taxation+2+notes.pdf

TAXATION2(ATTY.GONZALES) 1

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ESTATETAX

NatureofEstateTax

• Leviedonthegratuitoustransferofone’spropertyuponone’sdeath• Imposedontherightofapersontotransferhispropertiestohisheirsor

successorsuponhisdeath• Imposeduponthe rightorprivilege to transferpropertiesasa resultof

theowner’sdeath• Impositionatthetimeoftransferofpropertiesleftbythedecedenttohis

heirsBasisofEstateTax

• Objectof theestate tax is to tax the transferofeconomicbenefits andenjoymentofpropertiesfromadecedentpersontotheheir

JustificationofEstateTax

• RedistributionofWealthTheory1. Inheritance received by the heir contributes to the unequal

distribution of wealth and earnings because the heir hasn’tactuallyworkedforit

2. Impositionofestatetaxhelpsdistributesomeoftheeconomicbenefitswhichshouldhavebeensolelyenjoyedbytheheirs

• BenefitReceivedTheory1. Governmentprovidesservicesforthetransferoftheestateof

thedecedent,eitherbylaworbywill2. It is therefore fair that the government collects its equivalent

compensation in protecting individual persons and propertiesandrights

• PrivilegeorStatePrivilegeTheory1. State is a passive and silent partner in the accumulation of

wealthasitsprotectionforanindividualwithinitsterritory2. Ithastherighttocollectthesharewhichispropertyduetoit

• AbilityToPayTheory1. Every inheritance received by a heir is in the nature of

unearnedwealthEffectivityofthetransferofproperties

• Rightofsuccessioniseffectedfromthemomentofdecedent’sdeath• Construedthat thepropertiesandrightsofdecedentare transferred to

hissuccessorattimeofhisdeathwithoutanyinterruption

LORENZOV.POSADAS64PHIL383

FACTS:Hanleydiedand left property forhis nephew. Itwas indicated that thenephewwouldhavepossessionandownershipofthepropertyonlyafter10yearsfromthedeathofHanley. TheBIRassessed thenephewforestate tax,counting fromthedateofdeathofHanley.Thenephewquestionedthis,averringthatheshouldbeassessed instead from theperiodwhenhegetspossessionandownershipof theproperty.HELD:1. The accrual of the inheritance tax is distinct from the obligation to pay the

same. This tax is imposed on every transmission by virtue of inheritance,devise, bequest, giftmortis causa, or advance in anticipation of inheritance,deviseorbequest. Thetaxtherefore isupontransmissionorthetransferordevolutionofpropertyofadecedent,madeeffectivebyhisdeath.

2. Ifdeathisthegeneratingsourcefromwhichthepowerofthestatetoimposeinheritancetaxestakesitsbeingandifupondeathofthedecedent,successiontakesplaceandtherightofthestatetotaxvestsinstantly,thetaxshouldbemeasuredbythevalueoftheestateasitstoodatthetimeofthedecedent’sdeath, regardless of any subsequent contingency affecting value or anysubsequentincreaseordecreaseinvalue.

2 MARCOSV.COURTOFAPPEALS 5JUNE1997

GROSSESTATE

GrossEstate

• Consists of all property owned by the decedent at the time of death,including stocks, real estate, mortgage, and any other property thattechnicallybelongedtohim


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• Itshallnotincludeexclusivepropertiesofsurvivingspouse• To be reduced by decedent’s debt, funeral expenses, share of the

surviving spouse, and other permissible deductions to arrive at nettaxableestate

Rules:citizensand/orresidentsofthePhilippines&non‐residentaliens

• For decedent citizens or resident aliens: real and personal propertieswhereverlocated

• Fornon‐residentaliens:onlypropertieslocatedwithinthePhilippines• Real property, tangible personal property and intangible personal

property• The following shall be considered as personal property within the

Philippines—o FranchiseswhichmustbeexercisedinthePhilippines;o Shares of stocks, bonds and other instruments of obligations

issuedbyadomesticcorporation;o Shares of stock, bonds, and other instruments of obligations

issuedbya foreigncorporationwhose85%of itsbusinessareconductedinthePhilippines;

o Shares,obligations,orbondsissuedbyanyforeigncorporationifsuchacquiredbusinesssitusinthePhilippines;

o Sharesorrightsinapartnership,businessorindustrylocatedinthePhilippines

ValuationOfTheGrossEstate

• Grossestateofthedecedentshallbeappraisedatthetimeofdeathsincethetransferofpropertiesfromthedeadtothelivingtakeseffectatthemomentofdeath

AdditionstoGrossEstate

1. Decedent’sinterestaccruedatdateofdeath2. Transfersincontemplationofdeath3. Revocabletransfers4. Propertypassingundergeneralpowerofappointment5. Proceedsoflifeinsurancewithrevocablebeneficiary6. Transfersforinsufficientconsideration7. Priorinterests

GROSSESTATEADDITIONSTOTHEGROSS

ESTATEDEFINITION ADDITIONALINFORMATION

Decedent’sinterest • Person’s estate, the wealth that would have enjoyed, possessed, anddisposed,hadhelived

• Valueofanyinterestinpropertyorrightsaccruedinfavorofdecedentonorbeforehisdeathwhichhavebeenreceivedonlyafterhisdeath

o Dividendsdeclaredonorbeforehisdeathandreceivedbyestateaftersaidperson’sdeath

o Partnershipprofitsearnedprior todeathofpartnerbut receivedbyestateafterdeath

o Accrued interests and rents on or before time of death butcollecteduntilafterdeath

Transfersincontemplationofdeath

• Anticipationofdeath• There’stransferincontemplationofdeathwhenthefollowinginstancesare

present:1. Whilestillliving,thedecedenttransferredhispropertyinfavorof

anotherpersonbutthetransferwas intendedtotakeeffectonly

Note: Thereisnocontemplationofdeathforsaleforanadequateconsideration.Isthissituationatransferincontemplationofdeath:hewas informed that he only had sixmonths to live. He


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uponformer’sdeath2. Bygiftintendedtotakeeffectafterdeath,orafterdeath,orunder

which donor reserved the income or the right to designate thepersonswhoshouldenjoytheincome

• Followingtransfersareheldtobeincontemplationofdeath:

1. Whereadonationwasmadeconcurrentlywiththeexecutionofawill

2. Where a donation was made to the decedent’s age and/or thedecedent’sknownseriousillnessatthetimeofthegift

3. Wherethetimebetweenmakingthegiftanddeathofdonorwasrelativelyclose

then gave his properties to his children. But then, heoutlivedthe6‐monthperiod.It is still a transfer in contemplation of death becausewhatmatters is the stateofmindof thedonorwhenhemade thedonationor conveyance. In this case,he tookconsideration of the serious illness he was informedabout.Xdonated a property to his brotherwith the conditionthatthebrothercannotdisposeofthepropertywhileXwas still living. Is this a transfer in contemplation ofdeath?YesThere is a transfer in contemplation of death when thedecedent,while still living,he transferredhisproperty infavorofanotherpersonthatthetransferwasintendedtotakeeffectonlyupontheformer’sdeath

Revocabletransfers • Transfer of property with retention or reservation of rights over thepropertyofthedonorwhilehestilllives

1. Bygift,wherethedonorhasreservedthepowertoalter,amend,andrevokedonation

2. The donor retains the option to relinquish such power incontemplationofdeath

• If theenjoymentof theproperty transferred todecedent is subject at thedateof his death to any change through the exerciseof a power to alter,amend,or revokeor terminate the transfer, the transferredproperty is tobeincludedinthedecedent’sestate.

• Ownershipstillisretainedbythedecedent• Eveniftheownerdidn'texercisethepowerofrevocation,itisdeemedtobe

exercisedatthemomentofhisdeath

Isthepropertystillpartofthegrossestate:XlendAanexpensivepainting for50years. X informedA that ifYasksforthepainting,hemaydoso.Itisstillpartofthegrossestate.Xdidnotrelinquishthepowertorevokethepainting. HeonlymadeaconditionthatifYwantstheproperty,hemayhaveso.Is the property still part of the gross estate of X if hedies: X owns the painting and he gives Y the power torevokethepaintingfromZ.TheconditionofrevocationwasgiventoYbutproblemis,YdiesaheadofX.Yes because the ownership is retained by X andaccordingly, theconditionwasalreadyan impossibleonewhenYdiedaheadofX

Propertypassingundergeneralpowerofattorney

• To the extent of property passing under general power of appointmentexercisedbyadecedent:1. Bywill2. By deed executed in contemplation of, or intended to take effect in

possessionorenjoymentat,orafterhisdeath,and3. By deed under which he has retained for his life or for any

• However, if power released is special power ofappointment, the property subject to such shall beexcludedfromthegrossestate

• Itisnotageneralpowerofappointmentifthepowerto consume or appropriate property and/or incomefor the benefit of the decedent is limited to an


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unascertainableperiodwithoutreferencetohisdeathorforanyperiodwhichdoesn’tinfactendbeforehisdeath(a)theenjoymentofortheright to the income fromtheproperty, (b)by right,eitheraloneor inconjunctionwithanyperson,todesignatethepersonwhoshallpossessor enjoy the income of the property there from; except in case of abona fide sale for an adequate and full consideration in money ormoney’sworth

• Asa rule, thedecedentpossessed, exercised, releaseda generalpowerofappointment,thepropertyshallbe includedinthedecedent’sgrossestatebecauseinsubstance,heownstheproperty

ascertainablestandard

Proceedsoflifeinsurancewithrevocablebeneficiary

• Life insurance covers all descriptionsof insurance related to life, includingdeathbenefitsandaccidentinsurance

• Presenceof the following instanceswouldsignal inclusionof life insuranceofdecedentaspartofgrossestate1. The beneficiary is the estate of the decedent, his executor, or

administrator2. A person other than the estate, his executor or administrator is

designated under a revocable insurance policy whether or not suchpowerofrevocationwasexercised

• Lifeinsurancetobeincludedisinsurancetakenoutofdecedentonhisownlife

Transfersforinsufficientconsideration

1. Ifthetransferwasinthenatureofabonafidesaleforanadequateandfullconsideration in money or money’s worth, no value shall be included ingrossestate

2. Iftheconsiderationreceivedislessthanadequateandfull,thevaluetobeincludedingrossestateshallbetheexcessoftheFMVofthepropertyatthetimeofdecedent’sdeathovertheconsiderationreceived

3. If there was no consideration received on the transfer, the value to beincludedistheFMVofthepropertyatthetimeofdecedent’sdeath

4. Ifthetransferisnotshowntohavebeenmadeincontemplationofdeathortotakeeffectupondecedent’sdemise,itshallbesubjecttodonor’stax

• There are instances that when the transfer is forinsufficient consideration, it shall not be consideredpartofgrossestatesincevaluesof taxhavealreadybeenimposedbytheBIR

• Section100

Decedent’sInterest

BIRRuling130‐98

FACTS:Ricardo Samanoowned a parcel of landwhich he gave to his youngest andonlysister,whoat that time,wasmarried toPerfectoEspiritu. Subsequently, theold


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TCTwascancelledanditwasnamedafterLuz,marriedtoPerfecto.Perfectolaterondied.HELD:The landwasacquiredbyLuzbyvirtueofgratuitous title fromherbrotherwhileshewasmarriedtoPerfecto. Suchbeingthecase,thelandisnot includedinthegrossestateofPerfecto,itbeingexclusivepropertyofLuz.

BIRRuling103‐96

FACTS:Jocsonownedseveralsubdivisionlotsduringhislifetime.Inaccordancewithlaw,roadlotsandopenspaceswereprovidedforinthesame.Itisinquiredwhetherornottheroadlotsandopenspacesshallbeincludedaspartofhisgrossestate.HELD:Roadsandopenspaceswhicharerequiredbylawtobereserved/setasidebythesubdivisionowners for thecommonuseof thebuyersof thesubdivision lotsandthe public in general don't form part of the transmissible properties of thedecedenthencethevaluethereofisexcludedindeterminingthetaxablepropertiesofthedecedentsubjecttoestatetax.Consideringtheroadsandopenspacesareforpublicuse,theyareinfactgovernmentproperties

BIRRuling186‐81

FACTS:Arellano was an architect who used cash basis of accounting in his soleproprietorship. With this method, income already earned but not yet receivedwere not reflected in his income tax returns. He thenmet his untimely demisetogetherwithhisimmediatefamily.Itisnowinquired—1. Whetherornotthereceivablesshouldbeincludedinthevaluationofhisgross

estate?2. Whetherornotthetaxrefundshewasentitledtopartofhisgrossestate?HELD:

1. ThereceivablespertainingtoArellanoshall formpartofhisgrossestateandthusshallnotbesubjecttothe10%withholdingtax

2. The amount of tax refundable per income tax return of Arellano shall formalso part of his gross estate. Take note that the value of a tax refund isincludableinthedecedent’sgrossestatewhetherfiledbythedecedentduringhislifetimeandunresolvedathisdeathorbytheexecutorafterhisdeath.

TransfersinContemplationofDeath(Section85[b])

VDA.DEROCESV.POSADAS58PHIL108

FACTS:Tuazondonatedparcelsoflandtotheplaintiffsthroughpublicdocuments,whointurn,accepted thesame. A fewmonthsafter thesaiddonation, thedonordied,withoutanyforcedheir.Intheprobateofherwill,sheleftsumsofmoneyinfavorof the donees. The Commissioner in turn assessed inheritance tax against theplaintiffs, which included properties previously donated to them. They paid thetaxesunderprotest.HELD:The decision appealed from was based on the provisions in the AdministrativeCodethatafterdeductionshavebeenmade,thereshallbeaddedtotheresultingamountthevalueofallgiftsoradvancesmadebythepredecessortoanyofthosewho, after his death, shall prove to be his heirs, devisees, or legatees. Theappellantscontendthatsuchprovisionsdon'tincludedonationsintervivos.In tunewithearlier rulingsonthesame issue,“allgifts” refers togifts intervivosinasmauchasthelawconsidersthemasadvancesmadeincontemplationofdeath.In this case, the transmissionswereeffectedand thenafter less thanayear, thedonor died, leaving the appellants as legatees in the donor’s will. It is in thisallegation that there is presumption juris tantum that saiddonationsweremademortiscausaandassuch,aresubjecttothepaymentofinheritancetax.

DIZONV.POSADAS57PHIL465


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FACTS:DonDizonmadeadonationintervivostohisonlyson.WhenDonFelixDizondied,the son didn't receive any property from the former. Upon assessment of theinheritance taxagainst Luis,partof thepropertiesassessedwas thegiftmade tohimduringthelifetimeofthefather.HELD:The factswarrant the inference that the transferwas an advancement upon theinheritance upon the donee, as the sole and forced heir of the donor,which hewould otherwise be entitled to upon the death of the father. The argumentfurthered that he is not an heir because there was no longer any property isfallacious. In any event, Luis cannot be deprived of his share in the inheritancebecausethelawconfersuponhimthestatusofaforcedheir.Furthermore, following previous rulings, when the law says all gifts, it doubtlessreferstogiftsintervivos,andnotmortiscausa.Boththeletterandspiritofthelawleaves no room for any other interpretation. Such clearly, is the tenor of thelanguagewhichreferstodonationsthattookeffectbeforethedonor’sdeath,andnot tomortis causadonations,which canonlybemadewith the formalitiesof awill,andcanonlytakeeffectafterthedonor’sdeath.RevocableTransfers

BIRRuling021‐98

FACTS:MarianoandRoyenteredintoanagreementtoequallyshareinthepurchaseof5parcelsofland.Roywasthenthetrusteeof½portionoftheproperty.Helateronwithdrewhisbecomingatrusteebecauseofhisfailuretopayhis½shareduefromhim. The administrator of his estate then received a letter from Mariano,informing him that the latter is the sole owner of the 5 parcels of land.Consequently, a deedof transferwas executedbetween theestate andMarianowithoutanyconsideration.Thiswasapprovedbythecourtandlaterbecamefinalandexecutory.HELD:Since the transfer of ½ portion of the 5 parcels of land was made withoutconsiderationpursuanttoadeedoftransferandconsideringfurtherthatthiswas

duly approved by the court, the transfer of the aforementioned properties toMariano is not subject to 5% capital gains tax and moreover, is exempt fromdonor’staxduetolackofdonativeintentonthepartoftheestateofRoyPadilla.

BIRRulingUN‐041‐95

FACTS:Leonora Pascual has established a revocable inter vivos trust and would like tochange the manner of holding title to her real properties and securities fromLEONORAPASCUALtoLEONORAPASCUAL,trustee.HELD:TherewasnoactualtransferofownershipovertheaforementionedpropertiesasaresultofthetransferthereoftoLEONORAPASCUAL,trustee,L.F.PASCUALTRUST.Thesaidtransferisnotsubjecttothe5%capitalgainstaxandconsequently,totheexpandablecreditablewithholdingtax.Itistobeunderstoodthoughthatpropertyplacedinrevocabletrustisincludibleinthe trustor’s gross estate for estate tax purposes. even if the trustor isincompetentandcannotlegallyexercisethepowerofrevocation,merepossessionatdeathofthepowertorevokeshallcausetheinclusionofthepropertiesheldintrust for the trusotr’s estate. Accordingly, the creation of the revocable trustdoesn'tdirectlyaffecttheamountofestatetaxpayableatthetrustor’sdeath.PropertyPassingUnderGeneralPowerofAppointment

BIRRuling86‐95

FACTS:Atty.MendezonaenteredintoatrustagreementwithFEBTCwhereinitwasagreedthat theamountsubjectof theagreementwouldgo to theheirsofOzamizuponher death. Ozamiz died. An inquiry is then made whether or not the amountsubjectoftrustagreementissubjecttoestatetax.HELD:Mendezona is not the decedent and the money subject of the trust agreementbelongstohimontheconditionthatthesaidmoneywillbetransferredtotheheirs


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ofOzamizuponthedeathofthelatter,hence,isn’tincludedinthegrossestateofthe decedent and it follows, that it is not subject to estate tax. however, themoneygivenbyMendezonaissubjecttodonor’stax.ProceedsofLifeInsuranceWithRevocableBeneficiary

BIRRuling423‐87

FACTS:AmotherwrotetheBIRinquiringwhetherornotthelifeinsuranceproceedsofhissonisincludedinthevaluationofhisgrossestate.Thesonmetanaccident,whichinturnledtohisuntimelydeath.HELD:Proceedsof life insurancepolicy formpartof thegrossestateof thedecedenttotheextentoftheamountreceivablebytheestateofthedecedent,orhisexecutor,oradministrator,as insuranceunderpolicies takenoutby thedecedentuponhisown life, whether or not the insured retained the power of retention, or to theextentoftheamountreceivableofanybeneficiarydesignatedinthepolicyoftheof insurance, except when it is expressly stipulated that the designation of thebeneficiaryisirrevocable.

BIRRuling314‐87

FACTS:HELD:Capitalofthesurvivingspouse

• The capital of the surviving spouse of the decedent shall not, for thepurposeofChapter1,TitleIIIbedeemedpartofhisorhergrossestate

RulesInValuationOfGrossEstate(Section88NIRC)

1. Ingeneral,grossestateshallbevaluedatitsfairmarketvalueatthetimeofdecedent’sdeath. Theproperty is tobevaluedasof thedecedent’s

death upon which date the tax accrues regardless of any subsequentcontingencyaffectingtheestate.

2. Realproperties:CurrentvalueorFMVasshowninthescheduleofvaluefixed by the City or Provincial Assessor, or FMV as determined by BIRCommissioner,whicheverishigher

3. Personalproperties: reportedatacquisitioncost if recentlyacquiredorcurrentmarketpriceforthepreviouslyacquiredproperties

4. Stocks, bonds and other securities: mean of the highest and lowestquotedsellingpricesattimeofdeathornearestdatewheretherewasasale;ifnotlistedonanexchange,thevalueshouldbethebookvalueatthetimeofdeath

(PARVALUE+RETAINEDEARNINGS)X#OFSHARESINC.INESTATEOUTSTANDINGSHARESISSUED

BIRRuling95‐98

FACTS:The decedent Sto. Domingo left real properties—including two parcels ofresidential land. Onbehalfoftheheirsofthedecedent,an inquirywasmadeonthetaxability,valuationandassessmentoftheproperties.HELD:It was ruled that in the payment of estate tax, the estate shall be evaluated orappraisedatthemarketvalueasofthetimeofdeath,orasof6monthstherafter,intheelectionoftheexecutororadministrator.Withrespecttorealproperty,thedeterminingvalueisthecurrentorfairmarketvalueasreflectedinthescheduleofvalues fixedby theCityor ProvincialAssessor, or the FMVasdeterminedby theCommissioner,whicheverishigher.

BIRRuling103‐96

FACTS:Jocsonownedseveralsubdivisionlotsduringhislifetime.Inaccordancewithlaw,roadlotsandopenspaceswereprovidedforinthesame.Itisinquiredwhetherornottheroadlotsandopenspacesshallbeincludedaspartofhisgrossestate.


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HELD:Roadsandopenspaceswhicharerequiredbylawtobereserved/setasidebythesubdivisionowners for thecommonuseof thebuyersof thesubdivision lotsandthe public in general don't form part of the transmissible properties of thedecedenthencethevaluethereofisexcludedindeterminingthetaxablepropertiesofthedecedentsubjecttoestatetax.Consideringtheroadsandopenspacesareforpublicuse,theyareinfactgovernmentproperties

BIRRuling011‐86

FACTS:OnbehalfoftheheirsLimBoonHai,aninquirywasmadeastothevaluationandtaxability of shares of stock, for estate tax purposes. These shares of stockconsistedoftwosuspended,onedelisted,andonewithnotransactionatall.HELD:Forestatetaxpurposes,thevalueofeveryitemofpropertyincludibleinthegrossestate is the fair market value thereof at the time of the decedent’s death.However,sharesofstockwhichhadbeeneithersuspendedordelistedorwherenotransactions involving themhavebeenmade, shall be valuedat theirbook valuenearestthevaluationdatewhichinthiscase,isthedateofdecedent’sdeath.Saidbookvalueshallbeprimafacieconsideredastheirfairmarketvalue.Iftherehavebeenpreviousbona fide sales/exchangesof such shares, theprice atwhich suchsharesexchangedhandsshouldbetakenorconsideredastheirfairmarketvalue.Withrespecttotheshareswhichhavebeeninsolvent,itshallhavezerovaluation.And should the shares later on appreciate in value and are subsequently sold ordisposed,fortaxpurposes,theircostbasisshallbezero.**SeealsoRR6‐2008

BIRRuling186‐81

FACTS:Arellano was an architect who used cash basis of accounting in his soleproprietorship. With this method, income already earned but not yet receivedwere not reflected in his income tax returns. He thenmet his untimely demisetogetherwithhisimmediatefamily.Itisnowinquired—

1. Whetherornotthereceivablesshouldbeincludedinthevaluationofhisgross

estate?2. Whetherornotthetaxrefundshewasentitledtopartofhisgrossestate?HELD:1. ThereceivablespertainingtoArellanoshall formpartofhisgrossestateand

thusshallnotbesubjecttothe10%withholdingtax2. The amount of tax refundable per income tax return of Arellano shall form

also part of his gross estate. Take note that the value of a tax refund isincludableinthedecedent’sgrossestatewhetherfiledbythedecedentduringhislifetimeandunresolvedathisdeathorbytheexecutorafterhisdeath.

BIRRuling60‐81

FACTS:This rulinganswered the inquiryonwhat ismeantby the taxes imposedon jointaccountdepositsunderSection118oftheTaxCodeandwhatshouldbereportedforestatetaxpurposes.HELD:The taxes contemplated in Section 118 are for estate tax purposes only and theimpositionofinheritancetaxeshavebeenabolished.Usufruct

• Todeterminethevalueoftherightofusufruct,useorhabitation,aswellasthatofannuity,thereshallbetakenintoaccounttheprobablelifeofthe beneficiary in accordance with the latest Basic Standard MortalityTable, to be approved by the Secretary of Finance, uponrecommendationoftheInsuranceCommissioner.

NETESTATE

DeductionsfromGrossEstate

(1) Permitted to be subtracted from the value of grossestateinordertoarriveatanettaxableestate


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(2) Deductions from gross estate are presumed to beconjugal deductions unless specifically identified asexclusive

DeductionsAllowedFromTheEstateOfACitizenOrResident

1. Ordinarydeductionsa. Funeral expenses (amount of funeral expenses as permissible

deduction from gross estate is the lower of actual funeralexpenses,5%ofthegrossestate,orthelimitofPp200000)(asarule,shouldbeincurredonorbeforeinterment)

DEGUZMANV.R.CGUZMAN83SCRA256

FACTS:One of the properties left by deceased testator was a house and lot whichwasadjudicated in favorof theeight children. Oneof the childrenwasappointedastheadministratorof theestate. It is tobenoted that theprobatecourtorderedthe administrator to refrain from spending the assets of the estate forreconstructuringandremodelingthehouseofthedeceasedandtostopspendingany asset of the estate without prior authority of the court. However, in theaccountingreportsubmittedbytheadministrator,severalexpensesweremadeforthe remodeling of the house. This was allowed by the lower court and thispromptedtheotherchildrentoopposethisorder.HELD:An executor or administrator is allowed the necessary expenses in the care,management,andsettlementoftheestate.Heisentitledtopossessandmanagethedecedent’srealandpersonalestateaslongasit isnecessaryforthepaymentof the debts and expenses of administration. He is accountable for the wholedecedent’sestatewhichhascomeintohispossession,withalltheinterest,profit,andincomethereof,andwiththeproceedsofsomuchofsuchestateasissoldbyhim,attheprice,atwhichitwassold.Administrationexpensesshouldbethosewhicharenecessaryforthemanagementoftheestate,forprotectingitagainstdestructionanddeterioration,andpossibily,for theproductionof fruits. Theyareexpensesentailed for thepreservationand

productivityoftheestateanditsmanagementforpurposesofliquidation,paymentofdebts,anddistributionoftheresidueamongthepersonsentitledthereto.Itshouldbenotedthatthefamilyresidencewaspartitionedproindivisoamongthedecedent’schildren.Eachoneofthemwasgivenan1/8shareinconformitywiththewill.Fiveofthechildrenagreedtotheuseoffundsoftheestateforrepairandimprovementof the familyhome. It isobvious that theexpensewas incurredtopreserve the family home and to maintain the family’s social standing in thecommunity.Insummary,thiswasincurredforthebenefitoftheco‐owners.This isnot the samepropositionon theotherhand for theexpenses incurredbyLibradawhilestayinginthefamilyhouse.Theexpensesarepersonalinnatureanddon't inure to thebenefitof the familynorof theestate. This is thesamestandwithrespecttotheexpensesspentonthefirstdeathanniversaryofthedecedent.Thisaswelldoesn'thaveanyconnectionwiththebenefitoftheestate.

b. Judicialexpensesofthetestamentaryorintestateproceeding

VERAV.NAVARRO79SCRA408

FACTS:Judge Tan was appointed as the executor of the estate of Elsie Gaches. Hepreliminarilysubmittedamotionforadvancepaymentofallowances,inheritance,etc. pending the finality of probate of the will. He maintained that there aresufficientassetstocoverwhateverliabilitytothegovernmentfortaxesandothercharges.TheCommissioneropposedthismotionandshowedsomeproofofclaimsforestatetaxesandinheritancetaxes. ThecourtthendisapprovedthemotionofTan.Onalaterdate,Tanpaidthetaxesduebuttherewasdeficiencyinpaymentoftheinheritancetaxes.Uponpayment,hemovedagainthathebeallowedtopayadvance inheritance, allowances,etc. This time, the courtallowedhim todo so.TheCommissionertriedtoopposethisbuttonoavail.Hethentriedtogarnishthebankaccountsoftheestatebutwasn'tabletodosoduetothequickthinkingofTantohavethewritofgarnishmentdischarged.HELD:


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UndertheprovisionsoftheRulesofCourt, togetherwiththeprovision inthetaxcode, the distribution of a decedent’s assets may only be ordered under thefollowingcircumstances—1. Whentheinheritancetax,amongothers,ispaid2. Whena sufficientbond is given tomeet thepaymentof the inheritance tax

andallotherobligationsofthenatureenumerated3. Whenthepaymentofthesaidtaxandalltheotherobligationsmentionedin

theRulehasbeenprovidedfor.Noneofthesewerepresentwhenthequestionedorderswereissuedatthecaseatbar.Ontheissueofattorney’sfees,theseshouldbeshoulderedbytheheirsandnotbytheestate.Theattorney’sfeespayablewerenotforthebenefitoftheestateandthus,neednotbepaidbytheestate.

c. Claimsagainsttheestate

DELAVINAV.COLLECTOR65PHIL520

FACTS:After the death of Jose, Diego was appointed as an administrator of his estate.Afterwards, the court approved the accountingof administrationexpensesDiegomade as an outgoing administrator. The court allowed the disbursement ofexpenses paid by him. However, the governmentmade a supervening claim forunpaid taxeson theestate. With thepresentassetsheldby theestate, itwouldinsufficient to pay off the unpaid taxes and administration expenses sought byDiego to be disbursed to him. The government tried to get the upper hand butDiego continuously maintained that he is preferred to be paid first than thegovernment.HELD:The income tax on the profits derived by the properties of the estate cannot beconsideredasadministrationexpenses,whichenjoyspreferenceinpayment.Section735oftheCodeofCivilProcedure,asamendedbyActNo.3960,providesasfollows:

SEC. 735. Order of payment if estate insolvent.� If the assets which can beappropriated for the payment of debts are not sufficient for that purpose, theexecutor or administrator shall, after pay the debts against the estate in thefollowingorder:1.Thenecessaryfuneralexpenses;2.Theexpensesofthelastsickness;3.Whatisowingtothelaborerforsalariesandwagesearnedandforindemnitiesduetohim,forthelastyear;4.DebtsduetotheUnitedStates;5. Taxes and assessments due to the Government, or any branch or subdivisionthereof;6.Debtsduetotheprovince;7.Debtsduetoothercreditors.InviewofthelegalprovisionjustquotedandSection680ofthesamecodeofCivilProcedure,onlypaymentswhichtheexecutororadministrationmayhavemadeinthe discharge of his office and the commissions to which he may be entitled,partakesofthenatureofadministrationexpenses.Theexpensesofadministrationare due only to the executor or administrator, and he alone, and no other,maycollect them. It is also irrelevant to say that the taxes were due on the profitsearned from the properties of the estate. As already mentioned, theadministration expenses contemplated by the rules are those which theadministratormayhaveincurredinthecare,administrationandliquidationoftheproperties of the estate and the commissions due to him for collections anddisbursementswhich hemay havemade, and not thosewhich he cold ormighthavewishedtomakeoutofhisownpocketorbutofthefundsoftheestate.Theseincludeexpenditures indiscoveringandpreservingassets,attorneysfees incurredinconnectionwiththeadministrationoftheestate,incurredinconnectionwiththeadministrationoftheestate,costrecoveredagainsttherepresentativeinanactiontorecoverassets,toestablishedaclaimagainsttheestate,totrytitletoland,andinsurancepremiumsexpended for theprotectionof thepropertyand ithasevenbeen considered that expenditures in carrying on decedent's business may beregardedasexpensesofadministration.Onthesecond issuemaintainedbytheCollector, thatpaymentoftaxesowingtothegovernmentarepreferred, this again isuntenable. The lien createdby thesaid section 1588 of the Revised Administrative Code, having reference to allinternal revenue taxes, including the income tax here in question, is general in


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character, and the order of its payment as a lien is applicable to all propertiessubject to the payment of internal revenue tax; whereas the order of paymentestablishedbysection735oftheCodeofCivilProcedure,asamendedbyActNo.3960, is special in character and is only applicable to properties of deceasedpersons; consequently, in accordance with the cardinal rule of statutoryconstruction,thelatterprovisionoflawshouldprevailovertheformer.Insectionlastmentioned,thetaxesduetogovernmentofanybranchorsubdivisionthereofoccupythefifthplaceintheorderofpayment;wherefore,theindebtednessoftheestate of Diego de la Viña for income tax not being a necessary expense ofadministration,andtheclaimoftheex‐administratorDr.JoseMa.delaViñaydelaRosa being such necessary expense of administration, the latter has preferenceovertheformer.

c. Insolventd. Unpaidmortgages,taxes,andlosses

2. Vanishingdeductionsorpropertypreviouslytaxed3. Transfers for public use—the amount of all the bequests, legacies,

devisesortransferstoorfortheuseoftheGovernmentoftheRepublicof the Philippines, or any political subdivision thereof, for exclusivelypublicpurposes.

4. Familyhome5. Standarddeductions(P1,000,000)6. Medical expenses paid (are to be declared as separate allowable

deductionfromgrossestate)(maximumofP500,000)7. AmountreceivedbyheirsunderRA4917(Retirementbenefitsofprivate

employees)ClaimsAgainstTheEstate

• At the time indebtedness was incurred, the debt instrument was dulynotarized

• If the loan was contracted within 3 years before the death of thedecedent, theadministrator/executor shall submita statement showingthedispositionoftheproceedsoftheloan

ClaimsAgainstInsolventPersons

• Amountofsaidclaimshasbeeninitiallyincludedaspartofgrossestate• The incapacity of the debtor to pay his debt is not proven notmerely

alleged• Governmenthaspreferenceoverassetsofinsolventperson

• Afterpayment togovernment, followingorderofpaymentpriority is tobemade:employees,andcreditors

UnpaidTaxes

• Followingtaxesaredeductiblefromgrossestate1. Propertytaxesaccruedpriortodecedent’sdeath2. Unpaidtaxesonincomereceivedbydecedentbeforehisdeath3. Gifttaxesonlifetimegiftswhichareunpaidupondeath4. Exciseor transfer tax in connectionwitheitheranecessary saleof

estatetaxesordistributioninkindVanishingDeductions

• Amount allowed as deduction for propertywhichwas previously taxedwithtransfertaxpriortodecedent’sdeath

• Where such property can be identified as having been received by thedecedent from the donor by gift, or from such prior decedent by gift,bequest,deviseorinheritance,orwhichcanbeidentifiedashavingbeenacquiredinexchangeforpropertysoreceived

• If the same property is included in gross estate, its value may bededucted in computing the tax on his estate subject to the followingconditions1. Presentdecedentdiedwithin5 years from receiptof theproperty

throughgratuitoustransfer2. Anestateordonor’staxmustactuallybeenpaidonsuchproperty3. Propertyfromwhichvanishingdeductionisbeingclaimedislocated

inthePhilippines4. Property on which vanishing deduction is being claimed must be

identifiedastheonereceivedfromthepriordecedentordonor5. Nosimilardeductionmusthavebeenallowedforthesameproperty

intheestateofthepriordecedentComputationofamounttobededucted

1. Valuetobetaken:lesserofthevalueofthepropertyatdateofpresentdecedent’sdeathorvalueofthepropertyattimeoftransfer

2. Initial Basis: if the inheritedpropertyhasbeen subjected tomortgage,thevaluetakenshallbereducedbytheamountpaidonthemortgageofthedecedent

3. Deductionsfromthevaluetaken:


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a. Ordinary deductions from present gross estate multiplied bythe value taken over present gross estate. The ordinarydeductions include the expenses, losses, indebtedness, taxes,etc.,plustransfersforpublicuse.

b. DEDUCTION FROM INITIAL BASIS = (TOTAL ORDINARYDEDUCTIONSxINITIALBASIS)/PRESENTGROSSESTATE

4. BasisforvanishingdeductionBASIS FOR VANISHING DEDUCTIONS = INITIAL BASIS – DEDUCTIONSFROMINITIALBASIS

5. Levelofdeduction(yearslapsedfromdateoftransfertodateofdeath)Withinoneyear 100%Morethan1yearto2years 80%Morethan2yearsto3years 60%Morethan3yearsto4years 40%Morethan4yearsto5years 20%

FamilyHome

• Amountequivalenttothecurrentfairmarketvalueorzonalvalueofthedecedent’sfamilyhome,whichshallnotexceedPp1000000

• The residential home and lot is used as an official residence of thedecedent

1. If the decedent is single/head of the family, the allowabledeductionwouldbePp1M

2. Where the decedent was married and family home wasconjugal property, the allowable deduction for family homewouldbe1/2ofthetotalvalueoftheconjugalproperty

3. Where the decedent was married and family home wasexclusive, the allowable deduction would be at the extent ofPp1M

4. Where decedent was married and residential lot is exclusivepropertyandhouse,conjugalproperty

RESIDENTIAL LOT + (1/2 * RESIDENTIAL LOT ) = ALLOWABLEDEDUCTION

StandardDeduction

• Toarriveatnetestate,astandarddeductionofPp1,000,000isallowedinadditiontootherallowabledeductions

• Notoptionalbutstandard

MedicalExpenses• Incurredbydecedentwithin1yearpriortohisdeathwhichshallbeduly

substantiatedwithreceipts• Allowabledeductionuptopp500000

BenefitsbyvirtueofRA4917

Section 1. Any provision of law to the contrary notwithstanding, theretirementbenefitsreceivedbyofficialsandemployeesofprivatefirms,whetherindividualorcorporate,inaccordancewithareasonableprivatebenefitplanmaintainedbytheemployershallbeexemptfromall taxesandshallnotbeliabletoattachment,garnishment,levyorseizurebyorunderanylegalorequitableprocesswhatsoeverexcepttopayadebtofthe official or employee concerned to the private benefit plan or thatarising from liability imposed in a criminal action: Provided, That theretiringofficialoremployeehasbeenintheserviceofthesameemployerforatleastten(10)yearsandisnotlessthanfiftyyearsofageatthetimeofhisretirement:Provided,further,ThatthebenefitsgrantedunderthisAct shall be availed of by an official or employee only once: Provided,finally, That in case of separation of an official or employee from theserviceoftheemployerduetodeath,sicknessorotherphysicaldisabilityorforanycausebeyondthecontrolofthesaidofficialoremployee,anyamount received by him or by his heirs from the employer as aconsequenceofsuchseparationshalllikewisebeexemptashereinaboveprovided.Asused in thisAct, the term"reasonableprivatebenefitplan"meansapension, gratuity, stock bonus or profit sharing plan maintained by anemployer for the benefit of some or all of his officials and employees,wherein contributions are made by such employer or officials andemployees,orboth, for thepurposeofdistributingtosuchofficialsandemployeestheearningsandprincipalofthefundthusaccumulated,andwherein it isprovided in saidplan that atno time shall anypartof thecorpusorincomeofthefundbeusedfor,orbedivertedto,anypurposeotherthanfortheexclusivebenefitofthesaidofficialsandemployees.

Decedent–unmarried

• Nocomputationalproblemsinceallpropertiesareconsideredexclusive


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Decedent–MarriedWithSurvivingSpouseFirstApproach

• Thestandarddeductionshallbedeductedfirstfromthedecedent’sgrossconjugalestatebeforetheshareofthesurvivingspouse

• Anyamountnotabsorbedbythegrossconjugalestatewillbedeductedfromthedecedent’sexclusiveestate

• ItissaidbysomeauthorsthatthefirstapproachwouldbeinconformitywiththeTaxCodeandtheBIRmethod,giventhattheNIRCincludedthestandard deduction of Pp1M as among the deductions from the grossestate. For this reason, the intention of the law is to deduct theP1000000standarddeductionfromthegrossestateandnotfromthenetestateaftertheshareofthesurvivingspouse

SecondApproach

• Standard deduction shall be deducted first from decedent’s exclusiveproperty, the balance shall be deducted from the conjugal propertybeforetheshareofthesurvivingspouse

ThirdApproach

• Standarddeductiontobedeductedfromthenetestateaftertheshareofthesurvivingspouse

Non‐ResidentAlienDecedent

• Sameallowabledeductions except thosepertaining to the family homeandstandarddeduction

ComputationOfNetTaxableEstate

Properties Exclusive ConjugalPersonal Pxxx PxxxReal xxx xxxTaxabletransfers xxx xxxGrossEstate Pxxx PxxxLess:Deductions

Funeralexpenses Pxxx PxxxJudicialexpenses xxx xxxClaimsagainstestate xxx xxxClaimsagainstinsolventperson xxx xxxUnpaidmortgage xxx xxx

Transfersforpublicuse xxx xxxVanishingdeductions xxx xxxMedicalexpenses xxx xxxAmountreceivedbyheirs xxx xxxStandarddeduction xxx xxxNetestatebeforeotherdeductions Pxxx PxxxLess:Otherdeductions ShareofSurvivingSpouse xxx xxxFamilyhome xxx xxxNettaxableestate Pxxx Pxxx

TaxCreditForEstateTaxPaidToAForeignCountryOnlyonecountryisinvolvedTAX CREDIT = (NET ESTATE IN FOREIGN COUNTRY / ENTIRENET ESTATE) x PHIL.ESTATETAX2ormorecountriesareinvolved(LimitAorBoractualestatetaxpaid,whicheverislower)LIMIT A = (NET ESTATE PER FOREIGN COUNTRY / ENTIRE NET ESTATE) x PHIL.ESTATETAX*PERFOREIGNCOUNTRYLIMIT B = (NET ESTATE ALL FOREIGN COUNTRIES / ENTIRE NET ESTATE) x PHIL.ESTATETAX*BYTOTAL

EXEMPTIONSFROMESTATETAX

1. The following acquisitions and transmission shall not be subjected toestatetax

a. Merger or usufruct in the owner of a naked title (full title isneededtocomplyforestatetaxpurposes)

b. Transmission or delivery of the inheritance or legacy by thefiduciaryheirorlegateetothefiducommissaryIllustration: A transmits to sonB property upon the conditionthat the same be transmitted to C grandson. If A dies, it is


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includedinhisestate.ButifBdies,thepropertyisnotincludedinhisestate,fallingunderexemption(2).

c. Transmission from the first heir, legatee, or donee in favorofanother beneficiary, in accordance to the desire of thepredecessorIllustration: A transmits property to her great grandsonD butdoesn'tprecludeBandCfromrightstousetheproperty.

d. Doneeinstitutions:Allbequests,devices,legacies,ortransferstosocialwelfare,culturalandcharitableinstitutions,nopartofthenet incomeofwhichgoestothebenefitofany individual;provided, however, that not more than 30% of such shall beusedbysaidinstitutionsforadministrationpurposes

See also Section 34 (H) for allowable 100% deduction forcontributionstocharitableinstitutions,etc.

2. AnetestatewithavalueofPp200000orless3. Exemptionsunderreciprocityclauseofestatetaxlaw

PROCEDURESFORSETTLEMENTOFESTATETAX

Noticeofdeathtobefiled

• Within 2 months after decedent’s death or within 2 months afterqualifyingasexecutororadministratorincaseof:

1. Inallcasesofdeathwhereestateisn’ttax‐exempt2. Thoughtax‐exempt,ifthegrossvalueoftheestateexceedsPp20,000

FilingofEstateTaxReturn(BIRForm1801)

1. InallcasesoftransferssubjecttoEstatetax2. Though exempt from tax, the gross value of the estate exceeds

Pp200,0003. Regardlessof the valueof theestate,where the saidestate consistsof

registered/registrable property such as real property, motor vehicle,sharesofstockorothersimilarpropertyforwhichaclearanceoftheBIRis required as a condition precedent for the transfer of property

ownership thereof in the name of the transferee, executor, oradministrator,oranyofthelegalheirs.

TimeofFiling

• Estatetaxreturnrequiredshallbefiledwithin6monthsfromdecedent’sdeath

TimeofPaymentofEstateTax

• Shallbepaidatthetimethereturnfiledbytheexecutor,administrator,ortheheirs

• WhenBIRcommissionerfindsthatthepaymentonduedateofestatetaxoranypartthereofwouldimposeunduehardshipupontheStateoranyoftheheirs,hemayextendthetimeofpaymentoranypartthereofnotto exceed 5 years in case the estate is settled through the courts or 2yearsifestateissettledextrajudicially

RUIZV.COURTOFAPPEALSGR118671,29JANUARY1996

FACTS:Hilario Ruiz left a holographic will and therein named his only son, adopteddaughterandthreegrandchildrenasheirs.ImmediatelyafterthedeathofHilario,the cash component of the estatewas distributed among the heirs according towhatwasprovided in thewill. Peculiar thoughsinceEdmondnever initiated theprobateofhisdad’swill.Andinthemeanwhile,thehousethatwasallottedtothethree children were leased by Edmond. Mondez was prompted to petition theprobateof thewill butoriginally, Edmondopposed this but lateron changedhismind. Mondez also moved for the release of the rental income to the threegrandchildren. Thereafter, Edmond moved for the release of funds for thepaymentofcertainexpenses,includingthosecoveringrealpropertytaxes.Hewasallowed to do so but only insofar as administration expenses and allowances forsupport.HELD:It issettledthatallowancesforsupportunderSection3ofRule83shouldnotbelimitedtothe"minororincapacitated"childrenofthedeceased.Article188oftheCivil Code of the Philippines, the substantive law in force at the time of thetestator'sdeath,provides thatduring the liquidationof the conjugalpartnership,


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thedeceased's legitimatespouseandchildren,regardlessof theirage,civilstatusor gainful employment, areentitled toprovisional support from the fundsof theestate.Thelawisrootedonthefactthattherightanddutytosupport,especiallytherighttoeducation,subsistevenbeyondtheageofmajority.Be that as itmay, grandchildrenarenot entitled toprovisional support from thefundsofthedecedent'sestate.Thelawclearlylimitstheallowanceto"widowandchildren" and does not extend it to the deceased's grandchildren, regardless oftheir minority or incapacity. It was error, therefore, for the appellate court tosustaintheprobatecourt'sordergrantinganallowancetothegrandchildrenofthetestatorpendingsettlementofhisestate.Respondent courts also erredwhen they ordered the release of the titles of thebequeathed properties to private respondents six months after the date of firstpublication of notice to creditors. In settlement of estate proceedings, thedistribution of the estate properties can only be made: (1) after all the debts,funeral charges, expenses of administration, allowance to thewidow, and estatetax have been paid; or (2) before payment of said obligations only if thedistributeesoranyof themgivesabond ina sumfixedby thecourtconditioneduponthepaymentofsaidobligationswithinsuchtimeasthecourtdirects,orwhenprovisionismadetomeetthoseobligations.Extensionoftime

• TheBIRCommissionershallhaveauthoritytogrant,inmeritiouscases,areasonableextensionnotexceeding30daysforfilingofreturn

PlaceofFiling(DomicileRule;Section90[D];BIRRuling100‐96)

• ShallbefiledwithanAAB,orRevenueDistrictofficer,collectionofficer,orduly authorizedTreasurerof the city/municipality inwhichdecedentwasdomiciledattimeofhisdeathoriftherebenolegalresidenceinthePhilippines,withtheofficeoftheBIRCommissioner

Surcharges

COMMISSIONERV.CUUNJIENG66SCRA1

FACTS:

DomingaAyala vda. CuUnjieng died and her estatewas assessed for estate andinheritancetaxes.TheheirspaidthecorrespondingtaxesbutwithdeficienciesandtheywerenotifiedofsuchfactbytheCommissioner.TheCommissionerinformedthem to pay the deficiency and the heirs asked for a grace period. They wereallowed a grace period on the condition thatwithin 2 years, there should be 24equal monthly installments. The schedule of payments included a 5% interest,which according to the heirs was uncalled for. This protest was denied on theground that the surcharge is mandatory and operates independently of any taxextension. Upon elevating the matter to the CTA, the court ruled that the 5%surcharge is imposable only upon notice and demand for payment. It shall beappropriate ifat theendof30days fromsuchnoticeanddemand, therewasnopayment. The court also ruled that it couldn't still be imposable upon theassessment given for deficiency taxes as the heirs were given a grace period tooblige. The court ruled in the end that what was duewas only interest on thedeficiencytaxesunpaid.HELD:The 5% surcharge ismandatory according to the provisions of the Tax Code andthisattachesautomaticallyattheendofthe30‐dayperiodreckonedfromthedayanoticeofassessmentanddemandwasissuedbytheCommissioner. ThepoweroftheCommissionertoextendthedeadlinehasnomodifyingorextendingeffectontheimpositionofsurcharge.

