAX REMEDIES OF THE labor.
TAXPAYER
R O T T I L T EMEDIES F HE AXPAYER N OCAL AXATION NATURE AND CLASSES
A. ADMINISTRATIVE Before assessment
CHARACTERISTICS OF REAL PROPERTY TAX a. Appeal – any question on constitutionality or
1. Direct tax on the Ownership of real property legality of t ax ordinance within 30 days from
2. Ad valorem tax. The value is based on the effectivity thereof t o Secretary of Justice ( Sec.
t ax base. 187 LGC)
3. Proportionate – the tax is calculated on the b. Declaratory relief whenever applicable.
basis of a certain percentage of the value assessed.
After assessment 4. Indivisible single obligation
a. Protest – within 60 days from receipt of 5. Local tax
assessment (Sec. 195 LGC). Payment under protest is not necessary.
TAXING AUTHORITIES (SEC. 233, LGC)
b. Payment & subsequent refund or tax credit – LGU Rate of Basic Real Propert y
within 2 years from payment of tax to local
4. or any cause which physically or legally Tax prevents the owner of the property or person having legal interest therein from improving, 1. Province not exceeding 1% of assessed
value utilizing or cultivating the same.
2. City not exceeding 2% CLASSIFICATION OF LANDS FOR PURPOSES OF ASSESSMENT SEC. 218 (A)
3. Municipality within not exceeding 2%. Metro Manila
a. Commercial b. Agricultural c. Residential
FUNDAMENTAL PRINCIPLES GOVERNING REAL d. Mineral
PROPERTY TAXATION (SEC. 198, LGC) e. Industrial
1. Real property shall be appraised at its current f. Timberland
and Fair market value; g. Special
2. Real property shall be classified for assessment purposes on the basis of actual Use.
SPECIAL CLASSES OF REAL PROPERTY (SEC. 216, 3. Real property shall be assessed on the basis of
LGC) Uniform classification within each LGU
4. The appraisal, assessment, levy and collection of 1. Hospitals
RP Tax shall not be let to any Private person 2. Cultural and Scientific purposes
5. The appraisal and assessment of real property 3. owned and used by Local water districts
shall be Equitable. 4. GOCCs rendering essent ial public services in the
supply and distribution of water and/or EXTENT OF THE POWER TO LEVY
generation or transmission of elect ric power. Basic real property tax; 1% additional real estate tax to finance the PROPERTIES EXEMPT FROM REAL PROPERTY TAX Special Education Fund; (Sec. 236) ( SEC. 234, LGC ) 5% additional ad valorem tax on Idle lands; Exemption is limited only to the following: (Sec. 236, LGC) and 1. Real property owned by the government Special levy or special assessment s (may be except when the beneficial use thereof has imposed even by municipalities outside Metro been granted to a taxable person; Manila) on lands comprised within its 2. Charitable institutions, churches, personages territorial jurisdiction specially benefited by or convents appurtenant thereto, mosques, public works, projects or improvements non-profit or religious cemeteries and all funded by the local government unit lands, buildings and improvements actually, concerned. direct ly and exclusively used for religious,
Provided: charitable or educational purposes (Art. VI, Special levy shall not exceed 60% of the Sec. 28, Constitution); actual cost of such projects and 3. Machineries and equipment that are actually, improvements, including the costs of direct ly and exclusively used by local water acquiring land and such other real ut ilities and GOCC‘s engaged in the supply property in connection therewith and distribution of water and/or electric not apply to lands exempt from basic real power; property tax and the remainder of the 4. Real property owned by duly registered land have been donated to the local cooperat ives as provided for in RA 6938; and government unit concerned for the 5. Machinery and equipment used for pollution construction of said projects. (Sec. 240, control and environmental protection. LGC).
ACTUAL USE OF PROPERTY AS BASIS FOR FOR PURPOSES OF REAL PROPERTY TAXATION IDLE
ASSESSMENT ( SEC. 217 LGC ) LANDS SHALL INCLUDE: ( SEC. 237, LGC) 1. Agricultural lands in area more than one hectare
Real property shall be classified, valued and or one-half of which remain uncultivated assessed on the basis of actual use regardless of
unimproved by the owner of the property or where located, whoever owns it, and whoever uses
person having legal interest therein. it.
Agricultural lands planted to permanent or perennial crops with at least 50 t rees to a
Unpaid realty t axes attach to the property and is hectare shall not be considered idle lands.
chargeable against the person who had actual or Lands actually used for grazing purposes shall
beneficial use and possession of it regardless of likewise not be considered idle lands; and
whether or not he is the owner. To impose the real 2. Lands other than agricultural located in a city or
property tax on the subsequent owner which was municipality more than one thousand square meters neither the owner nor the beneficial user of the in area one-half of which remain unutilized or
property during the designated periods would not by the owner of the property or unimproved only be contrary to law but also unjust. (Estate of
person having legal interest therein. Lim vs. City of Manila, GR No. 90639, February 21, 1990)
IDLE LANDS EXEMPT FROM TAX ( SEC. 238, LGC)
PROCEDURE By reason of:
1. force majeure STEP 1: DECLARATION OF REAL PROPERTY 2. civil disturbance
3. natural calamity
D O A (S . 202-203) ECLARATION BY WNER OR DMINISTRATOR EC
File a sworn declarat ion with the assessor For machinery - once every 3 years during the period
from January 1 to June 30. 1. For Brand new machinery: FMV is the acquisition c ost For newly acquired property –
2. In all other cases: FMV WHEN : Must file with the assessor within 60 days = Remaining eco. life X Replacement from date of transfer
Estimated Eco.Life Cost WHAT : Sworn statement containing the fair market value and description of the property.
STEP 4: DETERMINE ASSESSED VALUE (SEC. For improvement on property 218) WHEN : Must file within 60 days upon completion or
occupation (whichever comes earlier) WHAT : Sworn statement containing the fair market Determine Assessed Value value and description of the property. Procedure
1. Take the schedule of FMV D P / C / M A 2. Assessed Value = FMV x Assessment level ECLARATION BY ROVINCIAL ITY UNIC IPAL SSESSOR
(S . 204) 3. Tax = Assessed value x Tax rate EC
WHEN : Only when the person under Sec . 202 refuses STEP 5: PAYMENT AND COLLECTION OF TAX or fails to make a declaration within the prescribed time.
(a) Accrual of Tax: January of every y ear and such will constitute as a superior lien. (Sec. 246)
No oat h by the assessor is required.
(b) Time and Manner of Payment: (Sec. 250) Notes: Proof of Exemption of Real Property from
1. basic real property tax in 4 equal installments Taxation - (Sec. 206) (March 31, June 30, September 30, December 30)
WHO : By any person or for whom real property is 2. special levy – governed by ordinance declared.
(c) Interest for Late Payment (Sec. 255) Claim for exemption must be filed with the
1. t wo percent on unpaid (2%) for each month assessor together with sufficient documentary
amount until the delinquent amount is paid evidence to support claim
2. provided in no case shall the total interest exceed t hirty-six (36) months.
WHEN: within 30 days from t he date of declaration of property.
(d) For Advance and Prompt Payment 1. Advance payment – discoun t not exceeding 20% of
I P D F T – (S .222) F ROPERTY IS ECLARED FOR THE IRST IME EC annual tax (Sec. 251, LCG) If Declared for the first time, real property shall 2. Prompt payment – discount not excee ding 10% of
be assessed for back taxes: annual tax due (Art 342 IRR) For prior to date of initial not more than 10 years
assessment C T (S . 247) OLLECTION OF AX EC Taxes shall be computed on the basis of It shall be the responsibility of the city or
applicable sc hedule of values in force during the municipal treasurer concerned. corresponding period. The city or municipal treasurer may deputize the
barangay treasurer to collect all taxes on real STEP 2: LISTING OF REAL PROPERTY IN THE property located in the barangay; provided, the
barangay treasurer is properly bonded. ASSESSMENT ROLLS (SECS. 205, 207)
P C (S . 270) All declarations shall be kept and filed under a ERIOD TO OLLECT EC 1. within five (5) years from the date t hey
uniform classificat ion system to be established become due by the provincial, city or municipal assessor.