BIRRuling46‐98

FACTS:Benigno Toda left properties here and abroad. The estate is asking that thesurchargeandinterestbewaivedduetodifficultiesencounteredinthesettlementof the estate—among other things was the proper inventory of the assets, theappointmentofexecutor,etc.HELD:In views thereof, considering that the preparation of the estate tax return wasbeset with difficulties after which payment cannot be effected due to financialconstraints,yourrequestforwaiverofthesurchargeontheestatetaxdueonthetransmission of the estate of the late Benigno P. Toda, Jr. is hereby granted.However, it is reasonable that the interestmust be paid to compensate for theconcomitantuseofthefundsbytheestatewhenitissupposedtohavebeenpaid.


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RMO19‐07

In all cases of criminal violations of the NIRC not involving the commission offraudulent act, the compromise penalties to be imposed shall follow strictly theamounts in the "Revised Schedule of Compromise Penalties" (Annex A of theOrder). Certain acts/violations which are commonly resorted to by taxpayers asmeans of tax evasion are deleted from the coverage thereof for havingmet therequirementsofthedefinitionoffraudulentacts.Innocaseshall thecompromisepenaltydiffer inamount fromthosespecified intheaforementionedSchedule,exceptwhendulyapprovedbytheCommissionerorconcernedDeputyCommissioner,orinpropercases,bytheRegionalDirectors.Although all amounts of compromise penalties incident to violations shall beitemizedintheassessmentnoticeand/ordemandletter,thesameshouldnotformpartofassessmentnoticethatreflectsdeficiencybasictax,surchargeandinterestbut shouldappear ina separateassessmentnotice/demand letteras theamountsuggested to the taxpayer to pay in lieu of criminal prosecution. If paid, thecompromise penalties shall be collected and accounted for under the usualprocedures,asinternalrevenuecollection.Sincecompromisepenaltiesareonlyamountssuggestedinsettlementofcriminalliability, and may not therefore be imposed or exacted on the taxpayer, theviolationshallbereferredtotheappropriateofficeforcriminalactionintheeventthatataxpayerrefusestopaythesuggestedcompromisepenalty.CasesinvolvingfraudshallbereferredtotheconcernedDivisionhavingjurisdictionoverthecase,fortheinstitutionofthecorrespondingcriminalaction.The prescribed schedule of compromise penalties shall not prevent theCommissionerofInternalRevenue(CIR)orhisdulyauthorizedrepresentativefromaccepting a compromise amount higher than what is provided in the Order. Acompromise offer lower than the prescribed amount may be accepted afterapproval by the CIR or the concerned Deputy Commissioner/AssistantCommissioner/RegionalDirector.SeealsoSection248oftheTaxCodewhichdiscussesthecivilpenalties.

LIABILITIESOFEXECUTORANDHEIRS

SEC.92.DischargeofExecutororAdministratorfromPersonalLiability.If theexecutororadministratormakesawrittenapplicationtotheCommissionerfor determination of the amount of the estate tax and discharge from personalliabilitytherefore,

• TheCommissioner (assoonaspossible,and inanyeventwithinone(1)year after themaking of such application, or if the application ismadebeforethereturnisfiled,thenwithinone(1)yearafterthereturnisfiled,butnotaftertheexpirationoftheperiodprescribedfortheassessmentofthetaxinSection203shallnotnotifytheexecutororadministratoroftheamountofthetax.

• Theexecutororadministrator,uponpaymentoftheamountofwhichheisnotified,shallbedischargedfrompersonalliabilityforanydeficiencyinthe tax thereafter found tobedueand shallbeentitled toa receiptorwritingshowingsuchdischarge.

GOVERNMENTV.PAMINTUAN55Phil13

FACTS:Florentino Pamintuan, while still alive, was able to file the needed income taxreturnsandpaythenecessarytaxes. However,hewasn'tabletopaytheincometax for the income he earned when he sold his house and lot. When he died,intestate proceedings were held. Partition was made on the property, to bedistributedtotheheirs.TheproceedingwasclosedwhenthegovernmentrealizedabouttheunpaidincometaxofPamintuan.Ittriedtorunafterthedefendantsbuttheyrefusedtopaythedeficientincometax.HELD:The administration proceedings of the late Florentino Pamintuan having beenclosed,andhisestatedistributedtotheheirs,itisonlyproperthatthedefendantsbemaderesponsibleforthepaymentoftheincometaxinquestioninproportiontotheshareofeach inthesaidestate. Theclaimsfor incometaxesneednotbefiled with the committee on claims and appraisals appointed in the course oftestate proceedings and may be collected even after the decedent’s estate hasbeen distributed among his heirs, who shall be liable therefore in proportion totheirshareintheinheritance.


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Deficiency

1. The amount by which the tax imposed by this Chapter exceeds theamount shown as the tax by the executor, administrator or any of theheirsuponhisreturn;buttheamountssoshownonthereturnshallfirstbe increased by the amounts previously assessed (or collectedwithoutassessment) as a deficiency and decreased by the amount previouslyabated,refundedorotherwiserepaidinrespectofsuchtax;or

2. Ifnoamountisshownasthetaxbytheexecutor,administratororanyofthe heirs upon his return, or if no return is made by the executor,administrator,oranyheir,thentheamountbywhichthetaxexceedstheamounts previously assessed (or collected without assessment) as adeficiency; but such amounts previously assessed or collected withoutassessment shall first be decreased by the amounts previously abated,refundedorotherwiserepaidinrespectofsuchtax.

GOVERNMENTAGENCIES’DUTIES

PaymentBeforeDeliverybyExecutororAdministrator

• Nojudgeshallauthorizetheexecutororjudicialadministratortodelivera distributive share to any party interested in the estate unless acertificationfromtheCommissionerthattheestatetaxhasbeenpaidisshown.

DutiesofCertainOfficersandDebtors(Section95,NIRC)

1. Registers of Deeds shall not register in the Registry of Property anydocumenttransferringrealpropertyorrealrightsthereinoranychattelmortgage, by way of gifts inter vivos or mortis causa, legacy orinheritance, unless a certification from the Commissioner that the taxfixed in this Title and actually due thereonhad been paid is show, andthey shall immediately notify the Commissioner, Regional Director,RevenueDistrictOfficer,orRevenueCollectionOfficerorTreasurerofthecityormunicipalitywheretheirofficesare located,of thenonpaymentofthetaxdiscoveredbythem.

2. Any lawyer,notarypublic,oranygovernmentofficerwho,byreasonofhis official duties, intervenes in the preparation or acknowledgment ofdocuments regarding partition or disposal of donation inter vivos ormortiscausa,legacyorinheritance,shallhavethedutyoffurnishingtheCommissioner, Regional Director, Revenue District Officer or Revenue

Collection Officer of the place where he may have his principal office,with copies of such documents and any informationwhatsoeverwhichmayfacilitatethecollectionoftheaforementionedtax.

3. Neithershalladebtorofthedeceasedpayhisdebtstotheheirs,legatee,executor or administrator of his creditor, unless the certification of theCommissionerthatthetaxfixedinthisChapterhadbeenpaidisshown;but he may pay the executor or judicial administrator without saidcertificationifthecreditisincludedintheinventoryoftheestateofthedeceased.

PaymentofTaxAntecedenttotheTransferofShares,BondsorRights

• There shall not be transferred to any new owner in the books of anycorporation, sociedad anonima, partnership, business, or industryorganizedorestablishedinthePhilippinesanyshare,obligation,bondorright by way of gift inter vivos or mortis causa, legacy or inheritance,unlessacertification fromtheCommissioner that thetaxes fixed in thisTitleandduethereonhavebeenpaidisshown.

• Ifabankhasknowledgeofthedeathofaperson,whomaintainedabankdeposit account alone, or jointly with another, it shall not allow anywithdrawal fromthesaiddepositaccount,unlesstheCommissionerhascertifiedthatthetaxesimposedthereonbythisTitlehavebeenpaid:

o Provided,however,Thattheadministratoroftheestateoranyone(1)oftheheirsofthedecedentmay,uponauthorizationbytheCommissioner,withdrawanamountnotexceedingTwentythousandpesos(P20,000)withoutthesaidcertification

o Forthispurpose,allwithdrawalslipsshallcontainastatementtotheeffectthatallofthejointdepositorsarestilllivingatthetimeofwithdrawalbyanyoneofthejointdepositorsandsuchstatementshallbeunderoathbythesaiddepositors.

SPECIALTOPICS

RenunciationOfHeirOfShareInTheEstate

BIRRuling455‐93

• Inlegalsuccession,accretiontakesplaceincaseofrepudiationamongheirsof

thesamedegree.Thisissobecausethereisnorightofrepresentation.The


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co‐heirsinlegalsuccessionareco‐ownersoftheinheritance,forwhichreason,there is always a right of accretion among them, unlike in testamentarysuccession,where theymayormaynotbea rightofaccretion. However, iftherenunciationbyanheirorheirsismadeinfavorofoneormoreheirsbutnot all the heirs, the act of renunciation is in effect an act of dispositioninasmuchastheactofdispositionandthebenefitsthereofarenotenjoyedbyeverybodybutoneormoreheirs

• Since the renunciation of the properties Asuncion inherited from her latehusband in favor of her grandchildren who aren’t co‐heirs but are heirs ofdifferentdegreeasthatofAsuncionaswellasthedispositionofherconjugalshares in said properties in favor of the same first‐born grandchildrenweremade out of pure liberality on the part of Asuncion, she shall be subject todonor’stax

BIRRulingDA‐536‐98

FACTS:Mamertohadawifeand6children.Whenhedied,oneoftheproperties left isaresidential lot. This was divided among the heirs by virtue of an extrajudicialsettlement.Theestatetaxandotherchargeswerepaidaccordingly.Afterwards,awaiverofrightswasexecutedbythemotherand2childreninfavoroftwobutnotallsiblings.HELD:Iftherenunciationbyanheirorheirsismadeinfavorofoneormoreheirsbutnotalltheotherheirs,theactofrenunciationisineffectanactofdispositioninasmuchastheactofdispositionandthebenefitsthereofarenotenjoyedbyeverybodybutonlybyoneormoreheirs.Itwouldseemclearthatrenunciationorwaiverbyanyoftheco‐heirs in favorofoneormoreof theco‐heirsbutnotallof theco‐heirs,norightofaccretionshalltake place in favor of the co‐heir to whom the share in the inheritance wasrenouncedsincetheactofrenunciationshallbetreatedasbothaninheritanceanddonationandtheco‐heirs towhomthewaiverwasmadeshallequallydividethesameand shall equally pay the estate tax computed. The corresponding gift taxthereofshalllikewisebepaidcomputedinaccordancewithSection92ofthesamecode,otherwisethewaivermaybeconsideredasifmadebyanyoftheco‐heirsinfavorofalltheotherco‐heirs.

BIRRulingDA‐251‐99

FACTS:Pacita renounced her inheritance in favor of her son, from the estate of herdeceasedhusband.HELD:Asarule,whenapersonrenounces/repudiateshispartofhisinheritance,therightofaccretion takesplaceand thesame isaddedor incorporated to thatofhisco‐heirs, co‐devisees,orco‐legatees. Theshareof the renouncershallaccrue tohisco‐heirsinthesameproportionthattheyinherit.Intheinstantcase,whenPacitawaiverhershareintheinheritanceinfavorofthelegitimate son, accretion had effectively took place in the latter’s favor and therenouncedsharewasaddedorincorporatedtohisshare.Undoubtedly,whenthesurviving spouse renouncedher share in the inheritance, shedid not donate thepropertywhichhadneverbecamehers. Suchbeing thecase, therenunciation isnotsubjecttodonor’staximposed.CreationOfAnUnregisteredPartnership

ONAV.COMMISSIONERGRL‐19342,25May1972

FACTS:When Julia died and left behindher husband and children, a project of partitionwas made for her estate. However, no division was made of the properties.Instead, theproperties remainedundermanagementof the fatherwhoused thepropertiesinbusinessbyleasingorsellingthemandinvestingtheincomethereofin real properties and securities. From these investments and securities, thepetitioners incurred income. From these facts, the Commissioner held that theyformedanunregisteredpartnershipandsubjectedthemtoincometax.HELD:Itisincontrovertiblethatpetitionersmerelylimitthemselvestoholdingpropertiesinheritedbythem. Indeed, it isadmittedthatduringthosematerialyearsherein


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involved, some of the said properties were sold at considerable profit, and thatwith said profit, petitioners engaged in the purchase and sale of corporatesecurities.Itislikewiseadmittedthatallprofitsfromtheseventuresweredividedamong petitioners proportionately in accordance with their respective shares inthe inheritance. Themoment thepetitionersallowednotonly the incomes fromtheirrespectivesharesbuteventheinheritedpropertiesthemselvestobeusedbyLorenzoasacommonfundinundertakingseveraltransactionsorinbusiness,withtheintentionofderivingprofittobesharedbythemproportionally,suchactwastantamounttoactuallycontributingsuchincometoacommonfundandineffect,theytherebyformedanunregisteredpartnership.*From the moment of such partition, the heirs are entitled already to theirrespective share of the estate and the incomes thereof, for each of them tomanage anddisposeof as exclusively his ownwith the interventionof theotherheirs, and accordingly, he becomes liable individually for all taxes in conjunctiontherewith. Ifaftersuchpartition,heallowshissharetobeheld incommonwithhisco‐heirsunderasinglemanagementtobeusedwiththeintentofmakingprofittherebyinproportiontohisshare,therecanbenodoubtthatevenifnodocumentor instrument were executed for the purpose, for tax purposes, at least, anunregisteredpartnershipisformed.

BIRRuling102‐87

FACTS:Jose and Petra were the owners of two parcels of land and they derived rentalincome from the sameduring their lifetime. Theproperty subsequently becamesubjecttopartitionamongtheheirsandtheytooarenowreceiving incomefromtheproperties.HELD:Since the properties left by the deceased persons have been the subject of anextrajudicial settlement among the heirs who continued the business of theirparentsbyreceivingtherentalincomeofthepropertiesfromthemomentofsuchextrajudicialsettlement,anunregisteredpartnershiphasbeenformed.For tax purposes, the co‐ownership of inherited properties is automaticallyconverted into an unregistered partnership the moment the said commonpropertiesand/ortheincomesderivedtherefromareusedasacommonfundwith

intenttoproduceprofitsfortheheirsinproportiontotheirrespectivesharesintheinheritance as determined in a project partition either duly executed in anextrajudicial settlementorapprovedby thecourt in thecorresponding testateorintestateproceeding.From the moment of such partition, the heirs are entitled already to theirrespectivedefinitesharesoftheestateandtheincomethereof,foreachofthemtomanageanddisposeofanexclusivelyhisownwithouttheinterventionoftheotherheirs, and accordingly, he becomes liable individually for all taxes in connectiontherewith. Ifaftersuchpartition,heallowshissharetobeheld incommonwithhisco‐heirsunderasinglemanagementtobeusedwiththeintentofmakingprofitthereby in proportion to his share, there can be no doubt that, even if nodocument or instrument were executed for the purpose, fopar tax purposes, atleast,anunregisteredpartnershipisformed.PartitionofEstateIndividuallyAmongHeirs

BIRRuling258‐91

FACTS:The parents of the heirs died intestate in a shipwreck and left several realproperties.Theheirsthenexecutedanextra‐judicialsettlementofestate.HELD:Capital gains presumed to have been realized from the sale, exchange or otherdisposition of real property located in the Philippines classified as capital assetsincludingpactode rectosalesandother formsofconditional sales,by individual,includingestatesandtrusts,shallbetaxedat5%basedonthegrosssellingpriceorthefairmarketvalueprevailingatthetimeofsale,whichever ishigher. Ontheotherhand, theCCprovides thateveryactwhich is intended toputanend to indivision among co‐heirs and legatees and devisees is deemed to be partition,although it should purport to be a sale, exchange, compromise, or any othertransaction.AandDarenotsubjecttotheCGTconsideringthereisneitherasale,disposition,norexchangeof realpropertyon theirpart,butapartitionof theestateof theirparents wherein both of them agreed to receive the cash equivalent of theirrespectivesharesintheestateoftheirparents.


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ExtensionofTimeToFileEstateTaxReturn

BIRRuling66‐98

FACTS:Almedadiedand leftherheirs indisarray inmanagingtheaffairsshe leftbehind.She,accordingto theheirs,hadacentralized formofmanagingherbusinessandproperties. By virtue of this, they asked for an extension in filing of estate taxreturnandcorrespondingly, thepaymentof the tax. And if theyareallowedtheextension,tobegrantedexemptionfrompayingsurchargeandinterest.HELD:The estate tax shall be paid at the time the return is filed by the executor,administrator, or the heirs. Moreover, when the Commissioner of InternalRevenue finds that thepaymenton theduedateof theestate taxorofanypartthereofwouldimposeunduehardshipupontheestateoranyoftheheirs,hemayextendthetimeforpaymentofsuchtaxoranypartthereofnottoexceed5years,in case the estate is settled through the courts, or 2 years in case the estate issettledextra‐judicially.Suchbeingthecase,andsincethepaymentofestatetaxoranypartthereofontheduedatewouldimposeunduehardshipupontheestateoranyoftheheirs,therequestforextensionofthetimeforpaymentoftheestatetaxoranypartthereofdueonthetransmissionoftheestatetohisheirsisgranted.

DONOR’STAX

ImpositionOfDonor’sTax

• Thereshallbe levied,assessed,collectedandpaidupon the transferbyany person, resident or nonresident, of the property by gift, a tax,computedasprovidedinSection99.

• Thetaxshallapplywhetherthetransferisintrustorotherwise,whetherthegiftisdirectorindirect,andwhetherthepropertyisrealorpersonal,tangibleorintangible.

NatureofDonor’stax

• Excise tax imposed on the right to transfer gratuitously, directly orindirectly,realandpersonalproperty,tangibleornon‐tangibleoutoftheowner’sliberalityinfavorofanotherwhoacceptsthegift

• Purpose istopreventtheavoidanceofestatetaxthru lifetimetransfersorpropertywhichwouldotherwisebywillorthroughdonor’sdeath

Donation

• Donationisanactofliberalitywherebyapersondisposesgratuitouslyofathingorrightinfavorofanother,whoacceptsit.(725)

• It is perfected upon the knowledge of the donor of the donee’sacceptance(734)

DonationofRealProperty

• MustbeinpublicinstrumentDonationofPersonalProperty

(3) VerbaldonationforvalueofpersonalpropertywhichisP5000orless

(4) WrittendonationforvaluethatexceedsP5000VoidDonations(Article739CC)

1. Those made between persons who were guilty of adultery orconcubinageatthetimeofthedonation;

2. Thosemadebetweenpersonsfoundguiltyofthesamecriminaloffense,inconsiderationthereof;

3. Thosemadetoapublicofficerorhiswife,descendantsandascendants,byreasonofhisoffice.

*In the case referred to in No. 1, the action for declaration of nullity may bebroughtbythespouseofthedonorordonee;andtheguiltofthedonoranddoneemaybeprovedbypreponderanceofevidenceinthesameaction.Donor’sTax

• Taxontheprivilegeof transmittingone’spropertyorpropertyrights toanotherorotherswithoutadequateandfullvaluableconsideration

WhatDonor’sTaxShouldNotMean

1. Whenthelawsaysallgifts,itdoubtlessreferstogiftsintervivos,andnotmortiscausa.Boththeletterandspiritofthelawleavenoroomforanyother interpretation. Such clearly, is the tenor of the language which


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referstodonationsthattookeffectbeforethedonor’sdeath,andnottomortis causa donations. (Dizon v. Posadas, supra; Roces v. Posadas,supra)

2. If a creditor merely desires to benefit the debtor and without anyconsiderationthereforecancelsthedebt,theamountofthedebtisagiftfromthecreditortothedebtorandneednotbe includedinthe latter’sgrossincome.Ifacorporationtowhichastockholderisindebtedforgivesthe debt, the transaction has the effect of the payment of a dividend.(BIRRuling076‐89)

Rules

1. GiftsToEmployeesByEmployers

FringeBenefits,Defined• Anygood,serviceorotherbenefitfurnishedorgrantedincashorin

kindbyanemployertoanindividualemployee(exceptrankandfileemployees as defined herein) such as, but not limited to, thefollowing:

o Housing;o Expenseaccount;o Vehicleofanykind;o Householdpersonnel,suchasmaid,driverandothers;o Intereston loanat less thanmarket rate to theextentof

the difference between the market rate and actual rategranted;

o Membership fees,duesandotherexpensesborneby theemployer for theemployee in socialandathletic clubsorothersimilarorganizations;

o Expensesforforeigntravel;o Holidayandvacationexpenses;o Educationalassistancetotheemployeeorhisdependents;

ando Life or health insurance and other non‐life insurance

premiums or similar amounts in excess of what the lawallows.

FringeBenefitsNotTaxable

1. Fringebenefitswhichareauthorizedandexemptedfromtaxunderspeciallaws;

2. Contributions of the employer for the benefit of the employee toretirement,insuranceandhospitalizationbenefitplans;

3. Benefits given to the rank and file employees, whether grantedunderacollectivebargainingagreementornot;and

4. Deminimis benefits as defined in the rules and regulations to bepromulgatedbytheSecretaryofFinance,uponrecommendationoftheCommissioner.

De Minimis Benefits Not Subject To Withholding Tax on CompensationIncomeofBothManagerialandRankandFileEmployees(AsprovidedforinRR8‐2000)*Theamountofthedeminimisbenefitsconformingtotheceilingshallnotbeconsidered in determining the P30,000 ceiling or other benefits providedunder the Code. However, if the employer pays more than the ceilingprescribedby theseregulations, theexcessshallbe taxable to theemployeereceivingthebenefitsonlyifsuchexcessisbeyondP30,000ceiling.Providedfurther,thatanyamountgivenbytheemployerasbenefitstohisemployeeswhetherclassifiedasdeminimisorfringebenefits,shallconstitutedeductibleexpensefortheemployer.

a. Monetized unused vacation leave credits of employees notexceeding10daysduringtheyear

b. MedicalcashallowancetodependentsofemployeesnotexceedingP750persemesterorP125permonth

c. Rice subsidy of P1000 or one sack of 50‐kg. rice per monthamountingtonotmorethanP1000

d. UniformsgiventoemployeesbytheemployernotexceedingP3000perannum

e. ActualmedicalbenefitsgiventotheemployeesbytheemployernotexceedingP10,000perannum

f. LaundryallowancenotexceedingP300permonthg. Employee achievement awards, e.g for the length of service or

safety achievement, which must be in the form of a tangiblepersonalpropertyotherthancashorgiftcertificate,withanannualmonetary value not exceeding P10,000 received by the employeeunder an established written plan which doesn't discriminate infavorofhighlypaidemployees

h. GiftsgivenduringChristmasandmajoranniversarycelebrationsnotexceedingP5,000peremployeeperannum


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i. Flowers,fruits,booksorsimilaritemsgiventotheemployeesunderspecial circumstances—on account of illness, marriage, birth ofchild,etc.notexceeding25%ofthebasicminimumwage

j. Dailymeal allowance for overtimework not exceeding 25%of thebasicminimumwage

BasicRulesonFringeBenefitsandFringeBenefitsTax

1. Fringebenefits given to a rank and file employee is not subject tothefringebenefittax

2. Fringe benefit given to a supervisory or managerial employee issubjecttothefringebenefittax

3. Deminimisbenefit,whethergiventoarank‐and‐fileemployeeorasupervisory or managerial employee is not subject to the fringebenefittax

a. Notethatdeminimisbenefitsshallbe limitedto facilitiesandprivileges furnishedorofferedbyanemployer tohisemployees that are relatively small in value and areofferedorfurnishedbytheemployermerelyasameansofpromoting the health, goodwill and contentment, orefficiencyofhisemployees

2. Giftsbycorporationtoshareholders

Dividends

• Compriseanydistributionwhether incashorotherproperty intheordinary course of business, even though extraordinary in amountmadebyadomesticcorporation, jointstockcompany,partnership,jointaccount,association,orinsurancecompanytotheshareholdersormembersoutofitsearningsorprofits

• In general, dividends are included in the gross income of thestockholder unless they are exempt from tax or subject to finalwithholdingtaxasmaybeprovidedforbytheTaxCode

• Remember that any type of dividend must come from theunappropriatedretainedearningsofthecorporation

3. Corporatesponsorships

BIRRULING03‐80

FACTS:Thecompanyhasanexistinginterestbearingdeferredforeignobligationfroma non‐resident foreign corporation. This obligation was secured by anirrevocable letterofcredit issuedby thePNB. ThePNBopinedthat it is thewithholdingagentrequiredtodeductthe15%taxontheinterestincomefromsaidforeignloan.HELD:Thepartyhavingthecontrol,receipt,custody,disposalorpaymentofinterestshallundertakethedeductionandwithholdingofthe15%. Inasmuchasthecorporationhasthecontrol,custodyanddisposaloftheinterestpaymentstobe remitted to the non‐resident foreign corporation, it is the withholdingagent and should therefore be the one to deduct and withhold the 15%withholdingtaxduethereon.

4. Bonusplusadditionalcompensation

BIRRulingDA‐060‐2‐5‐99

FACTS:IMA Philippines is a branch office of IMA. It receives compensation in theform of allowances, transportation, living quarters, meal allowances, andotherfaciltieswhichareofrelativelysmallvalue.GrantscomingfromUSAIDand donations locally are used to finance projects which IMA Philippinesundertakes.HELD:Since the monthly financial support in the form of various allowances thusmentionedbeingallocatedbyvariousdonorsandNGOsabroadandreceivedby the officers and employees through IMA are not compensation and/orsalary per se, but donations made by individuals and NGOs in the USspecifically tosustain thepurposewhich IMAwasorganizedandfromwhichtheofficersandempkloyeesreceivesuchkindofbenefitstosustainthemtosuchendeavors.Saidfinancialsupportanddonationarenotthereforesubjectto income tax. However, the net gift or donation to each and every localofficer or employee by each and every individual donor shall be subject todonor’stax.


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5. Contributionstopoliticalcampaigns

ABELLOV.COMMISSIONEROFINTERNALREVENUE452SCRA162

FACTS:Petitioners,whowereallpartnersoftheACCRAlawfirm,duringtheelectionperiod, made contributions to the campaign of Senator Angara. TheCommissioner then assessed each one of them for the payment of donor’stax. Theydidn'twanttopayandmaintainedthatelectoralcontributionsarenotdonationsandthus,cannotbesubjectedtodonor’s tax. However, theirclaimwasdeniedbytheCommissioner.HELD:Section91oftheNationalInternalRevenueCode(NIRC)reads:(A)Thereshallbelevied,assessed,collectedandpaiduponthetransferbyanyperson, resident or nonresident, of theproperty by gift, a tax, computed asprovidedinSection92(B)Thetaxshallapplywhetherthetransfer is intrustorotherwise,whetherthe gift is direct or indirect, and whether the property is real or personal,tangibleorintangible.TheNIRCdoesnotdefinetransferofpropertybygift.However,Article18oftheCivilCode,states:Inmatterswhich are governed by the Code of Commerce and special laws,theirdeficiencyshallbesuppliedbytheprovisionsofthisCode.Thus,referencemaybemadetothedefinitionofadonationintheCivilCode.Article725ofsaidCodedefinesdonationas:. . . an actof liberalitywherebyapersondisposes gratuitouslyof a thingorrightinfavorofanother,whoacceptsit.

Donation has the following elements: (a) the reduction of the patrimony ofthedonor;(b)theincreaseinthepatrimonyofthedonee;and,(c)theintenttodoanactofliberalityoranimusdonandi.Thepresentcasefallssquarelywithinthedefinitionofadonation.Petitioners,thelateManuelG.Abello,JoseC.Concepcion,TeodoroD.RegalaandAvelinoV. Cruz, each gave P882,661.31 to the campaign funds of Senator EdgardoAngara,withoutanymaterialconsideration.Allthreeelementsofadonationare present. The patrimony of the four petitioners were reduced byP882,661.31 each. Senator Edgardo Angara’s patrimony correspondinglyincreased by P3,530,645.24. There was intent to do an act of liberality oranimus donandi was present since each of the petitioners gave theircontributionswithoutanyconsideration.Sinceanimusdonandiortheintentiontodoanactofliberalityisanessentialelementofadonation,petitionersarguethat it is importantto look intotheintention of the giver to determine if a political contribution is a gift.Petitioners’argumentisnottenable.Firstofall,donativeintentisacreatureof themind. Itcannotbeperceivedexceptbythematerialandtangibleactswhichmanifestitspresence.Thisbeingthecase,donativeintentispresumedpresent when one gives a part of ones patrimony to another withoutconsideration. Second, donative intent is not negated when the persondonating has other intentions,motives or purposeswhich do not contradictdonativeintent.Generally,whatthepetitionerssoughtwasthedistinctionbetweenagiftfromapoliticaldonationbysayingthattheconsiderationforagift istheliberalityofthedonor,whiletheconsiderationforapoliticalcontributionisthedesireof the giver to influence the result of an election by supporting candidateswho, in the perception of the giver, would influence the shaping ofgovernment policies thatwould promote the generalwelfare and economicwell‐beingoftheelectorate,includingthegiverhimself.Petitioners’attemptisstrained.Thefactthatpetitionerswillsomehowinthefuturebenefitfromtheelectionofthecandidatetowhomtheycontribute,innowayamountstoavaluablematerialconsiderationsoastoremovepoliticalcontributions fromthepurviewofadonation.SenatorAngarawasundernoobligationtobenefitthepetitioners.TheproperperformanceofhisdutiesasalegislatorishisobligationasanelectedpublicservantoftheFilipinopeople


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andnotaconsiderationforthepoliticalcontributionshereceived.Infact,asapublicservant,hemayevenbecalled toenact laws thatarecontrary to theinterestsofhisbenefactors,forthebenefitofthegreatergood.In fine, thepurpose forwhich the sumsofmoneyweregiven,whichwas tofundthecampaignofSenatorAngarainhisbidforasenatorialseat,cannotbeconsideredasamaterialconsiderationsoastonegateadonation.

RATESPAYABLE

WhenDoesGraduatedRatesApply

• When the donee or beneficiary is not a stranger, then the donor’s taxshallbebasedonthegraduatedrates

OVER

BUTNOTOVER

THETAXSHALLBE

PLUS

OFTHEEXCESSOVER

P100,000

Exempt

P100,000

200,000

0 2%

P100,000

200,000

500,000

2,000 4%

200,000

500,000

1,000,000

14,000

6%

500,000

1,000,000

3,000,000

44,000

8%

1,000,000

3,000,000

5,000,000

204,000

10%

3,000,000

5,000,000

10,000,000

404,000

12%

5,000,000

10,000,000

1,004,000

15%

10,000,000

• Whenthedoneeorbeneficiaryisastranger,thenthedonor’staxshallbe

30%ofthenetgiftsgivenduringtheyearWhoisconsideredastranger?Forthepurposeofthistax,a'stranger,'isapersonwhoisnota:(1)Brother,sister(whetherbywholeorhalf‐blood),spouse,ancestorandlinealdescendant;or(2) Relativebyconsanguinity inthecollateral linewithinthefourthdegreeofrelationship.TreatmentOfSonsInLawAndParentInLaw

BIRRuling159‐89

FACTS:SpousesAlbamadeadonationofrealpropertytotheparentsofVirginia,thewife.Theywereassessed then fordonor’s tax. Paymentwasmadebut theywerestillassessed for the deficiency, allegedly since the donees were considered as“strangers”withinthemeaningprovidedbytheTaxcode.HELD:Given the relevantprovisionof theTaxCode, relativesby affinity, as in this casebeing the parents‐in‐law, are not included in the enumeration of who areconsideredasstrangers.Thisbeingthecase,thedonorsshouldpayaccordinglythedonor’staxrelatingtodonationstostrangers.DonationofConjugalProperty

TONGHOV.BTA


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97Phil889

FACTS:Li SengGiap and hiswife TangHowere the stockholders togetherwith their 13children of two family corporations. A perusal of the corporate records wouldreflect investmentsbythechildreninshares. Theywereassessedfordonor’staxby the Commissioner, alleging these were undeclared gifts. By way of defense,they submitted donor’s and donee’s tax returns, reflecting donations inter vivosmadeeachyeartothechildren;thatthechildrenwhomarriedweregivendowries.The spouses admitted that the gifts were unreported but they alleged that thesame came from conjugal funds and thus should be considered as individualcontributionsbyeachofthespouses.HELD:TheappealedfindingsoftheBoardofTaxAppealsandoftheCollectorofInternalRevenue(thatthestocktransfersfromLiSengGiaptohischildrenweredonations)appearsupportedbythefollowingcircumstances:(1)ThatthetransferorLiSengGiap(nowdeceased)hadinfactconveyedsharestostock to his 13 children on the dates and in the amounts shown in the table onpage2ofthisdecision.(2)Thatnoneofthetransfereesappearedtopossessadequateindependentmeanstobuytheshares,somuchsothat theyclaimnowtohavepurchasedtheshareswiththecashdonationsmadetothemfromtimetotime.(3)Thatthetotaloftheallegedcashdonationstoeachchildispracticallyidenticaltothevalueofthesharessupposedlypurchasedbyeachdonee.(4)Thatthere isnoevidenceotherthanthebelatedsworngift taxreturnsofthespouses Li Seng Giap and Ang Tang Ho, and their children, appellants herein, tosupporttheircontentionthattheshareswereacquiredbypurchase.Nocontractsof sale or other documents were presented, nor any witnesses introduced; noteventheclaimantsthemselveshavetestified.(5)Theclaimthattheshareswereacquiredbythechildrenbypurchasewasfirstadvancedonlyaftertheassessmentofgifttaxesandpenaltiesduethereon(inthe

sumofP76,995.31)hadbeenmade,andaftertheappellantshadpaidP53,434.50onaccount,andhadfiledabondtoguaranteethebalance.(6)Thatfortheparenttodonatecashtoenablethedoneetobuyfromhimsharesofequivalentvalueis,forallintentsandpurposes,adonationofsuchsharestothepurchaserdonee.We cannot say, under the circumstances, that there is no sufficient evidence onrecord to support the findings of the Tax Board that the stock transfers aboveindicated were made by way of donation, as would entitle us to disregard orreversetheBoard'sfinding.The filing of the gift tax returns only after assessments andpart payment of thetaxes demanded by the Collector, and the lack of corroboration of the allegeddonations in cash, amply justify the Tax Board's distrust of the veracity of theappellants'belatedtaxreturns.The second and third issues in this appeal revolve around appellants' thesis thatinasmuch as the property donated was community property (gananciales), andsuchpropertyisjointlyownedbytheirparents,thetotalamountofthegiftsmadein each year should be divided between the father and themother, as separatedonors,andshouldbetaxedseparatelytoeachoneofthem.ThispresentationshouldbeviewedinthelightoftheprovisionsoftheSpanishCivilCodeof1889,whichwasthegoverning law in theyearsherein involved,1939to1950.thedeterminativeruleisthatofArts.1409and1415,readingasfollows:Art. 1409. The conjugal partnership shall alsobe chargeablewith anythingwhichmay have been given or promised by the husband to the children born of themarriagesolelyinordertoobtainemploymentforthemorgivethemaprofession,orbybothspousesbycommonconsent,shouldtheynothavestipulatedthatsuchexpendituresshouldbeborneinwholeorinpartbytheseparatepropertyofoneofthem.ART. 1415, p. 1.� The husband may dispone of the property of the conjugalpartnershipforthepurposesmentionedinArt.1409.In effect, these Articles clearly refute the appellants' theory that because thepropertydonatediscommunityproperty,thedonationsshouldbeviewedasmade


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bybothspouses.First,becausethelawclearlydifferentiatesthedonationsofsuchproperty "by the husband" from the "donations by both spouses by commonconsent" ("por elmarido . . . o por ambos conyuges de comun acuerdo," in theSpanishtext).Next,thewordingofArts.1409and1415indicatesthatthelawfuldonationsbythehusband to thecommonchildrenarevalidandarechargeable to thecommunityproperty, irrespective of whether the wife agrees or objects thereof. Obviously,shouldthewifeobjecttothedonation,shecannotberegardedasadonoratall.Appellantshereinarethereforeinerrorwhentheycontendthat it isenoughthatthepropertydonatedshouldbelongtotheconjugalpartnership inorderthatthedonationbeconsideredandtaxedasadonationofbothhusbandandwife,evenifthe husband should appear as the sole donor. There is no blinking the fact that,under theoldCivil Code, tobeadonationbyboth spouses, taxable toboth, thewifemustexpressly join thehusband inmakingthegift;herparticipationthereincannotbeimplied.DonationsMortisCausaBIRRuling204‐81HELD:Since the transactionwasadonationmortis causa, theprovisionsonexemptionsfor donor’s tax is not applicable. Since said donation was in contemplation ofdeath,thedonatedpartyformspartofthegrossestateofthedeceasedsubjecttotheestatetaxprescribed.BIRRuling081‐98HELD:Thedonationsmadeinfavorofthesister,whichareintendedtotakeeffectuponthedeathof thedonorpartakeof thenatureof testamentaryprovisionsand thesameshall remainpartof thedonor’sestateat the timeofhis/herdeatheven ifthesamehadbeendonatedtothedonee.Thereforetheprovisionsrelativetotheimpositionofestatetaxontransfersincontemplationofdeathshallbeapplicabletotthiscase.

ContributionstoPoliticalCampaigns

CIRV.ABELLOSupra

Petitioners maintain that the definition of an "electoral contribution" under theOmnibusElectionCodeisessentialtoappreciatehowapoliticalcontributiondiffersfromataxablegift.11Section94(a)ofthesaidCodedefineselectoralcontributionasfollows:The term "contribution" includes a gift, donation, subscription, loan, advance ordeposit of money or anything of value, or a contract, promise or agreement tocontribute,whetherornotlegallyenforceable,madeforthepurposeofinfluencingthe results of the elections but shall not include services rendered withoutcompensationbyindividualsvolunteeringaportionoralloftheirtimeinbehalfofa candidate or political party. It shall also include the use of facilities voluntarilydonatedbyotherpersons,themoneyvalueofwhichcanbeassessedbasedontheratesprevailinginthearea.Since the purpose of an electoral contribution is to influence the results of theelection, petitioners again claim that donative intent is not present. Petitionersattempttoplacethebarrierofmutualexclusivitybetweendonativeintentandthepurposeofpoliticalcontributions.ThisCourtreiteratesthatdonativeintent isnotnegated by the presence of other intentions,motives or purposeswhich do notcontradictdonativeintent.Petitioners would distinguish a gift from a political donation by saying that theconsiderationforagift istheliberalityofthedonor,whiletheconsiderationforapoliticalcontributionisthedesireofthegivertoinfluencetheresultofanelectionbysupportingcandidateswho,intheperceptionofthegiver,wouldinfluencetheshaping of government policies that would promote the general welfare andeconomicwell‐beingoftheelectorate,includingthegiverhimself.Petitioners� attempt is strained. The fact that petitioners will somehow in thefuturebenefit fromtheelectionof thecandidatetowhomtheycontribute, innoway amounts to a valuable material consideration so as to remove politicalcontributions from the purview of a donation. Senator Angara was under noobligation to benefit the petitioners. The proper performance of his duties as a


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legislatorishisobligationasanelectedpublicservantoftheFilipinopeopleandnota consideration for the political contributions he received. In fact, as a publicservant,hemayevenbecalledtoenact lawsthatarecontrarytotheinterestsofhisbenefactors,forthebenefitofthegreatergood.In fine, thepurposeforwhichthesumsofmoneyweregiven,whichwasto fundthe campaign of Senator Angara in his bid for a senatorial seat, cannot beconsideredasamaterialconsiderationsoastonegateadonation.DonationsbySpouses

TANGHOV.CAsupra

Ineffect,Articles1409and1415clearlyrefutetheappellants'theorythatbecausethepropertydonated is communityproperty, thedonations shouldbeviewedasmadebybothspouses.First,becausethelawclearlydifferentiatesthedonationsofsuchproperty"bythehusband"fromthe"donationsbybothspousesbycommonconsent" ("por elmarido . . . o por ambos conyuges de comun acuerdo," in theSpanishtext).Next,thewordingofArts.1409and1415indicatesthatthelawfuldonationsbythehusband to thecommonchildrenarevalidandarechargeable to thecommunityproperty, irrespective of whether the wife agrees or objects thereof. Obviously,shouldthewifeobjecttothedonation,shecannotberegardedasadonoratall.

Evenmore:Supposethatthehusbandshouldmakeadonationofsomecommunitypropertytoaconcubineorparamour.Undeniably,thewifecannotberegardedasjoining in any such donation. Yet under the old Civil Code, the donation wouldstand,withtheonlylimitationthatthewifeshouldnotbeprejudicedinthedivisionof the profits after the conjugal partnership affairs are liquidated. So that if thevalue of the donation should be found to fit within the limits of the husband'sultimate share in the conjugal partnership profits, the donation by the husbandwould remain unassailable, over and against the non‐participation of the wifetherein.Appellantshereinarethereforeinerrorwhentheycontendthat it isenoughthatthepropertydonatedshouldbelongtotheconjugalpartnership inorderthatthedonationbeconsideredandtaxedasadonationofbothhusbandandwife,evenifthe husband should appear as the sole donor. There is no blinking the fact that,under theoldCivil Code, tobeadonationbyboth spouses, taxable toboth, thewifemustexpressly join thehusband inmakingthegift;herparticipationthereincannotbeimplied.It istrue,asappellantsstress,that inGibbsvs.GovernmentofthePhilippines,59Phil., 293, this Court ruled that "the wife, upon acquisition of any conjugalproperty,becomes immediatelyvestedwithan interestand titleequal to thatofthehusband";butthisCourtwascarefultoimmediatelyadd,"subjecttothepowerofmanagementanddispositionwhichthelawvestsonthehusband."Ashasbeenshown, this power of disposition may, within the legal limits, override theobjections of the wife and render the donation of the husband fully effectivewithoutneedofthewife'sjoiningtherein.

EXEMPTIONS

Taxpayer Exemption NotesResident 1. P100,000

2. Dowriesorgiftsmadeonaccountofmarriageandbeforeitscelebrationorwithin one year thereafter by parents to each of their legitimate,recognized natural, or adopted children to the extent of the first Tenthousandpesos(P10,000):

3. Gifts made to or for the use of the National Government or any entitycreatedbyanyof itsagencieswhichisnotconductedforprofit,ortoany


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politicalsubdivisionofthesaidGovernment;and4. Gifts in favor of an educational and/or charitable, religious, cultural or

social welfare corporation, institution, accredited nongovernmentorganization, trustorphilanthropicorganizationor research institutionororganization

Notmorethanthirtypercent(30%)ofsaidgiftsshallbeusedbysuchdoneeforadministrationpurposes.Non‐profit educational and/or charitable corporation,institution,accreditednongovernmentorganization, trustorphilanthropic organization and/or research institution ororganization• Is a school, college or university and/or charitable

corporation, accredited nongovernment organization,trust or philanthropic organization and/or researchinstitutionororganization

• Incorporatedasanonstockentity• Payingnodividends• Governedbytrusteeswhoreceivenocompensation• Anddevoting all its income,whether students' feesor

gifts, donation, subsidies or other forms ofphilanthropy,totheaccomplishmentandpromotionofthepurposesenumeratedinitsArticlesofIncorporation

Non‐resident,non‐citizen 1. Gifts made to or for the use of the National Government or any entity

createdbyanyof itsagencieswhichisnotconductedforprofit,ortoanypoliticalsubdivisionofthesaidGovernment.

2. Gifts in favor of an educational and/or charitable, religious, cultural orsocial welfare corporation, institution, foundation, trust or philanthropicorganizationorresearchinstitutionororganization

Notmorethanthirtypercent(30%)ofsaidgiftsshallbeusedbysuchdoneeforadministrationpurposes.

TAXCREDITGeneral Thetax imposedbythisTitleuponadonorwhowasacitizenoraresidentatthetimeofdonationshallbecreditedwiththeamountofany

donor'staxofanycharacteranddescriptionimposedbytheauthorityofaforeigncountry.


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Limitation 1. Theamountofthecreditinrespecttothetaxpaidtoanycountryshallnotexceedthesameproportionofthetaxagainstwhichsuchcreditistaken,whichthenetgiftssituatedwithinsuchcountrytaxableunderthisTitlebearstohisentirenetgifts;and

2. Thetotalamountofthecreditshallnotexceedthesameproportionofthetaxagainstwhichsuchcreditistaken,whichthedonor'snetgiftssituatedoutsidethePhilippinestaxableunderthistitlebearstohisentirenetgifts.

FILINGOFRETURNS

Requirements

• Anyindividualwhomakesanytransferbygift(exceptthosewhich,underSection101,areexemptfromthetaxprovidedforinthisChapter)shall,for thepurposeof the said tax,makea returnunderoath induplicate.Thereturnshallseforth:

(1) Eachgiftmadeduringthecalendaryearwhichistobeincludedincomputingnetgifts;

(2) Thedeductionsclaimedandallowable;(3) Anypreviousnetgiftsmadeduringthesamecalendaryear;(4) Thenameofthedonee;and(5) Such further information as may be required by rules and

regulationsmadepursuanttolaw.

TimeandPlaceofFiling• ThereturnofthedonorrequiredinthisSectionshallbefiledwithinthirty

(30)daysafterthedatethegiftismadeandthetaxduethereonshallbepaidatthetimeoffiling.

• Except in caseswhere the Commissioner otherwise permits, the returnshallbefiledandthetaxpaidtoanauthorizedagentbank,theRevenueDistrictOfficer,RevenueCollectionOfficerordulyauthorizedTreasurerofthecityormunicipalitywherethedonorwasdomiciledatthetimeofthetransfer,oriftherebenolegalresidenceinthePhilippines,withtheOfficeoftheCommissioner.

• Inthecaseofgiftsmadebyanonresident,thereturnmaybefiledwiththePhilippineEmbassyorConsulateinthecountrywhereheisdomiciledat the time of the transfer, or directly with the Office of theCommissioner.

SPECIALTOPICS

TerminationofTrust

VALUE‐ADDEDTAX

Preliminaries

• VATiscoveredbySections106to118oftheNIRC• RA8241,9238,9337allamendedtheprovisionscoveringVAT

Tolentinov.SecretaryofFinanceGR15455,25August1994

1. What it contends is that by withdrawing the exemption previously

granted to print media transactions involving printing, publication,importationorsaleofnewspapers,RepublicActNo.7716hassingledoutthepressfordiscriminatorytreatmentandthatwithintheclassofmassmedia the law discriminates against print media by giving broadcastmedia favored treatment. We have carefully examined this argument,butweareunabletofindadifferentialtreatmentofthepressbythelaw,muchlessanycensorialmotivationforitsenactment.Ifthepressisnowrequiredtopayavalue‐addedtaxonitstransactions,itisnotbecauseitis being singledout,much less targeted, for special treatment but onlybecauseoftheremovaloftheexemptionpreviouslygrantedtoitbylaw.Thewithdrawalofexemptionisallthatis involvedinthesecases.Othertransactions, likewisepreviouslygrantedexemption,havebeendelistedas part of the scheme to expand the base and the scope of the VATsystem.Thelawwouldperhapsbeopentothechargeofdiscriminatorytreatment if theonlyprivilegewithdrawnhadbeen thatgranted to thepress.Butthatisnotthecase.

TrustorTrustee(transferalreadytriggered

estatetax)Beneficiary


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2. Indeed,regressivityisnotanegativestandardforcourtstoenforce.WhatCongressisrequiredbytheConstitutiontodoisto"evolveaprogressivesystemoftaxation."ThisisadirectivetoCongress,justlikethedirectiveto it to give priority to the enactment of laws for the enhancement ofhuman dignity and the reduction of social, economic and politicalinequalities (Art. XIII, 1), or for the promotion of the right to "qualityeducation" (Art. XIV, 1). Theseprovisions areput in theConstitution asmoralincentivestolegislation,notasjudiciallyenforceablerights.

DestinationPrinciple

BIRRuling32‐98

FACTS:Therevenuedistrictofficerinquiredonthetaxabilityofthevehiclesimportedbyacompany. It seemed that the company was authorized by the BOI to importvehicles.Novehicleshaveyetbeenrecoveredandthus,noexcisetaxeshavebeenpaid.Inadditiontothis,thecompanywasonlyallowedtoclassifythevehiclesas“jeep”formarkettestpurposesonlyandnotfortheexemptionfromtax.HELD:Theexcessunitsimportedarestillsubjecttoexcisetax.Absentanylawexemptingthesame,noexemptionisgoingtobegranted. Anexemptionfromthecommonburden cannot be permitted to exist upon vague implication, otherwise staterevenueswillsuffer.SEC.105.PersonsLiable.‐Anypersonwho,inthecourseoftradeorbusiness,sellsbarters, exchanges, leases goods or properties, renders services, and any personwho imports goods shall be subject to the value‐added tax (VAT) imposed inSections106to108ofthisCode.The value‐added tax is an indirect tax and the amount of taxmay be shifted orpassedon to thebuyer, transfereeor lesseeof thegoods,propertiesor services.This rule shall likewise apply to existing contracts of sale or lease of goods,propertiesorservicesatthetimeoftheeffectivityofRepublicActNo.7716.The phrase "in the course of trade or business" means the regular conduct orpursuitofa commercialoraneconomicactivity, including transactions incidental

thereto,byanypersonregardlessofwhetherornotthepersonengagedthereinisanonstock,nonprofitprivateorganization(irrespectiveofthedispositionofitsnetincome and whether or not it sells exclusively to members or their guests), orgovernmententity.Theruleof regularity, to thecontrarynotwithstanding,servicesasdefined in thisCode rendered in the Philippines by nonresident foreign persons shall beconsideredasbeingcourseoftradeorbusiness.Directtaxv.Indirecttax

Directtax IndirecttaxAmountof tax thatmaynot be shiftedorpassedontothebuyer,transfereeorlessee of the goods, properties, orservices

The amount of tax may be shifted orpassed on to the buyer, transferee orlessee of the goods, sdervices, orproperties

PersonsLiable

• Anypersonwho, in thecourseofbusiness, sells,barters,exchanges,orleases goodsorproperties, or renders service, anypersonwho importsgoods, shallbe liable toVAT imposed inSections106 to108of theTaxCode

• In case of importation of taxable goods, the importer, whether anindividualor corporationandwhetherornotmade in thecourseofhistradeorbusiness,shallbeliabletoVATimposedinSection107oftheTaxCode

TaxableSale

• Sale, barter, exchange and/or lease of goods or properties, includingtransactions “deemed sale” and the performance of service for aconsideration,whether incashor inkind,allofwhicharesubjecttotaxunderSections106and108oftheCode

NatureandCharacteristicsofValue‐AddedTax

• Taxontheconsumptionbasedonthesale,exchange,barter,exchangeorlease of goods or properties and services in the Philippines and onimportationofgoodsintothePhilippines

• Theselleristheonestatutorilyliableforthepaymentofthetaxbuttheamountofthetaxmaybeshiftedorpassedonthebuyer,transfereeorlesseeofthegoods,properties,orservices


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• This rule shall likewise apply to existing contracts of sale or lease ofgoods,services,orpropertiesatthetimeofeffectivityofRA9337

P1000 P100 Output 500 50 Input100 ‐0‐ =600 400 =P1000 50

BIRRuling88‐243

FACTS:Inquiry is made on the applicability of VAT purchases made by HDMF for itsoperations. HDMF isagovernmental financial institutionenjoying taxexemptionbutwiththeimplementationofVAT,thesuppliershavebeenchargingVAT.HELD:ThepersonsliablefortheVATarenotthebuyersorpurchasersbutthesellersorimportersofthegoodsandthoseperformingservicesforafee.ButsinceVAST isanindirecttax,itcanbeshiftedtotheconsumer.Onceshiftedtothecustomer,itisnolongerataxbutanadditiontothecost.TheshiftingofVATtoyoudoesn'tmakeyouthepersonliableforthesame,hence,thetaxexemptiongrantedtoyoucannotbeinvoked.

BIR91‐151PurchaseofPrimeCommoditiesfromCDA

FACTS:This is a request for exemption from the payment of VAT on purchase of primecommodities from food manufacturers on the ground that it is a cooperativeregisteredwiththeCDA.HELD:

Therequestcannotbegranted.Theexemptiongrantedtocooperativesislimitedtotaxesdirectlypayablebythem. Thevalue‐addedtax isatax indirectlypaidbythemasitisthesellerwhoisprimarilyliableforit.beinganindirecttax,itcanbeaddedtothecostofthegoodspurchasednotastaxbutasanadditionalcosttothepurchaser.

CIRv.Gotamco27February1987

FACTS:TheWorld Health Organization (WHO for short) is an international organizationwhich has a regional office inManila. As an international organization, it enjoysprivileges and immunities which are defined more specifically in the HostAgreement entered into between the Republic of the Philippines and the saidOrganization on July 22, 1951. Section 11 of that Agreement provides, inter alit;that"theOrganization,itsassets,incomeandotherpropertiesshallbe:(a)exemptfromalldirectandindirecttaxes.Itisunderstood,however,thattheOrganizationwillnotclaimexemption fromtaxeswhichare, in fact,nomore thancharges forpublicutilityservices;..."WhentheWHOdecidedtoconstructabuildingtohouseitsownoffices,aswellasthe other United Nations offices stationed in Manila, it entered into a furtheragreementwith theGovernmentof theRepublicof thePhilippinesonNovember26,1957.Thisagreementcontained the followingprovision (Article III,paragraph2):"TheOrganizationmayimportintothecountrymaterialsandfixturesrequiredfortheconstructionfreefromalldutiesandtaxesandagreesnottoutilizeanyportionoftheinternationalreservesoftheGovernment."The Organization sent out invitations to bid for the construction of its building.Respondent won the bid and started construction of the building. TheCommissioner then assessed the same forn payment of 3% ofts gross receipts.Respondent questioned the same, averring of the exemption from direct andindirecttaxesoftheWHO.HELD:


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Incontext,directtaxesarethosethataredemandedfromtheverypersonwho,itis intended or desired, should pay them; while indirect taxes are those that aredemanded in the first instance fromoneperson in theexpectationand intentionthathecanshifttheburdentosomeoneelse.(Pollockvs.Farmers,L&TCo.,1957US429,15S.Ct.673,39Law.Ed.759.)Thecontractor'staxisofcoursepayablebythecontractorbutinthelastanalysisitistheownerofthebuildingthatshoulderstheburdenofthetaxbecausethesameisshiftedbythecontractortotheownerasamatterofselfpreservation.Thus, it isanindirecttax.Andit isanindirecttaxontheWHObecause,although it ispayablebythepetitioner, the lattercanshift itsburden on the WHO. In the last analysis it is the WHO that will pay the taxindirectlythroughthecontractoranditcertainlycannotbesaidthat'thistaxhasnobearingupontheWorldHealthOrganization.'TheHostAgreement,inspecificallyexemptingtheWHOfrom"indirecttaxes,"contemplatestaxeswhich,althoughnotimposeduponorpaidbytheOrganizationdirectly,formpartofthepricepaidortobepaidbyit.ThisismadeclearinSection12oftheHostAgreementwhichprovides:

"WhiletheOrganizationwillnot,asageneralrule,inthecaseofminorpurchases,claim exemption from excise duties, and from taxes on the sale ofmovable andimmovable propertywhichformpartofthepricetobepaid,nevertheless,whenthe Organization is making important purchases for official use of property onwhichsuchdutiesandtaxeshavebeenchargedorarechargeabletheGovernmentof the Republic of the Philippines shall make appropriate administrativearrangementsfortheremissionorreturnoftheamountofdutyortax"

InTheCourseofTradeorBusiness

• Regular conduct or pursuit of a commercial or economic activity,including transactions incidental thereto, by any person regardless ofwhether or not the person engaged therein is a non‐stock, non‐profitprivateorganization(irrespectiveofthedispositionofitsnetincomeandwhether or not it sells exclusively to its members or their guests), orgovernmententity

• Non‐resident persons who perform services in the Philippines aredeemedtobemakingsalesinthecourseoftradeorbusiness,eveniftheperformance of services is not regular.

Defining“business”

Section22(s)

Revenue AuditMemorandum Order 1‐86

Some branches of foreign corporations engage inbusiness in the Philippines by soliciting orders fromlocal importers. These branches are called "liaisonoffices or branches." Sales made from suchsolicitations are not reported by these branches astheirownsalespurportedlybecausethebranchofficemerelyrelaystoitsheadofficeabroadpurchaseordersfrom local importers and it is purportedly its headofficethatactuallyconsummatesthesales.Attheendofthetaxableperiod,thebranchofficesimplyreportsfor income tax purposes its purported share of theincomegeneratedfromsalesbuttheallocationofthispurportedshare is leftentirelyat thediscretionof itshead office. The revenue service is completely at themercyofmulti‐nationalcompanies.Some branches engage in business in the Philippinesbysolicitingordersfromlocalimportersandrelaysthisinformationto itsheadofficeabroad.Theheadofficein turn solicits prospective exporters for acompensation. At the end of the taxable period, thehead office allocates a certain portion of thecompensation to its branch in the Philippines. Thebranch in turn reports itspurportedshare for incometaxpurposesbutdoesnotpaythecommercialbroker'stax thereon purportedly because the compensationwas received from its head office and purportedlybecause the branch cannot be legally considered acommercial broker in relation to its head office sincethe branch and its head office possess only a singlelegalpersonality.HELD:Thesebranchoffices,likeanyotherbusinesses,are required by law to account for their businessoperations in accordance with generally acceptedaccounting practices (SEC. 38, NIRC). Thus, a branchofficealthoughnotpossessingaseparateanddistinct


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juridical personality is, however, considered undergenerally accepted accounting practices as a distinctcharacter, a separate business unit and should be"supplied by the home office with cash andmerchandiseandsuchotherassetsasmaybeneeded".The Philippine branch solicits purchase orders fromlocalbuyers, relaysthe informationto itshomeofficeabroad, and the home office purportedly directlymakesthesale.In this type of operation: (i) Sales purportedlyconsummated abroad by the home office shall betreated as sales constructively consummated in thePhilippines and made by the branch office, hence,income therefrom shall be considered income fromsources within the Philippines; (ii) the branch shallrecord and report the gross selling price ofcommoditiessoldthru itshomeoffice;and(iii) reportforincometaxpurposesitsnetincometherefrom.(iv)Sinceunderthissituation,theimporttaxes,dutiesandcharges have already been paid by the local buyers,thesameshallnotanymorebechargeableagainstthebranch.HELD: these transactions are treated salesconstructively consummated by the branch office inaccordance with generally accepted accountingpractices required under Section 38 of the Tax Codesincethebranchsolicitationsareactuallytradingacts.Accordingly, thehomeoffice isobligatedtosupply itsbranch with merchandise in pursuing its tradingbusiness in the Philippines. Hence, sales purportedlymadedirectlybyitshomeofficeshallbeconsiderednomore than merely a constructive supplying of themerchandise to its branch which eventuallyconstructivelysellsthesametoPhilippinebuyers.

Thebranchsolicitspurchaseordersfromlocalbuyers,relays the information to its home office, the homeofficesolicitsprospectivesellersabroadandeventuallyreceivescompensationforservicesrendered.Inthissecondtypeofoperation:(i)thebranchshallbeconsidered "a commercial broker" or indentor; (ii) itsshare from compensation as allocated by its homeoffice shall be subject to commercial broker grossreceiptstax;(iii)thebranchshallprovideitselfwiththecorresponding fixed tax as a commercial broker; and(iv)payincometaxonitsshareofthecompensation.HELD:Underthisparagraph,thebranchofficeshallbeconsidered a commercial broker since its activities iswellwithintheambitoftheterm"broker".Brokersare". . . those who are engaged for others in thenegotiation of contracts relative to propertywith thecustody of which they have no concern. They act asnegotiators in bringing other persons together tobargain;generally, theyoughtnot tosell in theirownnames,havenoimpliedauthoritytoreceivepayment,arenot entrustedwith thephysical possessionof theprincipal's goods when engaged to buy or sell, andhavenospecialpropertythereinorlienthereon."

IMPERIALV.COLLECTOR97PHIL992

Appeal from the judgment of the Court of FirstInstance ofManila, ordering the Collector of InternalRevenue to refund to plaintiff/appellee the sum ofP637.50 imposedandcollectedfromthelatterasrealestate dealer's tax, corresponding to the period fromthefourthquarterof1946tothethirdquarterof1950,plusthesumofP50ascompromise.Duringtheperiodfor which the tax was imposed, appellee was theownerofaninedoorcamarin inTobaco,Albay, leasedtothreemerchantspayingmonthlyrentalsamountingtoP6,240.00ayear.Itappearsthatplaintiffwas,from1946 to1950,Senator‐at‐largeand laterMinister inaforeign country, the exercise of the duties of whichoffices required the greater part of his time and his


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absencefromthePhilippines.HELD:Thereisnoweight intheargument, intheabsenceofproof, that during that period of time plaintiff was"engagedinleasingrealestate"especiallyifitbetakeninto account that the camarin which he had beenleasing to the merchant/tenants appears to be theonly property of his for lease, and the annual rentalreceived therefrom being much less than the annualincome he received from the offices which he hadbeenholding. "Toengage" is toembark in abusinessortoemployoneselftherein.Judgmentaffirmed.

BIRruling13‐98 Any person who in the course of business or trade,sells, barters, exchanges goods or properties shall besubjecttothevalueaddedtax.“Inthecourseoftradeor business”means the regular conduct or pursuit ofbusinessorcommercialactivity, includingtransactionsincidentalthereto.The intended sale of the microwave backbonetransmission network to another telecommunicationscarrier is not in the course of trade or business ofselling telecommunication services. Neither s itincidentaltheretosincethesqamedoesn'tnecessarilyfollow the primary function of sellingtelecommunicationsetrcies.

MANILAPOLOV.MEER106PHIL885

It is admitted by appellant that appellee is a socialclub,andthatitwouldbeexemptfromthepaymentofthefixedandpercentagetaxesinquestionshoulditbeable to prove that the sales in its restaurant and barweremade strictly on the "cost‐plus‐expenses‐basis".Bythisformulaismeantthattheappelleeshouldhavecharged itspatrons foronly theprocurementcostsofthe food and drink served, plus an amount merely

sufficienttocovertheexpensesfortheoperationofitsbar and restaurant. Since it hasbeen shown that thismethod of operation had been pursued by theappellee, it cannot be considered as engaged inbusinessasakeeperofrestaurantandbar,andisnottherefore subject to the fixed and percentage taxesimposed by Sections 182 and 191 of the NationalInternalRevenueCode,asamended.Inasmuch as the record also show that appellantadmitsthattheappellee,asaclub,hasforitsobjectivethe promotion of the game of polo, other athleticsportandoutdoorrecreations,andtogiveopportunityfor social intercourse to its members, and that theestablishmentoroperationofthebarandrestaurantisonly incidental to the alleged objectives of appellee'sexistenceasapolo club,wehold that theappellee isnotacommercialconcern,runforprofit.

BIRRuling89‐106 Theexchangeof real propertywith shares of stock isnot subject to VAT because real property does notcome within the purview of VAT taxable goodspursuanttoSection2(p)ofRevenueRegulationsNo.5‐87. For the same reason, the exchanges of personalproperty or securities transfer of real or personalpropertiesorsecuritiesbyonecorporationtoanotherin pursuance of a merger or consolidation solely forthesharesofstocksintheothercorporationwhichisapartytheretoshallheexemptfromincometax.

88‐112 Accordingly, it is safe to conslude that the deletionmadebyLOINo.1504ofbowlingalleysfromthelistofamusement places subject to amusement orpercentage taxes still stands as of this date. Suchbeing the case, bowling alleys are not subject topercentage (amusement) tax imposed by Section 123of the Tax code, as amended by ExecutiveOrderNo.273. Neither are bowling alleys subject to the


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therefore, not a business enterprise, and thegovernment's recognition as a matter of nationalpolicy the development of sports and theencouragementofthepeople'sparticipationinsports.UnderSection99oftheTaxCode,onlythosepersonsselling goods or rendering service in the course oftrade or business are subject to the value‐added taxwhichisnotsointhecaseofbowlingalleys.

88‐204 Gymnastics is a sport and, therefore, riot a businessenterprise; hence, your client for engaging in thepromotion and development of gymnastics is notsubjecttothevalue‐addedtax.*Takenotehoweveroftheyearthiswasruled

89‐71 Engagingingivingoutaphysicalfitnessprogramdoesnot constitute sale of services. Accordingly, it is notsubjecttothevalue‐addedtaximposedbySection102of the Tax Code, as amendedby ExecutiveOrderNo.273.

88‐84 As long as the amount of sale exceeds P200,000.00during a 12month period, a hospital operating apharmacyordrugstorebecomessubject to thevalue‐addedtaxirrespectiveofwhomsoeverthemedicineordrugissoldwhethertoinpatientoroutpatient

RMC7‐88 A travel agent is required to pay a 10% VAT on itsreceiptswhichpurposesofthistaxwillnotincludethepriceofairlineorshipticketsorthereimbursementofexpenses which shall be limited to passport and visafees for all types of passengers and hotel roomcharges,busand/orcartourcharges,guidefees,resortfeesandmealchargesfortouristsprovidedthatallthesaid expenses are properly supported by receiptsissuedbythesupplyingcompanyorestablishment.AllotherincomeorreceiptshallpaytheVATof10%.

BIRRuling41‐98 LPGfallsunderthedefinitionof"petroleumproducts"

under Section 2(l) of Revenue Regulations No. 8‐96which is separate and distinct from the term"processed gas" as defined in letter (m) thereof Thelatter is subject toexcise tax at the rateof P0.05perliter while LPG is subject to excise tax at the rate ofP0.00 per liter (except LPG used for motive powerwhich is subject toexcise taxat the rateofP1.63perliter)pursuanttoSection148(b)and(j)oftheTaxCodeof 1997 [formerly Section 145(2) and (10) of the TaxCode,asamendedbyR.A.No.8184].Moreover, the sale or importation, among others, ofpetroleumproducts,whichasperdefinitionunderSec.2(l) of Revenue Regulations No. 8‐96 include LPG isexempt fromVAT pursuant to Section 109(e), also ofthe Tax Code of 1997 [formerly Section 103(e), TaxCode, as amended by R.A. No. 7716, as furtheramendedbyR..ANo.8241].

91‐136 While airtime is an intangible property, the sale of aspecific TV airtime contemplates the use by thecontractee‐‐buyer of television broadcast facilities ofthestationownerand/oravailmentof servicesof thelatter wherein the consideration is measured by thelength of time allowed to the buyer to use TVbroadcastfacilities.Inotherwords,whenyoupurchaseTVairtimetotelecastprogramsandshowsthroughtheuseofsuchfacilities,thestationownersellstimespotstoadvertisers and flash their advertisementswithinaspecific time in between programs or shows, thisconstitutesrenderingofservicesforaconsideration.

88‐80 ThesalebytheBureauofAnimal Industryofvaccinesandotherbiologicfortheuseoflivestockissubjecttovalue‐addedtax.Asaseller,itisrequiredtoregisterasaVattaxpayerifits gross income for a 12‐month period exceed


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P200,000.00. However, the requirement forregistration isoptional if itsgrosssalesdonotexceedthesaidamount,inwhichcaseitshallbesubjectto2%onthegrosssales.

88‐272 The value‐added tax cannot be discounted becausethiskindofdiscountisnotdeductiblefromthesellingprim pursuant to Section 6(c)(A) of RevenueRegulationsNo.5‐87.ForVATpurposes, the10%VATshallbecomputedwithoutconsideringthediscount.

VATonSaleofGoodsandProperties

• Imposedandcollectedoneverysale,barterorexchange,ortransactions“deemedsale”of taxablegoodsorpropertiesat the rateof12%of thegross selling price or gross value in money of the goods or propertiessold,bartered,exchanged,ordeemedsoldinthePhilippines

Meaningof“goodsandproperties”

1. Realpropertiesheldprimarily for sale to customersorheld for lease intheordinarycourseoftradeorbusiness

2. Therightortheprivilegetousepatent,copyright,designormodel,plan,secretformulaorprocess,goodwill,trademark,tradebrandorotherlikepropertyorright

3. The right or the privilege to use any industrial commercial or scientificequipment

4. The right or the privilege to usemotion picture films, films, tapes anddiscs

5. Radio,television,satellitetransmissionandcabletelevisiontimeSaleofRealProperties

• Sale of real properties held primarily for sale to customers or held forlease in theordinarycourseofbusinessof theseller shallbesubject toVAT

• In the case of real properties on the installment plan, the real estatedealer shall be subject to VAT on the installment payments, includinginterest and penalties, actually and/.or constructively received by theseller

• Saleof residential lot exceedingP1500000, residential lot andhouseorotherresidentialdwellingsexceedingP2500000,wheretheinstrumentofsaleisexecutedon1July2005,shallbesubjectto12%VAT

• InstallmentsaleofresidentialhouseandlotorotherresidentialdwellingsexceedingP1000000,wheretheinstrumentofsalewasexecutedpriorto1July2005,shallbesubjecttoVAT

SaleofPropertyonInstallmentPlan

• Saleofrealpropertybyarealestatedealer,theinitialpaymentsofwhichintheyearofsaledon'texceed25%ofthegrosssellingprice

• However, in the case of sale of real properties on a deferred paymentbasis, it shall be treated as a cash sale which makes the entire sellingpricetaxableonthemomentofsale

RMC3‐96

WhatrealestatetransactionsaresubjecttoVATstartingJanuary1,1996?RealestatetransactionswhicharesubjecttoVATstartingJanuary1,1996includethefollowing:a. Sale, barter or exchange of real property held primarily for sale tocustomersorforlease,intheordinarycourseoftradeorbusiness,whenthegrossannualand/orreceiptsexceedP500,000.00;b. Lease of real property in the ordinary course of trade or business,whetherforcommercialorresidentialuse,whenthegrossannualreceiptsexceedP500,00.00 and provided that, in the case of residential use, themonthly rentalexceeds P3,950.00/unit (as adjusted under Republic Act No. 7644, otherwiseknownastheRentControlLaw);c. Securitydeposits in lease contracts,when the same is applied to rental(atthetimeoftheapplication);d. Advancepaymentreceivedinthemonth/quarterbythelessor,whenthesameisinfactapre‐paidrental,regardlessoftheaccountingmethodused;e. Real property dividends distributed by real estate dealers/lessors to itsstockholders and declared out of the retained earnings. The VAT should becomputed based on the fair market value or zonal value thereof, whichever ishigher,atthetimeofdistribution.WhatrealestatetransactionsareexemptfromVAT?RealestatetransactionwhicharenotsubjecttoVATincludethefollowing:


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a. Saleofrealpropertynotprimarilyheldforsaletocustomersorheldforleaseintheordinarycourseoftradeofbusiness;b. SaleofrealpropertyutilizedforsocializedhousingunderRA7279,exceptwhensoldbyarealestatedealertoapersonotherthantheintendedorqualifiedbeneficiaries;c. Sale of real property utilized for low‐cost housing under BP 220 or PD957,exceptwhensoldbyarealestatedealertoapersonotherthantheintendedorqualifiedbeneficiaries;d. Transferofrealpropertytoatrusteeifthepropertyistobeheldmerelyintrustforthetrustor;e. Transfer of real property to a corporation in exchange for its shares ofstockunderSection34(c)(2)and(6)(c)oftheTaxCode;f. Advance payment by the lessee in a lease contract, when the same isactuallyaloantothelessorfromthelessee;g. Security deposits for lease arrangements to insure the faithfulperformanceofcertainobligationsofthelesseetothelessor;h. Leaseof residentialunits,boardinghouses,dormitories, roomsandbedspaces offered for rent by their owners at a monthly rental not exceedingP3,950.00/unitasadjustedunderRepublicActNo.7644,(RentControlLaw); Theterm"unit"shallmeananapartmentunitinthecaseofapartments;house in the case of residential houses; per person in the case of dormitories,boardinghousesandbedspaces;andperroominthecaseofroomsforrent.i. Saleor leaseofrealpropertyprimarilyheldforsaletocustomersorforlease in the ordinary course of trade or business when the gross annual salesand/orreceiptsdonotexceedP500,000.00.WhatresidentialunitsarereferredtoinA‐2(h)?The term "residential units" shall refer to apartments, houses and/or lands onwhichanother'sdwellingislocated,usedforresidentialpurposesandshallincludenot only buildings, parts or units thereof, used solely as dwelling places [exceptmotels,hotels,apartelles,pensionhouses,lodginghousesandresorts]oralsousedforhomeindustries,retailstoresorotherbusinesspurposes,ifthetenantthereofandhisfamilyactuallylivethereinandusethemprincipallyfordwellingpurposes;What is the business tax liability of a real estate dealer/lessor whose grosssales/receiptsdonotexceedP500,000.00duringany12‐monthperiod?They shall be liable asNon‐VAT taxpayers subject to 3%percentage tax imposedunderSec.112oftheTaxCode.However,theyhavetheoptiontoregisterasVAT

taxpayers, inwhichcase,theyare liabletothe10%VATwiththebenefitof inputtaxcredits.WhatisthebusinesstaxliabilityofindividualswhosegrosssalesreceiptsdonotexceedP100,000.00duringany12‐monthperiod?IndividualswhosegrossreceiptsdonotexceedP100,000.00duringany12‐monthperiodshallbeexempt fromtheVATand3%percentage tax imposedunderSec.112, since theyareconsideredprincipally forsubsistenceor livelihoodandnot inthecourseoftradeorbusiness.WhoarethepersonsliabletoVAT?ThefollowingpersonsengagedinrealestatebusinessareliabletoVAT:a. Anyperson,whethernaturalor juridical,engaged in thesale,barter,orexchangeofrealpropertiesintheordinarycourseoftradeorbusiness;b. Realestatelessorsandsub‐lessors;c. Non‐resident lessorsof real property located in thePhilippines throughtheirresidentlessees;d. Non‐stock,non‐profitorganizationsengagedinthesale,barter,exchangeor lease of real property, irrespective of the disposition of its net income andwhether or not the sale/lease is exclusively to its members, as long as thetransaction isundertaken intheregularconductorpursuitofacommercialoraneconomicactivity;ande. Government, its agencies and instrumentalities, including government‐ownedorcontrolledcorporationsengagedinthesale,barter,exchangeorleaseofrealpropertiesintheordinarycourseoftradeorbusiness.Provided, however, that the gross sales/receipts from the sale, barter, exchangeand/or lease of real property of the aforementioned taxpayers in the course ofits/histradeorbusinessduringany12‐monthperiodexceedP500,000.00.Whoisconsideredarealestatedealer?Arealestatedealer isanypersonengaged in thebusinessofbuying,developing,selling,orexchanging realpropertyasprincipalandholdinghimselfoutasa full‐timeorpart‐timedealerinrealestate.Whoisconsideredarealestatelessor?Arealestatelessorincludesanypersonengagedinthebusinessofleasingorsub‐leasingofrealproperty.


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When is a real estate dealer considered to be engaged in low cost housingproject?Arealestatedealerisconsideredtobeengagedinlow‐costhousingprojectwhensuch project is registered and licensed by HLURB/HUDCC as low‐cost housingpursuanttoBP220orPD957,oranyothersimilarlaw.Low‐costhousingreferstohousing projects intended for homeless low‐income family beneficiaries,undertaken by the Government or private developers, which may either be asubdivision or a condominium, wherein the unit selling price is not more thanP375,000.00orasmaybedeterminedfromtimetotimebyHLURB/HUDCC;Whenisarealdealerconsideredtobeengagedinsocializedhousing?Arealestatedealer is considered tobeengaged in socializedhousingwhensuchprojectisregisteredandlicensedbyHLURB/HUDCCassocializedhousingpursuantto RA 7279, otherwise known as the "Urban Development and Housing Act of1992."SocializedhousingreferstohousingprogramsandprojectscoveringhousesandlotsorhomelotsonlyundertakenbytheGovernmentortheprivatesectorforthe underprivileged and homeless citizens which shall include sites and servicesdevelopment, long‐term financing, liberalized terms on interest payments, andsuch other projects intended for the underprivileged and homeless wherein thehousing package selling price is notmore than P150,000.00 orwithin the lowestinterestratesundertheUnifiedHomeLendingProgram(UHLP)oranyequivalenthousing program of the Government, the private sector or non‐governmentorganizations;ForpurposesofdeterminingexemptionfromVAT,whatdocumentsarerequiredto be submitted by real estate dealer engaged in low‐cost socialized housingprojects?Within30daysfromapprovalofeachproject,realestatedealersengagedinlow‐cost/socialized housing are required to submit a duly authenticated copy of thecertificateof license tosell issuedbyHLURB/HUDCCspecifying theprojectname,location and number units to be sold, to the Revenue District Office where itsprincipalplaceofbusinessislocated.Arecommissionsofrealestateagent/brokersubjecttoVAT?Yes, commissions of real estate agent/broker are subject to VAT if the grossreceiptsexceedP500,000.00duringany12‐monthperiod.

Can real estate dealers withhold the VAT from the commissions paid to realestatebrokers?No, real estate dealers are not allowed to withhold VAT; however, governmententitiescanwithholdVATonitspaymentforgoodsandservices.AreallsalesofrealpropertypriortoJanuary1,1996subjecttoVAT?No.Onlysalesofrealpropertyheldprimarilyforsaletocustomersorforleasebyreal estate dealers or lessors on installment plan shall be subject to VAT withrespecttotheinstallmentpaymentsmadeonorafterJanuary1,1996.Saleofrealproperties ondeferredpayment basis in 1995 andprior years are not subject toVAT.Whatdowemeanbysaleofrealpropertyoninstallmentplan?Saleofrealpropertyontheinstallmentplanmeanssaleofrealpropertytheinitialpaymentsofwhichintheyearofsaledonotexceed25%ofGrossSellingPrice.Whatdowemeanbysaleofrealpropertyonthedeferredpaymentbasis?Saleofrealpropertyonadeferredpaymentbasismeanssaleofrealproperty,theinitialpaymentsofwhichintheyearofsaleexceed25%ofthegrosssellingprice.Whatdoesinitialpaymentmean?Initial paymentmeans payment or paymentswhich the seller receives before orupon execution of the instrument of sale and payments which he expects or isscheduledtoreceive incashorproperty (other thanevidenceof indebtednessofthe purchases) during the calendar yearwhen the sale or disposition of the realpropertywasmade. It coversanydownpaymentmadeand includesallpaymentsactuallyorconstructivelyreceivedduringthecalendaryearofsale, theaggregateofwhichdeterminesthelimitsetbylaw.Howdowecomputethepercentageofinitialpayment?Therearetwowaysofdeterminingthepercentageoftheinitialpaymentoverthecontractprice—1. Add thedownpaymentand the scheduledprincipal amortizationduringtheyearofsaleanddividethesumbythetotalcontractprice,or2. Add the downpayment and the scheduled amortizations (principal plusinterest) during the year of sale and divide the sum by the aggregate of thedownpaymentandthetotalamortizationfortheentirecontract,includinginterest.


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If either test results tomore than25% then it is a saleon thedeferredpaymentplan,otherwise,itisasaleontheinstallmentplan.WhatisthebasisoftheVATontaxablesalesofrealproperty?For cash basis/deferred payment plan — The computation of the VAT bypersons/entities engaged in the sale of real property in the course of trade orbusinessshallbebasedonthegrosssellingpricewhichiseithersellingpricestatedinthesalesdocumentorthezonalvaluesoftherealpropertiessold,whicheverishigher. In the absence of zonal values the gross selling price shall refer to themarketvalueasshowninthelatesttaxdeclarationortheconsideration,whicheverishigher.How is the zonal valuation rule applied in the case of sale of real property oninstallmentplanbasis?Forsaleofrealpropertyoninstallmentplan,thecomputationoftheVATshallbebasedontheactualconsiderationreceived, includinginterestsandothercharges.However, upon full payment, if the zonal/market value is higher than the totalreceipts/collections,theadditionalVATshallbepaidaccordingly.WhatisthetaxbaseofVATonleaseofrealproperties?The computation of the VAT by lessor of real properties shall be based on theirgrossreceiptsfromtheleaseofrealproperties.Gross receipts, as defined under Revenue Regulations No. 7‐95,means the totalamountofmoneyoritsequivalentrepresentingthecontractprice,compensation,servicefee,rentalorroyalty, includingtheamountchargedformaterialssuppliedwith the services and deposits in advance payments actually or constructivelyreceivedduringthetaxablequarterfortheservicesperformedortobeperformedforanotherpersonexcludingVAT.IfthecontractofleasewasnotarizedoutsidethePhilippines,istheleasesubjecttoVAT?Gross receipts from leaseof realpropertycoveredby theVAT laware subject toVAT regardless of the place where the contract of lease was executed, if thepropertyonleaseislocatedinthePhilippines.If the lessor has real property for lease located in different places, should thelessorregistereachpropertyseparately?

There shall only be one registration and, consequently, he shall pay an annualregistrationfeeofP1,000.00intheRDOwherethemainorheadofficeislocated.However, if hemaintains an officewithin the premises of the leased properties,said office shall be considered as branch which shall also be registered and forwhichtheapplicableregistrationfeeshallbepaid.Is the rental of residential houses or offices of embassies or diplomatic agentssubjecttotheVAT,orpercentagetax,asthecasemaybe?Yes,theexemptionofdiplomaticagents/embassies is limitedonlytodirecttaxes.Since the VAT and percentage taxes are indirect taxes, the lessors of diplomaticagents and embassies are liable thereto. However, if the sending state allowsPhilippine diplomatic agents/embassies exemption from indirect taxes ontransactionsinthatstate,theirdiplomaticagents/embassiesshallenjoyexemptionfrom indirect taxes in the Philippines, pursuant to the international rule onreciprocity.HowarerealpropertytransactiondocumentedforVATpurposes?Taxable sales of real property on cash basis and on the deferred payment planshall, in addition to the document of sale, be covered by a VAT invoice for theentire selling price and Non‐VAT official receipts for the initial and succeedingpayments.Taxable sales of real property on the installment plan shall, in addition to thedocumentofthesale,becoveredbyaVATreceiptforeveryinstallmentpayment.TaxableleaseorrealpropertyshallbecoveredbyaVATreceipt.Exempt sale of real property be real estate dealers shall, in addition to thedocument of sale, be covered by non‐VAT receipts upon collection of thepayments.Exemptleaseofrealpropertybyrealestatelessorsshallbecoveredbyanon‐VATreceipt.WhatistheconsequenceifaVAT‐exemptpersonissuesaVATinvoiceorreceipt?Anypersonwhosesaleor leaseof realproperty isVAT‐exempt,but issuesaVATinvoice or receipt shall, in addition to his liability to other applicable percentagetax, if any, be liable toVATwithout thebenefit of input tax credit, and such taxshallnotalsoberecognizedasinputtaxcredittothepurchaser/lessee.


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Can unused invoices or receipts printed prior to January 1, 1996, of personsbecomingliabletoVATforthefirsttime,beusedonorafterJanuary1,1996?Yes,unused invoicesorreceiptsprintedpriortoJanuary1,1996canstillbeusedprovided that an inventory indicating the number of booklets and thecorrespondingserialnumbersasofDecember31,1995shallbesubmittedto theRDOwherethemainofficeislocatedonorbeforeJanuary31,1996andthephrase"VAT registeredasof (dateof registration) is stampedonall copies thereof. SaidunusedinvoicesorreceiptsshallbeallowedforuseintransactionssubjecttoVATuptoJune30,1996.Arerealestatedealersentitledtothe8%presumptiveinputtax?Yes,realestatedealersshallbeentitledtothe8%presumptiveinputtax.Whatisthebasisofthe8%presumptiveinputtaxoftherealestatedealer?Thepresumptiveinputtaxcreditof8%oftherealestatedealersshallbebasedonthebook valueof the improvements, such as buildings, roads, drainage systems,water drainage system perimeter posts, landscaping and other similar structuresconstructedonorafterJanuary1,1988(theeffectivityofE.O.273),inadditiontoitsinventoryofsuppliesandmaterialsforuseinthebusiness.Arereallessorsentitledtothe8%presumptiveinputtax?Yes, real estate lessors are entitled to the 8% presumptive input tax only withrespecttotheirinventoryofsuppliesandmaterials.What are documents required to be filed by sellers or lessors of real propertysubjecttoVATonorbeforeJanuary31,1996?Selleror lessorofrealpropertiesarerequiredtosubmitthefollowingdocumentsnotlaterthanJanuary31,1996totheRevenueDistrictOfficewheretheirprincipalplaceofbusinessislocated.A) ForPresumptiveinputtaxpurposes;1) Inventoryof goods, supplies&materials not for salebutpurchased foruseinbusinessonhandasofDecember31,1995.2) InventoryofgoodsorpropertiesandimprovementsasofDecember31,1995;(forrealestatedealeronly)B) InventoryofunusedinvoicesasofDecember31,1995,and

C) ScheduleofreceivableforcontractsonadeferredpaymentbasisasDec.31,1995.FailuretosubmitthisscheduleshallsubjectreceivablestoVAT.Howdoes the thresholdprovisionof P500,000.00 apply to real estate lessor todeterminewhethertheyareliabletoVAT?Forpurposesofdeterminingcompliancewith the thresholdofP500,000.00,evengrossreceiptsfromleaseofresidentialunitscoveredbytheRentControlLawshallbe included. If theaggregateof thegross receiptsexceedsP500,000.00, thenthereal estate lessor shall register as a VAT person. However, for purposes ofdetermining the VAT payable, VAT shall be computed only on the gross receiptsfromleaseofrealproperties/residentialunitsnotcoveredbytheRentControlLaw. Toillustrate:ForthemonthofJanuary,1996,ABCRealtyInc.isthelessorofa15‐doorapartmentwiththefollowingmonthlyrentalcharges: 10unitsarebeingleasedoutforP3,950perunit;while5unitsarebeingleasedoutforP5,000perunit.IsABCRealtyInc.subjecttoVAT?Ifso,howmuchistheVATavailable?I. Determine first whether the gross receipts of ABC Realty Inc. for thetaxable year (TY) 1996 from the lease of the 15‐door apartment exceeds thethresholdofP500,000.00.A. Determine the gross receipts for TY 1995 from rentals covered by therentControlLaw:10xP3,950=P39,500/month x12months ——————— P474,000B. DeterminethegrossreceiptsforTY1995fromrentalsnotcoveredbytheRentControlLaw:5xP5,000= P25,000/month x12months ———— P300.00C. Add (A) and (B) to determine whether ABC's gross receipts from theaforesaidleaseduringthe12‐monthperiodexceedstheP500,000.00threshold.P474,000(A)


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+300,000(B)—————P774,000ExceptedGross Receiptsfor TY1996Therefore,ABCRealtyInc.issubjecttoVATbecauseitexpectstoearngrossrentalsexceedingtheP500,000thresholdforTY1996.II. TheVATpayableofABCRealtyInc.forthemonthofJanuary,1996shallbecomputedasfollows:Assume that ABC Realty Inc. incurred P20,000 worth of VAT‐invoiced buildingmaterialsfortherepairandmaintenanceoftheapartmentunitsforthemonthofJanuary,1995.1/11ofP25,000 P2,272.73(OutputTax)Less: 1/11ofP20,000x300 —— 774 704.72(InputTax)VATpayableforthemonthofJan.;1995 P1,568.01N.B.theVATpayableiscomputedontheportionofthegrossreceiptsfromrentalscorrespondingtothefive(5)apartmentunitsbeingleasedoutatamonthlyrentalofP5,000.00perunitonly.WhatisthemannerofpaymentofVATonrealpropertytransactions?Asarule,theVATdueonrealpropertytransactionsshallbepaiduponfilingoftheVATreturn/declaration.However,inthecaseofleaseofrealpropertiesownedbynon‐resident lessors, the VAT due shall be withheld and remitted by the lesseethroughthefilingofaVATreturn/declarationforandinbehalfofthenon‐residentowner.All revenue officials and employees are hereby enjoined to give this Circular thewidestpublicitypossible.

RealPropertiesRMC3‐96 (seeabove)Section109(w)(y)(z) (seediscussionbelow)BIRRuling19‐98 Under Sec. 4.100‐1 of Revenue RegulationsNo. 7‐95

otherwise known as the Consolidated Value‐AddedTaxRegulations,saleofrealpropertiesheldprimarilyforsaletocustomersorheldforleaseintheordinarycourse of trade or business of the seller shall besubjectto10%VATbasedonthegrosssellingprice.For this purpose, "gross selling price' shallmean theconsideration stated in the sales documents or thezonal value whichever is higher; provided, however,that in the absence of applicable zonal values, grosssellingpricereferstothemarketvaluesshowninthelatest taxdeclarationor the considerationwhicheverishigher.Suchbeingthecase,yourclientbeingengagedinrealestateleasingshallbesubjecttothe10%VATshouldtheir intention to sell their real property in Alabangmaterializes pursuant to Section 4‐100.1 of RevenueRegulationsNo.7‐95.

60‐98 The contract between UPSS and BOC for the sale ofgoods,suchascomputerhardware,computersystemsoftwareprograms,applications,components,devicesand supplies, and the sale of services, such asproviding support, training, and consultancy servicesin the use and application of the said products, aretransactions subject to the 10% VAT which may beshiftedorpassedontoBOC,VATbeinganindirecttax.Consequently, BOC, being a government agency isrequired to deduct andwithhold theVATdue at therate of threepercent (3%) of the gross payments onthe purchase of goods and six percent (6%) on thegross receipts for services rendered by UPSS, whichshall be creditable against the VAT liability of UPSSpursuant to then Sec. 110C of the Tax Code, asamended[nowsec.114CoftheTaxCodeof1997.

110‐98 Thesalebyrealestatedealersand/orlessorsofhouse


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and lotandotherresidentialdwellingsvaluedatOneMillion Pesos (P1,000,000.00) and below shall beexempt from VAT. Accordingly, since the currentprices of your condominium units are belowP1,000,000.00each,wehereby confirmyouropinionthat you are exempt from VAT on your sale of saidcondominiumunits,pursuanttoSection109(w)oftheTaxCodeof1997.However,sinceyouareanon‐VATtaxpayer, you shall pay a tax equivalent to threepercent (3%)ofyourquarterlygrosssalesorreceiptspursuanttoSection116ofthesameCode.

5‐88 BARBeverageCorporationisnolongersubjecttothe4% ad valorem tax but to the 10% valueadded taxunder Section 100 of the Tax Coda, as amended byExecutiveOrderNo.273whichtookeffectonJanuary1, 1988. Such being the case, effective January 1,1988, it is no longer required to affix the BIR Stripstamps or secondary label on its products in viewoftherepealoftheexcisetaxprovisiononcompoundedliquorsbyExecutiveOrderNo.273.

88‐60 Veterinary drugs, biologicals, vitamins anddisinfectants are subject to the 10% value‐added taxpursuant to Section 100(a) of the Tax Code asamendedbyExecutiveOrderNo.273.

88‐291 Itisrepresentedthatcorngermisseparatedfromthecorngrits, corngranandother cornpartsduring thecontraptionsandscreensofdifferentgauges.Itissoldtooilmills forextractionofoilorasan ingredient inthemanufactureofalltypesofanimalfeeds,includingaqua‐culturefeeds.Although corn germ is a byproduct in the process ofmillingcorn, it isnotoneofthoseconsideredintheiroriginalstateforpurposeofSection103(b)oftheTaxCode, as amended by Executive Order No. 273. It is

noted in said provision that only corn grits, anotherbyproduct is considered 'in their original state. Suchbeing the case, corn germ which is a manufacturedproductandnolongerinitsoriginalstateis'subjectto10%value‐addedtax.

88‐378 In your purchase of locallymanufactured cigarettesthe party subject thereto is the seller, e.g., factory,wholesalers, jobbers or distributors, as the casemaybe.Whenaddedtothecostofyourpurchases,itisnolonger a tax payable by you but an additional costwhichyouhavetopaytoobtainthecigarettes.IfyouarenotVAT‐registeredandyouexportsaidcigarettesyouareexempt fromthevalue‐added tax;but if youareVAT‐registered,youarezero‐ratedonyourexportthereof

88‐198 Since export sales do not extend the zero‐ratingprivilegeoftheexportertoitssuppliers,yourclientissubject to VAT on its sale of goods to G. G.Sportswear, (Sec. 100 Tax code, as amended byExecutiveOrderNo.273)Thefactthatsaidpurchaserrejects the billing of the VAT will not exempt yourclientfromliabilitytotheVAT.

89‐3 Quarryresourcessubjecttothe3%excisetaximposedbySection151(a)(2)oftheTaxCode,includesandandgravelwhetherremovedfromriverbedsorquarried.[sec.2(h),RevenueRegulationsNo.13‐80]However, if you are merely engaged inhauling/transporting sand and gravel to be usedexclusively for Government projects and in no caseshall be disposed of commercially, in which case, hyou are paid which case, your taking of sand andgravel from river beds is covered by a gratuitouspermitgrantedbytheDirectorofMines,pursuanttoMines Administrative Order No. MRD‐16, S. 1977,


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then you are not subject to the 3% excise tax.Withrespect to your hauling services for which you arepaid, your quarterly gross receipts derived thereonare subject to3% taxpursuant toSection115of theTaxCode,asamendedbyExecutiveOrderNo.273.On the other hand, if you shall sell sand and gravelthenyouaresubject to the3%excise tax inadditionto the 10%valueadded tax. (Sec. 1269 TaxCode) Inthe latter case, youare required to registerwith theExcise Team Area VI‐Mindanao, pursuant to Section18 of Revenue Regulations No. 5‐87 implementingTitle IV (VAT Law) of the Tax Code, as amended byExecutiveOrderNo,273.

88‐245 The value‐added tax imposed under Section 100 oftheTaxCode,asamendedbyExecutiveOrderNo.273is basedon the gross sellingpriceof the goods sold.The goods given free in the course of trade orbusinessarenotconsideredtransactiondeemedsale

152‐98 Your exemption fromVATon your saleof fishunderSection 109 (d) of the Tax Code of 1997 covers onlyyourdirect tax liability,meaningyouroutputVATonthe gross receipts from your sale of fish in theiroriginal state.However, you cannot claimexemptionfrom the input VAT being passed on to you by thesuppliers on your purchase of supplies, parts, fuels,etc.AsformingpartoftheinvoicepricebecauseVAT,beingan indirect tax,maybeshiftedorpassedontothebuyerofgoodsandservicespursuanttoSec.105oftheTaxCodeof1997.

VATRuling037‐01 Sinceyourclient'srentalfromitsresidentialdormitoryoperationsdoesnotexceedP8,000.00permonth,perindividual, the same is exempt from the 10% VAT,pursuant to Section 109 (x), NIRC of 1997, asimplementedbySection4ofRevenueRegulationsNo.

6‐97.Onyourquerywhetherthesaidrentalsfromtheleaseofyourclient'sresidentialdormitoriesmaybesubjectto the 3% percentage tax, in lieu of the 10% VAT,please be informed that the 3% percentage taxprescribed under Section 116 of the said NIRC doesnotapplytopersonsexemptfromthe10%VATunderSection109(a)to(y)oftheCode.