2. within ten (10) years from disc overy of fraud, in case there is fraud or intent to evade
STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (SECS. 212-214, 224-225) S P P (S . 270) USPENSION OF RESCRIPTIVE ERIOD EC
1. local treasurer is legally prevented to D (FMV) collect tax. ETERMINATION OF FAIR MARKET VALUE
For land 2. the owner or property requests for Assessor of the province/city or municipality may reinvestigation and writes a waiver before summon the owners of the properties to be expiration of period to collect. affected and may take depositions concerning 3. the owner of property is out of the count ry the property , its ownership, amount, nature and or cannot be located. value (Sec. 213, LGC)
Assessor prepares a schedule of FMV for REAL PROPERTY TAX REMEDIES UNDER different classes of properties.
THE LGC Sanggunian enacts an ordinance The schedule of FMV is published in a
1. TAX REMEDIES OF THE LOCAL GOVERNMENT newspaper of general circulation in the TO EFFECT COLLECTION OF TAXES province, city or municipality concerned or
in the absence thereof, shall be post ed in A. ADMINISTRATIVE the provincial capitol, city or municipal hall
1. Real Property tax lien (Secs. 257, LGC) – superior and in two other conspicuous public places t o all liens, charges or encumbrances; therein (Sec. 212, LGC)
2. Distraint (Sec. 254[B], LGC);
3. Levy (Sec. 254[A], 258 LGC); 2) With Supporting Documents 4. Purchase of property by local treasurer for want
of bidder (Sec. 263, LGC). LOCAL BOARD OF ASSESSMENT APPEALS B. JUDICIAL
(LBAA should decide within 120 days Civil Action ( Sec. 266, 270 LGC)
from receipt of petition)
PRESCRIPTIVE PERIODS FOR THE COLLECTION within 30 days
OF REAL PROPERTY TAXES
CENTRAL BOARD OF ASSESSMENT 1. Basic real property tax and any other tax levied APPEALS
– five under the title on Real Propert y Taxation (5) years from the date they became due. (Sec. within 30 days 270, LGC).
2. When there is fraud or intent to evade the payment of taxes – ten (10) years from discovery
COURT OF TAX APPEALS (EN BANC) of the fraud or intent to ev ade the payment (Sec. 270, LGC).
within 15 days
GROUNDS FOR THE SUSP ENSION OF THE RUNNING OF THE PRESCRIPTIVE PERIODS
SUPREME COURT
1. The treasurer is legally prevented from the B. JUDICIAL assessment or collection of the tax;
1. Court Action – appeal of CBAA‘s decision to Court 2. The taxpayer requests for a reinvestigation and of Tax Appeals en banc. executes a waiver in writing before the
2. Suit assailing validity of tax; recovery of refund expiration of the period within which to assess or of taxes paid (Sec. 64 PD 464) . collect; and
3. Suit to declare invalidity of tax due to 3. The taxpayer is out of the country or otherwise irregularity in assessment and collection (Sec. cannot be located (Sec. 270, LGC). 64 PD 464)
4. Suit assailing the validity of tax sale (Sec. 83 PD 2. TAX REMEDIES OF THE TAXPAYER 464) (Sec. 267 LGC)
A. ADMINISTRATIVE C R P T ONDONATION OF EAL ROPERTY AXES 1. By the Sanggunian Protest – payment under protest is required within
Real propert y taxes may be condoned wholly 30 days to provincial, city, or munic ipal treasurer.
or partially in a given local government unit No protest shall be entertained unless the tax is first when: paid. (Sec. 252 LGC)
a. There is general failure of crops; b. There is substant ial decrease in the price of Claim for Tax Refund or Credit (Sec. 253)
agricultural or agri-based products; or a) the taxpayer may file a writ ten claim for
c. There is calamity. refund or credit with the provincial or city 2. By the President of the Philippines treasurer wit hin two years from the date the
when public interest so requires. taxpayer is entitled to such reduction or adjustment.
V. TARIFF AND b) in case of denial of refund or c redit, appeal to LBAA as in protest case. CUSTOMS CODE
Redemption of real property (Sec. 261 LGC)
D EFINITIONS Remedy against the Assessment /Appeal TARIFF: Customs duties, toll or tribute payable upon
1 : within 60 days from notice of assessment of s t merchandise to the Government .
provincial, c ity or municipal assessor to LBAA (Sec. 226 LGC)
CUSTOM DUTIES: Tax assessed upon merchandise 2 : within 30 days from receipt of dec ision of LBAA n d
from or exported to, a foreign country. (Garcia v. to CBAA (Sec. 230 LGC)
Executive Sec., GR No. 101273, July3, 1992)) 3 : within 30 days from receipt of decision of CBAA r d
to Court of Tax Appeals en banc Note: Customs and tariffs are synonymous with one
4 : within 15 days from receipt of decision of Court t h another. They both refer to the taxes imposed on
of Tax Appeals en banc to the Supreme Court imported or exported wares, articles, or merchandise.
APPEALS IN REAL PROPERTY TAXATION
O T F C B C THER YPES OF EES HARGED BY THE UREAU OF USTOMS
PROVINCIAL, CITY OR MUNICIPAL Arrast re charge
ASSESSOR Wharfage due – counterpart of license, charged not for the use of any wharf but for a special fund within 60 days known as the Port Works Fund. Owner/Person with legal interest Berthing fee must file: Harbor fee 1) Written Petition under Oath
Tonnage due In case the articles are free of dut ies, taxes and other charges, until they have legally left the jurisdiction of the customs (Sec. 1202, TCC) M S T C L EANING AND COPE OF THE ARIFF AND USTOMS AWS
Include not only t he provisions of the Tariff and INTENTION TO UNLOAD Customs Code (TCC) and regulations pursuant Even if not yet unloaded, and there is unmanifested thereto, but all other laws and regulations that are cargo, forfeiture may take place because importation subject to the Bureau of Customs (BOC) or otherwise has already begun. within its jurisdiction.