RR4‐2007 Patents,Copyrights,DesignModel,etc.

129‐98 That under themost favored nation provision of theRP‐USTaxTreaty[Art.13,para.(2)(b)(iii)],theimposedonroyaltiesderivedbyaresidentoftheUnitedStatesfromsourceswithinthePhilippinesshallbethelowestrate of Philippine tax that may be imposed onroyalties of the same kind paid under similarcircumstances to a resident of a Third State. Article12,paragraphs(2)(b)and(4)oftheRPNetheriandsTaxTreatyprovidesthatroyaltiesarisinginthePhilippinesand paid to a resident of Netherlands may also betaxed in thePhilippines, but the tax so charged shallnot exceed 15 per cent of the gross amount of theroyalties in all other cases. The term "royalties" asused in this Article means payments of any kindreceivedasaconsiderationfortheuseof,ortherighttouse,anypatent,trademark,designormodel,plan,secret formula or process, or for the use of, or theright to use, industrial, commercial or scientificequipment, or for information concerning industrial,commercialorscientificexperience.Suchbeingthecase,thisOffice isoftheopinionas ithereby holds that the royalty payments made byStudio to Warner, a limited partnership organizedunder the laws of Delaware, U.S.A., for the right toestablishandoperateStoresinthePhilippinesaswellas for the exclusive right to use theWB Intellectual


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PropertyandtheWBSSSysteminconnectionwiththeownershipandoperationoftheStoresandthesaleoftheWBMerchandise, are subject to the preferentialtaxrateof15%.However, the remittanceby Studio toWarnerof thesaid royaltiesshallbesubject to the10%valueaddedtaxpursuant to Section108(A)(1) of the TaxCodeof1997.Moreover,theVATonrentaland/orroyaltiespayabletonon‐residentforeigncorporationsorownersforthesaleof services anduseor leaseof properties in thePhilippinesshallbebasedonthecontractpriceagreedupon by the licensor and licensee. The licensee shallbe responsible for payment of VAT on such rentalsand/or royalties inbehalfof thenon‐resident foreigncorporation or owner by filing a separate VATdeclaration/returnforthispurpose.ThedulyvalidatedVAT declaration/return is sufficient evidence inclaiminginputbythelicensee."(Sec.4.102‐1(b),Rev.Regs.No.7‐95)Inviewthereof,Studioshall,beforemakingpaymentof royalties to Warner, withhold and remit to thisBureauthe10%VATduethereonbyfilingaseparateVAT return for and in behalf ofWarner. (Sec. 4.110‐3(b)ofRevenueRegulationsNo.7‐95).

104‐98 Considering that your foreign licensor is a non‐VATregistered person. Your aforesaid royalty paymentsare accordingly exempt from the value‐added tax.Consequently, you are also exempt from theobligationtowithholdandremitthe10%value‐addedtax on your payments and remittances of theaforesaid royalties which otherwise would be duethereonpursuant to theprovisionsof Section110oftheNationalInternalRevenueCode,asamendedbyR.

A. No. 7716 as further amended by R. A. No. 8241(now Section 114 of the Tax Code of 1997) and asimplemented by Section 4.110‐3(b) of RevenueRegulations No. 7‐95, otherwise known as theConsolidatedValue‐AddedTaxRegulations.Radio,televisionsatellite,andcabletelevisiontime

BIRRuling14‐98 Government entities and instrumentalities, includinggovernment‐owned and controlled corporations, aresubject toVAT.Asanagencyof thegovernment,PIAshall be subject to VAT if in the course of trade orbusiness,itsells,barters,exchangesorleasesgoodsorproperties,orrendersservicesandimportgoods.The buying and selling of TV airtime constitutes rendition of services to others for a consideration subject to the 10% value-added tax under Section 102(a) of the Tax Code. (BIR Ruling No. 135-91 dated July 16, 1991). As lessor, TV and radio broadcasting station owners are the ones primarily liable for the payment of VAT although they can pass on to PIA the amount of tax as part of cost, pursuant to Section 105 (formerly Sec. 99) of the Tax Code of 1997. Radio and television stations are subject to VAT ontheir importationof radio and telelvisionequipment,spare parts and allied technical and programmaterials, inspite o contracts entered into by andbetween said radio and television stations and thePIA.

38‐98 Both PLDT's "International Trunkline (IT) products"and "Services to Internet users" fall within thecontemplation of the term "sale or exchange ofservices" which are subject to VAT pursuant to Sec.108(A)oftheTaxCodeof1997basedonPLDT's"grossreceipts" derived from telephone, telegraph,


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telewriter exchange, wireless and othercommunicationequipmentservicesbecausealthoughsaid products involve the usage of "InternationalTrunklines",insomecases,saidserviceswouldstillbeconsideredasbeingrenderedinthecourseoftradeorbusiness in the Philippines since the rendition of thesame starts in the Philippines. However, overseasdispatch, message, or conversation originating fromthe Philippines thru the Internet or even thru the"International Trunklines" is subject to the 10%percentage tax based on the amount paid for suchservicespayablebytheInternetorTrunklineuser/stoPLDTpursuanttoSec.120oftheTaxCodeof1997.

88‐59 As regards the basis of the 10% VAT payable by anadvertising agency, the Department of Finance hasruledthatonly15%ofitsgrossbillings,constitutethegross receipts subject to the contractor's tax thenpayableby said agency since this amount is retainedbytheagencyasitscommissionfrommedia.(See3rdIndorsement dated December 3, 1973 of ActingSecretaryPedroM.Almanzor)Accordingly, and sincethe10%VAT isbasedongross receiptswhichmeansthe total amount of money or its equivalentrepresenting the contract price, compensation orservicefee(Section2(m),RevenueRegulationsNo.5‐87) said 15% of the gross billings of an advertisingagency,likewise,constitutesthegrossreceiptsofsaidagencyforpurposesofthe10%VAT.

88‐85 Advertising agencies are now subject to the value‐added taxof10%on theirgross receiptspursuant toSection 102(a) of the Tax Code as amended by E.O.No.273.

UseinthePhilippinesofindustrial,commercial,orscientificequipmentMotionpictures

Others

27‐98 Exemption from VAT of electric cooperativesregisteredwith theCDAorNEAunderSection107(s)of the Tax Code of 1997 covers only their sales ofelectricity and importation of machineries andequipment, includingspareparts thereof,whichshallbe used in the generation and distribution ofelectricity. However, the local purchases by electriccooperatives of machineries, equipment and spareparts shallbesubject toVATeven if thesameare tobe used in the generation of electricity. This is so,becauseVATisan indirecttaxandtheamountoftaxmaybeshiftedorpassedonbythelocalsuppliersonthe former's purchases of machineries andequipment.

InitialPayments

• Paymentorpaymentswhichthesellerreceivesbeforeoruponexecutionoftheinstrumentofsaleandpaymentswhichheexpectsorisscheduledto receive in cash or property during the year when the sale ordispositionoftherealpropertywasmade

• Itcoversanydownpaymentmadeandincludesallpaymentsactuallyorconstructively received during the year of sale, the aggregate of whichdeterminesthelimitsetbylaw

• It doesn't include the amount of mortgage on the real property soldexceptwhensuchmortgageexceedsthecostorotherbasisofpropertyto the seller, in which case, the excess shall be considered part of theinitialpayments

• Alsoexcludedarenotesorotherevidenceofindebtednessissuedbythepurchasertotheselleratthetimeofsale

TransmissionofPropertytoTrustee

• ShallnotbesubjecttoVATifthepropertyistobemerelyheldintrustforthetrustorand/orbeneficiary

• However, if thepropertytransferred isoneforsale, lease,oruse in theordinary course of trade or business and the transfer constitutes acompleted gift, the transfer is subject to VAT as a deemed saletransaction


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GrossSellingPrice

• Total amountofmoneyor its equivalentwhich thepurchaser payor isobligated to pay to the seller in consideration of the sale, barter, orexchangeofthegoods,properties,orservices,excludingtheVAT

• Theexcisetaxshallifany,onsuchgoodsandpropertiesshallformpartofthegrosssellingprice

• In the case of real properties, it shallmean the consideration stated inthesalesdocumentortheFMV,whicheverishigher

SEC.4.106‐4.MeaningoftheTerm‘GrossSellingPrice’.–Theterm“grosssellingprice”meansthetotalamountofmoneyoritsequivalentwhichthepurchaserpaysorisobligatedtopaytothesellerinconsiderationofthesale,barterorexchangeofthegoodsorproperties,excludingVAT.The excise tax, if any, on such goods or properties shall form part of the grosssellingprice.Inthecaseofsale,barterorexchangeofrealpropertysubjecttoVAT,grosssellingpriceshallmeantheconsiderationstatedinthesalesdocumentorthefairmarketvaluewhichever is higher. If the VAT is not billed separately in the document ofsale, the selling price or the consideration stated therein shall be deemed to beinclusiveofVAT.Theterm‘fairmarketvalue’shallmeanwhicheverishigherof:1)the fairmarket valueasdeterminedby theCommissioner /zonal value,or2) thefair market value as shown in schedule of values of the Provincial and CityAssessors (real property tax declaration). However, in the absence of zonalvalue/fair market value as determined by the Commissioner, gross selling pricereferstothemarketvalueshowninthelatestrealpropertytaxdeclarationortheconsideration,whicheverishigher. Ifthegrosssellingpriceisbasedonthezonalvalueormarketvalueoftheproperty,thezonalormarketvalueshallbedeemedexclusiveofVAT.Thus,thezonalvalue/marketvalue,netoftheoutputVAT,shouldstillbehigherthantheconsiderationinthedocumentofsale,exclusiveoftheVAT.Ifthesaleofrealpropertyisoninstallmentplanwherethezonalvalue/fairmarketvalue ishigherthantheconsideration/sellingprice,exclusiveof theVAT, theVATshallbebasedontheratioofactualcollectionoftheconsideration,exclusiveoftheVAT, against the agreed consideration, exclusive of the VAT, appearing in theContracttoSell/ContractofSaleappliedtothezonalvalue/fairmarketvalueofthe

propertyatthetimeoftheexecutionoftheContracttoSell/ContractofSaleattheinceptionofthecontract.Thus,sincetheoutputVATisbasedonthemarketvalueofthepropertywhich ishigherthantheconsideration/sellingprice in the salesdocument,exclusiveof theVAT, the inputVAT that canbeclaimedby thebuyershallbetheseparately‐billedoutputVATinthesalesdocumentissuedbytheseller.Therefore, the output VAT which is based on the market value must be billedseparatelybytheseller inthesalesdocumentwithspecificmentionthattheVATbilledseparatelyisbasedonthemarketvalueoftheproperty.

Zero‐ratedTransactions

• ReferstotransactionsexemptfrompayingoutputVATbutcanclaimtaxcredit for the input tax on related purchases from VAT‐registeredbusiness

• Inputtaxattributablemayberefundedorcreditedagainstotherinternalrevenuetaxes

• Any VAT‐registered person, whose sales are zero‐rated or effectivelyzero‐ratedmay,within 2 years after close of the taxable quarterwhenthe salesweremade, apply for the issuance of tax credit certificate orrefund of creditable input tax due or paid attributable to such sales,except transitional input tax, to the extent that such input tax hasn’tbeenappliedagainstoutputtax

ExportSales

1. ThesaleandactualshipmentofgoodsfromthePhilippinestoa foreigncountry, irrespective of any shipping arrangement that may be agreeduponwhichmayinfluenceordeterminethetransferofownershipofthegoods so exported and paid for in acceptable foreign currency or itsequivalentingoodsorservices,andaccountedforinaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);

2. Saleof rawmaterialsorpackagingmaterials toanonresidentbuyer fordelivery to a resident local export‐oriented enterprise to be used inmanufacturing,processing,packingorrepackinginthePhilippinesofthesaid buyer's goods and paid for in acceptable foreign currency andaccountedforinaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);

A,foreigntransactsB,domesticforexporttoC

(Shallbedeemedasexportsale)


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3. Sale of raw materials or packaging materials to export‐orientedenterprise whose export sales exceed seventy percent (70%) of totalannualproduction;

4. SaleofgoldtotheBangkoSentralngPilipinas(BSP);and5. ThoseconsideredexportsalesunderExecutiveOrderNO.226,otherwise

knownastheOmnibusInvestmentCodeof1987,andotherspeciallaws.

“ConsideredexportsalesunderExecutiveOrderNo.226”shallmeanthePhilippine port F.O.B. value determined from invoices, bills of lading,inward letters of credit, landing certificates, and other commercialdocuments, of export products exported directly by a registeredexport producer, or the net selling price of export products sold by aregisteredexportproducer toanotherexportproducer,or toanexporttrader that subsequently exports the same; Provided, That sales ofexportproductstoanotherproducerortoanexporttradershallonlybedeemedexportsaleswhenactuallyexportedbythelatter,asevidencedby landing certificates or similar commercial documents; Provided,further, That pursuant to EO 226 and other special laws, evenwithoutactual exportation, the following shall be considered constructivelyexported: (1) sales to bonded manufacturing warehouses of export‐orientedmanufacturers;(2)salestoexportprocessingzonespursuanttoRepublicAct (RA)Nos.7916,asamended,7903,7922andothersimilarexport processing zones; (3) sale to enterprises duly registered andaccredited with the Subic Bay Metropolitan Authority pursuant to RA7227; (4) sales to registered export traders operating bonded tradingwarehouses supplying raw materials in the manufacture of exportproductsunderguidelinestobesetbytheBoardinconsultationwiththeBureauof InternalRevenue (BIR)and theBureauofCustoms (BOC); (5)salestodiplomaticmissionsandotheragenciesand/orinstrumentalitiesgrantedtaximmunities,oflocallymanufactured,assembledorrepackedproductswhetherpaidforinforeigncurrencyornot.

6. The sale of goods, supplies, equipment and fuel to persons engaged in

internationalshippingorinternationalairtransportoperations;Provided,thatthesameislimitedtogoods,supplies,equipmentandfuelpertainingtoorattributabletothetransportofgoodsandpassengersfromaportinthePhilippinesdirectlytoaforeignport,or viceversa,withoutdockingor stopping at any other port in the Philippines unless the docking or

stopping at any other Philippine port is for the purpose of unloadingpassengers and/or cargoes that originated from abroad, or to loadpassengersd/orcargoesboundforabroad;Provided,further,thatifanyportion of such fuel, goods or supplies is used for purposes other thanthatmentionedinthisparagraph,suchportionoffuelgoodsandsuppliesshallbesubjecttotwelvepercent(12%)outputVATstartingFebruary1,2006.

BIRRuling113‐94 Under existing mining practice in the country, goldingots (or gold bars) are produced only by miningcompanies engaged in the integrated activity ofcarryingandprocessingmineralores.Metallicminerals are subject to 5% excise tax basedontheactualmarketvalueofthegrossoutputthereofat the time of removal, in the case of those locallyextracted or produced, or the value used by thebureau of customs in determining tariff and customsduties, net of excise tax and value‐added tax, in thecase of importation. Gross outputmeans the "actualmarket value of minerals or mineral products ofbullionfromeachmineorminerallandsoperatedasaseparate entity without any deduction from mining,milling, refining (including all expenses incurred toprepare the said minerals or mineral products in amarketable state) as well as transporting, handling,marketingoranyotherexpenses:provided,thatiftheminerals or mineral products are sold or consignedabroadbythelesseeorownerofthemineunderc.i.f.terms, theactual costofocean freightand insuranceshallbededucted:provided,however,thatinthecaseof mineral concentrate not traded in commodityexchange in thePhilippinesorabroadsuchascopperconcentrate, the actual market value shall be theworldpricequotationsoftherefinedmineralproductscontent thereof prevailing in the said commodityexchanges, afterdeducting the smelting, refiningandother charges incurred in the process of converting


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themineralconcentrates intorefinedmetaltradedinthose commodity exchanges". (sec. 15 1 (a)(3) &(b)(1),taxcode)In addition to the excise tax on gold ores imposedunder section 151 of the tax code,when gold ingotsaresoldtothecentralbank,theseareagainsubjectto10%vatbasedonthegrosssellingpricethereofatthetimeofsalepursuanttosection100ofthetaxcode,inother words, sale of gold to the central bank is notconsideredexportsaleundersection100(a)(2)ofthesame code as held under vat ruling no. 08‐92 datedjanuary 23,1992which revoked earlier rulings statingthecontraryrule.However, if the gold ingots are actually exported bythemining companyorby theproducer thereof, it iszero‐rated pursuant to section 100(a)(2) of the taxcode.

88‐182 Metallic minerals are now subject to 5% excise taxbasedontheactualmarketvalueofthegrossoutputthereof at the time of removal, in the case of thoselocallyextractedorproduced;orthevalueusedbytheBureauofCustoms indetermining tariff and customsduties, net of excise tax and value‐added tax, in thecase of importation pursuant to Section 151(a)(3) oftheTaxCodeasamendedbyExecutiveOrderNo.273.Saidproductsarenolongersubjecttotheroyaltytax.Moreover, if the mineral products are exportedabroad,thegrosssalesderivedtherefromareexemptfromthevalue‐addedtax.IfthefirmisVAT‐registered,theexportsalesareautomaticallysubjecttozerorate.(Section100(a)(1),TaxCodeasamendedbyExecutiveOrderNo273).

87‐170 Since ordinary ice is an essential article, the same

being utilized as a food product for humanconsumption,itisconsideredprocessedfoodproduct;hence, subject to the 10% sales tax, pursuant toSection 163(2)(a) of the Tax Code, as amended byExecutiveOrderNo.36.

RMC7‐94 Section103(d),NIRC,provides:"Sale or importation in their original state ofagricultural. . .foodproducts. . ."shallbeexemptedfromVAT.Water is not agricultural product. Rather, it is amineral.Thus–Definition of minerals. — "The term 'minerals' shallmean all naturally occurring inorganic substances(found innature)whether insolid, liquid,gaseous,orany intermediate state." (Sec. 257(b), NIRC, asamendedbyBatasPambansaBlg.84).Definitionofmineralproducts.—"The term 'mineralproducts'shallmeanthingsproducedandpreparedina marketable state by simple treatment such aswashing or drying, but without undergoing anychemical changeorprocessormanufacturing,by thelessee, concessionaire or owner of mineral lands."(ibid).Definitionofagriculture.—"Thecultivationofsoilforfoodproductsoranyotherusefulorvaluablegrowthsofthefieldorgarden..."(Bouvier'sLawDictionary,p.167)Definitionofagriculturalproduct.—"Thatwhichisthedirect result of husbandry and the cultivation of thesoil...."(ibid)cdasiaItisclearfromtheforegoingthatthetermagriculturalproduct pertains to organic products throughcultivation of the soil, whereas the term mineralproduct pertains to inorganic substances naturally


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occurring in nature. It follows that water, being asubstance naturally occurring in nature, is mineralrather than agricultural product. Accordingly, water,may not legally be classified as agricultural foodproduct within the purview of Section 103(b), NIRC.Hence, saleofwater,whether in the formofbottledmineral water or water delivered/supplied to inter‐islandandocean‐goingvesselsbypersonsengagedinthebusinessofsupplyingwatertotheaforesaidinter‐islandandocean‐goingvessels,shallbesubjectto10%VAT,pursuanttoSection100(a),NIRC.

88‐182 Supra.

ForeignCurrencyDenominatedSale

• The phrase 'foreign currency denominated sale' means sale to anonresidentofgoods,exceptthosementioned inSections149and150,assembledormanufacturedinthePhilippinesfordeliverytoaresidentinthePhilippines,paidforinacceptableforeigncurrencyandaccountedforin accordance with the rules and regulations of the Bangko Sentral ngPilipinas(BSP).

BIRRuling32‐98 Supra.33—98 Section4.102(b)(3)ofRevenueRegulationsNo.7‐95,

as amended by Revenue Regulations No. 6‐97,provides that services rendered by VAT‐registeredpersonstopersonsorentitieswhoseexemptionunderspecial lawsor internationalagreementstowhichthePhilippines is a signatory effectively subjects thesupply of such services to zero‐rate. Effectivelyzerorated sale of services shall refer to the sale by aVAT‐registeredperson toapersonorentitywhowasgranted indirect taxexemptionunder special laws,orinternational agreements. Effectively zero‐ratedtransactions shall be limited to the local sale ofservices topersonsor entitieswhoenjoyexemptionsfrom indirect taxes under subparagraph (b),Nos‐ (3),(4)and (5)ofSection4.102‐2ofRevenueRegulations

No.7‐95,asamended.Such being the case, the domestic sales ofconstruction services by Zenitaka, a VAT‐registeredgeneral contractor to export companies registeredwithinthePEZA,arezero‐rated.ThesaleofservicesbyZenitaka shall not result in any output tax. However,the input taxon itspurchasesofgoods,propertiesorservices related to such zero‐rated sale shall beavailableasa tax creditor refund inaccordancewithRevenueRegulationsNo.7‐95.It shall be understood, however, that your client,Zenitaka,shallapplywiththeRevenueDistrictOfficerconcernedhavingjurisdictionoveritsprincipalplaceofbusiness for the effective zero‐rating of sales ofservices to the export enterprises, registered withPEZAwithintheSEZ,pursuanttoRevenueRegulationsNo. 7‐95, as amended. Without an approvedapplication for effective zero‐rating, the transactionotherwise entitled to zero‐rating shall be consideredexempt.

RMC74‐99 Pleaseseebelow.VATRuling9‐98 Under Section 24 of R.A.No. 7916, otherwise known

as the "Special Economic Zone Act of 1993",businesses and enterprises within the ECOZONE asdefined by Section 5 thereof shall, in lieu of payinglocal and national taxes, be liable to the payment ofthe five percent (5%) preferential tax rate based ongross incomeearned,distributedas follows: (1) threepercent (3%) to the national government; (2) onepercent(1%)tothelocalgovernmentunitsaffectedbythedeclarationof theECOZONE;and (3)onepercent(1%) for the establishmentof a development fund tobe utilized for the development of municipalitiesoutsideandcontiguoustoeachECOZONE.


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The aforementioned 5% preferential tax is acommutation of all the national and local taxesotherwise due from businesses and enterprisesoperating within the ECOZONE. Such being the case,your client is considered exempt from all direct andindirect taxes hence, may not legally be passed‐onwith the value‐added tax otherwise due from itsforeign licensor vis‐a‐vis the said royalty payments.(BIRVATRulingNo.033‐96datedOctober30,1996)In view thereof, and considering that your client'sforeign licensor is a non‐VAT registered person, yourclient's aforesaid royalty payments are accordinglyexemptfromthevalue‐addedtax.Consequently,yourclient is also exempt from the obligation towithholdand remit the 10% value‐added tax on its paymentsand remittances of the aforesaid royalties whichotherwise would be due thereon pursuant to theprovisions of Section 110 of the National InternalRevenueCode, as amendedbyR.A.No. 7716, andasimplemented by Section 4.110‐3 of RevenueRegulations No. 7‐95, otherwise known as theConsolidated Value-Added Tax Regulations.

VATRuling33‐96 UnderSection24ofRepublicActNo.7916,otherwiseknown as the Special Economic Zone Act of 1993,businesses and enterprises within the ECOZONE asdefined by Section 5 thereof shall, in lieu of payinglocal and national taxes, be liable to the payment ofthe five percent (5%) preferential tax rate based ongross income earned distributed as follows: (1) threepercent (3%) to the national government; (2) onepercent(1%)tothelocalgovernmentunitsaffectedbythedeclarationof theECOZONE;and (3)onepercent(1%) for the establishmentof a development fund tobe utilized for the development of municipalitiesoutsideandcontiguoustoeachECOZONE.Section 102 (a) of the Tax Code as amended byRepublic Act No. 7716 and as implemented by

Revenue Regulations No. 7‐95 provides that sales ofgoods and services to persons or entities whoseexemption under special laws, (e.g. Duly registeredand accredited enterprises of the PEZA under R.A.7916) or international agreements to which thePhilippineisasignatoryeffectivelysubjectsthesupplyofsuchgoodsorservicestozerorate.Such being the case, since R.A 7916 is a special lawwhichgrantsexemptionsfromnationaltaxestoPEZA‐registeredbusinessesestablishmentsoperatingwithintheECOZONE,exceptpaymentof thepreferential taxrateof5%ongrossincomeearned,thesalesofgoodsandservicesbyCustomsTerritorycontractors likeEEICorporationPhilippines, Inc., shallbeeffectivelyzero‐rated.It shallbeunderstoodthat theVAT‐registeredservicecontractors shall apply with the Revenue DistrictOfficer concerned having jurisdiction over theirprincipalplaceofbusinessfortheeffectivezero‐ratingoftheirsalesofservicestoPEZA‐registeredenterpriseswithintheECOZONEpursuanttoRevenueRegulationsNo. 7‐95. Without an approved application for zero‐rating, the transactions otherwise entitled to zero‐ratingshallbeconsideredexempt.

10‐94 Republic Act No. 7649, as implemented by RevenueRegulations No. 10‐93, requiring the withholding ofcreditablevalueaddedtax,tookeffectonJuly1,1993,andappliesonlyto incomepaymentsmadeaftersaiddate. Moreover, the 3% contractor's tax has beenreplaced by the 10% value‐added tax imposed underSection102oftheTaxCode,asamendedbyExecutiveOrderNo.273effective January1,1988.Accordingly,the collections and/or withholding of the 3%contractor'staxonthebillingssubmittedinDecember,1992 and March, 1993 but actually paid by the


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Department of Environment and Natural Resources(DENR) in January, 1993 and June, 1993, respectivelyarewithoutlegalbasis.However, incomepaymentsmade subsequent to July1, 1993 (effectivity of R.A. 7649) for sale of servicesshall be subject to the withholding of 6% creditablewithholding tax (VAT) regardless of whether theunderlying contract was entered into before or afterJuly1,1993.

06‐97 (1) ThetransferbyMWSStotheconcessionairesof'the right to operate the waterworks andsewerage/sanitation systems and to use its existingfixed assets in consideration for the payment of acommencement fee to be made periodically by theconcessionaires toMWSS over the concession periodis not subject to VAT since the transfer is not in theordinarycourseofthetradeorbusinessofMWSS(Sec.99,TaxCode,asamendedbyR.A.7716):(2)Capitalexpendituresmaynotbedeductedfromgross income except through depreciation, depletionoramortizationdeductionsspreadovertheuseful lifeof the expenditure (par. 6060, 34 Am. Jur 2d. 1976).Thus,thecostoftheConcessionRight(i.e..sumoftheconcession paymentsmade or payable in the future)arising from the rights given by MWSS to theconcessionaires to operate its waterworks andsewerage/ sanitation systems and to use its existingfixed assets may be amortized over the concessionperiod of 25 years and the amortization may bededucted from the gross income of theconcessionaires;(3)ThetransferbyMWSStotheconcessionairesasits agents of the right to operate itswaterworks andsewerage/sanitation systems and to use its existingfixedassetsspecifically landortenementsorportionsthereofshallbesubjecttothedocumentarystamptax

imposed under Section 194 of the Tax Code, asamendedbyR.A.7760;(4) Thetransferof therights‐of‐waypurchasedandconstructed by the concessionaires during theconcessionperiodinexpandingitsservicecoverageforwater and sewerage/sanitation services to MWSS isnot a donation subject to donor's tax. Although theconcessionaires paid for said rights‐of‐way,nevertheless its ownership belongs toMWSS since itwas theonewhoacquiredsaid rights‐of‐way throughtheexerciseof its,rightofeminentdomain.Therighttousetheland(right‐of‐way)tobegivenbyMWSStothe concessionaires is an intangible asset whichmaybe recorded by the concessionaires as "ConcessionRight".(5) ThetransferofassetspurchasedorconstructedbytheconcessionairesduringtheconcessionperiodtoMWSSisnotsubjecttoVATsincethetransferisnotinthecourseoftradeorbusinessoftheconcessionairespursuanttoSection99oftheTaxCode,asamended;(6) The right to use by the concessionaires of theassetsacquiredbyMWSSthroughtheexerciseof theright of eminent domain is an intangible assetwhichmayberecordedbytheconcessionairesintheirbooksasanasset(ConcessionRight)atanamountequivalentto the cost of property. The value of the concessionrightwhichisacapitalexpendituremaybeamortizedover the remaining period of the concessionagreement and the annual amortization is deductiblefromthetaxableincomeoftheconcessionaires:(7) Any deed of conveyance or transfer involvingrealpropertytobeexecutedbytheconcessionairestoMWSSduringtheconcessionperiodshallbesubjecttothe documentary stamp tax unposed under Section196oftheTaxCode,asamendedbyR.A.7660.(8) PursuanttoSection29(f)(1)oftheTaxCode,asamended. there shall be allowed as a depreciation areasonable allowance for the exhaustion, wear and


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tear(includingreasonableallowanceforobsolescence)of property used in the trade or business. The term"reasonable allowance" shall include (but not limitedto) an allowance computed in accordance withregulations prescribed by the Secretary of Finance,underanyofthefollowingmethods:(A)Thestraight‐linemethod;(B) Declining balance method, using a rate notexceedingtwicetheratewhichwouldhavebeenusedhad the annual allowance been computed under themethoddescribedinparagraph(f)(1)ofSection29oftheTaxCode,asamended:(C)Thesum‐ofthe‐years‐digitmethod;and(D) Any othermethodwhichmay be prescribed bytheSecretaryofFinanceuponrecommendationoftheCommissionerofInternalRevenue.Theproperallowancefordepreciationofanypropertyused in the trade or business is that amount whichwouldbesetasideforthetaxableyear inaccordance,with a reasonable consistent plan whereby theaggregateoftheamountsosetaside,plusthesalvagevalue.will,attheendoftheusefullifeofthepropertyin business, equal the basis of the property. Dueregard must be given to expenditures for currentupkeep.(Section105,RevenueRegulationsNo.2).Moreover, the capital sum to be replaced should bechargedoffover theuseful lifeof thepropertyeitherinequalannualinstallmentsorinaccordancewithanyother recognized trade practice, such as anapportionment of the capital sum over units ofproduction. Whatever plan or method ofapportionment is adopted must be reasonable andmust have due regard to operating conditions duringthe taxable period. While the burden of proof mustrestuponthetaxpayertosustainthedeductionstakenbyhim,suchdeductionsmustnotbedisallowedunlessshown by clear and convincing evidence to beunreasonable. The reasonableness of any claim for

depreciationshallbedeterminedupontheconditionsknowntoexistattheendoftheperiodforwhichthereturnismade.Ifitdevelopsthattheusefullifeofthepropertywillbe longeror shorter than theuseful lifeasoriginallyestimatedunderallthethenknownfacts,theportionof thecostorotherbasisof thepropertynot already provided for through depreciatioallowanceshouldbespreadovertheremainingusefullife of theproperty as reestimated in the light of thesubsequent facts and depreciation deductions takenaccordingly.(Sec.109,RevenueRegulationsNo.2)Depreciationisaquestionoffactandisnotmeasuredbytheoreticalyardstick,butshouldbedeterminedbya consideration of actual facts. Thus the rates ofdepreciation on Bulletin "F" of the Federal InternalRevenueServicehassomepersuasiveeffect. (Lipman,Investment Corporation vs. Commissioner of InternalRevenue,et.al.,No.L‐21570,July26,1966)The depreciation rate currently being used byMWSSfor its property, plant and equipment have beendetermined on the basis of its particular operatingconditions, experience and informed judgment as totechnologicalimprovementsandeconomicchanges.Suchbeing the case, thisOfficemayallow theuseofthedepreciation ratescurrentlybeingusedbyMWSSfor its assets for the fixed assets to be acquired andconstructedbytheconcessionaires:.(9) The transfer to MWSS at the end of theconcession period of the fixed assets acquired andconstructed by the concessionaires is not subject toVAT since the transfer of said assets is not in thecourse of trade or business of the concessionairespursuanttoSection99oftheTaxCode,asamended;(10) The receivables thatmaybe transferredby theconcessionairestoMWSSattheendoftheconcessionperiodisnotlikewisesubjecttoVATsincethetransferofsaidreceivablesbytheconcessionairesisnotinthecourse of their trade or business pursuant to Section


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99oftheTaxCode,asamended;(11) Incomputingthegainorlossifanyontheend‐of‐period payment to be received by theconcessionairesfromMWSS,thenetbookvalueoftheassets to be transferred shall be deducted from theconsideration to be received by the concessionairesfromMWSS;(12)Thedeedofconveyanceortransfer involvingthereal properties purchased by the concessionairesduringtheconcessionperiodwhichwillbetransferredtoMWSSattheendoftheconcessionperiodshallbesubjecttothedocumentarystamptaximposedunderSection196oftheTaxCode,asamended;(13) The transfer of the other assets, such asreceivablesand inventories,at thebookvaluecarriedin thebooksof theconcessionairesat theendof theconcession period to MWSS is not subject to thedocumentarystamptax.

321‐88 Shinryo Corporation which provides mechanicalservices to Asian Development Bank (ADB) inconnectionwith the constructionof theADBbuildingcanbeconsideredaseffectively zero ratedunder theValue‐AddedTaxsystem.PursuanttoSection8(c)(2)ofRevenueRegulationsNo.5‐87 implementing Title IV (Value‐Added Tax) of theTaxCodewhichreadsasfollows:"(2) Services rendered to persons or entitieswhichareeffectivelyzero‐ratedunderspecial lawsorinternationalagreements.Inthiscase,ifunderthelaworagreement, it isnotonly theentity that is exemptfromtaxesbutalso its suppliers, the salesof servicestosuchentityareeffectivelyzero‐rated."Moreover,asprovidedunderSection8(d)ofthesameregulations,personsclaimingthattheirsalesofgoodsor services are effectively zero‐rated shall file anapplication for zero rate justifying the imposition of

such rateon thesaid transactions. Inorder toqualifyfor effective zero‐rating, the company must be VATregisteredand services renderedmustbe coveredbyspecial law (Executive Order No. 161) which extendsexemption not only to the grantee but also to itssuppliers.

65‐99 Blessed Child Monressori Foundation, being a non‐stock, non‐profit educational institution is exemptfrom taxes and duties on all its revenues and assetsused actually, directly and exclusively for educationalpurposes. However, it shall be subject to internalrevenuetaxeson its incomefromtrade,businessandother activity the conduct of which is not related tothe exercise or performance of its educationalpurposes or functions. It must be emphasized thatyourtaxexemptiondoesnotcoverwithholdingtaxes.As an educational institution, you are constituted aswithholdingagentforthegovernmentandrequiredtowithhold the tax on compensation income of youremployees, or the expanded withholding tax onincomepaymenttopersonssubjecttotaxpursuanttoSection50(b)oftheTaxCode,asamended.Finally, as a tax‐exempt educational institution, youshallfileanannualinformationreturnonorbeforethe15"' day of the 0 month following the end of yourtaxable year (Sec. 4, Finance Department Order No.137‐87). Under Section 235 of the Tax Code, anyprovision of existing general and special law to thecontrary notwithstanding, the books of accounts andotherpertinentrecordsoftax‐exemptorganizationsorgrantees of tax incentives shall be subject toexamination by the BIR for purposes of ascertainingcompliancewiththeconditionsunderwhichtheyhavebeen granted tax exemptions or tax incentives, andtheirtaxliabilities, ifany,Thistaxexemptionshallbevalid for a periodof three (3) years from thedateof


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issueofthisletter.

REVENUEMEMORANDUMCIRCULARNO.74‐99

SUBJECT : TaxTreatmentofSalesofGoods,PropertyandServicesMadeby a Supplier from the Customs Territory to a PEZA Registered Enterprise; andSaleTransactionsMadebyPEZARegisteredEnterprisesWithinandWithouttheECOZONE

TO : AllInternalRevenueOfficersandOthersConcerned

SECTION1. Scope. — This Circular is being issued to consolidate andharmonize all the pertinent tax laws and their corresponding implementing rulesandregulationsinrespectofsalesofgoods,propertyandservicestoandfromtheECOZONES,inrelationtotheprovisionsofR.A.No.7916,asamendedbyR.A.No.8748, entitled "The Special Economic Zone Act of 1995" which created thePhilippineEconomicZoneAuthority(PEZA).cdasia

SECTION2. Background.—Ingeneral,enterprisesregisteredandoperatingunderthesaidAct,otherwiseknownasECOZONEorPEZAregisteredenterprises,shallonlybeimposedwitha5%specialtax,basedon"grossincomeearned"inlieuofalltaxes,excepttherealpropertytax.However,thistaxincentiveonlyappliesinrespect of the registered enterprise's operations within the ECOZONE. TheECOZONES"areselectedareaswithhighlydevelopedorwhichhavethepotentialto be developed into agro‐industrial, industrial tourist/recreational, commercial,banking, investmentandfinancialcenters.AnECOZONEmaycontainanyorallofthe following: industrial estates, export processing zones, free trade zones, andtourist/recreational centers." (SEC. 4 (a), R.A. No. 7916). The ECOZONE "shall bemanagedandoperatedbythePEZAasaseparatecustomsterritory." (SEC.8, id.)The term "Customs Territory" means "the national territory of the Philippinesoutside of the proclaimed boundaries of the ECOZONES except those areasspecificallydeclaredbyother lawsand/orpresidential proclamations tohave thestatus of special economic zones and/or free ports." (Sec. 1 (g), PEZA Rules andRegulations).Generally,productsmanufacturedorproducedwithintheECOZONEare destined for export to foreign countries.While such products, under certainconditions,may alsobe sold to buyers in theCustoms Territory, i.e., outside theECOZONE,suchsalesaretechnicallyconsideredasimportationbysuchbuyerfrom

the Customs Territory. Since the ECOZONE is technically treated as anotherseparate Customs Territory, the buyer is treated as an importer and is imposedwith the corresponding import taxes and customs duties on his purchase ofproductsfromwithintheECOZONE.

While all ECOZONE enterprises are not necessarily manufacturer‐exporters ofproductsconsideringthattherearealsoserviceenterprisesregisteredasECOZONEenterprises, however, taken as a whole, all their integrated activities eventuallytranslateintomanufacturedproductswhichareeitheractuallyexportedtoforeigncountries,inwhichcase,noVATmustformpartofitsexportprice;oractuallysoldtobuyersfromtheCustomsTerritory,inwhichcase,10%VATshallbepaidthereonby such buyers, consistent with the "Cross Border Doctrine" of the VAT system.LexLib

ThePhilippines'ValueAddedTax(VAT)lawadherestothe"CrossBorderDoctrine"of theVAT System,whichbasicallymeans that noVAT shall be imposed to formpartofthecostofgoodsdestinedforconsumptionoutsideoftheterritorialborderof the taxing authority. Hence, actual export of goods and services from thePhilippines to a foreign country must be free of the VAT. Conversely, thosedestinedforuseorconsumptionwithinthePhilippinesshallbe imposedwiththe10% VAT. Accordingly, interpretation of the provisions of the VAT law has beenharmonizedwiththe"CrossBorderDoctrine".

SECTION3. Tax Treatment Of Sales Made By A VAT Registered SupplierFromTheCustomsTerritory,ToAPEZARegisteredEnterprise.—

(1) If the Buyer is a PEZA registered enterprisewhich is subject to the 5%specialtaxregime,inlieuofalltaxes,exceptrealpropertytax,pursuanttoR.A.No.7916,asamended:

(a) Sale of goods (i.e., merchandise). — This shall be treated as indirectexport hence, considered subject to zero percent (0%) VAT, pursuant to Sec.106(A)(2)(a)(5),NIRCandSec.23ofR.A.No.7916,inrelationtoART.77(2)oftheOmnibusInvestmentsCode.

(b) Saleofservice.—Thisshallbetreatedsubjecttozeropercent(0%)VATunderthe"crossborderdoctrine"oftheVATSystem,pursuanttoVATRulingNo.032‐98datedNov.5,1998.


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(2) IfBuyerisaPEZAregisteredenterprisewhichisnotembracedbythe5%special tax regime, hence, subject to taxes under the NIRC, e.g., ServiceEstablishments which are subject to taxes under the NIRC rather than the 5%specialtaxregime:

(a) Sale of goods (i.e., merchandise). — This shall be treated as indirectexport hence, considered subject to zero percent (0%) VAT, pursuant to Sec.106(A)(2)(a)(5),NIRCandSec.23ofR.A.No.7916 inrelationtoART.77(2)oftheOmnibusInvestmentsCode.

(b) SaleofService.—Thisshallbetreatedsubjecttozeropercent(0%)VATunderthe"crossborderdoctrine"oftheVATSystem,pursuanttoVATRulingNo.032‐98datedNov.5,1998.

3. In the final analysis, any sale of goods, property or servicesmade by aVAT registered supplier from the Customs Territory to any registered enterpriseoperating in the ecozone, regardless of the class or type of the latter's PEZAregistration, isactuallyqualifiedandthus legallyentitledtothezeropercent(0%)VAT.Accordingly,allsalesofgoodsorpropertytosuchenterprisemadebyaVATregisteredsupplierfromtheCustomsTerritoryshallbetreatedsubjectto0%VAT,pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the OmnibusInvestmentsCode,whileallsalesofservicestothesaidenterprises,madebyVATregisteredsuppliersfromtheCustomsTerritory,shallbetreatedeffectivelysubjecttothe0%VAT,pursuanttoSection108(B)(3),NIRC,inrelationtotheprovisionsofR.A.7916andthe"CrossBorderDoctrine"oftheVATsystem.

This Circular shall serve as a sufficient basis to entitle such supplier of goods,propertyorservicestothebenefitofthezeropercent(0%)VATforsalesmadetotheaforementionedECOZONEenterprisesandshallserveassufficientcomplianceto the requirement for prior approval of zero‐rating imposed by RevenueRegulationsNo.7‐95effectiveasofthedateoftheissuanceofthisCircular.

SECTION4. TaxTreatmentOfSalesMadeByAVAT‐ExemptSupplierFromTheCustomsTerritory,ToAPEZARegisteredEnterprise.—Saleofgoods,propertyand services by VAT‐Exempt Supplier from the Customs Territory, to a PEZA‐registeredenterprise shall be treatedexempt fromVAT,pursuant to Sec. 109, inrelationtoSec.236,NIRC,regardlessofwhetherornotthePEZAregisteredbuyeris subject to taxes under the NIRC, or enjoying the 5% special tax regime, or a

registeredmanufacturer‐exporter the "CrossBorderDoctrine"of theVATSystemtothecontrarynotwithstanding.

SECTION5. TaxTreatmentOfSalesMadeByAPEZARegisteredEnterprise.—

(1) Sale of goods (i.e.,merchandise), by a PEZA‐registered enterprise, to abuyerfromtheCustomsTerritory(i.e.,domesticsales).—Thiscaseshallbetreatedas a technical importationmadeby theBuyer. SuchBuyer shall be treatedas animporterthereofandshallbeimposedwiththecorrespondingimporttax/es(i.e.,VATorVATplusexcisetax,asthecasemaybe),pursuanttoSec.107,TitleIVandTitleVI,NIRC,inrelationtoSec.26,R.A.No.7916,asimplementedbySec.2,RuleVIII, PARTVof thePEZA rules and regulations entitled "Rules andRegulations toImplement Republic Act No. 7916." The registered enterprise's "gross incomeearned"therefromshallbesubjecttothe5%specialtaxpursuanttoSec.24ofR.A.No.7916:Provided,however,thatitssalesintheCustomsTerritorydonotexceedthe threshold allowed or permitted for such sales, pursuant to the pertinentprovisionsofthePEZArulesandregulations:Provided,further,thatforincometaxpurposes, if such sales shouldexceed theaforesaid threshold, its incomederivedfromsuchexcess sales shallbe imposedwith thenormal income taxpursuant totheprovisionsofTitleII,NIRC:Provided,further,thatincomputingfortheincometax due on such excess sales, its net income from such excess sales shall bedeterminedinaccordancewiththemethodofgeneralapportionmentpursuanttotheprovisionsofSec.50,NIRC,(i.e.,computeitstotalnetincomefromtotalsales,then,computeitsnetincomefromsuchexcesssalesbygeneralapportionment,asfollows:Excesssalesdividedbytotalsalestimestotalnet incomefromtotalsalesequalsnetincomefromexcesssales).

(2) Sale of Services by a PEZA Registered Enterprise to a Buyer from theCustomsTerritory.—Thistypeoftransactionisnotembracedbythe5%specialtaxregime governing PEZA‐registered enterprises pursuant to R.A. No. 7916, asimplementedbythePEZArulesandregulationshence,suchsellershallbesubjecttothe10%VAT,pursuanttoSection108ortothepercentagetax,pursuanttoTitleV, whichever is applicable, and to the normal income tax on income derivedtherefrom, pursuant to Title II, NIRC. Such income tax shall be computed inaccordance with the method of general apportionment provided in theimmediatelyprecedingparagraph.


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(3) Sale of Goods, by a PEZA Registered Enterprise, to Another PEZARegisteredEnterprise (i.e., IntraECOZONESalesofGoods).—Itssaleofgoodsorproperty to another zone enterprise shall be exempt fromVAT, pursuant to Sec.109(q),NIRC,inrelationtoSec.24,R.A.7916,asimplementedbySec.1,RuleVIII,PARTV,ofthePEZAimplementingrulesandregulations.

(4) SaleofServicebyECOZONEEnterprise, toAnotherECOZONEEnterprise(IntraECOZONEEnterpriseSaleofService):

(a) If PEZA‐Registered Seller is Subject to the 5% Special Tax Regime. —ExemptfromVAToranypercentagetax,pursuanttoSec.24,R.A.7916.

(b) IfPEZA‐RegisteredSeller isSubjecttoTaxesUndertheNIRC.—Subjectto zero percent (0%) VAT pursuant to the "Cross Border Doctrine" of the VATsystem,regardlessofthetypeorclassofPEZAregistrationofthePEZAenterprise.Buyer,sincetheusefororbenefitfromsuchpurchaseofserviceshalleventuallybetranslatedtoactualexportofgoods(i.e.,shipmentofgoodstoaforeigncountry,which is subject to zero percent (0%) VAT, or translated into technical export ofgoods(i.e.,saleofgoodstoabuyerfromtheCustomsTerritory,whichistreatedasimportationbysuchbuyer,hence,subjectto10%VATagainstthesaidbuyer).

SalesToPersonsOrEntitiesWhoseExemptionUnderSpecialLawsOrInternationalAgreementsToWhichThePhilippinesIsASignatoryEffectivelySubjectsSuchSalesToZeroRate

• Sales of goods or property to persons or entities who are tax‐exemptunderspeciallawsshallbeeffectivelysubjecttoVATatzerorate

• E.g SBMA, sales to enterprises duly registered and accredited with thePEZA,ADB,etc.

89‐78 Paragraph3oftheAgreementbetweenthePhilippineGovernmentandthatorganizationreading‐"3.TheGovernmentwill:"(a)Inviewofthebeneficialnatureoftheprogramforwhichthedonatedcommoditiesdescribedhereinareto be‐used, admit the commodities, as well as anyequipment and supplies required to be imported byCARE for the administration of the program, and allpersonaleffects,equipmentandsuppliesofAmericanemployees of CARE, free of all arrastre charges,

importduties,taxesendfeesforconsularinvoices.(b)Levynotaxes:(1) on commodities imported by CARE into thePhilippines belonging to CARE, any organizationdistributing them for CARS, or the ultimaterecipients;"exempts your importation of commodities but doesnot contemplate a grant of tax exemption to yourpurchase of goods and services in the Philippines. Inotherwords,sincelocalpurchasesarenotcovered‐byyour tax exemption, you have no tax exemptionprivilege that can be extended to Your suppliers ofgoodsandservicesascontemplatedbytheprovisionsofSection100(a)(2)and102(a)(3)oftheTaxCode,asamended by Executive Order No. 273. Accordingly,yourrequestforthezero‐ratingofyourlocalsuppliersofgoodsandserviceshastobeasitisherebydeniedforlackoflegalbasis.

88‐244 AmongthesalesbyVATregisteredpersonswhicharezero‐rated are those made to persons or entitieswhose exemptions are effectively zero‐rated underspeciallawsoragreementstowhichthePhilippinesisa signatory. The exemptions expressly granted areextended not only to the grantee but also to itssupplier of goods. Example of zero‐rated sales aresales of goods to a U.S. Military facility which isexemptfromsalestaxundertheRP‐USMilitaryBasesAgreement. [Sec. 8(b), RevenueRegulationsNo. 5‐87implement Sec. 100(a)(2), Tax Code, as amended byExecutiveOrderNo.273].Inviewthereof,theabovesaleofdeionizedwaterbya local company to a U.S contractor to fulfill thelatter's supply contract with a U.S.Military facility issubjecttovalue‐addedtaxatzeropercent(0%).

72‐98 The charter of Davao Light is a legislative franchise


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grantedbytheGovernmentofthePhilippinesandisinthenatureofprivatecontractconstitutingapropertyright. It stands upon a different footing from thegeneral laws. The Legislature when granting afranchise considers such facts and circumstanceswhich theActor charter is intended tomeet.Havingspeciallyconsideredallofthefactsandcircumstancesin the particular case in granting a special charter, itwill not be considered that the Legislature, byadoptingagenerallawcontainingprovisionrepugnantto theprovisionsof the charter, andwithoutmakinganymentionof its intention toamendormodify thecharter, intended to amend, repeal, or modify thespecialact. (Lewisvs.CookCounty,74111App.151;PhilippineRailwayCo.vs.Nolting,34Phil.401..)Thus,theenactmentoftheEVATLaw,beinganamendmentto thegeneral law,didnot inanyway,alter,amend,nor repeal the terms and conditions of the CharterunderwhichDavao Light s required to pay 2% of itsgrossearning"inlieuofanyandalltaxesofanykind,natureordescription levied,established,orcollectedbyanyauthoritywhatsoever,municipal,provincial,orinsular, now or in the future, on its franchise rights,privileges, receipts, revenuesandprofits, fromwhichtaxesthegranteeisexempted."Moreover, theprovisionsofR.A.No. 7716as furtheramended by R.A. No. 8241 specifically subjectsfranchise grantee of electric utilities to only twopercent (2%) franchise tax and thereby expresslyexemptingthemfromVAT.In the light of the foregoing provisions, this OfficeherebyholdsthatDavaoLightisexemptfromVATonitsimportationofmachineries,equipment,sparepartsand implements exclusively used in the business ofgenerating and selling electric light and power andshallbesubjectonlytothetwopercent(2%)franchisetax imposed under Section 117 of the Tax Code of1997.

132‐97 but see RMC 25‐99

Seebelow.


SUBJECT : Disseminating the Ruling of the Commissioner of InternalRevenue on the Non‐eligibility for VAT Zero‐Rating of Automobile Sales toEntitiesRegisteredwithPEZA,SBMAandClarkDevelopmentAuthority

TO : AllInternalRevenueOfficersandOthersConcerned

QuotedhereunderisthememorandumrulingofthisOfficedatedFebruary2,1999holding that salesofordinaryautomobiles toPEZAorSBMAandotherECOZONEregisteredenterprisesarenotentitledtoVATzero‐rating:

"Thisreferstotheissueofwhetherornotautomobilesuppliersmaybeentitledtothe benefit of VAT zero‐rating pertaining to their sales of cars to enterprisesregisteredwithPEZA,SBMAorCDA.

"Admittedly, we have a previous ruling (BIR Ruling No. DA‐153‐97) holding thatsalesofautomobilesmaybezero‐ratedpursuanttotheprovisionofthenSection100(a)(2)(c) [now Section 106(A)(2)(c)] as implemented by Revenue RegulationsNo. 7‐95 that sales topersons andentitieswhoseexemptionunder special laws,e.g. RA Nos. 7227 and 7916, effectively subject such sales to zero‐rate.Furthermore,withrespecttothesalesofgoodsormerchandisetosuchentities,ithasbeenwellsettledthatthesameshallbetreatedasexportsalespursuanttotheprovision of Article 77(2) of E.O. 226, otherwise known as the OmnibusInvestments Code,which provision is likewisemade applicable to PEZA or SBMAlocators.Thequestionthatnowarisesiswhetherornotitislegallycorrecttoholdthatordinarycars,vehiclesorautomobilesmaybeconsideredembracedwithinthedefinitionof'goodsormerchandise'entitledtothebenefitofzero‐rating.

"The definition of what comprisesmerchandise or goods is found under Section2(ii)ofR.A.7916,asfollows:

"ii. 'MerchandiseorGoods'shallcollectivelyrefertorawmaterials,supplies,equipment, machineries, spare parts, packaging materials or wares of every


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description to be used in connectionwith the registered activity of an ECOZONEenterprise."(Emphasissupplied).

"Theuseofthephrase"tobeusedinconnectionwiththeregisteredactivityofanECOZONEenterprise"indescribingwhatcomprisesmerchandiseorgoodsimpartsthepresumptionthatthesamearesomehowutilizedintheproductionactivityofanECOZONEenterprise.ThisisconfirmedbyreferringtotheRulesandRegulationstoImplementR.A.7916.RuleXVthereofwhichdealswiththeincentivesgrantedtoECOZONEexportandfree‐tradeenterprises,provides,thus:

"SECTION1. Exemption from Duties and Taxes on Merchandise. —Merchandise,rawmaterials,supplies,articles,equipment,machineries,sparepartsandwares of every descriptionbrought into the ECOZONERestrictedAreaby anECOZONEExportorFreeTradeEnterprisetobesold,stored,brokenup,repacked,assembled,installed,sorted,cleaned,gradedorotherwiseprocessed,manipulated,manufactured, mixed with foreign or domestic merchandise whether directly orindirectly related in such activity, shall not be subject to customs and internalrevenue laws and regulationsof thePhilippinesnor to local taxordinances. . . ."(Emphasissupplied)

"Applyingtheforegoingprovisions, itwouldnowappearthatcarsorautomobilescouldnotbepossiblyembracedwithintheclassificationofgoodsormerchandiseentitledtothebenefitoftaxexemption.

"Ontheotherhand,wefindspecificreferencetothekindofvehicleswhichmaybeextendedsuchtaxexemptionprivilegeandthiscanbelikewisefoundinthesameRuleXVoftheRulesandRegulationstoImplementR.A.7916inthiswise:

"D. ImportationofSpecializedVehiclesandOtherTransportationEquipment— Specialized vehicles and other specialized transportation equipment, includingnecessary spare part, directly related to the registered activity of the ECOZONEExportorFreeTradeEnterprise,maybeimportedexemptfromcustomsdutiesandtaxesonly uponprior approval of theBoard andwithproper clearance from theappropriate government agency(ies). Otherwise, ordinary vehicles and othertransportation equipment, including necessary spare parts, whenever applicableshallbeprocuredlocally."(Emphasissupplied)

"The plain meaning and significance of the above provision need no furtherconstruction inarrivingattheobviousconclusionthat1)onlyspecializedvehicles

maybe allowed tobe imported free fromduties and taxes; and that 2) ordinarycommercial vehicles shall be purchased locally which necessarily includes allcomponentdutiesandtaxes.Inthisregard,weagreetotheobservationtakenbyMrs.ElviraR.Vera,formerChiefoftheRegulatoryOperationsMonitoringDivision,in her memorandum dated August 3, 1998, as concurred by the present ROMDChief,DirectorEnriqueRamos,that:

"PursuanttotheRulesXV,Section1(D)oftheRulesandRegulationsissuedbyPEZAto implement the Special Economic ZoneActof 1995 (RANo. 7916), exemptionsfrom the imposition of value‐added tax are being allowed only with respect toimportation of specialized vehicles and other transportation equipment that aredirectly related to the registered activity. For example, a registered constructionfirmmayimportspecializedvehiclessuchaspayloaders,graders,etc.withoutthepayment of the value‐added tax. However, exemption does not extend toimportation of service vehicles since the same are not directly related to itsregisteredactivityasaconstructioncontractor.Asamatterofpolicy,PEZA isnotgivingtax incentivesfortheprocurementofvehiclesortransportationequipmentthatarenotdirectlyconnectedwith the firms' registeredactivities inviewof theabsenceofaneffectivemonitoringsystemtodeterminewhetherthesevehiclesareindeed being utilized by registered enterprises in the conduct of their registeredactivities. It appears, therefore, that with the issuance of the aforementionedruling, theBIR ismore liberal in thegrantof tax incentives to locators inside thePEZAzone"

"Inviewhereof,theRegulatoryOperationsMonitoringDivisionisherebydirectedto deny all applications for effective zero‐rating of the sales of automobiles toenterprises registered with PEZA, SBMA and CDA and other ECOZONES now orhereinafter established pursuant to RA Nos. 7227 and 7916. All BIR rulings andissuances inconsistent with this directive are hereby revoked, superseded ormodified accordingly, subject to thenon‐retroactivity provisionof Section 246oftheTaxCode1997."

AllinternalrevenueofficersandemployeesareherebydirectedtogivethisCircularthewidestpublicitypossible.

TransactionsDeemedSale• TheCommissionerofInternalRevenueshalldeterminetheappropriatetax

baseincaseswhereatransactionisdeemedasale,barterorexchangeofgoodsorproperties,orwherethegrosssellingpriceisunreasonablylower


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thantheactualmarketvalue.• Thegrosssellingpriceisunreasonablylowerthantheactualmarketvalueif

itislowerbymorethan30%oftheactualmarketvalueofthesamegoodsof the same quantity and quality sold in the immediate locality on ornearestthedateofsale.

• Nonetheless, ifoneof theparties in the transaction is thegovernmentasdefinedandcontemplatedundertheAdministrativeCode,theoutputVATonthetransactionshallbebasedontheactualsellingprice.

• Rememberthat tradediscountsmaybebasis for reductionofoutputVATbutnottradereturns

• Barterorexchangeofgoodsorproperties,orwherethegrosssellingprice

is unreasonably lower than the actualmarket value, the Commissionershalldeterminetheappropriatetaxbasefor10%

• Thefollowingtransactionsaredeemedsale:1. Transfer,use,orconsumptionnot inthecourseofbusinessof

goodsorpropertiesoriginallyintendedforsaleorforuseinthecourseofbusiness

2. Distributionortransfertostockholdersorinvestorsasshareintheprofitsofthevat‐registeredperson

3. Distributionortransfertocreditorsinpaymentofdebt4. Consignmentofgoods ifactual sale isn’tmadewithin60days

followingthedatesuchgoodswereconsigned5. Retirement from or cessation of business, with respect to

inventories of taxable goods existing as of such retirement orcessation

ConsumptionofInventory

• Originally intended for sale but used or consumed for personal use oftaxpayerisconsideredtobedeemedsale

RetirementFromBusiness

• Merchandise inventory left at the retirementof business is deemed salesforVATpurposes

• It gave rise to input VAT credit when acquired, which may have beenclaimedbyVAT‐registeredperson

BIRRuling63‐93

Accordingly, the transfer by SLRDCand STRDCof all their assets and liabilities toSLIC solely in exchange for the latter's shares of stock shall not give rise to therecognitionofgainorlosspursuanttoSection34(c)(2)oftheTaxCode.NogainorlossshallberecognizedtoSLRDCandSTRDCuponthedistributionofSLICsharestoSLRDC and STRDC stockholders in complete redemption of their stocks underSection34(c)(2)oftheTaxCode.NogainorlossshallberecognizedtoSLRDCandSTRDCstockholdersupontheexchangeoftheirstockssolelyforSLICstocksunderSection34(c)(20)oftheTaxCode,asamended.The basis of the assets received by SLIC shall be the same as itwould be in thehandsofSLRDCandSTRDC.ThebasisofSLICstocksreceivedbythestockholdersofSLRDCandSTRDC shall be the sameas thebasisof the SLRDCandSTRDC stockssurrenderedinexchangetherefor.IfthetotalliabilitiestobeassumedbySLICuponeffectivemergerdateexceedthehistoricalororiginalacquisitioncost(costbasis)oftheassetstransferredbySLRDCand STRDC, the excess shall be recognized as gain to SLRDC and STRDC (Section34(c)(4)(b),TaxCode,asamendedbyP.D.No.1773)Moreover,youropiniontotheeffectthat‐(1) Thatthetransferoftheassets, includingtangibleandmovableproperties,bySLRDCandSTRDCtoSLICpursuanttothemergerwillnotbesubjecttothevalue‐addedtaxandanyunusedinputtaxofSLRDCandSTRDCasoftheeffectivedateofmerger, will be absorbed by SLIC as surving corporation, pursuant to Section5(b)(3)ofRevenueRegulationsNo.5‐87;(2)ThattheoriginalissuesofthecertificatesofstockofSLICtoSTRDCstockholderswillbesubject to thedocumentary stamptax imposedbySection175of theTaxCode;(3) That the transfer of the real properties will be subject to the documentarystamp tax imposed by Section 196 of the Tax Code, as amended, are herebyconfirmed.Itisunderstood,however,thatuponthesubsequentsaleorexchangeoftheassetsor shares of stock acquired by the parties, the gain derived from such sale orexchangeshallbesubjecttoincometax.Theabovementionedtransactionsshallnotbesubjecttothegifttaxasthereisnointentiontodonateonthepartofanyoftheparties.


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However, in order that the above‐described reorganization can be considered asmergerunder Section34(c)(2)of theTaxCode, theparties to themerger shouldcomplywiththefollowingrequirements:A. The plan of reorganization should be adopted by each of the corporations,parties thereto, the adoption being shown by the acts of its duly constitutedresponsible officers and appearing upon the official records of the corporation.Each corporation, which is a party to the reorganization, shall file, as part of itsreturn for the taxable yearwithinwhich the reorganization occurred a completestatementofallfactspertinenttothenon‐recognitionofgainorlossinconnectionwiththereorganization,including:(1) A copy of the plan of reorganization, together with a statement, executedunderthepenaltiesofperjury,showinginfullthepurposesthereofandindetailalltransactionsincidentto,orpursuanttotheplan.(2) A complete statement of all cost or other basis of all property, including allstocksorsecurities,transferredincidenttotheplan.(3)Astatementoftheamountofstockorsecuritiesandotherpropertyormoneyreceived from the exchange, including a statement of all distribution of otherdispositionmadethereof.Theamountofeachkindofstockorsecuritiesandotherproperty receivedshallbestatedon thebasisof the fairmarketvalue thereofatthedateoftheexchange.(4) A statement of the amount and nature of any liabilities assumed upon theexchange,andtheamountandnatureofanyliabilitiestowhichanyofthepropertyacquiredintheexchangeissubject.B. Every taxpayer, other than a corporation, party to the reorganization, whoreceivedstockorsecuritiesandotherpropertyormoneyuponatax‐freeexchangein connectionwitha corporate reorganization shall incorporate inhis income taxreturn for the taxable year in which the exchange takes place a completestatement of all facts pertinent to the non‐recognition of gain or loss upon suchexchangeincluding:(1)Astatementofthecostorotherbasisofthestockorsecuritiestransferredintheexchange;and(2) Astatementinfulloftheamountofstockorsecuritiesandotherproperlyormoney received from the exchange, including any liabilities assumed upon theexchange,andany liabilities towhichproperty received is subjectTheamountofeachkindofstockorsecuritiesandotherproperty(otherliabilitiesassumedupontheexchange) received shall be set forthupon thebasisof the fairmarket valuethereofatthedateoftheexchange.

C. Permanent records in substantial form shall be kept by every taxpayer whoparticipates in a taxfree exchange in connectionwith a corporate reorganizationshowing the cost or other basis of the transferred property or money received(includinganyliabilitiesassumedontheexchange,oranyliabilitiestowhichanyofthe properties receivedwere subject), in order to facilitate the determination ofgain or loss from subsequent disposition of such stock of securities and otherpropertyreceivedfromtheexchange,(par.9803‐8,F‐H963,ed.,p.9611)Inadditiontotheforegoingrequirements,permanentrecords insubstantial formmust be kept by the corporation participating in the merger showing theinformation listed above in order to facilitate the determination of gain or lossfrom a subsequent disposition of the stock received as a consequence of themerger.

MergersandConsolidationsBIRRuling472‐93 THCandBRCexecutedaPlanofMergerwherebyBRCis

the surviving corporation; thatwith themerging of thetwocorporations,theoutstandingsharesofstockofTHCshall,aftertheeffectivemergerdateanduponsurrenderby the registered owners of the shares of stock, beexchanged with shares of stock of BRC at the ratio ofeight (8) shares of BRC for one (1) share of THC, asdeterminedonthebasisoftheamountofthenetassetsof THC, as of July 31, 1993; that upon effectivemergerdate, THC's corporate existence shall cease and all itsrights,privilegespowersandfranchises,allitsproperties,real and personal, including receivables on whateveraccount,andallandeveryotherinterestofTHCshallbeassumedby,andbevestedinBRCwithoutfurtheractordeed; that all debts, liabilities andobligationsof THC intheamountofP37,216,936.00,aswellaspendingclaims,actions andproceedings shall likewise vest in, attach toandbeassumedby13RC, andmaybeenforcedagainstBRCasiftheyhadbeenoriginallycontractedorincurredby it without further act or deed; and that themergerwill achieve mutually advantageous and beneficialbusiness purposes, such as but not limited to (1)increased financial strength; and (2) rationalization of


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overall business expenses, particularly administrativeexpenses.HELD:Accordingly, the transfer by THC of all its assets andliabilitiestoBRCsolelyinexchangeforthelatter'ssharesof stock shall not give rise to the recognitionof gainorloss pursuant to Section 34(c) (2) of the Tax Code. Nogain or loss shall be recognized to THC upon thedistribution of BRC shares to THC stockholders incompleteredemptionoftheirstockssolelyforBRCstocksunderSection34(c)oftheTaxCode.ThebasisoftheassetsreceivedbyBRCshallbethesameasitwouldbeinthehandsofTHC.ThebasisoftheBRCstocks received by the stockholders of THC shall be thesame as the basis of the THC stocks surrendered inexchangetherefor.If the total liabilities to be assumed by BRC uponeffective merger date exceed the historical or originalacquisition cost (costbasis) of theassets transferredbyTHC, the excess shall be recognized as gain of THC[Section34(c)(4)(b),TaxCode,asamendedbyP.D.No.1773].Itisunderstood,however,thatuponthesubsequentsaleorexchangeoftheassetsorsharesofstockacquiredbytheparties,thegainderivedfromsuchsaleorexchangeshallbesubjecttoincometax.The Agreement ofMerger executed by BRC and THC isnotsubjecttodocumentarystamptax.

RR7‐95,Sec.4.100.5 Changes in or cessation of status as a VAT‐registeredperson.—a)Subjecttotax.—Thevalue‐addedtaxprovidedforinSections100and102oftheCodeshallapplytoservices,goods, or properties originally intended for sale or foruseinbusinessandcapitalgoodswhichareexistingasoftheoccurrenceofthefollowing:(1) Change of business activity from value‐added

statustoexemptstatus.Anexample isaVAT‐registeredperson engaged in a taxable activity like wholesaler orretailer who decides to discontinue such activity andengagesinsteadinlifeinsurancebusinessorinanyotherbusinessnotsubjecttoVAT;(2) Approval of a request for cancellation ofregistrationduetoreversiontoexemptstatus.(3) Approval of a request for cancellation ofregistration due to a desire to revert to exempt statusafter the lapse of two (2) consecutive years from thetime of registration by a person who voluntarilyregisteredinspiteofbeingexemptunderSection103(a),(b), (c) and (d) of the Code with respect to his exportsalesonly,andSection103(t)oftheCode.(4) Approval of a request for cancellation ofregistration of one who commenced business with theexpectation of gross sales or receipts exceedingP500,000.00butwhofailedtoexceedthisamountduringthefirsttwelvemonthsofoperation.(b) Notsubjecttooutputtax.—TheVATshallnotapply to goods or properties existing as of theoccurrencesofthefollowing:1) Change of control of a corporation by theacquisitionofthecontrollinginterestofsuchcorporationby another stockholder or group of stockholder,Example: transfer of property to a corporation inexchange for its shares of stock under Section34(c)(2)and(6)(c)oftheCode.2) Change in the tradeor corporatenameof thebusiness;3) Merger or consolidation of corporations. Theunused input tax of the dissolved corporation as of thedateofmergerorconsolidatedshallbeabsorbedbythesurvivingornewcorporation.

ButseeRMC19‐99 The absorbed corporation, upon the merger, ceases orretires from doing business, so that its merchandise


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inventory transferred to the surviving corporation, byclearprovisionoflaw,is"deemedsale"forVATpurposes(Section106,(B)(4),TaxReformCode).Theunusedinputtaxes of the absorbed corporations cannot legally betransferred to the surviving corporation for the latter'suse as tax credits to its output VAT. This could only beusedastaxcredittotheVATpaymentsoftheabsorbedcorporationsandthesameisnottransferabletoapartynot privy to the contracts from where the input taxesarose (Section 110 (A) (2) (a) of Tax Code, supra., asimplemented by Section 4.104‐1 (d) of RevenueRegulations No. 7‐95). In other words, only the directbuyersofgoods/services towhomthe input taxeswere"passedon"couldavailof the right to taxcredit.UndertheVATlaw,theabsorbedentityshouldpaytheVATonthemerchandiseinventory,therebeinga"deemedsale"transaction, after tax crediting the corresponding inputtaxes,withtherighttoclaimrefund,iftheinputexceedsthe output tax. If the output tax is paid, this may be"passedon"tothesurvivingcorporationforitsuseastaxcredit.

DeterminationOfTax:InvoicingRequirementsAVAT‐registeredpersonshallissue—

1. AVATinvoiceforeverysale,barterorexchangeofgoodsorproperties;2. AVATofficialreceiptforeveryleaseofgoodsorproperties,andforevery

sale,barterorexchangeofservices.

• OnlyVAT‐registeredpersonsarerequiredtoprinttheirTINfollowedbytheword“VAT”intheir invoiceorofficialreceipts. Saiddocumentsshallbeconsidered as a “VAT Invoice” or VAT official receipt. All purchasescoveredbyinvoices/receiptsotherthanVATInvoice/VATOfficialReceiptshallnotgiverisetoanyinputtax.

• VATinvoice/officialreceiptshallbepreparedatleastinduplicate,theoriginaltobegiventothebuyerandtheduplicatetoberetainedbytheselleraspartofhisaccountingrecords.

InformationContainedinVATinvoiceorreceipt

(1) AstatementthatthesellerisaVAT‐registeredperson,followedbyhisTIN;

(2) ThetotalamountwhichthepurchaserpaysorisobligatedtopaytothesellerwiththeindicationthatsuchamountincludestheVAT;Provided,That:

1. Theamountoftaxshallbeshownasaseparateitemintheinvoiceorreceipt;

2. IfthesaleisexemptfromVAT,theterm“VAT‐exemptsale”shallbewrittenorprintedprominentlyontheinvoiceorreceipt;

3. Ifthesaleissubjecttozeropercent(0%)VAT,theterm“zero‐ratedsale”shallbewrittenorprintedprominentlyontheinvoiceorreceipt;

4. Ifthesaleinvolvesgoods,propertiesorservicessomeofwhicharesubjecttoandsomeofwhichareVATzero‐ratedorVAT‐exempt,theinvoiceorreceiptshallclearlyindicatethebreak‐downofthesalepricebetweenitstaxable,exemptandzero‐ratedcomponents,andthecalculationoftheVAToneachportionofthesaleshallbeshownontheinvoiceorreceipt.Thesellerhastheoptiontoissueseparateinvoicesorreceiptsforthetaxable,exempt,andzero‐ratedcomponentsofthesale.

(3) Inthecaseofsalesintheamountofonethousandpesos(P1,000.00)ormorewherethesaleortransferismadetoaVAT‐registeredperson,thename,businessstyle,ifany,addressandTINofthepurchaser,customerorclient,shallbeindicatedinadditiontotheinformationrequiredin(1)and(2)ofthisSection.

IssuanceofVATInvoiceByaNon‐VATPersonIfapersonwhoisnotVAT‐registeredissuesaninvoiceorreceiptshowinghisTIN,followedbytheword“VAT”,theerroneousissuanceshallresulttothefollowing:

(1) Thenon‐VATpersonshallbeliableto:1. thepercentagetaxesapplicabletohistransactions;2. VATdueonthetransactionsunderSec.106or108oftheTax

Code,withoutthebenefitofanyinputtaxcredit;and3. a50%surchargeunderSec.248(B)oftheTaxCode;

(2) VATshallberecognizedasaninputtaxcredittothepurchaserunderSec.110of theTaxCode,providedtherequisite informationrequiredunderSubsection 4.113 (B) of these Regulations is shown on the invoice or


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receipt.Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by a VAT‐registeredPerson

• IfaVAT‐registeredpersonissuesaVATinvoiceorVATofficialreceiptforaVAT‐exempt transaction, but fails todisplayprominently on the invoiceor receipt the words “VAT‐exempt sale”, the transaction shall becometaxableandtheissuershallbeliabletopayVATthereon.

• Thepurchasershallbeentitledtoclaimaninputtaxcreditonhispurchase.VATonImportations(Section107)

• There shall be levied, assessed and collected on every importation ofgoodsavalue‐addedtaxequivalentto12%basedonthetotalvalueusedby theBureauofCustoms indetermining tariffandcustomsdutiespluscustoms duties, excise taxes, if any, and other charges, such tax to bepaid by the importer prior to the release of such goods from customscustody:Provided,Thatwherethecustomsdutiesaredeterminedonthebasisofthequantityorvolumeofthegoods,thevalue‐addedtaxshallbebasedonthelandedcostplusexcisetaxes,Ifany.

• In the case of tax‐free importation of goods into the Philippines bypersons, entities or agencies exempt from tax where such goods aresubsequently sold, transferred or exchanged in the Philippines to non‐exemptpersonsorentities,thepurchasers,transfereesorrecipientsshallbeconsideredtheimportersthereof,whoshallbeliableforanyinternalrevenuetaxonsuch importation.Thetaxdueonsuch importationshallconstitute a lien on the goods superior to all charges or liens on thegoods,irrespectiveofthepossessorthereof.

• Firstthingyouask:whoisimportingthegoods?Next,isthegoodbeingimportedsubjecttoSection109orexempttransactions?

• Ifthegoodsareimportedbyexemptentitiesandlaterontransferredtoanon‐exemptentity,theVATwouldbecollectedfromthem

InGeneralBIRRuling72‐98,supra Moreover,theprovisionsofR.A.No.7716asfurther

amended by R.A. No. 8241 specifically subjectsfranchise grantee of electric utilities to only twopercent (2%) franchise tax and thereby expresslyexemptingthemfromVAT.

In the light of the foregoing provisions, this Officehereby holds thatDavao Light is exempt fromVATonitsimportationofmachineries,equipment,spareparts and implements exclusively used in thebusinessofgeneratingandsellingelectric lightandpowerandshallbesubjectonlytothetwopercent(2%)franchisetaximposedunderSection117oftheTaxCodeof1997.

88‐96 As importer of Industrial Essential Oil, ArtificialFlavourandFoodAdditives (DCCompound05888),yourclientissubjecttothevalue‐addedtax(VAT)attherateof10%basedonthetotalvalueusedbytheBureau of Customs in determining tariff andcustoms duties, plus customs duties and otherchargespursuanttoSection101oftheTaxCodeitsamendedbyExecutiveOrderNo.273.Saidarticles,however,arenotsubjecttotheexcisetax imposedunderSection150(b)ofthesameCodeandSection145thereof.

88‐160 Your imported Liquid Glucose Feedgrade andSulfadaminefeedadditiveswhicharerawmaterialsin themanufacture of poultry feeds are subject tovalue‐added tax equivalent to 10% based on thetotal value used by the Bureau of Customs indeterminingtariffandcustomsduties,pluscustomsduties,excisetaxes, ifany,andothercharges,suchtaxtobepaidbytheimporterpriortothereleaseofsuch goods from customs custody, pursuant toSection 101(a) of the Tax Code as amended byExecutive Order No. 273. This is so because underSection l03(c) of the same Code, the exemptioncovers only the importation of manufactured fish,animalandpoultryfeedsbutnottherawmaterialsusedinthemanufactureofsaidfeeds.

88‐193 Under Section 103(c) of the same Code, the


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exemption covers only the manufactured fish,animalandpoultryfeedsandnottherawmaterialsused in the manufacture of said feeds as in theinstantcase.

88‐13 Youhaveimportedforpersonaluseonlyoneunitof1982Fiat132havingadutiablevalueinpesosintheamountofP49,911.04.In reply, please be informed that based on theforegoing information, you are subject to both advaloremandvalue‐addedtaxinaccordancewiththefollowingcomputations:ExciseTax‐‐Dutiablevalueinpesos.........................P49,911.04Customsduty............................................24,955.51OtherCharges............................................2,365.18P77,231.73Plus:10%...................................................7,723.17P84,954.9035%AdValoremtax29,734.00ForVAT‐‐Dutiablevalueinpesos..........................P49,911.00Customsduty...........................................24,956.00ExciseTax.................................................29,734.00OtherCharges............................................2,365.18P106,966.0010%VAT................................................P10,697.00SUMMARYExcisetax.........................................P29,734.00VAT...................................................10,697.00P40,431.00

128‐98 ImportationofBanolewhichisusedasfungicidetocombat banana sigatoka diseases and not togeneratepowerorenergytobeusedasfuel, isnotsubject to the excise tax imposed under Section148(a) of the Tax Code of 1997. It goes withoutsaying that the certification of the Fertilizer &

Pesticide Authority to the effect that Banole is anagricultural chemical is entitled to great respect itbeing the competent government agency todeterminetheproperclassificationofBanole.

163‐98 Section 17 of Republic Act No. 79136, otherwiseknownastheThriftBanksActof1955,providesthatall thrift banks created and organized under theprovisions of the Act and thrift banks already inoperation as of the date of effectivity thereof onMarch18,1995shallbeexempt fromthepaymentof all taxes, fees and charges of whatever natureanddescription,exceptcorporateincometaxesandlocal taxes, fees and charges. The exemption shallbe for a period of five (5) years from the date ofcommencementofoperation;whileforthriftbanksarealreadyexistingandoperatingasofthedateofeffectivity of the Act (March 18, 1995), the taxexemption shall be for a period of five (5) yearsreckonedfromthedateofsucheffectivity,providedthat the said taxexemption shall continue tobe inforce and effect only until December 31, 1999therebysubjectingallthriftbankstotaxes,feesandchargesinthesamemannerandatthesamerateasbanksandotherfinanial intermediariespursuanttoSection7ofR.A.No.8424,otherwiseknownastheTaxReformActof1997.VAT on importations under Section 107(A) of theTaxCodeof1997isnotataxontheoperationofthethrift bank. It is a taxon theprivilegeof importinggoods whether or not the taxpayer is engaged inbusiness, and regardless of whether the importedgoodsare intendedforsale,barterorexchange,orforpersonaluse.Inotherwords,VATunderSection1‐07(A) of the Tax Code of 1997 replaced theadvance sale taxandcompensating taxunder thenSections183(b)and199,respectively,oftheoldTax


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Code. Accordingly, your exemption from taxesunderRepublicActNo. 7906doesnot includeVATonimportationunder the saidSection107(A)oftheTaxCode.

TransfersofGoodsbyTax‐ExemptEntities100‐95 Atax‐freevehicleacquiredandsubsequentlysoldby

atax‐exemptentitytoanon‐exemptpersonshallbesubject to VAT and to the excise tax, respectively.Accordingly,sincea1991ModelToyotaCorollafallsunder the category of automobile,when sold by atax‐exempt person to a non‐exempt person, thelatter shallbecome theperson liable to theunpaidVAT and ad valorem tax. In other words, as thetransferee of the aforesaid vehicle, you are thepersondirectlyliabletotheVATandadvaloremtaxpursuant to Sections 101(b) and 149 in relation toSection128oftheTaxCode,asamended.

VATonSaleofServices

• There shall be levied, assessed and collected, a value‐added taxequivalentto12%ofgrossreceiptsderivedfromthesaleorexchangeofservices,includingtheuseorleaseofproperties.

SaleOrExchangeOfServices

• Itmeans the performance of all kinds or services in the Philippines forothers for a fee, remuneration or consideration, including thoseperformedorrenderedby—

o Constructionandservicecontractors;o Stock, real estate, commercial, customs and immigration

brokers;o Lessors of property, whether personal or real; warehousing

services;o Lessorsordistributorsofcinematographicfilms;o Persons engaged in milling, processing, manufacturing or

repackinggoodsforothers;

o Proprietors, operators or keepers of hotels, motels, resthouses,pensionhouses,inns,resorts;

o Proprietors or operators of restaurants, refreshment parlors,cafesandothereatingplaces,includingclubsandcaterers;

o Dealersinsecurities;o Lendinginvestors;o Transportation contractors on their transport of goods or

cargoes, includingpersonswhotransportgoodsorcargoesforhireandotherdomesticcommoncarriersbyland,airandwaterrelativetotheirtransportofgoodsorcargoes;

o Servicesoffranchisegranteesoftelephoneandtelegraph,radioand television broadcasting and all other franchise granteesexceptthoseundersection119ofthiscode;

o Services of banks, non‐bank financial intermediaries andfinancecompanies;

o And non‐life insurance companies (except their cropinsurances), including surety, fidelity, indemnity and bondingcompanies;

o And similar services regardless of whether or not theperformancethereofcallsfortheexerciseoruseofthephysicalormentalfaculties.

• Itshalllikewiseinclude:(1) Theleaseortheuseofortherightorprivilegetouseanycopyright,

patent, design ormodel, plan secret formula or process, goodwill,trademark,tradebrandorotherlikepropertyorright;

(2) The lease of the use of, or the right to use of any industrial,commercialorscientificequipment;

(3) The supply of scientific, technical, industrial or commercialknowledgeorinformation;

(4) Thesupplyofanyassistancethatisancillaryandsubsidiarytoandisfurnished as ameans of enabling the application or enjoyment ofany suchproperty,or right as ismentioned in subparagraph (2)oranysuchknowledgeorinformationasismentionedinsubparagraph(3);

(5) The supplyof servicesby anonresidentpersonorhis employee inconnectionwith the use of property or rights belonging to, or theinstallationoroperationofanybrand,machineryorotherapparatuspurchasedfromsuchnonresidentperson.


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(6) The supply of technical advice, assistance or services rendered inconnection with technical management or administration of anyscientific, industrialor commercialundertaking, venture,projectorscheme;

(7) Theleaseofmotionpicturefilms,films,tapesanddiscs;and(8) Theleaseortheuseofortherighttouseradio,television,satellite

transmissionandcabletelevisiontime.• Lease of properties shall be subject to the tax herein imposed

irrespective of the place where the contract of lease or licensingagreement was executed if the property is leased or used in thePhilippines.

Grossreceipts

• Itmeans the total amount ofmoney or its equivalent representing thecontractprice,compensation,servicefee,rentalorroyalty,includingtheamount charged for materials supplied with the services and depositsand advanced payments actually or constructively received during thetaxable quarter for the services performed or to be performed foranotherperson,excludingvalue‐addedtax.

SaleorExchangeofServicesBIRRuling02‐97 Pursuant to Section 102(a) of the Tax Code, as

amended by Republic Act No. 7716, and asimplemented by Section 102‐1 of RevenueRegulationsNo.7‐95,grossreceiptsofconstructionand service contractors like theMTOB Consortiumare subject to VAT. (BIR Ruling No. 274‐92 datedSeptember 30, 1992). Moreover, under Section102(b)(2) of the Tax Code. as amended, and asimplemented by Section 4, 102‐2(b)(2) of RevenueRegulationsNo.7‐95asamendedbyR.R.5‐96datedFebruary 20, 1996 provides that services by aresident to a nonresident foreign client such asproject studies, information services, engineeringandarchitecturaldesignsandothersimilarservices,theconsiderationforwhichispaidforinacceptableforeign currency and accounted for in accordancewith the rules and regulations of the BSP shall be

subject to 017c VAT. Accordingly, although 75% ofNAIA 11 Terminal Construction Project is foreignfundedbytheOECFofJapan,grossreceiptsderivedtherefrom. inclding the OECF portion, shall remainsubject to 10% VAT since the services beingperformedby the residents, in this case theMTOBconsortium members, are not for a non‐residentforeignclientsbutforMIAA.Grossreceiptsderivedfrom the 25% peso portion of the project shall besubject to the 10% VAT also. Consequently, sinceMIAA isagovernmentagency, it shallwithholdthe6% creditable VAT on its gross payments to theMTOB consortium pertaining to both the 75%foreigncurrencyfundedportion,includingtheOECFpeso portion, and the 25% peso portion of theproject pursuant to Republic Act No. 7649 and asimplemented by Revenue Regulations 10‐93. (Sec.4.110‐3,R.R.No.7‐95).The subsequent disbursernents to the MTOBconsortiummembers of their share in the revenuefrom the NAIA 11 Terminal Construction ProjectshallnolongerbesubjecttoVATandconsequentlyto the 6% withholding creditable VAT since theyrepresentthesamepaymentstoMIAAforthesamesaleofservicealreadysubjectedtothe10%VATand6%withholdingVATattheMTOBconsortiumlevel.The expanded VAT law and its implementingregulationsdonotprohibitconsortiummemberstoenter into separate contracts or subcontracts withthirdpartiesor sub‐contractors for their respectivescopeofworkintheNAIA11TerminalConstructionProject. Section 4.104‐2 of Revenue RegulationsNo.7‐95,however, requires that input taxcreditonpurchasesofgoodsandservicesshallbecreditableonlytothepurchaserofgoodsandservices.Thus,toenable MTOB consortium to credit to its output


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VAT, the input VAT derived from the separatedomestic purchases of goods and services by theconsortiummembers, the invoices and/or receiptsissued by the third parties or subcontractorsmustbe issued to theMTOB consortium. Your followingproposalthattheinvoiceand/orofficialreceiptwillindicatethepurchaserofthegoodsand/orservicesasfollows:"Soldto(nameofconsortiummembers)asmemberof MTOB Consortium" that the VAT‐registeredinvoicewillstateasfollows:DescriptionofArticles UnitPriceTotal‐0‐‐0‐‐0‐"For the specific scope of work of (name ofconsortium member) for the NAIA 11 TerminalConstructionProjectIl."andthattheVAT‐registeredofficialreceiptswillstateasfollows:"Receivedtheamountofaspaymentforservicesof(nameofconsortiummember)asmemberofMTOBConsortium for its specific scope of work." isacceptable to this Office to enable the MTOBConsortiumtoclaimtheinputVATagainstitsoutputVAT.Inaddition,tosupporttheMTOBConsortiuminputtax credit, the VATregistered invoices and/orreceipts issued by the third parties or sub‐contractors must comply with the invoicingrequirements as provided in Section 108(a) of theTax Code, as amended. It is axiomatic that anyunutilizedinputVATofMTOBConsortiumcannotbetreated/recognized as cost by the differentconsortiummembers for incometaxpurposes.Theunapplied input VAT of the MTOB Consortium, ifany, maybe the subject of a tax credit/refundpursuanttoSec.4.106‐1ofR.R.7‐95.

Furthermore, pursuant to Section 20(b) of the TaxCode, as amended, the term corporation includespartnerships, nomatter how created or organized,joint stock companies, joint accounts (cuentas enparticipacion),associationsorinsurancecompanies,but does not include general professionalpartnerships and a joint venture or consortiumformedforthepurposeofundertakingconstructionprojects,orengaginginpetroleum,coal,geothermaland other energy operations pursuant to anoperatingorconsortiumagreementunderaservicecontract with the Government. Thus, it is ouropinion that the MTOB consortium members areseparately subject to the regular corporate incometaxontheirtaxableincomeduringeachtaxableyearrespectively derived by them from the aforesaidconstrucion project. (BIR Ruling No. 10‐96 datedJanuary 23, 1996). The same contracts with thirdpartiesorsubcontractorsandtheVATandnon‐VATregisteredsales invoicesand/orofficialreceiptswillsupporttherespectivebusiness,expenseofeachofthe consortiummembers as deductions from theirgrossincome.

ButseeRMC32‐99 Japanese contractors undertaking OECF‐fundedprojects in the Philippines are not liable toPhilippine taxes. They are exempt from VATimposedunder Sections106(A) and108(A)bothofthe Tax Code of 1997 on their supply ofmaterialsand services relative to the OECF‐funded project.Consequently, they are exempt from theeight andone half percent (8.5%) creditable value added taximposed under Section 114(C) of the Tax Code of1997. They are also exempt from the one percent(1%) expanded withholding tax imposed underSection 2.57.2(E) of Revenue Regulations No. 2‐98implementing Section 57(B) of the Tax Code of1997.


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All revenueofficialsandemployeesareenjoinedtogivethisCircularaswideapublicityaspossible.

33‐99 The "Special Economic Zone Act of 1995" providesthat no taxes, local and national, shall be imposedon business establishments operating within theEcozone.Inlieuofpayingtaxes,fivepercent(5%)ofthe gross income earned by all businesses andenterpriseswithintheEcozoneshallberemittedtothenationalgovernment.Moreover, Section 4(A)(e) of Revenue RegulationsNo. 1‐95, otherwise known as the Rules aWRegulations implementing the tax incentivesprovisions under paragraphs (h) and (c) of Section12,RepublicActNo.7227,otherwiseknownasthe'BasesConversion andDevelopmentAct of 1992 ",reads:"SEC.4.EXEMPTIONSANDINCENTIVES."A. All SBMA‐registered enterprises doing businesswithintheSecuredAreaintheZoneshallenjoythefollowing:xxxxxxxxxxxx"c) Purchases of raw materials, capital goods andservices by the SBMA and SBF‐accreditedenterprises, from enterprises in the Customsterritory shall be considered effectively zeroratedfor VAT purposes. However, the VAT‐registeredenterprises in the Customs territory shall apply foreffective zero‐rating of their sales of goods andservicestoSBMAandtoSBFenterprisespursuanttoRevenueRegulationsNo.5‐87,asamended."FromtheforegoingprovisionofR.A.No.7916,itisclear that the sale of services to PEZA‐registeredenterprises, for income and VAT purposes, shouldbe rendered within the PEZA boundaries to beentitled to the benefits of Section 24 of R. A. No,

7916. Accordingly, and since your Liaison officespace and Expats house are located outside thePEZA bondaries, the lease thereof is thereforesubjecttothe10%VATimposedunderthenSection102(a)[now Section 108(a)] of the Tax Code, asamended, and to the corporate income taxprescribed under then Section 24(a)[now Section27(A)]oftheTaxCode,asamended.Moreover,purchasesofservicesbySBMAandSBF‐accredited enterprises from enterprises in thecustoms territory should be rendered within thesecured area in the zone to be consideredeffectivelyzero‐ratedforVATpurposes.

55‐98 Commonstonefallsunderthedefinitionof"Quarrysources"asdefined inSection151(B)(4)oftheTaxCodeof1997,RevenueRegulationsNo.13‐94datedJuly20,1994whichgovernstheimpositionofexcisetaxes on minerals and mineral products alsocontainsthesamedefinitionof"quarryresources".Such being the case, boulders or stones cannot beconsideredasnonfoodagriculturalproductsintheiroriginal state, in which case, said products aresubjectto2%excisetaxbasedontheactualmarketvalue of the gross output thereof at the time ofremoval, pursuant to Section 151(A)(2) of the TaxCodeof1997.Inaddition,saidproductsaresubjectto 10% VAT imposed under Section 106(A) of thesameCode.

83‐98 UnderthemostfavorednationprovisionoftheRP‐USTaxTreaty(Article13,paragraph2(b)(iii)],thetaximposable on royalties by a resident of theUnitedStates from sourceswithin the Philippines shall bethe lowest rate of Philippine tax that may beimposed on royalties of the same kind paid under


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similarcircumstancestoaresidentofaThirdState.Article12,paragraph2(b)of theRP‐WestGermanyTaxTreaty,effective January1,1985,provides thatroyalties arising in the Philippines and paid to aresidentofWestGermanymayalsobetaxedinthePhilippines,butthetaxsochargedshallnotexceed10% of the gross amount of royalties arising fromthe use of, or the right to use, any patent,trademark, design or commercial or scientificequipmentorforinformationconcerningindustrial,commercialofscientificexperience.Thesaidtreatyalso provides that for as long as the transfer oftechnology under Philippine law is subject toapproval, the limitationsof the tax ratementionedunderArticle12(2)(b)oftheRP‐GermanyTaxTreatyshall, inthecaseofroyaltiesarising intheRepublicof the Philippines, only apply if the contract givingrise to such royalties has been approved by thePhilippinecompetentauthorities.Such being the case, and inasmuch as theDevelopment and Multiple Shop FranchiseAgreementbetweenAAIandPPIhasbeenapprovedby the Bureau of Patents, Trademarks andTechnology Transfer of the Department of TradeandIndustry,royaltiesarisinginthePhilippinesandpayable by your client, AAI, are subject to thePhilippinetaxattherateof10%pursuanttoArticle13(2)(b)(iii) of the RP‐US Tax Treaty in relation toArticle12(2)(b)oftheRP‐WestGermanyTaxTreaty.Thesaidtaxshallbewithheldandpaidinthesamemanner and subject to the same condition asprovided in Section 50(b) of the Tax Code, asamended. (BIR Ruling No. 002‐90 dated January 4,1990).Moreover, the remittance by PPI to AAI, of 5%franchise fees arising in thePhilippines as royalties

basedongrosssalesshallbesubject to10%value‐added taxpursuant to Section102(a)(1) of the TaxCode,asamendedbyRepublicActNo.7716.Section4. 102‐1(b) of Revenue Regulations No. 7‐95,implementingR.A.No.7716,provides,viz:"Sec. 4.102‐1. Value‐added tax on the sale ofservicesanduseofproperties."(a)xxxXxxXxx"(b) The VAT on rental and/or royalties payable tonon‐residentforeigncorporationsorownersforthesaleofservicesanduseorleaseofpropertiesinthePhilippines shall be based on the contract priceagreed upon by the licensor and the licensee. ThelicenseeshallberesponsibleforthepaymentofVATon such rentals and/or royalties in behalf of non‐resident foreign corporation or owner by filing aseparate VAT declaration/return for this purpose.The duly validated VAT declaration/return issufficient evidence for Petriolas Philippines, Inc. inclaiminginputtaxcreditbythelicensee.Inviewthereof,PPIshall,beforemakingpaymentofroyalties toAAI,withhold and remit to thisBureauthe10%VATdue thereon,by filinga separateVATreturn for and in behalf of the said nonresidentforeigncorporation.(Section4.110‐3(b)ofRevenueRegulations No. 7‐95). The duly validated VATdeclaration/return is sufficient evidence forPretiolas Philippines, Inc. in claiming input taxcredit.

88‐426 Pursuant to the RP‐US Military Bases Agreement,your sale of services to the U.S. Military Base isexemptfromVATprovidedthatyoudonotregisteras a VAT taxpayer, in accordance with Section103(u) of the Tax Code, as amended by ExecutiveOrder No. 273. However, if you register as a VATtaxpayer, your sale to theU.S.Bases shall be zero‐


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rated provided you apply for zero‐rating, pursuantto Section 102(a)(3) of the same Code. Uponapproval of your application for zero‐rating, yourbillingstotheU.S.MilitaryBaseshallnotincludetheVATas contemplated in Section8(c)(2) of RevenueRegulationsNo.5‐87.