As to its scope, therefore, tariff and customs laws ARTICLES UNDER TCC extend not only to the provisions of the TCC but to
May either be: all other laws as well, the enforcement of which is 1. Subject to duty – entrusted to the BOC. a. Live animals and animal products; b. Vegetable products;
THE BUREAU OF CUSTOMS c. Animal or vegetable fats; oils and their
cleavage products; prepared edible fats; FUNCTIONS OF THE BUREAU OF CUSTOMS
animal or vegetable waxes; d. Prepared foodstuffs; beverages, spirits and
1. Assessment and collection of revenues from vinegar; tobacco and manufactured tobacc o imported articles and all other impositions under
substitutes; the tariff and customs laws; e. Mineral products;
2. Control smuggling and related frauds; f. Products of chemical or allied industries;
3. Supervision and control over the entrance and g. Plastics and articles thereof; rubber and
clearance of vessels and aircraft engaged in artic les thereof; foreign commerce;
h. Raw hides and skins; leather, etc.; 4. Enforcement of TCC and related laws;
i. Wood and articles of wood, etc.; 5. Supervision and control over the handling of j. Pulp of wood, etc.;
foreign mails arriving in the Philippines; k. Textiles and textile articles;
6. Supervise and cont rol all import and export l. Articles of stone; plaster, cement, etc.; cargoes for the protec tion of government
m. Footwear, headgear, etc.; revenue;
n. Natural or cultured pearls 7. Exclusive original jurisdiction over seizure and precious/semi-precious stones;
forfeiture cases under the tariff and customs o. Base metals and articles of base metals;
laws. p. Machinery and mechanical appliances; electric equipment; sound recorders, etc;
JURISDICTION OF COLLECTOR OF CUSTOMS OVER q. Vehicles, aircraft, vessels and associated
IMPORTATION OF ARTICLES transport equipment; 1. Cause all articles for importation to be entered in
r. Optical, photographic, medical, surgical the customhouse,
instruments, etc.; 2. Cause all such articles to be appraised and s. Arms, ammunition, parts and accessories;
classified, t. Miscellaneous manufactured articles; and
3. Assess and collect the duties, taxes and other u. Works of art, collector's pieces arid antiques charges thereon, and
(Sec. 104, Title 1, TCC). 4. Hold possession of all imported articles until the
duties, taxes and other charges are paid thereon. 2. Prohibited from being imported (Prohibited (Sec. 1206, TCC)
importation) a. Absolutely prohibited such as: weapons of
TERRITORIAL JURISDICTION OF THE BOC war; gambling devic es; narcotics or prohibited
1. All seas within the jurisdiction of the Philippines drugs; immoral, obscene or insidious articles;
2. All coasts, ports, airports, harbors, bays, rivers and those prohibited under special laws and inland waters whether navigable or not from
(Sec.102, TCC). the sea. (1 par, Sec. 603, TCC) st
b. Qualifiedly prohibited Where such conditions as to warrant a
CUSTOMS DUTIES lawful importation do not exist, the legal effects of the importation of qualifiedly prohibited articles are the same as those of WHEN TARIFF AND CUSTOMS APPLIED absolutely prohibited articles. (Auyong Hian Only after importat ion has begun but before vs. CTA, GR No. L-28782, September 12, 1974) importation is terminated.
3. Conditionally-free from tariff and customs Importation begins: duties (conditionally-free importation) 1) when the conveying vessel or aircraft
Those provided in Sec. 105, TCC; 2) enters t he jurisdiction of the Phil. 3) with intention to unload therein Those granted to government agencies,
GOCCs with agreements with foreign Importation is deemed terminated: countries;
Those given to international institutions (a) upon payment of the duties, taxes and other ent itled to exemption by agreement or charges due upon the articles. special laws; and
Those that may be granted by the President (b) and legal permit for withdrawal shall have been upon NEDA‘s recommendation. granted.
4. Free from TC duties (duty-free)
Imported goods must be entered in a I E MPORT NTRY customhouse at their port of ent ry otherwise It is a declaration to the BOC showing particulars they shall be considered as contraband and the of the imported article that will enable the customs importer is liable for smuggling (See Sec. 101, authorities to determine the correct duties. An TCC). importer is required to file an import entry. It must All articles when imported from any country be ac complished from disembarking of last cargo into the Philippines shall be subject to duty upon from vessel. each importation, even though previously export ed from the Philippines, exc ept as T RA NO. 8181 RANSACTION VALUE UNDER otherwise specific ally provided for in the TCC or It is the invoice value of the goods plus other laws. freight, insurance, cost s, expenses and other
necessary expenses. This replaces the Home L C D Consumption Value as basis of valuation of goods. IABILITY FOR USTOMS UTIES General Rule: All importations / exportations of goods are subject to customs duties (Sec. 105, TCC). CLASSIFICATION OF CUSTOM DUTIES
A. Regular Duties – those which are imposed and Exceptions: c ollected merely as a source of revenue.
(1) Exemptions under the TCC; 1. Ad valorem duty: This is a duty based on the (2) Exemptions granted to government agencies, value of the imported article.
inst rumentalities or GOCCs with existing 2. Specific duty: This is a duty based on the contracts, commitments, agreements, or dut iable weight of goods (either the gross obligations with foreign count ries; weight, legal weight, or net weight).
(3) Exemptions of international organizat ions 3. Alternating duties: This is a duty which pursuant to agreements or special laws; and alternates ad valorem and specific.
(4) Exemptions granted by the Pres. of the Phil. 4. Compound Duty: This is a duty consisting of upon recommendation of NEDA (Sec. 105, ad valorem and specific duties. TCC).
L B. Special duties – those which are imposed and IABILITY OF IM PORTER FOR CUSTOM DUTIES A personal debt which can be discharged only c ollected in addit ion to the ordinary customs
duties usually to protec t local industries against by payment in full thereof; foreign competition. A lien upon the imported artic les while they
are in custody or subject to the control of the 1. Dumping duty government . (Sec. 1204, TCC). 2. Countervailing duty 3. Marking duty ’ E O I L XTENT F MPORTER S IABILITY 4. Discriminatory duty The liability of an importer is limited t o the
value of the imported merchandise. In case of NATURE OF SPECIAL CUSTOMS DUTIES forfeiture of the seized material, the maximum c ivil
Special customs duties are additional import penalty is the forfeiture it self. (Mendoza vs. David, dut ies imposed on specific kinds of imported articles GR No. L-9452, March 27, 1961) under c ertain condit ions.
D RAWBACK PURPOSE OF SPECIAL CUSTOMS DUTIES A device resorted to for enabling a commodity
The special customs duties are imposed for affected by taxes to be exported and sold in foreign t he protection of consumers and manufacturers, as markets upon the same terms as if it had not been well as Phil. products from undue c ompetition posed taxed at all. (Uy Chaco Sons vs. Collector of Customs, by foreign-made products. GR No. 7618, March 27, 1913)
SPECIAL DUTIES COMPARED
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY DISCRIMINATORY DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon Imposed upon goods enjoying subsidy those n ot goods coming foreign products thus allowing them to properly marked from countries with value lower sell at lower prices to as to place of that discriminate than their fair the detriment of local origin of the against Philippine market value to the products similarly goods. products. detrime nt of local situated. products.
2. Amount/Rat e Equivalent to the 5% ad valorem Any amount not Difference between bounty, subsidy, or of articles exceeding 100% the actual price subvention. ad valorem of the and the normal subject articles value of the article.
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY DISCRIMINATORY DUTY
3. Imposing Authority Secretary of Finance Commissioner of President of the Special committee Customs Philippines on Anti-Dumping (composed of the Secretary of Finance as Chairman; Members: the Secretary of DTI, and eithe r the Secretary of Agriculture if article in que stion is agricultural product or the Secretary of labor if non- agricultural product
FLEXIBLE TARIFF CLAUSE b. The power of the President to The President may fix tariff rat es, increase or decrease the rates of
import and export quotas, etc. under import duty within the TCC (See Sec. 28, Art. VI, Constitution abovementioned limits fixed in the and Sec. 401, TCC) Code shall include the modification 1. to increase, reduce or remove in the form of duty .
existing protective rates of import In such a case the corresponding duty (including any necessary change ad valorem or specific equivalents of in classification). the duty with respect to the imports
The existing rates may be from the principal competing foreign increased or decreased to any level, country for the most recent on one or several stages but in no representative period shall be used case shall t he increased rate of as bases (Sec. 401, TCC) . import duty be higher than a maximum of one hundred (100%) per cent ad valorem
THE TARIFF COMMISSION (TC) 2. to establish import quota or to ban
imports of any commodity, as may FUNCTIONS OF THE TARIFF be necessary; and COMMISSION
3. to impose an additional duty on all 1. Investigative Powers (Sec. 505, imports not exceeding ten (10%) per
TCC) cent ad valorem whenever
a. the administration of and the necessary: fiscal and industrial effects of the tariff and customs laws of
LIMITATIONS IMPOSED REGARDING THE this country now in force or
FLEXIBLE TARIFF CLAUSE which may hereafter be enacted;
b. the relations between the rates a. Conduct by the Tariff Commission of
of duty on raw materials and the an investigation in a public hearing . finished or partly finished
The Commission shall also hear products; the v iews and recommendations of
c. the effects of ad valorem and any gov ernment office, agency or specific duties and of compound
instrumentality concerned. specific and ad valorem duties; The Commission shall submit
d. all questions relative to the their findings and recommendations
arrangement of schedules and to the NEDA within thirty (30) days
classification of art icles in the after the termination of the public
several schedules of the tariff hearings.
law; The NEDA thereaft er submits its
recommendation to the President.
e. the tariff relations between the jurisdiction or in the hands Philippines and foreign of a person who is aware countries, commercial treaties, thereof (Sec. 2531 & 2530, preferential provisions, TCC) economic alliances, the effect of under Sec. 2530(a) of the export bounties and preferential TCC , in order to warrant transportat ion rates; forfeiture, it is not necessary
f. the volume of importations, that the vessel or aircraft compared with domest ic pro- must itself carry the duction and consumption; contraband. The
g. conditions, causes, and effects complementary if collateral relating to competition of use of the Cessna plane for foreign industries with those of smuggling operation is the Philippines, including sufficient for it to be dumping and cost of product ion; deemed to have been used in and smuggling. (Llamado vs.
h. in general, to investigate the Commissioner of Customs, operation of cust oms and tariff GR No. L-28809, May 16, laws, including their relation to 1983) the national revenues, their 3. Reduction of customs duties / effect upon the industries and compromise labor of the country and to subject to approval of Sec. submit reports of its of Finance (Sec. 709, 2316 invest igat ion as provided. TCC)
2. Administrative Assistance to the 4. Seizure, Search, Arrest (Sec. President and Congress (Sec. 5 06, 2205, 2210, 2211 TCC) TCC)
B. JUDICIAL 1. this remedy is normally
availed of when t he tax lien is lost by the release of the goods TAX REMEDIES UNDER THE
Civil Action (Sec. 1204, TARIFF AND CUSTOMS CODE
TCC) (TCC) Criminal Action
TAX REMEDIES OF THE TAX REMEDIES OF THE TAXPAYER GOVERNMENT
A. ADMINISTRATIVE A. ADMINISTRATIVE 1. Protest
1. Tax Lien (Sec. 1204 TCC) a. Any importer or interested party if dissatisfied with attaches on the goods,
regardless of ownership, while published value within 15 days from date of still in the custody or control
of the Government publication, or within 5 days from the date the importer availed of when the is entit led to refund if importation is neither payment is rendered prohibited nor improperly erroneous or illegal by made events occurring after the 2. Administrative Fines and payment. Forfeitures
b. Taxpayer – within 15 days applied when the from assessment. Payment importation is unlawful, under protest is necessary. and it may be exercised even (Sec. 2308, 2210 TCC) where the articles are not or
2. Refund no longer in Custom‘s a. A written claim for refund custody
may be submit ted by the - unless the importation is importer in abat ement cases merely attempted in which on missing packages, case it may be effected only defic iencies in the contents while the goods are still of packages or shortages within the Customs before arrival of the goods in
the Philippines, articles lost A. CUSTOMS PROTEST CASES or destroyed aft er such arriv al, dead or injured D : These are cases which deal EFINITION animals, and for manifest solely with liability for customs duties, clerical errors; and fees, and other charges .
b. Drawback cases where the goods are re-exported (Sec. Note: Before filing a protest, there 1701-1708 TCC) . must first be a payment under protest.
3. Set tlement of any seizure by payment of fine or redemption W HEN CUSTOMS PROTEST APPLICABLE
But this shall not be allowed The customs protest is required to be in any case where
importation is absolutely filed only in case the liability of the prohibited, or the release taxpayer for duties, t axes, fees and
other charges is determined and the would be contrary to law, or when there is an actual and taxpayer disputes said liability. intentional fraud (Sec. 2307
W C NOT TCC) . HEN USTOMS PROTEST REQUIRED
Where there is no dispute, but the 4. Appeal claim for refund arises by reason of the Within 15 days to the happening of supervening events such as Commissioner after when the raw material imported is notification by Collector of utilized in the production of finished his decision (Sec. 2313 products subsequently exported and a TCC). duty drawback is claimed.
B. JUDICIAL R 1. Appeal EQUIREMENTS FOR MAKING A PROTEST
Within 30 days from receipt 1. Must be in writing of decision of the 2. Must point out the particular Commissioner or Secretary of
decision or ruling of the Collector of Finance to the division of the Customs to which exception is taken CTA (Sec. 2403 TCC, Sec. 7 or objection made; RA 1125, as amended by Sec.
3. Must state the grounds relied upon 9 RA 9282) for relief; Since Sec.11 of RA 1125 as
4. Must be limited to the subject amended by RA 9282 matter of a single adjustment; empowers the Tax Court to
5. Must be filed when the amount issue injunctions, it would claimed is paid or within 15 days appear that an importer may after the payment; appeal without first paying
6. Protestant must furnish samples of the duties, suc h as in goods under protest when required. seizure, but not in protest
cases. PROCEDURE IN CUSTOMS PROTEST 2. Action to question the legality CASES of seizure
3. Abandonment (Sec. 1801 TCC) The Collector acting within his a. expressly (Sec. 1801 TCC)
jurisdiction shall cause the imported b. impliedly – goods to be entered at t he customhouse c. failure to file an import
entry within 30 days from the discharge of The Collector shall assess, liquidate, and goods or collect the duties thereon, or detain the
d. having filed an entry said goods if the party liable does not fails to claim within 15 pay the same day s but it shall not be so effective until so
The party adversely affected (t he declared by the
protestant) may file a written protest on collector. (Sec. 1801, as
his foregoing liability with the Collector amended by RA 7651)
within 15 days after paying t he liquidated amount (the payment under
TWO KINDS OF PROCEEDINGS IN protest rule applies) THE BUREAU OF CUSTOMS (BOC)
Hearing within 15 days from receipt of SMUGGLING the duly present ed protest. Upon 1. An act of any person who shall:
termination of the hearing, the Collector a. Fraudulently import any article shall decide on the same within 30 days contrary to law, or
b. Assist in so doing, or c. Receive, conceal, buy, sell,
facilitate, transport, conceal or If decision is adverse to If decision is adverse to
sell such article knowing its the protestant the government
illegal importation (Sec. 3601, TCC)
d. Appeal wit h the Automatic Review by Export contrary to law. (Sec. Commissioner within the Commissioner 3514, TCC) 15 days from notice
2. The Philippines is divided into Automatic review by
various ports of entry – entry other the Secretary of Appeal with the Court t han port of entry, will be
Finance of Tax Appeals Division SMUGGLING. within 30 days from
notice PORT OF ENTRY A domestic port open to both If decision of
foreign and coast wise trade including Commissioner or Appeal wit h the airport of entry . (Sec. 3514, TCC) Secretary of Finance is CTA en banc ALL articles imported into the adverse to the Philippines whether subject to duty or protestant, he may
Appeal by c ertiorari not shall be entered through a appeal to the CTA and with the Supreme customshouse at a port of entry. SC under the same
Court within 15 days ENTRY: in Customs law means- procedure on the left. from notice 1. the documents filed at the
Customs house 2. the submission and
acceptance of the documents
R 3. the procedure of passing EASONS FOR THE AUTOMATIC REVIEW OF G goods through the customs DECISIONS ADVERSE TO THE OVERNMENT
house (Rodriguez vs. Court 1. To protect the interest of the of Appeals, GR No. 115218,
Government September 18, 1995) 2. A favorable decision will not be
appealed by the taxpayer and CONTRABAND: Articles of prohibited certainly a Collector will not importations or exportations. (Sec. 3514, appeal his own dec ision. TCC)
3. Lifeblood Theory
B. SEIZURE AND FORFEITURE CASES EVIDENCE FOR CONVICTION IN
D : These refer to mat ters SMUGGLING CASES EFINITION involving smuggling . It is administrative Mere possession of the article in and civ il in nature and is directed question - unless defendant could against the res or imported articles and explain that his possession is lawful to entails a determination of t he legality of the satisfaction of the court (Sec. 3601, their importation. These are actions in TCC). Payment of t he tax due after rem. apprehension is not a valid defense Thus, It is of no defense that the (Rodriguez vs. Court of Appeals, GR No. owner of the vessel sought to be 115218, September 18, 1995) forfeited had no actual knowledge that his property was used illegally. The THINGS SUBJECT TO CONFISCATION IN absence or lack of actual knowledge of SMUGGLING CASES such use is a defense personal to the Anything that was used for owner himself, which cannot in any way smuggling is subject to confiscation, like absolve t he vessel from the liabilit y of the vessel, plane, etc. (Llamado vs. forfeiture. (Commissioner of Customs Commissioner of Customs, GR No. L- vs. Manila Star Ferry, Inc., GR Nos. 28809, May 16, 1983). 31776-78, October 21, 1993)
Exception: Common carriers that are b. a pursuit of such vessel began not privately chartered cannot be within the jurisdictional waters confiscated. which
(i) may continue beyond the RIGHT OF CUSTOMS OFFICERS TO maritime zone, and EFFECT SEIZURE & ARREST (SEC. 2205) (ii) the vessel may be seized on 1. May seize any vessel, aircraft, cargo, the high seas.