89‐107 WithrespecttoBIRRulingNo.155‐88totheeffectthat VAT applies to reinsurance overridingcommission which can be classified as charge forservice, this Office, after a re‐study, believes thatthe insurancecompanyderiving saidcommission isnotasellerbutabuyerofservice.Accordingly,saidinsurance company cannot be held liable for VATbecauseVATappliesonlytosellersofservices.As regards BIR Ruling No. 186‐88, the querypropounded therein as to whether reinsurancecommissionsare subject toVAT is answered in thenegativeforthereasonthattheinsurancecompanyderivingthesameisabuyer,notasellerofservice.Under the VAT law, the seller of the service is thepartysubjecttoVAT.Accordingly,BIRRulingNos.155‐88and186‐88aremodified.

89‐51 1. In acting as commission agent or broker, youshall fall within the purview of a "commercialbroker". Such being the case, your gross receiptswhatever, shall be subject to 10% value‐added thecase,yourgrossreceiptswhatever,shallbesubjectto 10% value‐added tax (VAT) pursuant to Section102 of the Tax Code, as amended by E.O. No. 273and as implemented by Section 3 of RevenueRegulations No. 5‐87. "Gross receipts menas thetotal amount of money or its equivalentrepresenting the contract price, compensaton orservice fee, including the amount changed formaterialssuppliedwiththeservicesanddepositsor

advance payments actually or constructivelyreceivedduringthetaxablequarterfortheservicesperformedot tobeperformed for anotherperson,excludingvalue‐addedtax.[Sec.102(a),TaxCodeasamended].2. Likewise, inbuyingandthensellinganyoralloftheaforestatedarticles,youshallbesubjectto10%VAT based on your gross selling price pursuant toSection100ofthesaidCode.3. Finally, in extending credit or advances atinterest to theownersof saidarticles, youshallbeconsidered a lending investor subject to 5% taxbased on gross income pursuant to Section 116(formerlySection175)ofthesamecode.Moreover, your gross income shall ber subject toincometaxpursuanttoSection21oftheTaxcode,asamended.

94‐48 Records show that under the technical serviceagreementbetweenthepurchaserDelMonteFreshProduce (International), Inc. and its affiliate, DelMonteFreshProduce(Philippines),Inc.,paymentofthe latter's technical service fees are made byinward dollar remittances by the purchaser to itsaffiliateprovidingtheservicesinthePhilippines.Accordingly, the service feesderivedbyDelMonteFresh Produce (Philippines), Inc. pursuant to thecontractenteredintowithDelMonteFreshProduce(International), Inc. shall be subject to VAT at zeropercent,underSection102(a)(2)oftheTaxCode,asamended.

87‐335 For leasing your real property located at Mayoncorner Retiro St.,Quezon City, you are not subjecttothe4%percentagetaximposedbySection170ofthe Tax Code. However, you are considered a realestatedealersubjecttothefixedtaximposedunder


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Section161(3)(aa)ofthesameCode.

88‐79 Engineeringconsultationservicesaresubjecttothevalue‐added tax pursuant to Section 102(a) of theTaxCodeasamendedbyExecutiveOrderNo.273.

88‐83 A public relations agency is subject to the value‐addedtaxof10%onitsgrossreceipts.Asregardsyourunusedinvoicesorreceipts,allvat‐registered persons who have in their possessioninvoicesorreceiptsprintedpriortojanuary1,1988,arerequiredtosubmitaninventoryofsuchinvoicesorreceiptsonorbeforejanuary31,1988indicatingthe number of unused booklets and their.Correspondingserialnumbertotherevenuedistrictofficer who has jurisdiction over its principal placeof business. However, since january 31, 1988 is asunday, the last day for filing said inventory is thenextworkingday,whichwasonfebruary1,1988.As a vat‐registered person, you are required tostamptheunusedinvoiceswithyourvatregistrationnumberwhichyouwilluse inconnectionwithyourvattaxabletransactions.Thereafter,anysubsequentprintingof receipts or invoices should include yourvatregistrationnumber.

88‐250 Anypersonwho, inthecourseoftradeorbusinessrendersservicetothetaximposedinSection102ofthe Tax Code. (Sec. 99, Tax Code, as amended byExecutive Order No. 273. Under Section 102, 10%value‐addedtaxisleviedonanypersonengagedinthe sale of service. The phrase "sale of service"means performance of all kinds of services forothers for a fee regardless of whether or not theperformancethereofcallsfor,theexerciseoruseofthe physical or mental faculties. Undoubtedly, byperforming professional and management services

toyourmanagedcompanies,youareengagedinthesale of services to them. Hence, as you arerendering service for a fee, you are subject to the10%valueaddedtax.YoudonotfallwithinthepurviewofSection103(r)of the Tax Codewhich exempts from VAT servicesperformed in the exercise of profession or callingsubject to the occupation tax under the Local TaxCode and professional services performed by aregistered general professional partnership. This isso because your management services are notsubject to the occupation tax under the Local TaxCode and that you are a corporation and not apartnership.

88‐163 Aprivateemploymentagencyissubjecttothe10%VAT on the amount of placement fee which forpurposesofthistaxwillnotincludereimbursementof expenses which shall be limited to fees forpassport/visa, medical examination, clearances,inoculation,tradeandskilltesting,airportterminal,performance bond premiums and notary public,provided that the said expenses are supported byreceipts issued by the supplying company, orgovernment agency in the name of the applicantworker.Allother incomeorreceiptshallbesubjecttoVAT.On the other hand, the agency is required to paythe 10% VAT on the entire placement fee if theabovementioned expenses are supported byreceiptsissuedinthenameoftheagency.

88‐250 88‐163 Aprivateemploymentagencyissubjecttothe10%

VAT on the amount of placement fee which forpurposesofthistaxwillnotincludereimbursementof expenses which shall be limited to fees for


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passport/visa, medical examination, clearances,inoculation,tradeandskilltesting,airportterminal,performance bond premiums and notary public,provided that the said expenses are supported byreceipts issued by the supplying company, orgovernment agency in the name of the applicantworker.Allother incomeorreceiptshallbesubjecttoVAT.On the other hand, the agency is required to paythe 10% VAT on the entire placement fee if theabovementioned expenses are supported byreceiptsissuedinthenameoftheagency.

88‐59 Asregards thebasisof the10%VATpayablebyanadvertising agency, theDepartment of Finance hasruled that only 15% of its gross billings, constitutethe gross receipts subject to the contractor's taxthen payable by said agency since this amount isretained by the agency as its commission frommedia. (See 3rd Indorsement dated December 3,1973 of Acting Secretary Pedro M. Almanzor)Accordingly, and since the 10% VAT is based ongross receipts which means the total amount ofmoney or its equivalent representing the contractprice, compensation or service fee (Section 2(m),RevenueRegulationsNo.5‐87)said15%ofthegrossbillings of an advertising agency, likewise,constitutes the gross receipts of said agency forpurposesofthe10%VAT.Asregardsthebasisofthe10% VAT payable by an advertising agency, theDepartment of Finance has ruled that only 15% ofits gross billings, constitute the gross receiptssubjecttothecontractor'staxthenpayablebysaidagencysincethisamount is retainedbytheagencyasitscommissionfrommedia.(See3rdIndorsementdatedDecember3, 1973ofActing SecretaryPedroM.Almanzor)Accordingly,andsincethe10%VATis

based on gross receipts which means the totalamountofmoneyoritsequivalentrepresentingthecontractprice,compensationorservicefee(Section2(m),RevenueRegulationsNo.5‐87)said15%ofthegross billings of an advertising agency, likewise,constitutes the gross receipts of said agency forpurposesofthe10%VAT.

88‐332 for VAT purposes, lessors or distributors ofcinematographicfilmsaswellascontractorssubjectarenowto4%taximposedbythenSection170oftheTaxCodearenowconsideredasengagedinthe"sale of services" subject to the 10% VAT. [Sec.102(a) Tax Code, as amended by Executive OrderNo. 273] Accordingly, Section 6(g) of RevenueRegulationsNo.5‐87implementingtheprovisionsofExecutiveOrderNo.273whichstatesthatamountsdueoncontractscompletedonorbeforeDecember31, 1987, payments of which are receivable on orafterJanuaryl,1983,shallbeconsideredasaccruedas of December 31, 1987 for purposes of thepaymentofthecontractor'staxof4%shallapplytocinematographic film owners, lessors anddistributors subject to the following conditionsstatedtherein:a) filing of an information return showing thename(s) of the contractee(s) and the amount(s) ofthe contract price outstanding as of December 31,1987,andcontainingadeclarationoftheobligationtopaythecontractor'staxdue;b) billing of the unpaid amount not later thanDecember 31, 1987 by the contractor and copy ofsuchbillingtobeattachedtotheinformationreturnhereinrequired,c) recordingof theamount receivable in thebooks


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ofaccountsofthecontractorfortheyear1987;andd) filing not later than January 20, 1988, and/orbeforethe20thdayaftereachcalendarquarter,ofthe regularcontractor's tax return for thepaymentof the contractor's tax on payments received in1988.Failure to complywith theabove‐stated conditionsshall automatically subject the gross receipts tovalue‐addedtaxat10%.Accordingly, under the foregoing provision of theregulations, your receivables which have beenearned,billedandbookedbutwhichremainunpaidas of December 3l,1987 are still subject to the 3%percentage tax provided that the above‐statedconditions are complied with; otherwise, saidbillingsshallbesubjecttoVAT.(BIRRulingNo.059‐88)

RR1‐2003 RR12‐2003

Zero‐RatedSalesRMC17‐96 Seebelow.88‐161 You are a recruiting agency; that you send

contractual workers abroad and charged theirrespective principals for the allotment and variousexpensesof the company; that theagency feeandmiscellaneous expenses obviously paid in foreigncurrencyandremittedbytheprincipaltoyouareinaccordancewithCentralBankregulations.HELD: you are subject to a valueadded tax of 0%based on the aggregate of your agency fee andmiscellaneousexpense,provided thatyouareVAT‐registeredandthatthepaymenttoyouisinforeign

currency inwardly remitted to the Philippines inaccordancewithCentralBankregulations,pursuanttoSection102(a)(2)oftheTaxCode,asamendedbyExecutiveOrderNo.273.

88‐107 Clients are either branches or subsidiaries ofmultinational enterprises who act as brokerageagents of their respective head offices or affiliatesshared for a solicitation of orders from domesticcompanies;thatorderspro,caredinthePhilippinesarecommunicatedabroadandacontractof sale isentered into between fine head office or affiliatesand the local buyer; and that your clients receivedIndent commissions for such brokerage activitywhich are paid for in foreign currency and isinwardlyremittedtothePhilippines.HELD: the indent commissions received by yourclients for soliciting orders from domesticcompanies which are paid for in foreign currencyand remitted inwardly in accordance with lineCentral Bank Rules and Regulations are subject tothe value added tax of 10% pursuant to Section102(a)(2) of the Tax Code as amended bygenerativeOrderNo. 273andamplifiedby Section8(4)(3)ofRevenueRegulationsNo.647.

88‐191 Ipil International, Inc., is a corporation dulyorganizedandexistingunderPhilippine lawsactingas agent and/or husbanding agent of MV "MengHai" whose owner/principal is based in Hamburg,Germany; that for stevedoring services, whereverthe vessel is in the Port of Manila, your clientappoints Ocean Terminal Services, Inc. for theloading of cargoes on board the vesselMV "MengHai", for which service, a service invoice ispresented which includes payment of thecorresponding VAT; that as payment for servicesrenderedandforotherincidentalexpensesincurred


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by your client, the foreign principal remits thenecessary funds in foreigncurrency throughoneofthe local banks. you are of the opinion that yourclientissubjecttothevalue‐addedtax.HELD:onthebasisoftheforegoingrepresentationyour opinion is confirmed. The services of yourclient which are paid for in acceptable foreigncurrency inwardly remitted to the Philippines andaccounted for in accordance with the rules andregulations of the Central Bank of the Philippinesaresubjecttothevalue‐addedtaxat0%pursuanttoSection 102(a)(2) of the Tax Code as amended byExecutiveOrderNo.273andamplifiedbyRevenueRegulationsNo.5‐87.

44‐98 The tax base in computing the valueadded tax onthe sale of services is gross receipts which meansthe total amount of money or its equivalentrepresenting the contract price, compensation orservice fee, including the amount charged formaterialssuppliedwiththeservicesanddepositsoradvance payments, actually or constructivelyreceivedduringthetaxablequarterfortheservicesperformedor tobeperformed for anotherperson,excluding the value‐added tax pursuant to Section2(m)ofRevenueRegulationsNo.5‐87implementingSection 102(a)(3) of the Tax Code as amended byE.O. No. 273. Accordingly, in the foregoingillustrationthevalue‐addedtaxshouldbebasedonP17,415.88 which represents the gross paymentsmade by your clients. However, your client maychargetheinputtaxonyoursaleofservicesagainsttheiroutputtaxontheirsaleofmanufacturedgoodsand other merchandise for resale pursuant toSection 10(5) of Revenue Regulations No. 5‐87implementing Section 104 of the Tax Code asamended.

CIRv.AMEXCO19June2005


SUBJECT : Clarification of Issues Affecting Zero‐Rated Sales and Claimsfor Input Tax Credit/RefundunderRepublicActNo. 7716,Otherwise Knownasthe"ExpandedVATLaw".

Whatiszero‐ratedtransaction?• Azero‐ratetransactionreferstosale,lease,barterorexchangeofgoods,

propertiesand/orservicessubjecttoVATattherateofzeropercent(0%)pursuanttoSec.100andSec.102oftheNationalInternalRevenueCode(TaxCode).

WhatisVAT‐exempttransaction?

• A VAT‐exempt transaction refers to sale, lease, barter or exchange ofgoods,propertiesand/or services thatareexempt fromVATunderSec.103oftheTaxCode.

Distinguishzero‐ratedfromVAT‐exempttransaction.

• Inazero‐ratedtransactionthesellerisallowedtoclaiminputtaxcredit‐refundonhispurchaseofVATtaxablegoods,propertiesorservices.Inanexempttransaction,thesellerisnotentitledtosuchtaxcredit/refund.

Whoshallqualifyforzero‐rating?

• Any VAT‐registered person whose sales fall under Sec. 100(a)(2) and102(b)oftheTaxCode.

Whattransactionsarezero‐rated?Thefollowingtransactionsarezero‐rated:WithrespecttoGoods1. Exportsales.Theterm"exportsales"means:

(a) ThesaleandactualshipmentofgoodsfromthePhilippinestoaforeign country, irrespective of any shipping arrangement that may beagreeduponwhichmayinfluenceordeterminethetransferofownershipofthegoodssoexportedandpaidfor inacceptableforeigncurrencyor


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its equivalent in goods and services, and accounted for in accordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);(b) Sale of raw materials or packaging materials to non‐residentbuyer for delivery to a resident local export‐oriented enterprise to beused in manufacturing, processing, packing or repacking in thePhilippines of the said buyer's goods paid for in acceptable foreigncurrencyandaccountedforaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);(c) Saleofrawmaterialsorpackagingmaterialstoexport‐orientedenterprises whose export sales exceed seventy percent (70%) of totalannualproduction;(d) SaleofgoldtoBangkoSentralngPilipinas(BSP);and(e) ThoseconsideredexportsalesunderExecutiveOrderNo.226,otherwiseknownas theOmnibus InvestmentsCodeof1987,andotherspeciallaws.

2. Foreigncurrencydominatedsale.The phrase "foreign currency dominated sale" means sale to a non‐resident ofgoods,exceptthosementionedinSection149and150oftheCode,assembledormanufactured in thePhilippines fordelivery toa resident in thePhilippines,paidfor inacceptableforeigncurrencyandaccountedfor inaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP),and3. Sales to persons or entities whose exemption under special laws orinternationalagreementstowhichthePhilippinesisasignatoryeffectivelysubjectsuchsaletozero‐rate.WithrespecttoServices1. Processing, manufacturing or repacking goods for other persons doingbusiness outside the Philippines which goods are subsequently exported, wherethe services are paid for in acceptable foreign currency and accounted for inaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);2. Services other than processing, manufacturing or repacking for otherpersonsdoingbusinessoutside thePhilippines for goodswhichare subsequentlyexported,aswellasservicesbyaresidenttoanon‐residentforeignclientsuchasproject studies, information services, engineering and architectural designs andothersimilarservices,theconsiderationforwhichispaidforinacceptableforeigncurrency and accounted for in accordance with the rules and regulations of theBSP.

3. ServicesrenderedtopersonsorentitieswhoseexemptionunderspeciallawsorinternationalagreementstowhichthePhilippinesisasignatoryeffectivelysubjectthesupplyofsuchservicestozero‐rate;4 Services rendered to vessels engaged exclusively in internationalshipping;and5. Services performedby subcontractors and/or contractors in processing,converting ormanufacturing goods for an enterprise whose export sales exceedseventy(70%)oftotalannualproduction.Whatareeffectivelyzero‐ratedtransactions?Effectively zero‐rated transactions shall cover local sale of goods, properties andservicestopurchasersenjoyingexemptionfromindirecttaxesunderspeciallawsorinternationalagreementssuchas:WithrespecttoGoods:

1. Sale of raw materials or packaging materials to export‐orientedenterprise whose direct export sales exceed seventy percent (70%) oftotalannualproduction.

2. Foreign currency denominated sale of goods to a non‐resident, exceptthosementionedinSections149and150oftheTaxcode,assembledormanufactured in the Philippines for delivery to a resident in thePhilippines,paidfor inacceptableforeigncurrencyandaccountedfor inaccordance with the rules and regulations of the Bangko Sentral ngPilipinas.

3. Sale toSBMAandCDAregisteredenterprisespursuant toRA7927,saletoPEZAregisteredenterprisespursuanttoRA7916andsaletoADBandIRRIpursuanttointernationalagreements,etc.,and

4. SaleofgoldtotheBangkoSentralngPilipinas(BSP).WithrespecttoServices:

1. Servicesrenderedtopersonsorentitieswhoseexemptionunderspeciallawsor internationalagreements towhich thePhilippines isa signatoryeffectivelysubjectsthesupplyofsuchservicestozerorate.

2. Services rendered to vessels engaged exclusively in internationalshipping;and

3. Services performedby subcontractors and/or contractors in processing,convertingormanufacturinggoodsforanenterprisewhosedirectexportsalesexceedseventypercent(70%)oftotalannualproduction.


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Whatareautomaticallyzero‐ratedtransactions?ThefollowingsalesbyVAT‐registeredtaxpayersareautomaticallyzero‐rated:WithrespecttoGoods:

1. ThesaleandactualshipmentofgoodsfromthePhilippinestoa foreigncountry, irrespective of any shipping arrangement that may be agreeduponwhichmayinfluenceordeterminethetransferofownershipofthegoods so exported and paid for in acceptable foreign currency or itsequivalent ingoodsandservices,andaccounted for inaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas;and

2. Sale of rawmaterials or packagingmaterials to non‐resident buyer fordelivery to a resident local export‐oriented enterprise to be used inmanufacturing,processing,packingorrepackinginthePhilippinesofthesaid buyer's goods and paid for in accordance with the rules andregulationsoftheBangkoSentralngPilipinas(BSP).

WithrespecttoServices:

1. Processing, manufacturing or repacking goods for other persons doingbusinessoutsidethePhilippineswhichgoodsaresubsequentlyexported,where the services are paid for in acceptable foreign currency, andaccountedforinaccordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);and

2. Services other than processing, manufacturing or repacking for otherpersons doing business outside the Philippines for goods which aresubsequentlyexported,aswellasservicesbyaresidenttoanon‐residentforeign client such as project studies, information services, engineeringandarchitecturaldesignsandothersimilarservices,theconsiderationforwhich is paid for in acceptable foreign currency and accounted for inaccordancewiththerulesandregulationsoftheBSP.

Distinguisheffectivelyzero‐ratedfromautomaticallyzero‐ratedtransactions.

• Inaneffectivelyzero‐ratedtransaction,theVATregisteredsellerofgoodsorservicesisrequiredtofileanapplicationandsecureapprovalforzero‐rating; whereas in an automatically zero‐rated transaction, the VATregisteredsellerneednotfileanapplicationforzero‐rating.

HowdoesaVAT‐registeredsellertaxpayerapplyforeffectivezero‐rating?

• A properly filled‐up Application for Zero‐Rating together with therequiredattachmentsmustbesubmittedforapprovaltotheappropriate

Revenue District Office having jurisdiction over its principal place ofbusiness.

Whendoyouapplyforeffectivezero‐rating?

• Applications foreffectivezero‐ratingshallbe filedbefore the initial saletoacustomerwithrespecttotransactionsenumeratedabove.Approvedapplicationsforzeroratingshallbeeffectivefor12monthsfromthedateofissuanceoftheapproval.

UnderSec.4.100‐2(a)(5)ofRevenueRegulations7‐95,saleoffinishedproductsbyaBOIregisteredexportproducer(indirectexporter)toanotherBOI‐registeredexport producer or export trader that subsequently exports the same isconsidered export sale and, therefore, subject to output VAT at zero percent(0%).Whataretherequirementsforpurposesofzero‐ratingandentitlementtotaxcredits/refunds?

• The BOI‐registered export producer (indirect exporter) after registeringasaVAT‐person,shallapply forVATzero‐ratingwiththeRDOwhere itsmain office is located, submitting copies of its BOI certificate ofregistration, aswell as those of the customers/buyers. Once approved,the indirect exporter is considered a zero‐rated taxpayer for its sale offinishedproductstotheBOI‐registeredexportproducerorexporttrader.

• TheindirectexportershallsubmittotheBIR,alongwithitsquarterlyVATreturnsproofofactualexportationof theproductsconsistingofbillsoflading and other shipping documents certified to by the BOI‐registeredexports producer/trader. Failure to furnish the BIR with such proof ofexportation shall subject such indirect export sale to the 10% outputVAT?

Explain the distinction between the requirement for accreditation under theExport Development Act ("earns at least 50% of its normal operating revenuesfrom the sale of its products or services abroad for foreign currency") andrequirement to qualify as an export‐oriented enterprise ("whose export salesexceed70%ofthetotalannualproductionoftheprecedingtaxableyear").

• The50%requirement isonly foraccreditationasanexporterunder theExportDevelopmentActwhilethe70%requirementisforentitlementtoapplyforeffectivezero‐ratingoftransactionsunderSec.100(2)(a)(3)andSec.102(2)(b)(5)byexportorientedenterprises.


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Is the importation of equipment, materials and/or supplies that are merelyconsigned and which are not intended to remain in the country but in factrequiredtobe"reexportedor"shippedback" to theircountryoforigin,or theimportation through a customs bonded manufacturing warehouse of rawmaterials,suppliesandsparepartsusedinthemanufacture/assemblyofarticlesforexport,subjecttothe10%VATonimportation?

• No.Theimportationsofmachinery,equipmentandsparepartswhicharemerely consigned to a BOI‐registered enterprise are exempt from theVAT provided the appropriate re‐export bond is posted and that theconsigned equipment shall be for the exclusive use of the registeredenterprise [Article 39(c) and (f), Title III, Executive Order No. 226, asamendedbyRepublicActNo.7918]

• So also importations through a customs bonded manufacturingwarehouse of raw materials and spare parts used in themanufacture/assemblyofproducts forexportare likewiseexempt fromthe VAT [Sec. 4, 100‐2(a)(5) Revenue Regulations No. 7‐95]. CustomsbondedmanufacturingwarehousesareoutsideofthejurisdictionofthePhilippineCustomsTerritoryand,thus,therawmaterialsandsparepartsare deemed not to have entered said territory and were neverintroducedintoPhilippinecommerce.

Zero‐rated taxpayers will normally have an excess of input taxes over outputtaxes.Cantheexcessbeoffsetagainstthetaxpayer'sotherinternalrevenuetaxliabilities"?

• No. Direct offsetting of excess input over output taxes against otherinternalrevenuetaxliabilitiesofthezero‐ratedtaxpayerisnotallowed.

Whatare theconsequences for failureof theseller tosecurepriorapproval foreffectivelyzerorating?

• Such transactions shall be considered exempt from VAT. However, if itturns out that there are other factors that would disqualify thetransaction fromzero‐ratingother thanthe failure to fileanapplicationthereof,thensuchtransactionshallbesubjecttotheVATat10%.

IsthereaprescriptiveperiodtoclaimforVATCredit/Refund?

• Yes. The following are the prescribed period for filing a claim for VATcredit/refund:

(1) For zero‐rated taxpayer—within two (2) years after theclose of the taxable quarter when the zero‐rated salesweremade.

(2) Forinputtaxoncapitalgoods—withintwo(2)yearsafterthe closeof the taxablequarterwhen the importationofpurchasewasmade.

(3) Forcancelledregistration/changeinorcessationofstatus— within two (2) years from the date of cancellation ofVATregistration.

Whatistheprescribedperiodfortheprocessingoftaxcreditorrefundofunusedinputtaxcredit?

• ThelawprovidesthattheCommissionershallgranttheVATcredit/refundwithin sixty (60) days from the date of submission of completedocumentsinsupportoftheapplicationbytheclaimant.

HowIsItComputedBIRRuling88‐61 The tax base in computing the value‐added tax on

the sale of services is gross receipts which meansthe total amount of money or its equivalentrepresenting the contract price, compensation orservice fee, including the amount charged formaterialssuppliedwiththeservicesanddepositsoradvance payments, actually or constructivelyreceivedduringthetaxablequarterfortheservicesperformedor tobeperformed for anotherperson,excluding the value‐added tax pursuant to Section2(m)ofRevenueRegulationsNo.5‐87implementingSection 102(a)(3) of the Tax Code as amended byE.O.No.273.

88‐363 ‐do‐88‐360 As a wholly‐owned subsidiary of the Development

Bank of the Philippines (DBP) tasked as the solemarketing arm in the disposition of the Bank'sacquiredassets,the10%VATisimposedonthe5%servicefeeprovidedthattheamountcorrespondingtoitisbilledseparately.


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On the other hand, as the sole marketing arm ofLand Bank bonds, your company is classified as abroker in its management/arrangement fees.Hence, the value‐added tax is imposed on theincome, compensation or fee, received by thecorporation, provided that such amount is billedseparately.However,ifthewholeamountforbothtransactionsisreflectedinthereceipt,saidamountissubjecttoVAT.

142‐98 It appears that the consortium of MarubeniCorporation,ABBPower,Inc.andABBDaimlerBenzTransport Corporation (ADTRANZ) has beenawarded the contract for LRT Line I ExpansionProject;thatthecontractinvolvesthedesign,supplyof materials and equipment, and the installationservicesforthesaidproject;thatthecontractpricewillbepaidthroughadvancepaymentandthroughperiodicpayments;thattheadvancepaymentis5%of the total contract price while the progresspayments will then be paid monthly; that thecontractprovidesforaretention(retentionmoney)of 10% of the total contract price; that the 10%retention money is deducted from each progressbillingsubmittedbyMarubeni;thattheLRTAplacesthe retained amounts in a trust fund; that thisretention money will be paid upon substantialcompletion of the project and upon the expirationof the defects liability period; and that during thedefects liability period, if there is any correctivework to be done, the expense will be chargedagainsttheretentionmoney. HELD:UnderSection3ofRevenueRegulationsNo.6‐85,as

lastamendedbyRev.Regs.No.2‐98,theexpandedwithholding tax is due on income paid or payableand since in the instant case, the retentionmoneycannotbeconsideredasincomeorpaidatthetimeof the progress payment, LRTA should not includethe amount in the tax base in the computation ofthe EWT. The EWT should be deducted only uponresolutionoftheaforestatedconditionortheactualpayment of LRTA of the said retention money toMarubeni.Moreover,Section9ofRevenueRegulationsNo.6‐97provides:"Sec.9.Withholdingofcreditablevalue‐addedtax.‐xxx(a) The government or any of its politicalsubdivisions,instrumentalitiesoragencies,includinggovernmentowned or controlled corporations(GOCCs)shallbeforemakingpaymentonaccountofits purchase of goods from sellers and/or servicesrendered by contractors which are subject to theVATimposedunderSecs.100and102oftheCode,deduct and withhold the VAT due at the rate ofthree percent (3%) of the gross payment of thepurchaseofgoodsandsixpercent(6%)onthegrossreceiptsfortheservicesrenderedbycontractorsonevery sale or installment payment which shall becreditable against theVAT liability of the sellers orcontractors pursuant to R.A. No. 7644, asimplemented by Revenue Regulations No. 10‐93:Provided, That payment of One thousand pesos(P1,000.00) and below per purchase shall not besubject towithholding tax rate. Provided however,That in the case of Government public workscontractors, thewithholding tax rate shall be eightandone‐halfpercent(8.5%)."


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Such being the case, the retention money shouldnotlikewisebeincludedinthetaxbaseforpurposesofcomputingthe8.5%creditableVAT,becausetheretentionmoney was not yet paid toMarubeni atthe time theprogresspaymentsweremade. ItwillbenotedthattheVATonsaleofservicesisbasedongross receipts pursuant to Section 102 of the TaxCodeof1997whichprovides,viz:"Sec. 102. Value‐added tax.‐ There shall be levied,assessed and collected, a value‐added taxequivalentto10%ofgrossreceiptsderivedfromthesale or exchange of services, including the use orleaseofproperties.xxx"Sec. 4.102‐1 of Revenue Regulations No. 7‐95,definestheterm"grossreceipts"asfollows:"Grossreceiptsrefertothetotalamountofmoneyor its equivalent representing the emu‐ad price,compensation, service fee, rental or royalty,includingtheamountchargedformaterialssuppliedwith the services and deposits and advancedpaymentsactuallyorconstructivelyreceivedduringthetaxablequarterfortheservicesperformedortobe performed for another person, including VAT.xxx""Constructive receipt occurs when the moneyconsideration or its equivalent is placed at thecontrol of the person who rendered the servicewithoutrestrictionsbythepayor.xxx"It is clear from the foregoing that theVAT shall bepaid only on gross receipts whether actually orconstructively received. Since the retentionmoneyis not paid at the time the progress payments aremade, the said retention money should not beincluded in thecomputationof the8.5%creditableVAT.

154‐98 UnderSectionI(e)(2)(1)ofRevenueRegulationsNo.6‐85, as amended and Section 5 of RevenueRegulationNo.10‐93,thetaxbaseincomputingthe1%expandedcreditablewithholding taxon incomepayments to forwarding contractors and the 6%creditable VAT on payments made by thegovernment to sellers of services shall be on grosspayments.Thus,forpurposeoftaxremittances,the1% expanded creditable withholding tax imposedunderSectionI(e)(2)(1)ofRevenueRegulationsNo.6‐85, as amended and the 6% creditable VATprescribedunder Section3ofRevenueRegulationsNo. 10‐93 shall be computed based on grosspayments,whichmeanstotalpaymentsinclusiveofthesaidCommissionPrivilegeFund.This issosincelikeother fundsof thesamenature, thesaid fundswill ultimately redound to the benefit of your saidsupplier.Hence,acorrespondingchargeforbenefitsderived thereby is deemed included in theimpositionofsaidtaxes.

ChangeofStatus124‐98 Section 15 of R.A. No. 7353, as implemented by

RevenueRegulationsNo.16‐93,providesthat:"Sec.15.Allruralbankscreatedunderitsprovisionsandthosealreadyinoperationasofthedateoftheapprovalthereofshallbeexemptfromthepaymentof an taxes, fees and charges of whatever natureand description, except the corporate income taxandlocaltaxes,feesandcharges,foraperiodoffive(5) years from the date of commencement ofoperation."Based on the foregoing, rural banks are exemptfrom the documentary stamp tax imposed underSection175oftheTaxCodeof1997ontheoriginalissuance of shares of stock to the stockholders.However, Section 173 of the same Code provides


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that"wheneveronepartytothetaxabledocumentenjoysexemptionfromthetaxhereinimposed,theotherpartythereto,whoisnotexemptshallbetheone directly liable for the tax." Accordingly, sincerural banks are exempt from the documentarystamp tax, the stockholders are the ones liable forthepaymentofthedocumentarystamptaxdueonsaidcertificatesofstocktobeissuedbytheformer.

DeterminationoftheTaxRR16‐2005 Supra.

ExemptTransactions

(a) Sale or importation of agricultural and marine food products in theiroriginal state, livestock and poultry of or king generally used as, oryieldingorproducingfoodsforhumanconsumption;andbreedingstockandgeneticmaterialstherefor.Products classified under this paragraph and paragraph (a) shall beconsideredintheiroriginalstateeveniftheyhaveundergonethesimpleprocessesofpreparationorpreservationforthemarket,suchasfreezing,drying,salting,broiling,roasting,smokingorstripping.Polishedand/orhuskedrice,corngrits,rawcanesugarandmolasses,andordinarysaltshallbeconsideredintheiroriginalstate;

(b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,prawn,livestockandpoultryfeeds,includingingredients,whetherlocallyproducedorimported,usedinthemanufactureoffinishedfeeds(exceptspecialtyfeedsforracehorses,fightingcocks,aquariumfish,zooanimalsandotheranimalsgenerallyconsideredaspets);

(c) ImportationofpersonalandhouseholdeffectsbelongingtotheresidentsofthePhilippinesreturningfromabroadandnonresidentcitizenscomingtoresettleinthePhilippines:Provided,ThatsuchgoodsareexemptfromcustomsdutiesundertheTariffandCustomsCodeofthePhilippines;

(d) Importation of professional instruments and implements, wearingapparel, domestic animals, and personal household effects (except anyvehicle, vessel, aircraft, machinery other goods for use in themanufacture and merchandise of any kind in commercial quantity)belongingtopersonscomingtosettleinthePhilippines,fortheirownuseand not for sale, barter or exchange, accompanying such persons, or

arriving within ninety (90) days before or after their arrival, upon theproduction of evidence satisfactory to the Commissioner, that suchpersons are actually coming to settle in the Philippines and that thechangeofresidenceisbonafide;

(e) ServicessubjecttopercentagetaxunderTitleV;(f) Servicesbyagricultural contractgrowersandmilling forothersofpalay

intorice,cornintogritsandsugarcaneintorawsugar;(g) Medical,dental,hospitalandveterinaryservicessubjecttotheprovisions

ofSection17ofRepublicActNo.7716,asamended:(h) Educational services rendered by private educational institutions, duly

accredited by the Department of Education, Culture and Sports (DECS)andtheCommissiononHigherEducation(CHED),andthoserenderedbygovernmenteducationalinstitutions;

(i) Services rendered by individuals pursuant to an employer‐employeerelationship;

(j) Services rendered by regional or area headquarters established in thePhilippines by multinational corporations which act as supervisory,communicationsandcoordinatingcentersfortheiraffiliates,subsidiariesorbranchesintheAsia‐PacificRegionanddonotearnorderiveincomefromthePhilippines;

(k) TransactionswhichareexemptunderinternationalagreementstowhichthePhilippines is a signatoryor under special laws, except thoseunderPresidentialDecreeNos.66,529and1590;

(l) Sales by agricultural cooperatives duly registered with the CooperativeDevelopmentAuthoritytotheirmembersaswellassaleoftheirproduce,whether in its original state or processed form, to non‐members; theirimportationofdirectfarminputs,machineriesandequipment,includingsparepartsthereof,tobeuseddirectlyandexclusivelyintheproductionand/orprocessingoftheirproduce;

(m) Gross receipts from lending activities by credit or multi‐purposecooperatives duly registered with the Cooperative DevelopmentAuthoritywhoselendingoperationislimitedtotheirmembers;

(n) Salesbynon‐agricultural,non‐electricandnon‐creditcooperativesdulyregisteredwith theCooperativeDevelopmentAuthority: Provided, Thatthe share capital contributionofeachmemberdoesnotexceedFifteenthousandpesos(P15,000)andregardlessoftheaggregatecapitalandnetsurplusratablydistributedamongthemembers;

(o) ExportsalesbypersonswhoarenotVAT‐registered;


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(p) Saleofrealpropertiesnotprimarilyheldforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusinessorrealpropertyutilizedforlow‐costandsocializedhousingasdefinedbyRepublicActNo.7279,otherwise known as theUrbanDevelopment andHousing Act of 1992,and other related laws, house and lot and other residential dwellingsvalued at One million five hundred thousand pesos (P1,500,000) andbelow: Provided, That not later than January 31st of the calendar yearsubsequent to the effectivity of this Act and each calendar yearthereafter, the amount of One million pesos (P1,000,000) shall beadjusted to its present value using the Consumer Price Index, aspublishedbythenationalStatisticsOffice(NSO);

(q) Lease of a residential unit with a monthly rental not exceeding tenthousandpesos(P10,000); Provided, Thatnot later than January31st of2009andeverythreeyearsthereafter,theamountshallbeadjustedtoitspresent value using the Consumer Price Index as published by theNationalStatisticsOffice(NS0);

(r) Sale, importation, printing or publication of books and any newspaper,magazinerevieworbulletinwhichappearsatregularintervalswithfixedprices for subscription and sale andwhich is not devoted principally tothepublicationofpaidadvertisements;and

(s) Sale, importation or lease of passenger or cargo vessels and aircraft,including engine, equipment and spare parts thereof for domestic orinternationaltransportoperations

(t) Importation of fuel, goods and supplies by persons engaged ininternationalshippingorairtransportoperations

(u) Services of banks, non‐bank financial intermediaries performing quasi‐bankingfunctions,andothernon‐bankfinancialintermediaries;and

(v) Saleorleaseofgoodsorpropertiesortheperformanceofservicesotherthanthetransactionsmentioned intheprecedingparagraphs, thegrossannual sales and/or receipts do not exceed the amount of Onemillionfivehundredthousandpesos(P1,500,000):Provided,ThatnotlaterthanJanuary31,2009andeverythree(3)yearsthereafter,theamounthereinstated shall be adjusted to its present value using the Consumer PriceIndexaspublishedbytheNationalStatisticsOffice(NSO).

AVAT‐registeredpersonmayelectthatSubsection(1)notapplytoitssaleofgoodsor properties or services: Provided, That an electionmade under this Subsectionshall be irrevocable for a periodof three (3) years from thequarter the electionwasmade.

(1) Subject to the provisions of Subsection (2) hereof, the following transactionsshallbeexemptfromVAT:(a) Sale or importation of agricultural andmarine food products in their originalstate, livestock and poultry of a kind generally used as, or yielding or producingfoodsforhumanconsumption;andbreedingstockandgeneticmaterialstherefor.Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits.Poultryshall includefowls,ducks,geeseandturkey.Livestockorpoultrydoesnotinclude fighting cocks, race horses, zoo animals and other animals generallyconsideredaspets.Marinefoodproductsshallincludefishandcrustaceans,suchas,butnotlimitedto,eels,trout,lobster,shrimps,prawns,oysters,musselsandclams.Meat, fruit, fish, vegetables and other agricultural and marine food productsclassifiedunderthisparagraphshallbeconsideredintheiroriginaldateeveniftheyhave undergone the simple processes of preparation or preservation for themarket, such as freezing, drying, salting, broiling, roasting, smoking or stripping,including those using advanced technologicalmeans of packaging, such as shrinkwrapping in plastics, vacuum packing, tetra‐pack, and other similar packagingmethods.Polishedand/orhuskedrice,corngrits,rawcanesugarandmolasses,ordinarysaltandcoprashallbeconsideredasagriculturalfoodproductsintheiroriginalstate.Sugar whose content of sucrose by weight, in the dry state, has a polarimeterreadingof99.5oandabovearepresumedtoberefinedsugar.Cane sugarproduced from the following shall bepresumed, for internal revenuepurposes,toberefinedsugar:(1)productofarefiningprocess,(2)productsofasugarrefinery,or(3) product of a production line of a sugar mill accredited by the BIR to beproducing and/or capable of producing sugar with polarimeter reading of 99.5oand above, and forwhich the quedan issued therefor, and verified by the SugarRegulatory Administration, identifies the same to be of a polarimeter reading of99.5oandabove.


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Bagasseisnotincludedintheexemptionprovidedforunderthissection.(b) Saleor importationof fertilizers, seeds, seedlingsand fingerlings, fish,prawn,livestock and poultry feeds, including ingredients, whether locally produced orimported, used in the manufacture of finished feeds (except specialty feeds forracehorses,fightingcocks,aquariumfish,zooanimalsandotheranimalsgenerallyconsideredaspets);“Specialty feeds” refers tonon‐agricultural feedsor food for racehorses, fightingcocks,aquariumfish,zooanimalsandotheranimalsgenerallyconsideredaspets.(c) Importation of personal and household effects belonging to residents of thePhilippines returning fromabroadandnon‐resident citizens coming to resettle inthePhilippines;Provided,thatsuchgoodsareexemptfromcustomsdutiesundertheTariffandCustomsCodeofthePhilippines;(d) Importation of professional instruments and implements, wearing apparel,domestic animals, and personal household effects (except any vehicle, vessel,aircraft,machineryandothergoodsforuseinthemanufactureandmerchandiseofany kind in commercial quantity) belonging to persons coming to settle in thePhilippines,fortheirownuseandnotforsale,barterorexchange,accompanyingsuchpersons,orarrivingwithinninety(90)daysbeforeoraftertheirarrival,upontheproductionofevidencesatisfactorytotheCommissionerof InternalRevenue,that such persons are actually coming to settle in the Philippines and that thechangeofresidenceisbonafide;(e)ServicessubjecttopercentagetaxunderTitleVoftheTaxCode,asenumeratedbelow:(1)Saleorleaseofgoodsorpropertiesortheperformanceofservicesofnon‐VAT‐registeredpersons,otherthanthetransactionsmentionedinparagraphs(A)to(U)ofSec.109(1)oftheTaxCode,thegrossannualsalesand/orreceiptsofwhichdoesnot exceed the amount of One Million Five Hundred Thousand Pesos(P1,500,000.00);Provided,ThatnotlaterthanJanuary31,2009andeverythree(3)yearsthereafter,theamounthereinstatedshallbeadjustedtoitspresentvalueusingtheConsumerPriceIndex,aspublishedbytheNationalStatisticsOffice(NSO)(Sec.116oftheTaxCode);(2) Services rendered by domestic common carriers by land, for the transport ofpassengersandkeepersofgarages(Sec.117);(3)Servicesrenderedbyinternationalair/shippingcarriers(Sec.118);

(4)Servicesrenderedbyfranchisegranteesofradioand/ortelevisionbroadcastingwhoseannualgrossreceiptsoftheprecedingyeardonotexceedTenMillionPesos(P10,000,000.00),andbyfranchisegranteesofgasandwaterutilities(Sec.119);(5) Service rendered for overseas dispatch, message or conversation originatingfromthePhilippines(Sec.120);(6) Services rendered by any person, company or corporation (except purelycooperativecompaniesorassociations)doinglifeinsurancebusinessofanysortinthePhilippines(Sec.123);(7)Servicesrenderedbyfire,marineormiscellaneousinsuranceagentsofforeigninsurancecompanies(Sec.124);(8)Servicesofproprietors, lesseesoroperatorsofcockpits,cabarets,nightordayclubs, boxing exhibitions, professional basketball games, Jai‐Alai and race tracks(Sec.125);and(9) Receipts on sale, barter or exchange of shares of stock listed and tradedthroughthelocalstockexchangeorthroughinitialpublicoffering(Sec.127).(f)Servicesbyagriculturalcontractgrowersandmillingforothersofpalayintorice,cornintogrits,andsugarcaneintorawsugar;“Agricultural contract growers” refers to those persons producing for otherspoultry, livestock or other agricultural andmarine food products in their originalstate.(g) Medical, dental, hospital and veterinary services, except those rendered byprofessionals.Laboratoryservicesareexempted.Ifthehospitalorclinicoperatesapharmacyordrugstore,thesaleofdrugsandmedicineissubjecttoVAT.(h) Educational services rendered by private educational institutions dulyaccreditedby the DepartmentofEducation (DepED), theCommissiononHigherEducation (CHED) and the Technical Education and Skills Development Authority(TESDA)andthoserenderedbygovernmenteducationalinstitutions;“Educational services” shall refer to academic, technical or vocational educationprovided by private educational institutions duly accredited by the DepED, theCHEDandTESDAandthoserenderedbygovernmenteducationalinstitutionsanditdoes not include seminars, in‐service training, review classes and other similarservices rendered by persons who are not accredited by the DepED, the CHED


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and/ortheTESDA;(i) Services rendered by individuals pursuant to an employer‐employeerelationship;(j) Services rendered by regional or area headquarters established in thePhilippines by multinational corporations which act as supervisory,communications and coordinating centers for their affiliates, subsidiaries orbranches in the Asia Pacific Region and do not earn or derive income from thePhilippines;(k) Transactions which are exempt under international agreements to which thePhilippinesisasignatoryorunderspeciallawsexceptthosegrantedunderPDNo.529—Petroleum Exploration Concessionaires under the PetroleumAct of 1949;and(l)SalesbyagriculturalcooperativesdulyregisteredandingoodstandingwiththeCooperative Development Authority (CDA) to their members, as well as sale oftheir produce, whether in its original state or processed form, to non‐members,their importation of direct farm inputs, machineries and equipment, includingspare parts thereof, to be useddirectly and exclusively in the production and/orprocessingoftheirproduce.Salebyagriculturalcooperativestonon‐memberscanonlybeexemptedfromVATif the producer of the agricultural products sold is the cooperative itself. If thecooperativeisnottheproducer(e.g.,trader),thenonlythosesalestoitsmembersshallbeexemptedfromVAT;It is to be reiterated however, that sale or importation of agricultural foodproducts in their original state is exempt fromVAT irrespective of the seller andbuyerthereof,pursuanttoSubsection(a)hereof.(m)Gross receipts from lendingactivitiesbycreditormulti‐purposecooperativesdulyregisteredandingoodstandingwiththeCooperativeDevelopmentAuthority,(n) Sales by non‐agricultural, non‐electric and non‐credit cooperatives dulyregisteredwithandingoodstandingwiththeCDA;Provided,Thatthesharecapitalcontribution of each member does not exceed Fifteen Thousand Pesos(P15,000.00) and regardless of the aggregate capital and net surplus ratably

distributedamongthemembers.Importationbynon‐agricultural,non‐electricandnon‐credit cooperatives of machineries and equipment, including spare partsthereof,tobeusedbythemaresubjecttoVAT.(o)ExportsalesbypersonswhoarenotVAT‐registered;(p)ThefollowingsalesofrealpropertiesareexemptfromVAT,namely:(1)Saleofrealpropertiesnotprimarilyheldforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness.However, even if the real property is not primarily held for sale to customers orheld for lease intheordinarycourseof tradeorbusinessbutthesame isused inthetradeorbusinessoftheseller,thesalethereofshallbesubjecttoVATbeingatransactionincidentaltothetaxpayer’smainbusiness.(2)Saleofrealpropertiesutilizedforlow‐costhousingasdefinedbyRANo.7279,otherwiseknownasthe“UrbanDevelopmentandHousingActof1992”andotherrelatedlaws,suchasRANo.7835andRANo.8763.“Low‐costhousing” refers tohousingprojects intended forhomeless low‐incomefamilybeneficiaries,undertakenby theGovernmentorprivatedevelopers,whichmayeitherbeasubdivisionoracondominiumregisteredandlicensedbytheHousingandLandUseRegulatoryBoard/Housing(HLURB)underBPBlg.220,PDNo.957oranyothersimilarlaw,whereintheunitsellingpriceiswithinthesellingpriceceilingperunitofP750,000.00underRANo.7279,otherwiseknownas the“Urban Development and Housing Act of 1992” and other laws, such as RA No.7835andRANo.8763.(3) Saleof realpropertiesutilized for socializedhousingasdefinedunderRANo.7279,andotherrelatedlaws,suchasRANo.7835andRANo.8763,whereinthepriceceilingperunitisP225,000.00orasmayfromtimetotimebedeterminedbytheHUDCCandtheNEDAandotherrelatedlaws.“Socializedhousing”referstohousingprogramsandprojectscoveringhousesandlotsorhomelotsonlyundertakenbytheGovernmentortheprivatesectorfortheunderprivileged and homeless citizens which shall include sites and servicesdevelopment,long‐termfinancing,liberatedtermsoninterestpayments,andsuchotherbenefitsinaccordancewiththeprovisionsofRANo.7279,otherwiseknownasthe“UrbanDevelopmentandHousingActof1992”andRANo.7835andRANo.