article, animal or other movable property when the same is subject to 2. Over Imported Articles forfeiture or liable for any time as a. There is a violation of the tariff imposed under tariff and customs and customs laws laws, rules & regulations b. As a consequence they may be
2. May exercise such powers only in pursued in the Phil. conformity with t he laws and c. With jurisdiction over them at provisions of the TCC any place therein for the
enforcement of the law. (2 nd
par. Sec. 603, TCC) COMMON CARRIERS; FORFEITURE 1. Common carriers are generally not
subject to forfeiture although if the REGIONAL TRIAL COURTS (RTC) owner has knowledge of its use in
VS. smuggling and was a consenting BUREAU OF CUSTOMS (BOC) party, it may also be forfeited.
2. If a motor vehicle is hired to carry The RTCs do not have jurisdiction smuggled goods but it has no over seizure and forfeiture Certificate of Public Convenience proceedings conducted by the BOC (CPC), it is not a common carrier. It and to interfere with these is thus subject to forfeiture, and proceedings. The Collector of lack of personal knowledge of the Customs has exclusive jurisdiction owner or the carrier is not a defense over all questions touching on the to forfeiture. seizure and forfeiture of dutiable goods. PROPERTIES NOT SUBJECT TO No petitions for certiorari, FORFEITURE IN THE ABSENCE OF PRIMA prohibition or mandamus filed with FACIE EVIDENCE t he RTC will lie because these are in The forfeiture of the vehicle, vessel reality attempts to review the or aircraft shall not be effected if it is Commissioner's actuations. Neither established that t he owner thereof or his replevin filed with the RTC will agent in charge of the means of issue. Rationale: Doctrine of conv eyance used as aforesaid has no Primary Jurisdiction. knowledge of or participation in the
unlawful act : Even if a Customs seizure is illegal, Provided , however, that a prima exclusive jurisdiction (to the
exclusion of regular courts) still facie presumption shall exist against the vessel, vehicle or aircraft under any of belongs to the Bureau of Customs the following circumstances: (Jao v. Court of Appeals, GR No.
104604, October 6, 1995). 1. If the conv eyance has been used for smuggling at least twice
GOODS IN CUSTOM’S CU STODY BEYOND before; 2. If the owner is not in the REACH OF ATTACHMENT
business for which the Goods in the custom‘s cust ody pending payment of customs duties are conv eyance is generally used;
and beyond the reach of attachment. As long as the importation has not been 3. If the owner is financially not in
a position to own such terminated, t he imported goods remain conv eyance. under the jurisdiction of the Bureau of
Customs. (Viduya vs. Berdiago, GR No. DOCTRINE OF HOT PURSUIT L-29218, October 29, 1976) Requisites: 1. Over Vessels ADMINISTRATIVE AND JUDICIAL
a. An act is done in Phil. Waters PROCEDURES RELATIVE TO CUSTOMS whic h constitutes a violation of SEIZURES AND FORFEITURES the tariff and customs laws
Determination of probable cause and issuance of warrant
importation or exportat ion of merchandise.; and Actual seizure of the articles
2. That such declaration, affidavit, invoice, letter or paper is false.
Listing of description, appraisal and (Farolan, Jr. vs. Court of Tax classification of seized property Appeals, GR No. 42204, January 21,
1993) Report of seizure to the Comm. of
PLACES WHERE SEARCHES & SEIZURES Customs and the Chairman, Comm. on Audit MAY BE CONDUCTED
(a) enclosures (b) dwelling house (there must be Issuance by the Collect or of a
search warrant issued by a judge) warrant of detention (c) vessels or aircrafts and persons
or articles conveyed therein Notification to owner or import er (d) vehicles, beasts and persons
(e) persons arriving from foreign Formal hearing countries.
Note: Burden of proof in seizure or District collector renders his forfeiture is on the claimant. (Sec. decisions 2535, TCC)
REQUIREMENTS FOR MANIFEST If decision is not If decision is not A manifest in coast wise trade for favorable to the favorable to the cargo and passengers transported from
aggrieved owner or government one place or port in the Philippines to importer another is required when one or both of
such places is a port of entry (Sec. 906, TCC). Manifests are also required of Appeal by the Automatic Review vessel from a foreign port (Sec. 1005, aggrieved owner or by the
importer Commissioner TCC).
IS MANIFEST REQUIRED ONLY FOR PERSONS HAVING POLICE AUTHORITY IMPORTED GOODS? TO ENFORCE THE TARIFF & CUSTOMS NO. Articles subject to seizure LAWS AND EFFECT SEARCHES, do not hav e to be imported goods. SEIZURES AND ARRESTS (SEC. 2203, Manifests are also required for articles TCC) found on vessels or aircraft engaged in 1) officials of the BOC, district coastwise t rade. (Rigor vs. Rosales, GR collectors, police officers, agents, No. L-33756, October 23, 1982) inspectors, and guests of the BOC; 2) officers of the Phil. Navy and other UNMANIFESTED CARGO IS SUBJECT TO members of the AFP and national law FORFEITURE whether the act of enforcement agencies when authorized smuggling is established or not under the by the Commissioner of Customs princ iple of res ipsa loquitur . It is 3) officials of the BIR on all cases falling enough that the cargo was unmanifested within the regular performances of their and t hat there was no showing that duties, when the payment of internal payment of duties thereon had been taxes are involved; made for it to be subject to forfeiture. 4) officers generally empowered by law to effect arrest s and execute processes
SETTLEMENT OF FORFEITURE CASES of courts, when acting under the General Rule: Settlement of cases by direct ion of the Collector. payment of fine or redemption of
forfeited property is allowed. REQUIREMENTS FOR CUSTOMS FORFEITURE
Exceptions: 1. The wrongful making by the owner, 1. the importation is absolutely
importer, exporter or consignee of prohibited or any declaration or affidavit, or the 2. the surrender of the property to wrongful making or delivery by the the person offering to redeem same persons of any invoice, letter
would be cont rary to law, or or paper - all touching on the 3. when there is fraud. (Sec. 2307,
TCC)
(RA 1125 as amended
by RA 9282)
ACQUITTAL IN CRIMINAL CHARGE NOT See ANNEX O for comparison of CTA RES JUDICATA IN SEIZURE OR as created by RA No. 1125 and the FORFEITURE PROCEEDINGS amendments made by RA No. 9282. Reasons: 1) Criminal proceedings are actions in
personam while seizure or forfeiture NATURE AND POWERS proceedings are actions in rem .