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8763.“Socialized housing” shall also refer to projects intended for the underprivilegedand homeless wherein the housing package selling price is within the lowestinterestratesundertheUnifiedHomeLendingProgram(UHLP)oranyequivalenthousing program of the Government, the private sector or non‐governmentorganizations.(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos(P1,500,000.00)andbelow,orhouse&lotandotherresidentialdwellingsvaluedatTwoMillionFiveHundred ThousandPesos (P2,500,000.00)andbelowwheretheinstrument of sale/transfer/disposition was executed on or after November 1,2005; Provided, That not later than January 31, 2009 and every three (3) yearsthereafter,theamountsstatedhereinshallbeadjustedtoitspresentvalueusingthe Consumer Price Index, as published by the National Statistics Office (NSO);Provided, further, that such adjustment shall be published through revenueregulationstobeissuednotlaterthanMarch31ofeachyear;Iftwoormoreadjacentresidentiallotsaresoldordisposedinfavorofonebuyer,forthepurposeofutilizingthelotsasoneresidentiallot,thesaleshallbeexemptfrom VAT only if the aggregate value of the lots do not exceed P1,500,000.00.Adjacent residential lots, althoughcoveredby separate titlesand/or separate taxdeclarations,whensoldordisposedtooneandthesamebuyer,whethercoveredby one or separate Deed of Conveyance, shall be presumed as a sale of oneresidentiallot.(q) Lease of residential units with a monthly rental per unit not exceeding TenThousand Pesos (P10,000.00), regardless of the amount of aggregate rentalsreceivedby the lessorduring theyear; Provided, thatnot later than January31,2009 and every three (3) years thereafter, the amount of P10,000.00 shall beadjustedto itspresentvalueusingtheConsumerPrice Index,aspublishedbytheNSO;Theforegoingnotwithstanding,leaseofresidentialunitswherethemonthlyrentalper unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of suchrentalsofthelessorduringtheyeardonotexceedOneMillionFiveHundredPesos(P1,500,000.00) shall likewise be exempt from VAT, however, the same shall besubjectedtothreepercent(3%)percentagetax.

Incaseswherealessorhasseveralresidentialunitsforlease,someareleasedoutforamonthlyrentalperunitofnotexceedingP10,000.00whileothersareleasedoutformorethanP10,000.00perunit,histaxliabilitywillbeasfollows:1. The gross receipts from rentals not exceeding P10,000.00 permonth per unitshallbeexemptfromVATregardlessoftheaggregateannualgrossreceipts.2.ThegrossreceiptsfromrentalsexceedingP10,000.00permonthperunitshallbesubject to VAT if the aggregate annual gross receipts from said units only (notincluding the gross receipts from units leased for not more than P10,000.00)exceedsP1,500,000.00.Otherwise,thegrossreceiptswillbesubjecttothe3%taximposedunderSection116oftheTaxCode.The term ‘residential units’ shall refer to apartments andhouses& lotsused forresidentialpurposes,andbuildingsorpartsorunitsthereofusedsolelyasdwellingplaces (e.g., dormitories, rooms and bed spaces) except motels, motel rooms,hotels,hotelrooms,lodginghouses,innsandpensionhouses.Theterm‘unit’shallmeananapartmentunit inthecaseofapartments,house inthe case of residential houses; per person in the case of dormitories, boardinghousesandbedspaces;andperroomincaseofroomsforrent.(t) Importation of life‐saving equipment, safety and rescue equipment andcommunication and navigational safety equipment, steel plates and othermetalplates including marine‐grade aluminum plates, used for shipping transportoperations; Provided, that the exemption shall be subject to the provisions ofSection4ofRepublicAct.No. 9295,otherwise knownas ‘TheDomestic ShippingDevelopmentActof2004’;(u) Importation of capital equipment, machinery, spare parts, life‐ saving andnavigationalequipment,steelplatesandothermetalplatesincludingmarine‐gradealuminumplatestobeusedintheconstruction,repair,renovationoralterationofany merchant marine vessel operated or to be operated in the domestic trade.Provided, that the exemption shall be subject to the provisions of Section 19 ofRepublicAct.No.9295,otherwiseknownas‘TheDomesticShippingDevelopmentActof2004’;(v) Importation of fuel, goods and supplies by persons engaged in internationalshipping or air transport operations; Provided, that the said fuel, goods andsuppliesshallbeusedexclusivelyorshallpertaintothetransportofgoodsand/orpassenger fromaport in thePhilippinesdirectly toa foreignport,or viceversa,


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withoutdockingorstoppingatanyotherportinthePhilippinesunlessthedockingorstoppingatanyotherPhilippineportisforthepurposeofunloadingpassengersand/orcargoesthatoriginatedfromabroad,ortoloadpassengersand/orcargoesbound for abroad; Provided, further, that if any portion of such fuel, goods orsupplies is used for purposes other than thatmentioned in this paragraph, suchportionof fuel, goods and supplies shall be subject to twelvepercent (12%)VATstartingFebruary1,2006;(w)Servicesofbanks,non‐bankfinancialintermediariesperformingquasi‐bankingfunctions, and other non‐bank financial intermediaries, such as money changersandpawnshops,subjecttopercentagetaxunderSecs.121and122,respectively,oftheTaxCode;and(x)Saleorleaseofgoodsorpropertiesortheperformanceofservicesotherthanthe transactions mentioned in the preceding paragraphs, the gross annual salesand/orreceiptsdonotexceedtheamountofOneMillionFiveHundredThousandPesos (P1,500,000.00). Provided, thatnot later than January31, 2009andeverythree (3) years thereafter, the amount of P1,500,000.00 shall be adjusted to itspresentvalueusingtheConsumerPriceIndex,aspublishedbytheNSO.ForpurposesofthethresholdofP1,500,000.00,thehusbandandthewifeshallbeconsidered separate taxpayers.However, theaggregation rule foreach taxpayershallapply,forinstance,ifaprofessional,asidefromthepracticeofhisprofession,alsoderives revenue fromother linesofbusinesswhichareotherwise subject toVAT, the same shall be combined for purposes of determining whether thethresholdhasbeenexceeded.Thus, theVAT‐exemptsaleshallnotbe included indeterminingthethreshold.”

SpecialTopicsBIRRuling335‐88 Since a joint venture operates as a single entity to

tender the service, said joint venture should beregisteredundertheVATlawasrequiredbySection107(a) of the Tax Code, as amended by ExecutiveOrderNo.273.

RMC4‐98 InthecoverageofpersonsliabletoValue‐AddedTax(VAT),itisprovidedintheTaxCodethatanypersonwho in the course of trade or business, sells,

barters, exchanges, leases goods or properties,renders services or any personwho imports goodsshallbesubjecttothepaymentofVAT.Thephrase"in the course of trade or business" has beendefinedtomeantheregularconductorpursuitofacommercial or economic activity, includingtransactions incidental thereto, by any personregardless of whether or not the person engagedtherein is a non‐stock, non‐profit privateorganization.In Revenue Regulations No. 7‐95, the term "in thecourseofbusiness"wasfurtherqualifiedinthelightof theabove‐statedpolicy.Hence, thisBureauheldthat "any business or businesses pursued by anindividual where the aggregate gross sales orreceiptsdonotexceedP100,000.00duringany12‐month period shall be considered principally forsubsistence or livelihood and not in the course ofbusiness".In view of the foregoing, individual taxpayersqualifiedundertheaforestateddefinition,althoughstill required to register, shall nevertheless beexempted from the payment of registration fee asprescribed under Sec. 236(B) of the Tax Code, inadditiontotheirbeingexemptedfromthepaymentofthefollowingtaxes,whereapplicable:1. VALUE‐ADDED TAX (VAT) under Title IV,ChapterI,NIRCof1997;2. PERCENTAGETAXESunderTitleV,NIRCof1997.

Section4.14ofRR2‐98 Exemptions43‐98 The Exchange of Notes between our Secretary of

ForeignAffairsandtheAmbassadorExtraordinary&Plenipotentiary of Japan to the Republic of thePhilippines is actuallynot a grantof taxexemption


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privilege to the Japanese nationals who may beinvolved in the supply of products and services inthe Project since it simply states that theGovernment of the Republic of the Philippineswillensure that the taxes thatmay be imposedby thePhilippineGovernmentonthesaidsupplyofgoodsandservicesshallbeexemptfrominternalrevenuetaxes. In other words, it is incumbent upon theGovernmentof thePhilippines tosee to it that theJapanese nationals who may be involved in theProject shall not pay whatever internal revenuetaxes that the lattermay be liable to for providingthe supply of goods and services for the Project.Thus, there is really no tax exemption to speak ofbecausethesaidtaxesreferredtomaybebornebythePhilippineGovernment in consideration for theecoomic cooperation extended by the JapaneseGovernment with a view to strengthening friendlyand cooperative relations. Hence, it cannot beconsidered as a violation of the Constitutionalprohibitionagainstgrantsoftaxexemptionswithouttheconcurrenceofthemajorityofthemembersofthe Congress (Sec. 28(4), Art VI, 1987 PhilippineConstitution).In view thereof, this Office is of the opinion thatsince the Philippine Government obligated itselfunder theExchangeofNotesbetweenour countryandtheJapaneseGovernmentdatedJuly1,1996tomake the necessary measures to exempt theJapanesenationalswhomaybeinvolvedinthesaidProject from internal revenue taxes,whichmaybeimposed by the Republic of the Philippines withrespect to the supply of products and services,MitsubishiCorporation,whichmustnecessarilybeacorporation organized and existing under the lawsof Japan,shallbeexempt fromthepaymentof the10% VAT on the supply of goods, such as thematerials andequipmentused for the construction

of the National Vocational Training andDevelopment for Women, imposed under Section106oftheTaxCodeof1997andconsideringfurtherthat paragraph (6)(1)(g) of the subject ExchangeofNotes specifically provides that theGovernmentofthe Philippines shall "bear all the expenses otherthan those coveredby theGrant necessary for theexecutionoftheProject,"Consequently, the Philippine Government (thruTESDA) will bear the payment of the value‐addedtax on the supply of materials and equipment byMitsubishi Corp. used for the said Project and thesaidtaxesaredeemedautomaticallyappropriated.

74‐98 87‐98 Section103(e)oftheTaxCode,asamendedbyR.A.

No.7716asfurtheramendedbyR.A.No.8241(nowSec. 109(c) of the Tax Code of 1997),exempt fromVATthe"saleorimportationofcoalandnaturalgas,inwhateverformandstateandpetroleumproducts(except lubricating oil, processed gas, grease, waxandpetrolatum) subject toexcise taxesunderTitleVIof theTaxCode". (underscoring supplied)UnderSection 2(l) of Revenue Regulations No. 8‐96, theterm "Petroleumproducts" includes amongothers,asphalts subject to excise tax at the rate of PO.56perkilogrampursuanttoSection145(11)oftheTaxCode, as amended by R.A. No. 8184 (now Sec.148(k)oftheTaxCodeof1997).Accordingly, since the sale of asphalts is exemptfromVAT,thewithholdingofthecreditableVATonyour payments to Petrophil on account of yourpurchasesofasphaltsfromithasnolegalbasis.

99‐98 Section108(A)oftheTaxCodeof1997providesasfollows:"Sec. 108. Value‐added tax on sale of services and


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useorleaseofproperties."(A) Rate and base of tax. ‐There shall be levied,assessed and collected, a value‐ added taxequivalenttotenpercent(10%)ofthegrossreceiptsderived from the sale or exchange of services,includingtheuseorleaseofproperties.The phrase "sale or exchange of services " meansthe performance of all kinds of services in thePhilippines for others for a fee, remuneration orconsideration,xxxregardlessofwhetherornottheperformancethereofcallsfortheexerciseoruseofphysicalandmentalfaculties.xxxThe term "gross receipts"means the total amountofmoneyoritsequivalentrepresentingthecontractprice, compensation, service fee, rental or royalty,includingtheamountchargedformaterialssuppliedwith the services and deposits and advancedpaymentsactuallyorconstructivelyreceivedduringthetaxablequarterfortheservicesperformedortobe performed for another person, excluding value‐addedtax."Such being the case, this Office confirms youropinionthatBTDIisengagedinthesaleofservices,and therefore subject to the 10% VAT on grossreceipts derived from the sale or exchange ofservices. Consequently, BTDI is required to file itsVAT returns covering the fees received from itsadvertisers,andtopaytheVATduethereononthefollowingdates:1. On the 25th day of the month succeeding themonthofreceiptofeachsucceedingpaymentfromBizlink;2. On the 25th day of the month succeeding themonthofreceiptofeachsucceedingpaymentfromBizlink;and3. On the 25th day of the month succeeding themonth of receipt of each remittance from thePhilippine‐basedadvertisers.

104‐98 under Section 24 of R. A. No. 7916, other‐wise

knownasthe"SpecialEconomicZoneActof1993",business and enterprises within the ECOZONE asdefined in Section5 thereof shall, in lieuof payinglocalandnationaltaxes,beliabletothepaymentofthefivepercent(5%)preferentialtaxratebasedongross income earned, distributed as follows: (1)threepercent (3%) to thenationalgovernment; (2)one percent (1%) to the local government unitsaffectedbythedeclarationoftheECOZONE;and(3)one percent (1%) for the establishment of adevelopment fund to be utilized for thedevelopment of municipalities outside andcontiguoustoeachECOZONE.The aforementioned 5% preferential tax is acommutation of all the national and local taxesotherwise due from businesses and enterprisesoperatingwithintheECOZONE.Suchbeingthecase,Dae Ryung Ind., Inc. (Philippines) is consideredexempt from all direct and indirect taxes hence,maynot legallybepassed‐onwith thevalueaddedtaxotherwisedue from its foreign licensorvis‐a‐visthesaidroyaltypayments.(BIRVATRulingNO.033‐96datedOctober30,1996;VATRulingNo.009‐98datedFebruary5,1998).In view thereof, and considering that your foreignlicensor is a non‐VAT registered person. youraforesaid royalty payments are accordingly exemptfrom the value‐added tax. Consequently, you arealso exempt from the obligation to withhold andremit the 10% value‐added tax on your paymentsand remittances of the aforesaid royalties whichotherwise would be due thereon pursuant to theprovisions of Section 110 of the National InternalRevenue Code, as amended by R. A. No. 7716 as


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further amended by R. A. No. 8241 (now Section114of the Tax Codeof 1997) and as implementedbySection4.110‐3(b)ofRevenueRegulationsNo.7‐95, otherwise known as the Consolidated Value‐AddedTaxRegulations.

88‐181 Although corn starch is a byproduct in the processofmilling, it isnotoneof thoseconsidered intheiroriginal state forpurposesof Section103(b)of theTaxcode,asamendedbyExecutiveOrderNo.273.It is noted in said provision that only corn grits,another by‐product, is considered in their originalstate. Such being the case, corn starch which is amanufactured product and no longer in its originalstate issubjectto10%value‐addedtax imposedbySection 100 of the Tax Code, as amended byExecutiveOrderNo.273.

88‐291 Althoughcorngermisabyproductintheprocessofmilling corn, it is not one of those considered intheiroriginalstate forpurposeofSection103(b)ofthe Tax Code, as amended by ExecutiveOrderNo.273.

88‐250 Anypersonwho,inthecourseoftradeorbusinessrendersservicetothetaximposedinSection102ofthe Tax Code. (Sec. 99, Tax Code, as amended byExecutive Order No. 273. Under Section 102, 10%value‐addedtaxisleviedonanypersonengagedinthe sale of service. The phrase "sale of service"means performance of all kinds of services forothers for a fee regardless of whether or not theperformancethereofcallsfor,theexerciseoruseofthe physical or mental faculties. Undoubtedly, byperforming professional and management servicestoyourmanagedcompanies,youareengagedinthesale of services to them. Hence, as you arerendering service for a fee, you are subject to the

10%valueaddedtax.YoudonotfallwithinthepurviewofSection103(r)of the Tax Codewhich exempts from VAT servicesperformed in the exercise of profession or callingsubject to the occupation tax under the Local TaxCode and professional services performed by aregistered general professional partnership. This isso because your management services are notsubject to the occupation tax under the Local TaxCode and that you are a corporation and not apartnership.

122‐98 UnderSection103oftheTaxCode,asamendedbyRepublicActNo.8241,whichtookeffectonJanuary1, 1997 [now Section 109(r) of the Tax Code of19971,viz:"SEC.103.Exempttransactions.‐Thefollowingshallbeexemptfromthevalue‐addedtax:Xxxxxxxxx"(r) Sales by agricultural cooperatives dulyregistered with the Cooperative DevelopmentAuthority to theirmembers aswell as saleof theirproduce,whether in its original state or processedform, to non‐members, their importation of directfarminputs,machineriesandequipments,includingspare parts thereof, to be used directly andexclusively in the production and/or processing oftheirproduce."XxxxxxxxxThe importation of a used "Backhoe", which wasprimarily imported for the purpose of preparing,tillingand irrigating thesoil isnotsubject tovalue‐addedtaxpursuanttotheaforequotedprovisionofthelaw.Onthematterofwhentheimportationoftheused"Backhoe" was made, a perusal of the documentssubmittedtothisOffice,i.e.,BillofLading,Shipment


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Invoice No. TO‐0101 dated December 3, 1996,likewise, had revealed that its shipmentwasmadeonDecember12,1996butwasloadedonboard"SSTeresaPristege"onlyonDecember14,1996boundforManila, Philippines fromYokohama, Japan. It islikewise,concededthatregularprocedure,includingunloading of shipment by the Arrastre from thevessel, and documentations would require at leastseven (7) working days to withdraw the shipmentfrom the custom house. Thus,with the number ofholidaysandnon‐workingdaysbetweenthedateofarrival of the vessel up to the payment of thecorrespondingtaxesandduties, inallprobability, itwas only after January 1, 1997, which is theeffectivitydateofRepublicActNo.8241(TheEVATLaw),thattheshipmentwasfinallywithdrawnfromthecustomshouse.UnderSection1202oftheTariffandCustomsCode,"importation begins when the carrying vessel oraircraft enters the jurisdiction of the Philippineswith the intention to unload therein"; and "it isdeemed terminated upon payment of the duties,taxes and other charges due upon the articles onsecuredtobepaid,ataportofentryandthelegalpermitforwithdrawalshallhavebeengranted,orincase said articles are free from duties, taxes, andother charges, until they have legally left thejurisdiction of the customs". (Viduya vs. Bverdiago73SCRA553).Theintentiontounload,anessentialelement of importation, is manifested only at thetime when the shipment is withdrawn from thecustomshouseuponpaymentofthecorrespondingduties and taxes, or upon issuance of a permit towithdraw; otherwise, if the same are not paid,importationisillegal.ItshouldbenotedthatSection(g)oftheTransitoryProvisions of Revenue Regulations 7‐95,

implementing R.A. 7716 (EVAT Law), clearly statesthe effect of the new law on the importation ofgoods,viz:"(g) Importations.‐Importation of goods previouslyexemptbutarenowsubjecttoVATunderR.A.7716shall,uponwithdrawalfromcustomscustodyonorafter January 1, 1996, be subject to VAT. On theotherhand,importationofgoodspreviouslytaxablebut are now exempt under R.A. 7716 shall, uponwithdrawal from customs custody on or afterJanuary1,1996,beexemptfromVAT."Therefore, starting January 1, 1997, which is theeffectivity date of R.A. No. 8241, the provisions ofthe EVAT Law shall apply to all importations beingreleased/withdrawn from the customs house.Henced, the VAT exemption of agriculturalcooperatives of their importations under the OldVAT Law, which was denied under R.A. No. 7716,andwhichwasagainrestoredunderR.A.No.8241,shouldbeappliedinthiscase.

152‐98 The sale by real estates dealers and/or lessors ofhouseandlotandotherresidentialdwellingsvaluedatOneMillionPesos(PI,000,000.00)andbelowshallbe exempt from VAT. Since, as represented theselling price of the house and lot at your GrandVictoria Estates Subdivision is less thanP1,000,000.00, you are exempt from VAT on youraforesaidtransaction,pursuanttoSection109(w)oftheTaxCodeof1997.

154‐98 UnderSectionI(e)(2)(1)ofRevenueRegulationsNo.6‐85, as amended and Section 5 of RevenueRegulationNo.10‐93,thetaxbaseincomputingthe1%expandedcreditablewithholding taxon incomepayments to forwarding contractors and the 6%creditable VAT on payments made by the


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government to sellers of services shall be on grosspayments.Thus,forpurposeoftaxremittances,the1% expanded creditable withholding tax imposedunderSectionI(e)(2)(1)ofRevenueRegulationsNo.6‐85, as amended and the 6% creditable VATprescribedunder Section3ofRevenueRegulationsNo. 10‐93 shall be computed based on grosspayments,whichmeanstotalpaymentsinclusiveofthesaidCommissionPrivilegeFund.This issosincelikeother fundsof thesamenature, thesaid fundswill ultimately redound to the benefit of your saidsupplier.Hence,acorrespondingchargeforbenefitsderived thereby is deemed included in theimpositionofsaidtaxes.

HowtoShowVATinBillRR8‐99 All VAT‐registered taxpayers who are required

under Section 237ofthe1997TaxCodetoissuereceiptsorsalesorcommercial invoices are no longer allowed toseparately bill the value‐added tax correspondingthereto. The amount appearing in the salesinvoices/receipts is thus deemed inclusive of thevalue‐addedtaxduethereon.FailureorrefusaltocomplywiththerequirementinSection1hereofshall,uponconviction,foreachactormission, be punished by a fine of not less thanOne thousand pesos (P1,000) but not more thanFifty thousand pesos (P50,000) and sufferimprisonmentofnotlessthantwo(2)yearsbutnotmorethanfour(4)years.

TreatmentofVAT174‐98 YourexemptionfromVATonyoursaleoffishunder

Section109(d)oftheTaxCodeof1997coversonlyyourdirecttaxliability,meaningyouroutputVATonthe gross receipts from your sale of fish in their

original state. However, you cannot claimexemption from the input VAT being passed on toyou by the suppliers on your purchase of supplies,parts,fuels,etc.AsformingpartoftheinvoicepricebecauseVAT,beingan indirect tax,maybe shiftedor passed on to the buyer of goods and servicespursuanttoSec.105oftheTaxCodeof1997.

LeaseOfVATExemptTransactions,SuppliesPassedOnToVATExempt

VATRuling37‐01 Gross receipts from lease of residential units isexemptfromthe10%VAT,asfollows:"(x) Leaseofaresidentialunitwithamonthlyrental not exceeding Eight Thousand (P8,000.00)Pesos:..."1"(x) Lease of residential units with amonthlyrental per unit not exceeding Eight Thousand(P8,000.00) Pesos, regardless of the amount ofaggregate rentals receivedby the lessorduring theyear,...""The term 'residential units' shall refer toapartments, houses and/or lands on whichanother's dwelling is located, used for residentialpurposesandshall includenotonlybuildings,partsorunitsthereofusedsolelyasdwellingplaces(e.g.,dormitories, roomsandbedspaces)exceptmotels,motel rooms, hotels and hotel rooms. 'Residentialunits' shall also include apartments, houses,building, parts or units thereof used for homeindustries, retail storesorotherbusinesspurposes,if the tenant thereof and his family actually livetherein and use them principally for dwellingpurposes."Theterm'unit'shallmeananapartmentunitinthecaseofapartments,houseinthecaseofresidentialhouses; per person in the case of dormitories,


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boarding houses and bed spaces; and per room incaseofroomsforrent."Since your client's rental from its residentialdormitory operations does not exceed P8,000.00permonth,perindividual,thesameisexemptfromthe 10%VAT, pursuant to Section 109 (x), NIRC of1997, as implemented by Section 4 of RevenueRegulations No. 6‐97.On your query whether the said rentals from theleaseofyourclient'sresidentialdormitoriesmaybesubjecttothe3%percentagetax,inlieuofthe10%VAT,pleasebeinformedthatthe3%percentagetaxprescribedunderSection116ofthesaidNIRCdoesnot apply to persons exempt from the 10% VATunderSection109(a)to(y)oftheCode,asfollows:"SECTION109. Exempt Transactions. — Thefollowingshallbeexemptfromthevalue‐addedtax:"(a) ..."xxxxxxxxx"(z) Saleorleaseofgoodsorpropertiesortheperformanceofservicesotherthanthetransactionsmentioned in the preceding paragraphs, the grossannual sales and/or receipts do not exceed theamount of Five hundred fifty thousand pesos(P550,000):...""SECTION116. Tax on Persons Exempt fromValue‐addedTax (VAT).—Anypersonwhose salesor receiptsareexemptunderSection109(z)of thisCodefromthepaymentofvalue‐addedtaxandwhois not a VAT‐registered person shall pay a taxequivalent to three percent (3%) of his grossquarterly sales or receipts: Provided, Thatcooperatives shall be exempt from the threepercent (3%) gross receipts tax herein imposed."It follows,yourclient'sgross receipts from leaseof

its residential dormitories is likewise exempt fromthe3%percentagetax.

VAT/PercentageTaxonTianggeRR16‐2003 Business Tax [ Value‐added Tax (VAT) or

Percentage Tax, as the case may be] of ONEHUNDRED FIFTY PESOS (P150) per day or FOURTHOUSAND FIVE HUNDRED PESOS (P4,500) permonth during the entire duration that suchprivilege‐storeisallowedbytheconcernedLocalGovernment Unit to beset up in theplace forwhichthesamehasbeentemporarilyestablished.Astheseareadvancepayments,thesameshallbecredited against the actual business tax (valueadded tax or percentage tax, as the case may be)and income tax due from such persons for thetaxableperiodforwhichsuchadvancepaymentswereremittedtotheBureauofInternalRevenue.If the seller of goods/services is do not exceedP550,000 inany 12‐month periodand therefore,liable to the 3% percentage tax imposed underSection116oftheTaxCode,suchadvancebusinesstaxpaid pursuant to Section 4(a) aboveshallbecreditedagainstthepercentagetaxduefromsuchseller for the month for which such advancepaymentwascollected.Ifthesellerofgoods/service,ontheotherhand,isaVATtaxpayer,inadditiontotheinputtaxcreditsallowed by the Code, the amount of advancebusiness taxpaid pursuant toSection4(a) aboveshallbeallowedascreditagainsttheoutputtaxontheaccumulatedgrosssales/receiptsrealizedbytheseller for the month for which such advancepayment was made. For this purpose, theaccumulatedgrosssales/receiptsreportablebythe


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sellerinthemonthlyVATdeclarationorQuarterlyVAT Return shall not only include those realizedfromtheuseof“privilege‐store,”butshall likewiseincludethoserealizedfromitspermanentplaceofestablishment, branches and other places wheremarketing and/or sales of goods/services areconducted.

TAXCREDITS

InputVAT(Section110B,NIRC)

1. Value‐Added tax due from or paid by a VAT‐registered person in thecourseofhistradeorbusinessonimportationofgoodsorlocalpurchaseofgoodsorservices

2. There is creditable input VAT against output VAT if taxpayer is VAT‐registeredpersonandhasobtainedserviceormerchandiseforsalefromanotherVAT‐registeredperson

SourcesofCreditableInputVAT

1. Purchaseorimportationofgoods1. Forsale2. For conversion intoor intended to formpartof a finishedproduct

forsale,includingpackagingmaterials3. Foruseassuppliesinthecourseofbusiness4. Foruseasrawmaterialssuppliedinthesaleofservices5. Foruseintradeorbusinessforwhichdeductionfordepreciationor

amortizationisallowedundertheTaxCode2. PurchaseofrealpropertiesforwhichVAThasactuallybeenpaid3. PurchasesofservicesinwhichaVAThasactuallybeenpaid4. Transactionsdeemedsale5. TransitionalinputVAT6. PresumptiveinputVAT7. Transitional input tax credits allowed under the transitory and other

provisionsPersonsWhoCanAvailoftheInputTaxCredit

1. TotheimporteruponpaymentofVATpriortothereleaseofgoodsfromcustomscustody

2. To the purchaser of the domestic goods or properties uponconsummationofthesaleor

3. To thepurchaserof servicesor the lesseeor licenseeuponpaymentofthecompensation,rental,royaltyorfee

RequisitesforClaimforInputTaxonDepreciableGoods

• AVAT‐registeredpersonpurchasesorimportscapitalgoods• Aggregate acquisition cost of which in a calendar month exceed P1

millionMannerofClaimingInputTax

1. Estimatedusefullifeofacapitalgoodis5yearsormorea. Inputtaxspreadevenlyoveraperiodof60monthsb. Commenced in the calendar month when the capital good is

acquired2. Estimatedusefullifeislessthan5years

a. Inputtaxspreadevenlyonmonthlybasisbytheactualnumberof months comprising the estimated useful life of the capitalgood

b. Commended in the calendarmonth when the capital good isacquired

AggregateAcquisitionCostDoesNotExceedP1million

• Total input taxes will be allowable as credit against output tax in themonthofacquisition

AggregateAcquisitionCostofaDepreciableAssetinanyCalendarMonth

• Referstothetotalpriceagreeduponforoneormoreassetsacquiredandnotonthepaymentsactuallymadeduringthecalendarmonth

IftheDepreciableCapitalGoodisTransferred/SoldWithinthePeriodof5yearsorPriortotheExhaustionoftheAmortizableInputTaxThereon—

• Entireunamortizedinputtaxonthecapitalgoodssold,canbeclaimedasinput tax credit during themonth or quarterwhen the sale or transferwasmadebutsubjecttolimitation

ApportionmentofInputTaxonMixedTransactions


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1. All the input taxes that can be directly attributed to the transactionssubject to VATmay be recognized for input tax credits (note howeverthatinputtaxeswhichcanbedirectlyattribut4edtoVATtaxablesalesofgoodsandservices fromgovernmentoranyof itspolitical subdivisions,etc.shallnotbecreditedagainstoutputtaxesarisingfromsalestonon‐governmententities

2. If any input taxcannotbedirectlyattributed toeitheraVAT taxableorVAT‐exempt transaction, the input tax shall be pro‐rated to the VATtaxableandVAT‐exempttransactions

3. InputtaxattributabletoVATexemptsalesshallnotbeallowedascreditagainstoutputtaxbutshouldbetreatedaspartofcostofgoodssold

4. For persons engaged in both non‐zero rated and zero‐rated sales, theaggregateinputtaxesshallbeallocatedratably

TransitionalInputVAT(Section111)

• MaybeallowedforpersonwhoforthefirsttimebecomesliableforVAToranypersonwhoelectstobeVAT‐registeredpersonshall,atthestart,be subjected to file an inventory report, be allowed input tax in hisbeginninginventoryofgoods,materials,andsuppliesequivalentto2%ofthe value of such inventory or the actual VAT paid on such goods,materials, or supplies, whichever is higher, which shall be creditedagainstoutputVAT

PresumptiveInputTax

• AmountallowedasinputtaxdespitethatthereisnoactualVATpaymentinVAT‐exempttransactions

• 4%asassumedinputVATonpurchaseofagriculturalproductswhichareusedasinputstotheproductionofthefollowingbusinesso Onpersons/firms engaged in theprocessingof sardines,mackerel,

milko On persons/firms engaged in manufactured refined sugar and

cookingoilo On persons/firms engaged in manufactured noodle‐based instant

meals

OutputVAT• Due on sale or lease of taxable goods or services or properties by any

personregisteredorrequiredtoregisterSalesDiscount,Returns,andAllowances

• Discountsexpresslyindicatedininvoicedon’tformpartoftaxablebase• Discountsaren’texcludedfromgrosssellingpriceof itscustomersgrant

theseonlyuponthesubsequenthappeningofaneventor fulfillmentofcertainconditionssuchaspromptpaymentorattainmentofsalesgoals(VATruling204‐90)

• Sales returns and allowances for which a proper credit or refund wasmade during the month or quarter to the buyer or sales previouslyrecordedastaxablesalesarealsoexcludedfromgrosssellingprice

PERCENTAGETAXES

SUBJECTOFTAXATION DEFINITION TAXRATE/TAXBASE NOTES/COMMENTSGeneralrule Any person whose sales or receipts are exempt

under Section 109 (V) of this Code from thepaymentofvalue‐addedtaxandwhoisnotaVAT‐registeredperson

3% of grossreceipts/sales

Cooperatives shall be exempt from the three percent(3%)grossreceiptstaxhereinimposed

Domesticcarriersandkeepersofgarages

Cars for rent or hire driven by the lessee;transportationcontractors, includingpersonswhotransportpassengers forhire,andotherdomestic

3% of grossreceipts/sales

Incomingandoutgoing freight shallnotbe subjected tothelocaltaxesundertheLocalGovernmentCode*The abovementioned is a rider—there may be


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carriers by land for the transport of passengers(except owners of bancas and owners of animal‐drawn two wheeled vehicle), and keepers ofgarages

exemptions to national taxes but here, there isintroduction of exemptions from local revenue taxes(ergo,thisparagraphismisplaced)

Internationalcarriers International air and shipping carriers doingbusinessinthePhilippines

3%ofgrossreceipts There is no double taxation. There are two differentpurposes for the taxation. One is imposed on theincome.Theotherisimposedonthetransaction.*ReviewofgrossPhilippinebillings(a) International Air Carrier. ‐ "Gross Philippine Billings"refers to the amount of gross revenue derived fromcarriage of persons, excess baggage, cargo and mailoriginating from the Philippines in a continuous anduninterrupted flight, irrespective of the place of sale orissueand theplaceofpaymentof the ticketorpassagedocument:Provided,Thatticketsrevalidated,exchangedand/or indorsed to another international airline formpart of the Gross Philippine Billings if the passengerboards a plane in a port or point in the Philippines:Provided,further,Thatforaflightwhichoriginatesfromthe Philippines, but transshipment of passenger takesplace at any port outside the Philippines on anotherairline,only thealiquotportionof thecostof the ticketcorresponding to the leg flown from the Philippines tothe point of transshipment shall form part of GrossPhilippineBillings.(b) International Shipping. ‐ "Gross Philippine Billings"means gross revenue whether for passenger, cargo ormail originating from the Philippines up to finaldestination, regardlessof theplaceof saleorpaymentsofthepassageorfreightdocuments.

Franchisetaxes All franchises on radio and/or televisionbroadcasting companies whose annual grossreceiptsoftheprecedingyeardoesnotexceedtenmillionpesos(P10,000.00)

3% for electric, gas, andwaterutilities2%onthegross receiptsderived from thebusiness covered by thelaw granting the

That radio and television broadcasting companiesreferred to in this Section shall have an option to beregisteredasavalue‐addedtaxpayerandpaythetaxduethereon.Thatoncetheoptionisexercised,itshallnotberevoked.


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franchiseOverseascommunication Everyoverseasdispatch,messageorconversation

transmitted from the Philippines by telephone,telegraph,telewriterexchange,wirelessandothercommunicationequipmentservice

10% on amountcollectedforservice

The tax imposed in this Section shall be payable by thepersonpayingfortheservicesrenderedandshallbepaidto theperson rendering the serviceswho is required tocollectandpaythetaxwithintwenty(20)daysaftertheendofeachquarter.Thefollowingshallbeexempted—(1) Government. ‐ Amounts paid for messagestransmitted by the Government of the Republic of thePhilippines or any of its political subdivisions orinstrumentalities;(2) Diplomatic Services. ‐ Amounts paid for messagestransmitted by any embassy and consular offices of aforeigngovernment;(3) International Organizations. ‐ Amounts paid formessages transmitted by a public internationalorganization or any of its agencies based in thePhilippines enjoying privileges, exemptions andimmunities which the Government of the Philippines iscommitted to recognize pursuant to an internationalagreement;and(4)NewsServices.‐Amountspaidformessagesfromanynewspaper, press association, radio or televisionnewspaper, broadcasting agency, or newstickersservices, to any other newspaper, press association,radio or television newspaper broadcasting agency, ornewsticker service or to a bona fide correspondent,which messages deal exclusively with the collection ofnews items for, or the dissemination of news itemthrough,publicpress,radioortelevisionbroadcastingora newsticker service furnishing a general news servicesimilartothatofthepublicpress.

On interest, commissions and discounts from lending activities as well asincome from financial leasing, on the basis of remaining maturities ofinstrumentsfromwhichsuchreceiptsarederived

Banks and non‐banks financialintermediaries

Maturityperiodisfiveyearsorless

5%

Incasethematurityperiodreferredtoinparagraph(a)isshortened thru pre‐termination, then the maturityperiod shall be reckoned to end as of the date of pre‐termination for purposes of classifying the transactionandthecorrectrateoftaxshallbeappliedaccordingly.


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Maturityperiodismorethanfiveyears 1%

Ondividendsandequitysharesandnetincomeofsubsidiaries

0%

Onroyalties,rentalsofproperty,realorpersonal,profits,fromexchangeandallotheritemstreatedasgrossincomeunderSection32ofthisCode

7%

On net trading gains within the taxable year onforeign currency, debt securities, derivatives, andothersimilarfinancialinstruments

7%

That interests, commissions and discounts from lendingactivities, aswell as income from financial leasing, shallbetaxedonthebasisoftheremainingmaturitiesoftheinstruments from which such receipts are derived, inaccordancewiththefollowingschedule:Short‐term maturity (not in excess of 2 years)5%Medium‐termmaturity(overtwo(2)yearsbut not exceeding four (4) years)3%Long‐termmaturity‐(1) Over four (4) years but not exceeding seven (7)1%(2) Over seven (7) years0%

Insurance/premiums Every person, company or corporation (exceptpurely cooperative companies or associations)doing life insurance business of any sort in thePhilippines

5% Premiumsrefundedwithinsix(6)monthsafterpaymenton account of rejection of risk or returned for otherreason to a person insured shall not be included in thetaxable receipts; nor shall any tax be paid uponreinsurancebyacompanythathasalreadypaidthetax;nor upon doing business outside the Philippines onaccount of any life insurance of the insured who is anonresident, if any tax on such premium is imposed bythe foreigncountrywherethebranch isestablishednoruponpremiumscollectedor receivedonaccountofanyreinsurance,iftheinsured,incaseofpersonalinsurance,resides outside the Philippines, if any tax on suchpremiums is imposed by the foreign countrywhere theoriginalinsurancehasbeenissuedorperfected;noruponthat portion of the premiums collected or received bythe insurance companies on variable contracts (asdefinedinsection232(2)ofPresidentialDecreeNo.612),inexcessoftheamountsnecessarytoinsurethelivesofthevariablecontractworkers.

Foreigninsurance Every fire, marine or miscellaneous insuranceagent authorized under the Insurance Code to

Twice the tax paid forinsurancepremiums

That the provision of this Section shall not apply toreinsurance.


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procure policies of insurance as he may havepreviously been legally authorized to transact onrisks located in thePhilippines for companies notauthorizedtotransactbusinessinthePhilippines

That the provisions of this Section shall not affect therightofanownerofpropertytoapplyforandobtainforhimselfpoliciesinforeigncompaniesincaseswheresaidowner does notmake use of the services of any agent,companyorcorporationresidingordoingbusinessinthePhilippines.In all caseswhere owners of property obtain insurancedirectly with foreign companies, it shall be the duty ofsaidownerstoreporttotheInsuranceCommissionerandto the Commissioner each case where insurance hasbeen so effected, and shall pay the tax of five percent(5%) on premiums paid, in the manner required bySection123.Reason behind the taxability: Since the property iswithin the Philippines, any dispute thatmay arise fromtheinsurancecontractmustnecessarilybesettledinthePhilippinecourts

The proprietor, lessee or operator of cockpits, cabarets, night or day clubs,boxingexhibitions,professionalbasketballgames,Jai‐AlaiandracetracksCockpits 18%

Amusementtaxes

Inthecaseofcabarets,nightordayclubs;

18%

For thepurposeof theamusement tax, the term"grossreceipts" embraces all the receipts of the proprietor,lessee or operator of the amusement place. Said grossreceipts also include income from television, radio andmotion picture rights, if any. A person or entity orassociation conducting any activity subject to the taxherein imposedshallbesimilarly liable for said taxwithrespecttosuchportionofthereceiptsderivedbyhimorit.Thetaxesimposedhereinshallbepayableattheendofeach quarter and it shall be the duty of the proprietor,lesseeoroperatorconcerned,aswellasanypartyliable,withintwenty(20)daysaftertheendofeachquarter,tomakea true and complete returnof the amountof thegross receiptsderivedduring theprecedingquarterandpaythetaxduethereon.


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Inthecaseofboxingexhibitions 10% That boxing exhibitions wherein World or OrientalChampionshipsinanydivisionisatstakeshallbeexemptfromamusementtaxThatatleastoneofthecontendersforWorldorOrientalChampionship is a citizen of the Philippines and saidexhibitionsarepromotedbyacitizen/softhePhilippinesor by a corporationor association at least sixtypercent(60%)ofthecapitalofwhichisownedbysuchcitizens

Professional basketball games as envisioned inPresidentialDecreeNo.871:

15%

InthecaseofJai‐Alaiandracetracksoftheirgrossreceipts, irrespective, of whether or not anyamountischargedforadmission.

30%

Everypersonwhowinsinhorseraces 10% Thetaxtobebasedontheactualamountpaidtohimforeverywinningticketafterdeductingthecostoftheticket

In the case of winnings from double,forecast/quinellaandtrifectabets

4%

Winnings

Inthecaseofownersofwinningracehorses 10%

The tax herein prescribed shall be deducted from the'dividends' corresponding to each winning ticket or the"prize" of eachwinning race horse owner andwithheldby the operator, manager or person in charge of thehorseracesbeforepayingthedividendsorprizestothepersonsentitledthereto.The operator, manager or person in charge of horseracesshall,withintwenty(20)daysfromthedatethetaxwas deducted and withheld in accordance with thesecond paragraph hereof, file a true and correct returnwith the Commissioner in the manner or form to beprescribed by the Secretary of Finance, and pay withinthesameperiodthetotalamountoftaxsodeductedandwithheld.

Sharesofstocklistedandtradedinthestockexchange

Every sale, barter, exchange, or other dispositionof shares of stock listed and traded through thelocal stock exchange other than the sale by adealerinsecurities

½of1%

Shares of stock in initial publicoffering

Every sale, barter, exchange or other dispositionthroughinitialpublicofferingofsharesofstockincloselyheldcorporations,asdefinedherein,a tax

Upto25%‐‐4%25%to331/3%‐‐2%Over331/3%‐‐1%

Thetaxhereinimposedshallbepaidbytheissuingcorporationinprimaryofferingorbythesellerinsecondaryoffering.


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at the rates provided hereunder based on thegross sellingpriceor gross value inmoneyof theshares of stock sold, bartered, exchanged orotherwise disposed in accordance with theproportion of shares of stock sold, bartered,exchanged or otherwise disposed to the totaloutstandingsharesofstockafterthe listing inthelocalstockexchange

ForpurposesofthisSection,theterm"closelyheldcorporation"meansanycorporationatleastfiftypercent(50%)invalueofoutstandingcapitalstockoratleastfiftypercent(50%)ofthetotalcombinedvotingpowerofallclassesofstockentitledtovoteisowneddirectlyorindirectlybyorfornotmorethantwenty(20)individuals.Forpurposesofdeterminingwhetherthecorporationisacloselyheldcorporation,insofarassuchdeterminationisbasedonstockownership,thefollowingrulesshallbeapplied:(1)StockNotOwnedbyIndividuals.‐Stockowneddirectlyorindirectlybyorforacorporation,partnership,estateortrustshallbeconsideredasbeingownedproportionatelybyitsshareholders,partnersorbeneficiaries.(2)FamilyandPartnershipOwnerships.‐Anindividualshallbeconsideredasowningthestockowned,directlyorindirectly,byorforhisfamily,orbyorforhispartner.Forpurposesoftheparagraph,the'familyofanindividual'includesonlyhisbrothersandsisters(whetherbywholeorhalf‐blood),spouse,ancestorsandlinealdescendants.(3)Option.‐Ifanypersonhasanoptionacquirestock,suchstockshallbeconsideredasownedbysuchperson.Forpurposesofthisparagraph,anoptiontoacquiresuchanoptionandeachoneofaseriesofoptionsshallbeconsideredasanoptiontoacquiresuchstock.(4)ConstructiveOwnershipasActualOwnership.‐Stockconstructively owned by reason of the application ofparagraph(1)or(3)hereofshall,forpurposesofapplyingparagraph (1) or (2), be treated as actually owned bysuch person; but stock constructively owned by theindividual by reason of the application of paragraph (2)hereofshallnotbetreatedasownedbyhimforpurposesof again applying such paragraph in order to makeanothertheconstructiveownerofsuchstock.


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COMMISSIONERV.USLINES5SCRA175

FACTS:

1. USLines is theoperatorofocean‐goingvessels transportingpassengersandfreighttoandfromthePhilippines

2. In the examination of books of accounts, it was found out that thecompanycontractedwithanothervesselcompanyinconnectionwiththetransportationofchromeoresfromZambalestotheUS.

3. CIRassessedthecompanyforthenon‐paymentofpercentagetaxesHELD:Whatthelegalprovisionpurportstotaxisthebusinessoftransportation,somuchso,thatthetaxisbasedongrossreceipts.Thepersonliableisofcoursetheownerortheoperator,butthisdoesn'tmeanthatheandhealonecanbemadeactuallytopaythetax.Inotherwords,whoeveractsonhisbehalfandforhisbenefitmaybeheldliabletopay,forandonbehalfofthecarrieroroperatorsuchpercentagetaxonbusiness.

SOUTHAFRICANAIRWAYSV.CIRCTACASE6760,9JUNE2005

FACTS:SouthAfricanAirwaysisanonresidentforeigncorporationengagedininternationalair carrier operations. It has a local sales agentwhich is in charge of selling oncommissionbasispassagedocuments,etc.TheagentdulyfiledincometaxreturnsbutonthebeliefthatithasoverpaiditstaxesbypayingthegrossPhilippinebillingstax,itdemandedtherefundbutwasdenied.HELD:TheabsenceofflightoperationstoandfromthePhilippinesisnotdeterminativeofthe sourceof incomeor the situs of income taxation. Petitioner admitted that itsellspassagedocumentsinthePhilippinesthroughitssalesagent.Petitioner,thus,is deriving revenues from the conduct of its business activity regularly pursuedwithin the Philippines. Petitioner is therefore a resident foreign corporation

engagedintradeorbusinessinthecountrywithinthepurviewofourtaxlawandisthereforesubjecttotax.

BIRRULINGDA158‐0514APRIL2005

FACTS:Air France and KLM, are now part of the same group, they continue to exist asseparate entities; that the decision to keep the airlines as separate entities tookintoaccounttheexisting flyingrightsofAirFranceandKLMundertherespectiveAirTransportAgreementsofFranceandofTheNetherlandswithothercountries,underwhich,therespectiveflagcarriersoftheContractingStatesareauthorizedtocarryspecificflights;thatnonetheless,incountrieswherebothAirFranceandKLMoperate, it has been decided that only one airline will continue to have flightoperations; that in other words, one airline will continue to carry flights to andfrom that country, while the other airline will cease its flight operations in thatcountry. With respect to the Philippines, Air France pursuant to the merger,ceasedtohaveflightsinthePhilippinesbutcontinuedsellingticketsforitsflights.Itwasoftheopinionthatitshouldn'tbesubjectedtogrossPhilippinebillingstax,CCT,etc.HELD:Underthedefinitionof"GrossPhilippineBillings"underSection28(A)(3)(a)oftheTax Code of 1997, for passenger and cargo revenues to form part of GrossPhilippineBillings,suchrevenuesmustbederivedfromthecarriageofpersonsandofcargooriginatingfromthePhilippines inacontinuousanduninterruptedflight.Thisruleappliesirrespectiveoftheplaceofsaleorissueandtheplaceofpaymentoftheticketsorpassagedocuments.Being an off‐line airline, Air France shall not be subject to the 2 1/2% GrossPhilippineBillingsTaxorthe11/2%incometaxonGrossPhilippineBillingsunderSection8oftheRP‐FranceTaxTreaty,the3%CCT,andthe32%regularcorporateincome tax/2%MCIT on revenues generated from the sale of Air France ticketswithinthePhilippines.