2) Customs compromise does not ELEVATION OF RANK extinguish criminal liabilit y. (People
shall be of t he same lev el as the vs. Desiderio, GR No. L-208005, Court of Appeals, possessing all the November 26, 1965)
inherent powers of a Court of Justice
Note: At any time prior to t he sale, the COMPOSITION delinquent importer may settle his
Consists of a Presiding Justice and obligat ions with the Bureau of Cust oms,
five (5) Associate Just ices in which case the aforesaid articles may
May sit en banc or in t wo (2) be delivered upon payment of the
Divisions, each Division consisting of corresponding duties and taxes and
three (3) Justices. The Presiding compliance with all other legal
Justice and the most Senior requirement s (Sec. 1508, TCC)
Associate Just ice shall serve as chairmen of the two divisions
ABATEMENT The reduction or non-imposition of
QUORUM customs duties on certain imported
Four (4) Justices shall constitut e a materials as a result of:
quorum for sessions EN BANC . 1) Damage incurred during voyage;
Two (2) Justices for sessions of a 2) Deficiency in content s packages DIVISION . 3) Loss or destruction of articles
PROVIDED: in case the required quorum after arrival
cannot be had due to any vacancy, 4) Death or injury of animals disqualification, inhibition, disability, or any other lawful cause, the Presiding FRAUDULENT PRACTICES CONSIDERED Justice shall designate any Justice of AS CRIMINAL OFFENSES AGAINST other Divisions of the Court to sit
CUSTOMS REVENUE LAWS temporarily therein . 1) Unlawful importation;
2) Entry of imported or exported article POWERS by means of any false or fraudulent
1. to administer oaths; practices, invoice, declaration, 2. to receive ev idence;
affidavit, or other document s; 3. to summon witnesses by 3) Entry of goods at less than their true
subpoena; weights or measures or upon a
4. to require production or papers classification as to quality or value;
or documents by subpoena duces 4) Payment of less than the amount tecum ;
due; 5. to punish contempt; 5) Filing any false or fraudulent claim 6. to promulgate rules and for the payment of drawback or
regulations for the conduct of its refund of dut ies upon the
business; exportation of merchandise; or 7. to assess damage against 6) Filing any affidav it, c ertificate or
appellant if appeal to CTA is other document to secure to himself found to be frivolous or dilatory; or others t he payment of any
8. to suspend t he collec tion of the drawback, allowance or refund of
tax pending appeal; and duties on the exportation of mdse. 9. to render decisions on cases
greater than that legally due brought before it
thereon. (Sec. 3602, TCC) 10. to issue order authorizing
distraint of personal property and levy of real property
VI. COURT OF
TAX APPEALS
DISTRAINT OF PERSONAL PROPERTY other money charges, AND LEVY OF REAL PROPERTY seizure, detent ion or release
Upon the issuance of any ruling, of property affected, fines, order or decision by the CTA favorable to forfeitures or other the national government, the CTA shall penalties in relation issue an order authorizing the BIR, thereto, through the Commissioner: 2. or other matters arising
under the Customs Law or 1. to seize and distraint any goods, other laws administered by
chattels, or effects and the personal the Bureau of Customs; property, including stocks and other (e) Decisions of the Central Board securities, debts, credit s, bank of Assessment Appeals
– in the exercise of its appellate accounts, and interest s in and rights to personal property and/or jurisdiction over cases involving
2. levy the real property of such the assessment and taxation of persons in sufficient quantit y to real property originally decided satisfy the tax or charge together by the provincial or city board of with any increment thereto inc ident assessment appeals; to delinquency. (f) Decisions of the Secretary of
Finance – on customs cases elevated to This remedy shall not be exclusive
and shall not preclude the Court from him automatically for review availing of other means under the Rules from decisions of the of Court. Commissioner of Customs which
are adverse to the Government JURISDICTION under Section 2315 of the Tariff
and Customs Code; (g) Decisions of the Secretary of I. EXCLUSIVE APPELLATE JURISDICTION
Trade and Industry in the case TO REVIEW BY APPEAL of nonagric ultural product, commodity or article, and the (a) Decisions of the Commissioner Secretary of Agriculture in the of Internal Revenue case of agricultural product, 1. in cases involving disputed commodity or article, assessments, refunds of – involving dumping and internal revenue taxes, fees countervailing duties under Secs. or other charges, penalties 301and 302, respectively, of the in relation thereto, Tariff and Customs Code, and 2. or other matters arising safeguard measures under RA under the NIRC or other laws No, 8800, where either party administered by the BIR; may appeal the decision to (b) Inaction by the Commissioner of impose or not to impose said Internal Revenue duties. 1. in cases involving disputed
assessments, refunds of II. JURISDICTION OVER CASES internal revenue taxes, fees
INVOLVING CRIMINAL CASES or other charges, penalties in relation thereto,
(a) Exclusive original jurisdiction 2. or other matters arising over all criminal cases arising from under the NIRC or other laws violations of the NIRC or Tariff and administered by the BIR, Customs Code and other laws where the NIRC provides a administered by the BIR or the specific period for action, in Bureau of Customs whic h case the inaction shall
Provided however, w here the be deemed a denial; principal amount of taxes and (c) Decisions, orders or resolutions fees, exclusive of charges and of the RTC penalties claimed is less than – in local tax cases originally one million pesos (P1, 000, 000. decided or resolved by them in 00) or where there is no the exercise of their original or specified amount claimed - the appellate jurisdiction; offenses or penalties shall be (d) Decisions of the Commissioner tried by the regular courts and of Customs the jurisdict ion of t he CTA shall 1. in cases involving liability be appellate. for customs duties, fees or
Any provision of law or the Rules orders of the RTC in the exerc ise of their appellate jurisdiction of Court to the contrary over tax collection cases notwithstanding, the criminal originally decided by the action and the corresponding Metropolitan Trial Courts, civil action for the recovery of
civil liability for taxes and Municipal Trial Courts and Municipal Circuit Trial Courts, in penalties shall at all times be
simultaneously instituted with, their respective jurisdiction. and jointly determined in the same proceeding by the CTA, In criminal and collection cases, the the filing of t he criminal action Government may directly file the being deemed to necessarily said cases with the CTA covering carry with it the filing of the amounts within its exclusive and civil action, and no right to original jurisdiction. reserve the filing of such civil action separately from the See ANNEX P – Comparative criminal action will be Diagrams on CTA jurisdiction. recognized.
(b) Exclusive appellate jurisdiction in criminal offenses
“O ” Over appeals from the M THER ATTERS judgments, resolutions or orders Those controversies which can be of the RTC in tax cases originally considered within t he scope of the decided by them, in their function of the BIR / BOC under ejusdem respective t erritorial generis rule (e.g. action for the nullity of jurisdict ion. distraint and levy; questioning the
propriety of the assessment; collection Over petitions for review of the of compromise penalties). judgments, resolutions, or
orders of the RTC in the exercise of their appellate jurisdiction APPEAL over tax cases originally decided by the Metropolitan Trial Courts, W HEN Municipal Trial Courts, and Within 30 days after the receipt of Municipal Circuit Trial Courts in such decision or ruling or after the their respective jurisdiction. expiration of the period fixed by law for
action. III. JURISDICTION OVER TAX
COLLECTION CASES M A ODES OF PPEAL (a) Exclusive original jurisdiction
(1) By filing a petition for review under in tax collection cases involving a procedure analogous to that final and executory assessments provided for under Rule 42 of 1997 for taxes, fees, charges and Rules on Civil Procedure penalties.
decision, ruling, or inaction of In collection cases where the the Commissioner of Internal principal amount of taxes and Revenue , Commissioner of fees, exclusive of charges and Customs , the Secretary of penalties, claimed is less than Finance , the Secretary of Trade one million pesos (P 1, 000, 000. and Industry or the Secretary of 00) – shall be tried by the proper Agriculture or t he Regional Trial Municipal Trial Court , Courts Metropolitan Trial Court , and
this appeal shall be heard by a Regional Trial Court .
Division of the CTA (2) By filing a petition for review under
(b) Exclusive appellate jurisdiction a procedure analogous to that
in tax collection cases provided for under Rule 43 of 1997
Over appeals from the Rules on Civil Procedure judgments, resolutions or orders
decisions or rulings of the of RTC in tax collection cases Central Board of Assessments originally decided by them, in
Appeals and the Regional Trial their respective t erritorial Courts in the exercise of its jurisdiction.
a ppellate jurisdiction Over petitions for review of the judgements, resolutions or
this appeal shall be heard by the Commissioner must stat e that his decision is final, for period of appeal CTA en banc. to run.
P Final dec ision cannot be implied ROCEDURE from issuance of warrant of dist raint A. Any party adversely affected by a
ruling, order or decision of a Division and levy, unless it is issued after a of the CTA may file a motion for request for reconsideration. reconsideration or new trial before GENERAL RULE: New issues cannot be the same Division within 15 days raised for the first time on appeal. from notice
EXCEPTIONS: a. Defense of prescription
Reason: This is a statutory right. (Visayan Land Transportation vs.
B. Any party adversely affected by a Collector) resolution of a Division of the CTA on b. Errors of administrative officials a motion for reconsideration or new Reason: State can never be in
estoppel and lifeblood theory. trial may file a petition for review with t he CTA en banc. (Commissioner vs. Procter and
Gamble Phils. Mfg. Corp, GR No. C. Any party adversely affected by a 66838, April 15, 1988)
decision or ruling of the CTA en banc NOTE: However, t his was reversed in may file with t he Supreme Court a Supreme Court ‘s subsequent resolution verified pet ition for review on wherein it was held that in the absence certiorari pursuant to Rule 45 of the
1997 Rules on Civil Procedure. of explicit statutory provisions to the contrary, t he Government must follow
T (30) P P the same rules of procedure which bind HIRTY DAY RESCRIPTIVE ERIOD FOR A private parties. (Commissioner vs. PPEAL Starts to run from the date the Procter and Gamble, GR No. 66838,
December 2, 1991, Resolution) taxpayer receives the appealable decision . If the taxpayer‘s request f or reconsideration (i.e., the protest is T N S AX COLLECTION OT USPENDED DURING denied or the original assessment is A PPEAL maintained, the appealable decision is
General Rule: No appeal taken to the the decision denying the request for reconsideration. CTA shall suspend the pay ment, levy or
distraint, and/or sale of any property of The said period is jurisdictional and non-extendible . Requests or motions for the taxpayer. reconsideration, however, operate to suspend the running of the period to Exception: The CTA is empowered to appeal. A pro forma request for suspend the collect ion of internal reconsideration or one which is directed revenue taxes and custom duties only
when there was a – to the Secretary of Finance does not suspend the running of the 30-day c) showing that collection of the tax
may jeopardize the interest of the reglementary period. government and / or the taxpayer;
O A F D I A T d) deposit of the amount claimed or NLY INAL ECISION S PPEALABLE O file a surety bond for not more T C O T A HE OURT F AX PPEALS than double the amount of tax with the Court when required; and Preliminary collection letters, post
e) showing by taxpayer that appeal is reporting notices and pre-assessment notices are not appealable, because not frivolous nor dilatory. they are not the final decision of the
C T CTA E C T ? Commissioner. AN HE NJOIN OLLECTION OF AXES An assessment can be appealed if taxpayer does not seek a Sec. 11 of RA No. 1125 as amended reconsideration. by Sec. 9 of RA No. 9282 grants CTA At t imes there is an exchange of power to suspend collection of tax if communications bet ween t axpayer such collection works to serious
prejudice of either taxpayer or and Commissioner states t hat his action is final, then, period for government. appeal begins to run. However, Sec. 218 of the Tax Code
provides no court may grant
injunction to restrain collection of D : The value-added tax is an EFINITION any t ax, fee or charge imposed by indirect tax and the amount of tax may Tax Code. be shifted or passed on to the buyer,
transferee or lessee of the goods, The provision in Tax Code refers to propert ies or services. This rule shall courts other than the CTA. (Blaquera
vs. Rodriguez, GR No. L-11295, likewise apply to existing contracts of sale or lease of goods, properties or March 29, 1958) services at the time of the effectivity of Appeal to the CTA does not Republic Act No. 7716. automatically suspend collection
unless CTA issues suspension order at VAT replaced Sales Tax as imposed by any stage of proceedings. previous Tax Laws.
S IMULTANEOUS FILING OF AN APPLICATION FOR H : ISTORY REFUND OR CREDIT AND INSTITUTION OF A CASE
a. Executive Order No. 273 CTA BEFORE THE ALLOWED b. Republic Act No. 7716 c. Republic Act No. 8241 The law fixes the same period of d. Republic Act No. 8424 (took two (2) years for filing a claim for refund
effect on 1 January 1998) with the Commissioner and for filing a case with the CTA. The two-year period
T C B VAT: for both starts from the date after the RANSACTIONS OVERED Y 1. Sale of Commodities or Goods (in payment of the tax or penalt y, or from
the course of trade or business the approval of the application for only) credit .
2. Sale of Services (in the course of trade or business only) Observation: If we are not going to
3. Exportation (in the course of allow the taxpayer to file a refund trade or business only) before the CTA and let him wait for the
4. Importation ( whether or not in CIR‘s decision, and the latter failed to the course of trade or business) render a decision within the 2-year
period, the said taxpayer can no longer P L F V file a refund before the CTA bec ause his ERSONS IABLE OR AT Any person who, in the course of right to appeal has prescribed. trade or business, sells barters, exchanges, leases goods or properties, W D CTA EIGHT OF ECISION OF renders services, and any person who imports goods shall be subject to the Decisions of Tax Court have value-added t ax (VAT) imposed in persuasive effect and may serve as Sections 106 to 108 of the National judicial guides. They have more Internal Revenue Code. persuasive value than BIR Rulings.
CTA‘s findings of fact are entitled to “IN THE COURSE OF TRADE OR the highest respect. (Raymundo vs. BUSINESS” de Joya, GR No. L-27733, December The regular c onduct or pursuit of a 3, 1980) commercial or an economic activity, The Supreme Court will not set aside including transactions incidental conclusions reached by Tax Court thereto, by any person regardless of which by the very nature of its whether or not the person engaged function, is dedicated exclusively to therein is a non-stock, nonprofit private the consideration of tax problems organization (irrespective of the and has developed an expertise on disposition of it s net inc ome and the subject, unless there has been whether or not it sells exclusively to an abuse or an improvident exerc ise members or their guests), or government of authority on its part. entit y. (Commissioner vs. Court of Appeals
& Atlas Consolidated, GR No. 86785, Therefore if the disposition of goods November 21, 1991) or services is NOT in the course of trade
or business then it is not subject to VAT;
VII.VALUE–ADDED TAX with the exception of importation of course.
(VAT) The rule of regularity, to the
TITLE IV OF NIRC contrary notwithstanding, services as defined in this Code rendered in the Philippines by non-resident foreign
persons shall be considered as being establishment for 5 days as provided in course of trade or business. Section 115(b).
Importation is subject to VAT Exception: It does not apply to an
regardless of whether or not it is in the exporter who fails to register. The effect
course of trade or business is, instead of treating the transaction as
The reason for the rule is t o protect zero-rated (0%), it is treated as an our local or domestic goods or articles exempt transaction. and to regulate the entry or introduction of foreign articles to our local market. What is the difference? In zero-rated Regulation is one of the purposes of (0%) transactions, tax credit is available. Taxation. However, in exempt transactions, tax
credit is not available.
Tax Rates: 1. 10% - the rate used in sale of
EXEMPT TRANSACTIONS (SECTION 109): commodities and goods, sale of 1. In Section 109(a) and (c), food and services, and importation.
non-food product s are VAT-exempt 2. Zero-rated (0%) - the rate used in as long as these products are in its exportation. original state . The simple process of preparation or preservation for the market such as freezing, drying, MANNER OF COMPUTING THE VAT: salting, broiling, roasting, smoking, A. 10% rate of Tax or stripping does not remove the product from its cat egory of being in 1. In sale of commodities and goods, its original state. 10% is multiplied with the Gross However, even if the products were Selling Price. no longer in its original state, it can 2. In sale of services, 10% is multiplied still be VAT-exempt under Section with t he Gross Receipts. 109(r), if sold by agricultural 3. In importation, 10% is multiplied cooperat ives duly registered by with the rat es used by the Bureau of Cooperative Development Authority. Customs in imposing tariff and
2. Under Section 109(m), private customs duties plus customs duties, educational institutions are exempt excise taxes, if any, and other from VAT if duly accredit ed by the charges, suc h tax to be paid by the DECS or by the CHED. In case of importer prior to the release of such government educational institution, goods from customs custody: no accreditation is required. Provided, That where the customs
duties are determined on the basis 3. Transactions in the field of Arts are of the quantity or volume of the
VAT-exempt only, as provided in goods, t he value-added tax shall be Section 109(n), if the seller is the based on the landed cost plus excise artist himself or the art ist‘s services taxes, If any. customs duties. performed for the production of such works. B. Zero-rated (0%) rate of tax
4. Section 109(p) makes Regional or 1. Export Sales as provided in Section Area Headquarters exempt from 106(A)(2)(a) VAT. 2. Foreign Currency Denominated Sale
as provided in Section 106 (A)(2)(b) 5. Under Section 109(w) in order for 3. Sale to persons or entities whic h is
t he sale or lease of real property to VAT exempt under special laws or be exempted from VAT, the international agreements to which t ransaction must NOT be conducted the Philippines is a signatory as in the ordinary course of trade or provided in Sect ion 106 (A)(2)(c) business. It complements Section 4. Transact ions subject to zero-rated 106(A)(1)(a) where it states that in (0%) as provided in Section 108(B) order for the sale or lease of real property to be covered by VAT, it REGISTRATION UNDER THE VAT SYSTEM must be made in the ordinary course (SECTION 236 OF THE NIRC) of trade or business.
General Rule: Failure to register is 6. Revenue Regulations No. 6-97 adds a subject to temporary closure of the
requirement in order for the lease of
residential units wit h a monthly rental of not more than P8,000.00, Example: the total amount indicated in as provided in Section 109(x), to be the invoice is P110. P110/11 = P10. P10 VAT exempt, that the annual gross is the amount of VAT. receipts must not exceed P550,000.00. TAX CREDIT AND REFUND
7. Section 109(z) provides that the sale Formula for Tax Credit: or lease of goods or performances of Output services other than those mentioned Less: Input in the preceding paragraphs are VAT VAT due. exempt if the Gross Annual Receipts do not exceed P550,000.00. If Input is greater than Output, Tax However, the limitation of Credit is available. P550,000.00 does apply for those transactions from Section 109(a) to (y), except (x) because Revenue "INPUT TAX" means the value-added tax Regulations No. 6-97 imposes a due from or paid by a VAT-registered P550,000.00 limitation. person in the course of his trade or
business on importat ion of goods or local purchase of goods or services, including In cases of tax-free importat ion of
goods into the Philippines by lease or use of property, from a VAT- persons, ent ities or agencies exempt registered person. It shall also include from tax where such goods are the transitional input tax determined in subsequently sold, transferred or accordance with Section 111 of the NIRC. exchanged in the Philippines to non- exempt persons or entities, the "OUTPUT TAX" means the value-added purchasers, transferees or recipients tax due on the sale or lease of taxable shall be considered the importers goods or properties or services by any thereof, who shall be liable for any person registered or required to regist er internal revenue tax on such under Section 236 of the NIRC. importation. The tax due on such importation shall constitute a lien on If at the end of any taxable quarter the goods superior to all charges or t he output tax exceeds the input liens on the goods, irrespective of t ax, the excess shall be paid by the the possessor thereof. VAT-registered person. If the input
t ax exceeds the output tax, the TRANSACTIONS DEEMED SALE: excess shall be carried over to the
succeeding quarter or quarters. Any The following transactions shall be input tax attributable to the deemed sale therefore making them purchase of capital goods or to zero- covered by VAT: rated sales by a VAT-registered
person may at his option be (1) Transfer, use or consumption not in refunded or credited against other the course of business of goods or internal revenue taxes, subject to properties originally intended for sale or t he provisions of Section 112. for use in the course of business; (2 ) Distribution or transfer to:
(a) Shareholders or investors as OPTIONS OF A TAXPAYER AS PROVIDED share in the profits of the VAT-regist ered IN SECTION 112: persons; or 1. to claim for tax credit ; or
(b) Credit ors in payment of debt; 2. to claim for refund (3) Consignment of goods if actual sale is not made within sixty (60) days following The claim, which must be in writing, the date such goods were consigned; and for both cases, must be filed wit hin 2 (4) Retirement from or cessation of years after the close of the taxable business, with respect to inventories of quarter when the sales were made for: taxable goods existing as of such a) the issuance of a tax credit retirement or cessat ion. certificate; b) refund of creditable input
tax due or paid attributable to such How to determine the VAT: The tax sales. shall be computed by multiplying the total amount indicated in the invoice by HOW TO DETERMINE CREDITABLE INPUT one-elev enth (1/11). TAX
The sum of the excess input tax carried over from the preceding month or quarter and the input tax credit able to a VAT-regist ered person during the taxable month or quarter shall be reduced
reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowanc es and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of Internal Revenue but also those filed with other government agencies, suc h as the Board of Investments or the Bureau of Customs.
The Commissioner within 120 days, in proper cases, from the date of submission of complet e documents in support of the application shall grant a refund or issue the tax credit certificate for credit able input taxes.
Remedy in case of full, or partial denial, or failure on the part of the Commissioner to act upon the application for tax credit or refund: the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred t wenty day-period, appeal the decision or the unacted claim with t he Court of Tax Appeals.
RETURN AND PAYMENT OF VAT
Every person liable to pay the value- added tax shall file a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT- registered persons shall pay the value- added tax on a monthly basis.
Any person, whose regist ration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within 25 days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the t axpayer for his principal place of business or head office and all branches.
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