VISAYANELECTRICV.DAVID


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92PHIL969

FACTS:VisayanElectricCo..Ltd., isapublic limitedcompanyorganizedunderthelawsofthePhilippines,withheadquartersinthecityofCebu,andisdedicatedtoprovidingelectricfluid,withcertificateofpublicconvenience.TheLawno.3499grantedtheright, previlegio and authority to build, maintain and operate for fifty yearsbelongings, appliances and other accessories for electricity supplied in themunicipalitiesofTalisay,Minglanilla,Naga,SanFernando,Mandawa,Consolación,lilac,CompostelaandcityofCebu.Thecompanyfiledalawsuitdemandingthatadeclarationbythecourtthatthe5percenttaxprovisoinArticle259oftheNationalTaxCode,asamended,doesnotapply to it because, according to their franchise (Article 8, LawNot. 3499),mustpaytaxonly2percent.HELD:It istruethatArticle11ofLawno.3499attachestotheVisayanElectricCo..,S.A.the franchise with the condition that this subject to amendment, alteration orrepealofthelawbyUnitedStatesCongress,butneithertheNationalTaxCodeorRepublicActno.39repealingArticle8ofLawfranchise(No.3499).Article259oftheNationalTaxcode,asamendedbyArticle7ofRepublicActNo.39, no amendment of Article 8 of Law no. 3499, which stipulates that the twopercent tax tobepaidby theapplicant "Shallbe in lieuofall taxes leviedatanytime,establishedorcollectedbyanyauthoritywhatsoever,noworinthefuture."

COMMISSIONERV.CA195SCRA445

FACTS:

1. Private respondent is engaged in international telecommunications andthrough a special concession, was granted the authority to construct,operate and maintain submarine telegraph devices/cables from HongKongtoManila.

2. Whentheconcessionexpired,itwasgrantedafranchise.Itwasgrantedlikewiseexemptionfrompaymentofalltaxesexceptthefranchisetaxof5%.

3. Thegrantedfranchisewasbroadenedbutthesectiononexemptionfromtaxeswasn'trepealed

4. The CIR assessed the corporation for deficiency income taxes, on thebeliefthatthefranchisegrantedtoitwasineffectiveforfailingtocomplywiththeconstitutionalrequirements

5. In the meanwhile, Marcos allowed the assignment of the franchise toEasternTelecommunications

HELD:Private respondent was rightfully granted a franchise. It complied with thenecessaryrequirementsinacceptingthesame.Inthislight,thepetitionerisboundbythetermsofthefranchise.Itcannotdeclarethefranchiseasunenforceableandineffective.

CIRV.REPUBLICBROADCASTINGCAGR‐32811,19SEPTEMBER1994

FACTS:RBS was previously granted a franchise to operate its broadcasting business.However,byvirtueofaPD, the franchiseofRBS togetherwithother franchiseeswasrevoked. Whenthefranchisewasrevoked, theRBScontinuedoperationsbyvirtueofalicensegrantedbytheNTC.AlaterlawwaspassedgrantingfranchisetoRBS to operate. For the interim period when there was no franchise, the CIRassessedthecompanyfordeficiencyfranchisetaxes.HELD:TheCTAdecisionissustained.TherewasnolegalbasisfortheassessmentoftheCIRforfranchisetaxasRepublicdidn'thaveavalidfranchiseduringitsoperationsduringthethirdandfourthquartersofthesubjecttaxableperiod.CTAwouldliketoaverthatRBSwasunlawfullyoperatingstillnotwithstandingthelackoffranchiseand thus, should be duly assessed for payment of tax. However, there is adistinctionbetweenfranchiseandlicense.ThecontinuedoperationsofRBSabsentthefranchisewaslicensedbytheNTC.A 'franchise' is a right or privilege granted by the sovereignty to one or morepartiestodosomeactoracts,whichtheycouldnotdowithoutthisgrantfromthesovereign power; a privilege which emanates from the sovereign power of the


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state government; a branch of the sovereign power of the state, subsisting in apersonorcorporationbygrantfromthestate."A"license"on theotherhand,confersno rightorestatenorvested interest,notdoesitconstituteabindingcontractbetweentheparties,butitisamereleavetobeenjoyedasmatterof indulgenceat thewillof thepartygranting it. It is innosenseacontractbetweenthestateandthelicensee,butisamerepersonalpermit,neithertransferablenorvendible.

MERALCOV.YATCO69PHIIL89

FACTS:

1. MERALCO insuredwith foreign insurancecompaniesnotdoingbusinessinthecountryitspersonalandrealproperties

2. The policies contained provisions for the settlement and payment oflossesupontheconcurrenceofanyriskinsuredagainst

3. MERALCO paid accordingly the premiums due and the Commissionerassessedandwithheldtaxonthesame.

4. MERALCOpaidunderprotestandclaimedforitsrefund.HELD:WheretheinsurediswithinthePhilippines,theriskinsuredagainstalsowithinthePhilippines,andcertainincidentsofcontractaretobeattendedinthePhilippines,suchas,paymentofdividendwhenreceivedincash,sendingofanadjusterintothePhilippines incaseofdispute,ormakingofproofof loss,thegovernmenthasthepowertoimposethetaxupontheinsured,regardlessofwhetherthecontractwasexecutedinaforeigncountryandwithaforeigncorporation.

STANDARDVACUUUMOILV.ANTIGUA96PHIL909

FACTS:

1. Standardisengagedintheimportation,distribution,andsaleofgasoline,kerosene,andotherfueloils

2. SomeofitsproductsareplacedintincansandsoldinthePhilippines3. ItsbranchinCebuoperatesanestablishmentwhereitstoresitsgasoline,

keroseneandotherfueloils.

4. An ordinance was passed imposing a graduated tax on businessesengagedinthemanufactureoftincans.

HELD:

1. TheoccupationtaximposedbythemunicipalgovernmentisinapplicabletoStandard

2. Themanufactureoftincansasinthepresentcaseisconductednotasanindependentbusinessandforprofitbutmerelyasanincidenttoorpartofitsmainbusinesswhichmaybetaxedseparately

3. Whenapersonorcompanyisalreadytaxedonitsmainbusiness,itmaynot be further taxed for doing something or engaging in an activity orworkwhichismerelyapartofitorincidentalornecessarytoitsbusiness.

RETURNSANDPAYMENTOFPERCENTAGETAXES

PersonsLiableToPay

• Every person subject to the percentage taxes imposed under this Titleshall fileaquarterly returnof theamountofhisgrosssales, receiptsorearningsandpaythetaxduethereonwithintwenty‐five (25)daysaftertheendofeachtaxablequarter

• Provided,ThatinthecaseofapersonwhoseVATregistrationiscancelledandwhobecomesliabletothetax imposedinSection116ofthisCode,the tax shall accrue from the date of cancellation and shall be paid inaccordancewiththeprovisionsofthisSection.

PersonsRetiringfromBusiness

• Anypersonretiringfromabusinesssubjecttopercentagetaxshallnotifythenearest internal revenueofficer, filehis returnandpay the taxduethereonwithintwenty(20)daysafterclosinghisbusiness

Exceptions

(a) Thetimeforfilingthereturnatintervalsotherthanthetimeprescribedintheprecedingparagraphsforaparticularclassorclassesoftaxpayersafter considering such factors as volume of sales, financial condition,adequate measures of security, and such other relevant informationrequiredtobesubmittedunderthepertinentprovisionsofthisCode;and

(b) The manner and time of payment of percentage taxes other than ashereinaboveprescribed,includingaschemeoftaxprepayment.


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DeterminationofCorrectSalesorReceipts• Whenitisfoundthatapersonhasfailedtoissuereceiptsorinvoices,or

whennoreturnisfiled,orwhenthereisreasontobelievethatthebooksof accounts or other records do not correctly reflect the declarationsmadeortobemadeinareturnrequiredtobefiledundertheprovisionsof this Code, the Commissioner, after taking into account the sales,receipts or other taxable base of other persons engaged in similarbusinessesundersimilarsituationsorcircumstances,orafterconsideringother relevant information may prescribe a minimum amount of suchgross receipts, sales and taxable base and such amount so prescribedshall be prima facie correct for purposes of determining the internalrevenuetaxliabilitiesofsuchperson.

WheretoFile

• ExceptastheCommissionerotherwisepermits,everypersonliabletothepercentagetaxunderthisTitlemay,athisoption,fileaseparatereturnfor each branch or place of business, or a consolidated return for allbranchesorplacesofbusinesswiththeauthorizedagentbank,RevenueDistrictOfficer,CollectionAgentordulyauthorizedTreasurerofthecityor municipality where said business or principal place of business islocated,asthecasemaybe.

EXCISETAX

Whatistheexcisetax?

• Tax imposed in addition to the VAT and apply to certain goodsmanufactured or produced in the Philippines for domestic sale orconsumptionorforanyotherdispositionandtothoseimported

• Thisincludesspecificandadvaloremtaxes• Specifictax—onethatimposesaspecificsumonanarticleperitsunitor

number, weight, or volume capacity, or any other physical unit ormeasurement, requiring no further assessment beyond a listing andclassificationoftheobjectstobetaxed

• Ad valorem—the selling price or other specified value of the good isconsidered

SHELLV.MUNICIPALITYOFCORDOVA

94PHIL389

FACTS:The Municipal Council of Cordova, Province of Cebu, adopted the followingordinances: No. 10, series of 1946, which imposes an annual tax of P150 onoccupationortheexerciseoftheprivilegeofinstallationmanager;No.9,seriesof1947, which imposes an annual tax of P40 for local deposits in drums ofcombustible and inflammable materials and an annual tax of P200 for tin canfactories;andNo.11,seriesof1948,which imposesanannualtaxofP150ontincanfactorieshavingamaximumoutputcapacityof30,000tincans.TheShellCo.ofP.I.Ltd.,a foreigncorporation, filedsuit fortherefundofthetaxespaidby it,onthegroundthattheordinancesimposingsuchtaxesareultravires.Thedefendantdeniesthattheyareso.

HELD:OrdinanceNo.11,seriesof1948,whichimposesamunicipaltaxofP150ontincanfactories having a maximum annual output capacity of 30,000 tin cans which,accordingtothestipulationoffacts,wasapprovedbytheProvincialBoardofCebuand the Department of Finance, is valid and lawful, because it is neither apercentagetaxnoroneonspecifiedarticleswhicharetheonlyexceptionsprovidedin section 1, Commonwealth Act No. 472. Neither does it fall under any of theprohibitionsprovidedforinsection3ofthesameAct.Specifictaxesenumeratedinthe National Internal Revenue Code are those that are imposed upon "thingsmanufactured or produced in the Philippines for domestic sale or consumption"andupon"thingsimportedfromtheUnitedStatesandforeigncountries,"suchasdistilled spirits, domestic denatured alcohol, fermented liquors, products oftobacco,cigarsandcigarettes,matches,mechanicallighters,firecrackers,skimmedmilk, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,cinematographic films, playing cards, sacharine. And it is not a percentage taxbecause it is tax on business and themaximum annual output capacity is not apercentage,becauseitisnotashareorataxbasedontheamountoftheproceedsrealizedoutofthesaleofthetincansmanufacturedthereinbutonthebusinessofmanufacturing tin cans having a maximum annual output capacity of 30,000 tincans.FILINGOFRETURNANDPAYMENTOFEXCISETAXESONDOMESTICPRODUCTS

PersonsLiabletoFileaReturn


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• EverypersonliabletopayexcisetaximposedunderthisTitleshallfileaseparatereturnforeachplaceofproductionsettingforth,amongothers,thedescriptionandquantityorvolumeofproducts tobe removed, theapplicable tax base and the amount of tax due thereon: Provided,however, That in the case of indigenous petroleum, natural gas orliquefied natural gas, the excise tax shall be paid by the first buyer,purchaserortransfereeforlocalsale,barterortransfer,whiletheexcisetax on exported products shall be paid by the owner, lessee,concessionaireoroperatoroftheminingclaim.

• Should domestic products be removed from the place of productionwithoutthepaymentofthetax,theownerorpersonhavingpossessionthereofshallbeliableforthetaxduethereon.

TimeForFilingofReturnandPaymentofTax

• Unless otherwise specifically allowed, the return shall be filed and theexcise tax paid by the manufacturer or producer before removal ofdomesticproductsformplaceofproduction

• The excise tax on locally manufactured petroleum products andindigenous petroleum levied under Sections 148 and 151(A)(4),respectively,ofthisTitleshallbepaidwithinten(10)daysfromthedateofremovalfromtheplaceofproductionofsuchproductsfromJanuary1,1999andthereafter

• Thattheexcisetaxonnonmetallicmineralormineralproducts,orquarryresourcesshallbedueandpayableuponremovalofsuchproductsfromthelocalitywhereminedorextracted,butwithrespecttotheexcisetaxon locally produced or extracted metallic mineral or mineral products,the person liable shall file a return and pay the tax within fifteen (15)days after the end of the calendar quarter when such products wereremoved subject to such conditions asmay be prescribed by rules andregulations to be promulgated by the Secretary of Finance, uponrecommendationoftheCommissioner.

• For this purpose, the taxpayer shall file a bond in an amount whichapproximatestheamountofexcisetaxdueontheremovalsforthesaidquarter.

• The foregoing rules notwithstanding, for imported mineral or mineralproducts, whether metallic or nonmetallic, the excise tax due thereonshallbepaidbeforetheirremovalfromcustomscustody.

PlaceofFilingandPayment

• The return shall be filedwith and the taxpaid to any authorized agentbankorRevenueCollectionOfficer,ordulyauthorizedCityorMunicipalTreasurerinthePhilippines.

Exceptions

(a) Thetimeforfilingthereturnatintervalsotherthanthetimeprescribedintheprecedingparagraphsforaparticularclassorclassesoftaxpayersafterconsideringfactorssuchasvolumeofremovals,adequatemeasuresofsecurityandsuchotherrelevantinformationrequiredtobesubmittedunderthepertinentprovisionsofthisCode;and

(b) Themanner and time of payment of excise taxes other than as hereinprescribed,underataxprepayment,advancedepositorsimilarschemes.In the case of locally produced of extracted minerals and mineralproductsorquarryresourceswheretheminesiteorplaceofextractionisnotthesameastheplaceofprocessingorproduction,thereturnshallbefiled with and the tax paid to the Revenue District Office havingjurisdiction over the locality where the same are mined, extracted orquarried: Provided, however, That for metallic minerals processedabroad, the return shall be filed and the tax due thereon paid to theRevenue District Office having jurisdiction over the locality where thesamearemined,extractedorquarried.

DeterminationofGrossSellingPriceforPaymentofAdValoremTax

• Unless otherwise provided, the price, excluding the value‐added tax, atwhich the goods are sold at wholesale in the place of production orthroughtheirsalesagentstothepublicshallconstitutethegrosssellingprice.

• If the manufacturer also sells or allows such goods to be sold atwholesale in another establishment ofwhich he is the owner or in theprofits of which he has an interest, the wholesale price in suchestablishment shall constitute the gross selling price. Should such pricebe less than the cost of manufacture plus expenses incurred until thegoodsarefinallysold,thenaproportionatemarginofprofit,notlessthanten percent (10%) of such manufacturing cost and expenses, shall beaddedtoconstitutethegrosssellingprice.

Manufacturer’sorProducer’sSwornStatement

• Everymanufacturer or producer of goods or products subject to excisetaxesshallfilewiththeCommissioneronthedateordatesdesignatedby


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thelatter,andasoftenasmayberequired,aswornstatementshowing,amongotherinformation,thedifferentgoodsorproductsmanufacturedorproducedandtheircorrespondinggrosssellingpriceormarketvalue,together with the cost of manufacture or production plus expensesincurredortobeincurreduntilthegoodsorproductsarefinallysold.

CreditForExciseTaxonGoodsActuallyExported

• Whengoodslocallyproducedormanufacturedareremovedandactuallyexported without returning to the Philippines, whether so exported intheiroriginalstateorasingredientsorpartsofanymanufacturedgoodsor products, any excise tax paid thereon shall be credited or refundeduponsubmissionof theproofofactualexportationanduponreceiptofthecorrespondingforeignexchangepayment

• Provided,Thattheexcisetaxonmineralproducts,exceptcoalandcoke,imposedunderSection151shallnotbecreditableorrefundableevenifthemineralproductsareactuallyexported.

PAYMENTOFEXCISETAXESONIMPORTEDARTICLES

PersonsLiable

• Excisetaxesonimportedarticlesshallbepaidbytheownerorimporterto the Customs Officers, conformably with the regulations of theDepartmentofFinanceandbefore thereleaseofsucharticles fromthecustomshouse, or by thepersonwho is found inpossessionof articleswhichareexempt fromexcise taxesother than those legallyentitled toexemption.

• Inthecaseoftax‐freearticlesbroughtorimportedintothePhilippinesbypersons, entitles, or agencies exempt from taxwhich are subsequentlysold,transferredorexchangedinthePhilippinestonon‐exemptpersonsorentitles,thepurchasersorrecipientsshallbeconsideredtheimportersthereof,andshallbeliableforthedutyandinternalrevenuetaxdueonsuchimportation.

• The provision of any special or general law to the contrarynotwithstanding,theimportationofcigarsandcigarettes,distilledspiritsand wines into the Philippines, even if destined for tax and duty freeshops, shall be subject to all applicable taxes, duties, charges, includingexcisetaxesduethereon

o Thatthisshallnotapplytocigarsandcigarettes,distilledspiritsandwinesbroughtdirectlyintothedulycharteredorlegislated

freeports of the Subic Special Economic and Freeport Zone,crated under Republic Act No. 7227; the Cagayan SpecialEconomic Zone and Freeport, created under Republic Act No.7922;andtheZamboangaCitySpecialEconomicZone,createdunderRepublicActNo.7903,andarenottransshippedtoanyotherportinthePhilippines

o That importationsof cigars and cigarettes, distilled spirits andwines by a government‐owned and operated duty‐free shop,liketheDuty‐FreePhilippines(DFP),shallbeexemptedfromallapplicable taxes, duties, charges, including excise tax duethereon:

o That ifsucharticlesdirectly importedbyagovernment‐ownedand operated duty‐free shop like the Duty‐Free Philippines,shallbelabeled"taxandduty‐free"and"notforresale":

o That is such articles brought into the duly chartered orlegislated freeports under Republic Acts No. 7227, 7922 and7903are subsequently introduced into thePhilippine customsterritory, then such articles shall, upon such introduction, bedeemedimportedintothePhilippinesandshallbesubjecttoallimpostsandexcisetaxesprovidedhereinandotherstatutes:

o That the removal and transfer of tax and duty‐free goods,products, machinery, equipment and other similar articles,fromonefreeporttoanotherfreeport,shallnotbedeemedanintroductionintothePhilippinecustomsterritory.

• Articlesconfiscatedshallbedisposedofinaccordancewiththerulesandregulations to be promulgated by the Secretary of Finance, uponrecommendationoftheCommissionerofCustomsandInternalRevenue,upon consultation with the Secretary of Tourism and the GeneralmanagerofthePhilippineTourismAuthority.

• Thetaxdueonanysuchgoods,products,machinery,equipmentorothersimilar articles shall constitute a lien on the article itself, and such lienshall be superior to all other charges or liens, irrespective of thepossessorthereof.

ModeofComputingContents

• Everyfractionalpartofaproofliterequaltoorgreaterthanahalfliterinacaskorpackagecontainingmorethanonelitershallbetaxedasaliter,and any smaller fractional part shall be exempt; but any package of


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spirits,thetotalcontentofwhicharelessthanaproofliter,shallbetaxedasoneliter.

GIGAREV.COMMISSIONER17SCRA1001

FACTS:

1. UponinspectionbycustomsHELD:

GOODDAYV.BOARDOFTAXAPPEALS95PHIL569

FACTS:HELD:

EXEMPTIONORCONDITIONALTAX‐FREEREMOVALOFCERTAINARTICLES

ARTICLE DESCRIPTIONRemoval of wines anddistilled spirits for treatmentoftobaccoleaf

Upon issuance of a permit from theCommissioner and subject to the rules andregulations prescribed by the Secretary ofFinance, manufacturers of cigars and cigarettesmaywithdrawfrombond,freeofexciselocalandimported wines and distilled spirits in specificquantitiesandgradesforuseinthetreatmentoftobacco leaf to be used in the manufacture ofcigarsandcigarettes;butsuchwinesanddistilledspiritsmustfirstbesuitablydenatured.

Domesticdenaturedalcohol Any person who produces, withdraws, sells,transports or knowingly uses, or is in possessionof denatured alcohol, or articles containing

denatured alcohol in violation of laws orregulations now or hereafter in force pertainingthereto shall be required to pay thecorresponding tax, in addition to the penaltiesprovidedforunderTitleXofthisCode.

Domestic alcohol of not less than one hundredeighty degrees (180O) proof (ninety percent[90%] absolute alcohol) shall, when suitablydenaturedand renderedunfit fororal intake,beexemptfromtheexcisetaxprescribed inSection141:Provided, however, That such denatured alcoholshallbesubjecttotaxunderSection106(A)ofthisCode:Provided, further, That if such alcohol is to beused for automotive power, it shall be taxedunderSection148(d)ofthisCode:Provided, finally, That any alcohol, previouslyrenderedunfitfororalintakeafterdenaturingbutsubsequently rendered fit for oral intake afterundergoing fermentation, dilution, purification,mixture or any other similar process shall betaxedunderSection141ofthisCodeandsuchtaxshallbepaidbythepersoninpossessionofsuchreprocessedspirits.

Petroleum products sold tointernational carriers andexemptentitiesoragencies

(a) International carriers of Philippine or foreignregistryon theiruseor consumptionoutside thePhilippines: Provided, That the petroleumproductssoldtotheseinternationalcarriersshallbe stored in a bonded storage tank andmay bedisposedofonlyinaccordancewiththerulesandregulations to be prescribed by the Secretary ofFinance, upon recommendation of the


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Commissioner;(b) Exempt entities or agencies covered by taxtreaties, conventions and other internationalagreements for their use or consumption:Provided, however, That the country of saidforeigninternationalcarrierorexemptentitiesoragencies exempts from similar taxes petroleumproducts sold to Philippine carriers, entities oragencies;and(c) Entitieswhich areby lawexempt fromdirectandindirecttaxes.

Removal of cigars or spiritsunderbond

Spirits requiring rectification may be removedfrom the place of production to anotherestablishment for the purpose of rectificationwithoutprepaymentoftheexcisetax:Provided, That the distiller removing such spiritsandtherectifierreceivingthemshallfilewiththeCommissioner their joint bond conditioneduponthepaymentbytherectifieroftheexcisetaxdueontherectifiedalcohol:Provided,further,Thatincaseswherealcoholhasalready been rectified either by original andcontinuousdistillationorbyredistillation,nolossforrectificationandhandlingshallbeallowedandthe rectifier thereof shall pay the excise tax dueonsuchlosses:Provided,finally,Thatwherearectifiermakesuseofspiritsuponwhichtheexcisetaxhasnotbeenpaid,heshallbeliableforthepaymentofthetaxotherwiseduethereon.

Removal of fermentedliquors to bondedwarehouses

Any brewer may remove or transport from hisbrewery or other place of manufacture to abonded warehouse used by him exclusively for

thestorageorsaleinbulkoffermentedliquorsofhis own manufacture, any quantity of suchfermented liquors, not less than one thousand(1,000)litersatoneremoval,withoutprepaymentofthetaxthereonunderapermitwhichshallbegrantedbytheCommissioner.Suchpermit shall beaffixed toeverypackage soremoved and shall be cancelled or destroyed insuchmannerastheCommissionermayprescribe.Thereafter, themanufacturer of such fermentedliquorsshallpaythetaxinthesamemannerandunderthesamepenaltyandliabilityaswhenpaidatthebrewery.

Removal of damaged liquorsfreeoftax

Whenany fermented liquor has become sour orotherwise damaged so as to be unfit for use assuch, brewers may sell and after securing aspecial permit from the Commissioner, undersuchconditionsasmaybeprescribedintherulesand regulations prescribed by the Secretary ofFinance, remove the samewithout the paymentoftaxthereonincaskorotherpackages,distinctfromthoseordinarilyusedforfermentedliquors,each containing not less than one hundredseventy‐five (175) liters with a note of theircontentspermanentlyaffixedthereon.

Removalof tobaccoproductswithoutprepaymentoftax

Productsof tobaccoentirelyunfit forchewingorsmoking may be removed free of tax foragricultural or industrial use, under suchconditionsasmaybeprescribed in therulesandregulations prescribed by the Secretary ofFinance. Stemmed leaf tobacco, fine‐cut shorts,the refuse of fine‐cut chewing tobacco, scraps,cuttings, clippings, stems, or midribs, andsweepingsoftobaccomaybesold inbulkasrawmaterialbyonemanufacturerdirectlytoanotherwithout payment of the tax, under suchconditionsasmaybeprescribed in therulesand


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regulations prescribed by the Secretary ofFinance.

AutomobilesusedexclusivelywithintheFreeportzones

Provided, That utility vehicles of registered zoneenterprises, which are indispensable in theconductandoperationsoftheirbusiness,suchasdelivery trucksandcargovanswithgrossvehicleweight above three (3) metric tons may beallowed unrestricted use outside the freeportzone: Provided, further, That vehicles owned bytourist‐orientedenterprises,suchastouristbusesand cars with yellow plates, color‐coded, andutilized exclusively for the purpose oftransporting tourists in tourism‐relatedactivities,and service vehicles of freeport registeredenterprises and executives, such as companyservice cars and expatriates’ and investors’automobiles brought in the name of suchenterprises, may be used outside the freeportzoneforsuchperiodsasmaybeprescribedbytheDepartmentsofFinance,andTradeandIndustry,the Bureau of Customs and the Freeportauthorities concerned, which in no case shallexceedfourteen(14)dayspermonth.In case such tourist buses and cars, servicevehicles of registered freeport enterprises andcompany service carsareused formore thananaggregateperiodoffourteen(14)dayspermonthoutside of the freeport zone, the owner orimporter shall pay the corresponding customsduties,taxesandcharges.

In the case of personally‐owned vehicles ofresidents, including leaseholders of residencesinsidethefreeportzone,theuseofsuchvehiclesoutsideof the freeport zoneshallbedeemedanintroductionintothePhilippinecustomsterritory,and such introduction shall be deemed animportationintothePhilippinesandshallsubjectsuch vehicles to Customs duties taxes andcharges,includingexcisetaxdueonsuchvehicle.


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EXCISETAXONALCOHOLPRODUCTS

ALCOHOLPRODUCT CLASSIFICATION/DESCRIPTION EXCISETAXRATE/PAYABLE NOTES/ADDITIONALINFORMATION

DISTILLEDSPIRITSIf produced from the sap of nipa, coconut,cassava, camote, or buri palm or from thejuice, syrup or sugar of the cane, providedsuchmaterialsareproducedcommerciallyinthe country where they are processed intodistilledspirits

P8.00perproofliter Provided, That if produced in a pot still orother similarprimarydistilling apparatusby adistillerproducingnotmorethanonehundred(100) liters a day, containing not more thanfifty percent (50%) of alcohol by volume, perproofliter,Fourpesos(P4.00)

LessthanTwohundredandfiftypesos(P250) Seventy‐five pesos (P75),perproofliter

Two hundred and fifty pesos (P250) up to SixhundredandSeventy‐Fivepesos(P675)

One hundred and fiftypesos(P150),perproofliter

If produced from raw materials other thanthose enumerated in the precedingparagraph, the tax shall be in accordancewith the net retail price per bottle of sevenhundred fifty milliliter (750 ml.) volumecapacity (excluding the excise tax and thevalue‐addedtax)asfollows:

MorethanSixhundredandseventy‐fivepesos(P675)

Three hundred pesos(P300),perproofliter

Medicinal preparations, flavoring extracts,and all other preparations, except toiletpreparations, of which, excluding water,distilledspiritsforthechiefingredient

Shall be subject to thesame tax as such chiefingredient.

This tax shall be proportionally increased forany strength of the spirits taxed over proofspirits, and the tax shall attach to thissubstanceassoonasitisinexistenceassuch,whetheritbesubsequentlyseparatedaspureor impure spirits, or transformed into anyother substance either in the process oforiginal production or by any subsequentprocess."Spirits or distilled spirits" is the substanceknown as ethyl alcohol, ethanol or spirits ofwine, including all dilutions, purifications andmixtures thereof, from whatever source, bywhateverprocessproduced,and shall includewhisky,brandy,rum,ginandvodka,andothersimilarproductsormixtures."Proof spirits" is liquor containing one‐half(1/2) of its volume of alcohol of a specificgravity of seven thousand nine hundred andthirty‐nine thousandths (0.7939) at fifteendegrees centigrade (15O C). A "proof liter"meansaliterofproofspirits.The rates of tax imposed under this Sectionshallbeincreasedbytwelvepercent(12%)on


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January1,2000.New brands shall be classified according totheircurrent"netretailprice".Fortheabovepurpose,"netretailprice"shallmean the price atwhich the distilled spirit issold on retail in ten (10)major supermarketsin Metro Manila, excluding the amountintendedtocovertheapplicableexcisetaxandthevalue‐addedtaxasofOctober1,1996.The classification of each brand of distilledspiritsbasedontheaveragenetretailpriceasofOctober1,1996,asset forth inAnnex"A",shallremaininforceuntilrevisedbyCongress.

WINESFivehundredpesos(P500)orless P100Sparkling wines/champagnes regardless of

proof, if the net retail price per bottle(excluding the excise tax and value‐addedtax)is:

MorethanFivehundredpesos(P500) P300

Stillwinescontainingfourteenpercent(14%)ofalcoholbyvolumeorless

P12

Still wines containing more than fourteenpercent(14%)butnotmorethantwenty‐fivepercent(25%)ofalcoholbyvolume

P24

Fortifiedwines containingmore than twenty‐five percent of alcohol by volume shall betaxedasdistilledspirits."Fortifiedwines"shallmean natural wines to which distilled spiritsareaddedtoincreasetheiralcoholicstrength.The rates of tax imposed under this Sectionshallbeincreasedbytwelvepercent(12%)onJanuary1,2000.New brands shall be classified according totheircurrentnetretailprice.Fortheabovepurpose,"netretailprice"shallmeanthepriceatwhichwineissoldonretailin ten (10) major supermarkets in MetroManila, excluding the amount intended tocover theapplicableexcise taxandthevalue‐addedtaxasofOctober1,1996.


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TheclassificationofeachbrandofwinesbasedonitsaveragenetretailpriceasofOctober1,1996,assetforthinAnnex"B",shallremaininforceuntilrevisedbyCongress.

FERMENTEDLIQUORIf thenet retail price (excluding theexcise taxand value‐added tax) per liter of volumecapacity is less than Fourteen pesos and fiftycentavos(P14.50)

P6.15/liter

If thenet retail price (excluding theexcise taxand the value‐added tax) the per liter ofvolume capacity is Fourteen pesos and fiftycentavos (P14.50) up to Twenty‐two pesos(P22.00)

P9.15/liter

Thereshallbelevied,assessedandcollectedanexcisetaxonbeer, lagerbeer,ale,porterand other fermented liquors except tuba,basi, tapuy and similar domestic fermentedliquors in accordance with the followingschedule:

If thenet retail price (excluding theexcise taxand the value‐added tax) per liter of volumecapacity is more than Twenty‐two pesos(P22.00)

P12.15/liter

Variants of existing brands which areintroduced in the domestic market after theeffectivity of Republic Act No. 8240 shall betaxed under the highest classification of anyvariantofthatbrand.Fermented liquorwhich are brewed and soldat micro‐breweries or small establishmentssuchaspubs and restaurants shall be subjecttotherateinparagraph(c)hereof.The excise tax from any brand of fermentedliquorwithinthenextthree(3)yearsfromtheeffectivity of Republic Act No. 8240 shall notbe lower than the tax which was due fromeachbrandonOctober1,1996.The rates of excise tax on fermented liquorunder paragraphs (a), (b) and (c) hereof shallbe increased by twelve percent (12%) onJanuary1,2000.New brands shall be classified according totheircurrentnetretailprice.Fortheabovepurpose,"netretailprice"shallmeanthepriceatwhichthefermentedliquoris sold on retail in twenty (20) majorsupermarkets inMetroManila (for brands offermented liquor marketed nationally)excluding the amount intended to cover theapplicableexcisetaxandthevalue‐addedtax.


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For brands which are marketed only outsideMetroManila,the"netretailprice"shallmeanthepriceatthewhichthefermentedliquor issold in five (5) major supermarkets in theregion excluding the amount intended tocover theapplicableexcise taxandthevalue‐addedtax.The classificationof eachbrandof fermentedliquorbasedon its averagenet retail priceasofOctober1,1996,asset forth inAnnex"C",shallremaininforceuntilrevisedbyCongress."Avariantofbrand" shall refer toabrandonwhichamodifierisprefixedand/orsuffixedtotherootnameofthebrandand/oradifferentbrandwhichcarriesthesamelogoordesignoftheexistingbrand.Everybreweror importerof fermented liquorshall, within thirty (30) days from theeffectivity of R. A. No. 8240, and within thefirst five (5) days of every month thereafter,submit to the Commissioner a swornstatement of the volume of sales for eachparticularbrandoffermentedliquorsoldathisestablishment for the three‐month periodimmediatelypreceding.Any brewer or importer who, in violation ofthis Section, knowingly misdeclares ormisrepresents in his or its sworn statementherein required any pertinent data orinformation shall be penalized by a summarycancellationorwithdrawalofhisor itspermittoengageinbusinessasbrewerorimporteroffermentedliquor.


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Any corporation, association or partnershipliable for any of the acts or omissions inviolation of this Section shall be fined trebletheamountofdeficiencytaxes,surcharge,andinterest which may be assessed pursuant tothisSection.Any person liable for any of the acts oromissions prohibited under this Section shallbe criminally liable and penalized underSection 254 of this Code. Any person whowillfullyaidsorabetsinthecommissionofanysuch act or omission shall be criminally liableinthesamemannerastheprincipal.If the offender is not a citizen of thePhilippines,he shallbedeported immediatelyafter serving the sentence, without furtherproceedingsfordeportation.

TOBACCOPRODUCTS

TobaccoproductsTobacco twisted by hand or reduced into acondition to be consumed in any mannerother than theordinarymodeofdryingandcuring;Tobaccopreparedorpartiallypreparedwithor without the use of any machine orinstruments or without being pressed orsweetened;andFine‐cut shorts and refuse, scraps, clippings,cuttings,stemsandsweepingsoftobacco.

P0.75/kilogram Fine‐cut shorts and refuse, scraps, clippings,cuttings, stems and sweepings of tobaccoresulting from the handling or stripping ofwhole leaf tobacco may be transferred,disposed of, or otherwise sold, withoutprepaymentof theexcise taxhereinprovidedfor under such conditions as may beprescribed in the rules and regulationspromulgatedbytheSecretaryofFinance,uponrecommendation of the Commissioner, if thesameare tobeexportedor tobeused in themanufacture of other tobacco products onwhichtheexcisetaxwilleventuallybepaidonthefinishedproduct.


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Ontobaccospeciallypreparedforchewingsoas to be unsuitable for use in any othermanner

P0.75/kilogram

CigarsandcigarettesCigars P1/cigarCigarettespackedbyhand P0.40/pack

If thenet retail price (excluding theexcise taxand the value‐added tax) is above Ten pesos(P10.00)perpack

P12/pack

If thenet retail price (excluding theexcise taxandthevalue‐addedtax)exceedsSixpesosandfiftycentavos(P6.50)butdoesnotexceedTenpesos(P10.00)perpack

P8/pack

If thenet retail price (excluding theexcise taxand the value‐added tax) is Fivepesos (P5.00)but does not exceed Six pesos and fiftycentavos(P6.50)perpack

P5/pack

Cigarettespackedbymachine

If thenet retail price (excluding theexcise taxand the value‐added tax is below Five pesos(P5.00)perpack

P1/pack

"Cigars" mean all rolls of tobacco or anysubstitutethereof,wrappedinleaftobacco."Cigarettes" mean all rolls of finely‐cut leaftobacco, or any substitute therefor, wrappedinpaperorinanyothermaterial."Wholesale price" shallmean the amount ofmoney or price paid for cigars or cigarettespurchased for the purpose of resale,regardlessofquantity."Retailprice"shallmeantheamountofmoneyor pricewhich an ultimate consumer or end‐userpaysforcigarsorcigarettespurchased.Variantsofexistingbrandsofcigaretteswhichare introduced in the domestic market aftertheeffectivityofR.A.No.8240shallbe taxedunder thehighest classificationof anyvariantofthatbrand.The excise tax from any brand of cigaretteswithin the next three (3) years from theeffectivityofR.A.No.8240shallnotbelowerthanthetax,whichisduefromeachbrandonOctober 1, 1996: Provided, however, That incases where the excise tax rates imposed inparagraphs (1), (2), (3) and (4) hereinabovewillresult inanincreaseinexcisetaxofmorethan seventy percent (70%); for a brand ofcigarette,the increaseshall takeeffect intwotranches: fifty percent (50%) of the increaseshall be effective in 1997 and one hundredpercent (100%) of the increase shall be


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effectivein1998.Dulyregisteredorexistingbrandsofcigarettesor new brands thereof packed by machineshallonlybepackedintwenties.Theratesofexcisetaxoncigarsandcigarettesunder paragraphs (1), (2), (3) and (4) hereof,shallbeincreasedbytwelvepercent(12%)onJanuary1,2000.New brands shall be classified according totheircurrentnetretailprice.Fortheabovepurpose,"netretailprice"shallmean the price atwhich the cigarette is soldonretailintwenty(20)majorsupermarketsinMetro Manila (for brands of cigarettesmarketed nationally), excluding the amountintendedtocovertheapplicableexcisetaxandthe value‐added tax. For brands which aremarketedonlyoutsideMetroManila,the"netretailprice"shallmeanthepriceatwhichthecigaretteissoldinfive(5)majorsupermarketsin the region excluding the amount intendedto cover the applicable excise tax and thevalue‐addedtax.The classification of each brand of cigarettesbased on its average net retail price as ofOctober 1, 1996, as set forth in Annex "D",shallremaininforceuntilrevisedbyCongress."Variantofabrand" shall refer toabrandonwhichamodifierisprefixedand/orsuffixedtotherootnameofthebrandand/oradifferentbrandwhichcarriesthesamelogoordesignoftheexistingbrand.


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Manufactures and importers of cigars andcigarettes shall, within thirty (30) days fromtheeffectivityofR.A.No.8240andwithinthefirst five (5) days of every month thereaftersubmit to the Commissioner a swornstatement of the volume of sales for eachparticular brand of cigars and/or cigarettessoldathisestablishment for the three‐monthperiodimmediatelypreceding.Any manufacturer or importer who, inviolation of this Section, knowinglymisdeclares or misrepresents in his or itssworn statement herein required anypertinent data or information shall, upondiscovery, be penalized by a summarycancellationorwithdrawalofhisor itspermitto engage in business as manufacturer orimporterofcigarsorcigarettes.Any corporation, association or partnershipliable for any of the acts or omissions inviolation of this Section shall be fined treblethe amount of deficiency taxes, surchargesand interestwhichmaybeassessedpursuanttothisSection.Any person liable for any of the acts oromissions prohibited under this Section shallbe criminally liable and penalized underSection 254 of this Code. Any person whowillfullyaidsorabetsinthecommissionofanysuch act or omission shall be criminally liableinthesamemannerastheprincipal.If the offender is not a citizen of thePhilippines,he shallbedeported immediatelyafter serving the sentence without furtherproceedingsfordeportation.


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InspectionFee.‐ForinspectionmadeinaccordancewiththisChapter,thereshallbecollectedafeeofFiftycentavos(P0.50)foreachthousandcigarsorfractionthereof;Tencentavos(P0.10)foreachthousandcigarettesoffractionthereof;Twocentavos(P0.02)foreachkilogramof leaftobaccoorfractionthereof;andThreecentavos(P0.03)foreachkilogramorfractionthereof,ofscrapandothermanufacturedtobacco.Itshallbepaidbythewholesaler,manufacturer,producer,owneroroperatorofredryingplant,asthecasemaybe,immediatelybeforeremovalthereoffromtheestablishmentofthewholesaler,manufacturer,owneroroperatoroftheredryingplant.Incaseofimportedleaftobaccoandproductsthereof,theinspectionfeeshallbepaidbytheimporterbeforeremovalfromcustoms'custody.Fiftypercent (50%)of thetobacco inspectionfeeshallaccruetotheTobacco InspectionFundcreatedbySection12ofActNo.2613,asamendedbyActNo.3179,andfiftypercent(50%)shallaccruetotheCulturalCenterofthePhilippines.

PETROLEUMPRODUCTS

Lubricating oils and greases, including butnot limited to, base stock for lube oils andgreases, high vacuum distillates, aromaticextracts,andothersimilarpreparations,andadditives for lubricating oils and greases,whether such additives are petroleumbasedornot

P4.50/liter and kilogram,respectively of volumecapacityorweight

That the excise taxes paid on the purchasedfeedstock(bunker)usedinthemanufactureofexcisable articles and forming part thereofshall be credited against the excise tax duetherefromThat lubricating oils and greases producedfrom base stocks and additives on which theexcise tax has already been paid shall nolongerbesubjecttoexcisetaxThat locally produced or imported oilspreviouslytaxedassuchbutaresubsequentlyreprocessed, rerefined or recycled shalllikewise be subject to the tax imposed underthisSection.

Processedgas P0.05/per liter of volumecapacity


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Waxesandpetrolatum P3.50/perkilogram Ondenaturedalcoholtobeusedformotivepower

P0.05/volumecapacity That unless otherwise provided by speciallaws, if the denatured alcohol is mixed withgasoline, the excise tax onwhich has alreadybeen paid, only the alcohol content shall besubject to the tax herein prescribed. Forpurposes of this Subsection, the removal ofdenatured alcohol of not less than onehundred eighty degrees (180o) proof (ninetypercent (90%) absolute alcohol) shall bedeemed to have been removed for motivepower,unlessshownotherwise

Naphtha, regulargasolineandothersimilarproductsofdistillation

P4.35/volumecapacity Thatnaphtha,whenusedasarawmaterial inthe production of petrochemical products oras replacement fuel for natural gas‐fired‐combinedcyclepowerplant, in lieuof locally‐extracted natural gas during the non‐availability thereof, subject to the rules andregulations to be promulgated by theSecretary of Energy, in consultation with theSecretary of Finance, per liter of volumecapacity,Zero(P0.00):Provided,further,Thatthe by‐product including fuel oil, diesel fuel,kerosene, pyrolysis gasoline, liquefiedpetroleum gases and similar oils havingmoreor less thesamegeneratingpower,whichareproduced in the processing of naphtha intopetrochemicalproductsshallbesubjecttotheapplicable excise tax specified in this Section,exceptwhensuchby‐productsaretransferredto anyof the local oil refineries through sale,barterorexchange,forthepurposeoffurtherprocessing or blending into finished productswhich are subject to excise tax under thisSection

Leadedpremiumgasoline P5.35/volumecapacity Unleadedpremiumgasoline P4.35/volumecapacity Aviationturbojetfuel P3.67/volumecapacity


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Kerosene P0.00/volumecapacity That kerosene, when used as aviation fuel,shall be subject to the same tax on aviationturbo jet fuel under the preceding paragraph(g), such tax to be assessed on the userthereof

Dieselfueloil,andonsimilarfueloilshavingmoreorlessthesamegeneratingpower

P0.00/volumecapacity

Liquefiedpetroleumgas P0.00/volumecapacity Asphalts P0.56/perkilogram Bunker fuel oil, and on similar fuel oilshaving more or less the same generatingpower

P0.00

MISCELLANEOUSPRODUCTS

AUTOMOBILES Based on the manufacturer’s or importer’ssellingprice,netofexciseandvalue‐addedtax

15%‐100% That in thecaseof importedautomobilesnotforsale,thetaximposedhereinshallbebasedon the total value used by the Bureau ofCustoms in determining tariff and customsduties, including customs duty and all othercharges, plus ten percent (10%) of the totalthereof.

NON‐ESSENTIALGOODS(a) All goods commonly or commercially

known as jewelry, whether real orimitation, pearls, precious and semi‐precious stones and imitations thereof;goods made of, or ornamented,mountedorfittedwith,preciousmetalsor imitations thereof or ivory (notincluding surgical and dentalinstruments,silver‐platedwares,framesor mountings for spectacles oreyeglasses, and dental gold or goldalloysandotherpreciousmetalsusedinfilling, mounting or fitting the teeth);operaglassesandlorgnettes.

Based on the wholesale price or the value ofimportationusedbytheBureauofCustoms indetermining tariff and customs duties, net ofexcisetaxandvalue‐addedtax

20% The term "precious metals" shall includeplatinum, gold, silver and other metals ofsimilar or greater value. The term ‘imitationsthereof shall include platings and alloys ofsuchmetals.


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(b) Perfumesandtoiletwaters;

1. (c) Yachts and other vessels intended forpleasureorsports.

MINERALPRODUCTS

Oncoalandcoke P10/metricton On all nonmetallic minerals and quarryresources

Basedon theactualmarketvalueof thegrossoutput thereof at the time of removal, in thecaseofthoselocallyextractedorproduced;orthe value used by the Bureau of Customs indetermining tariff and customs duties, net ofexcise tax and value‐added tax, in the case ofimportation.

2% Notwithstanding the provision of paragraph(4) of subsection (A) of this Section, locallyextractednaturalgasandliquefiednaturalgasshallnotbesubjecttotheexcisetax imposedherein.

OnmetallicmineralsBasedontheactualmarketvalueofthegrossoutputthereofatthetimeofremoval, inthecaseofthose locallyextractedorproduced;orthevalueusedbytheBureauofCustomsindeterminingtariffandcustomsduties,netofexcisetaxandvalue‐addedtax,inthecaseofimportation,inaccordancewiththefollowingschedule:Copperandothermetallicminerals Onthefirstthree(3)yearsupontheeffectivity

ofRepublicActNo.77291%

Onthefourthandthefifthyears 1½% Onthesixthyearandthereafter 2% Goldandchromite 2% Onindigenouspetroleum 3%of the fair international

market price thereof, onthe first taxable sale,barter, exchange or suchsimilartransaction,suchtaxto be paid by the buyer orpurchaser before removalfrom the place ofproduction.

Thephrase"firsttaxablesale,barter,exchangeor similar transaction" means the transfer ofindigenouspetroleum in itsoriginal state toafirst taxable transferee. The fairinternationalmarketpriceshallbedeterminedin consultation with an appropriategovernmentagency."Indigenous petroleum" shall include locally‐extracted mineral oil, hydrocarbon gas,bitumen, crude asphalt, mineral gas and allother similar or naturally associatedsubstances with the exception of coal, peat,bituminous shale and/or stratified mineral


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deposits."Grossoutput" shallbe interpretedas theactualmarketvalueofmineralsormineralproductsorofbullion fromeachmineormineral landoperatedasa separateentity,without any deduction frommining, milling, refining (including all expenses incurred to prepare the said minerals or mineral products in a marketable state), as well astransporting,handling,marketingoranyotherexpenses:Provided,ThatifthemineralsormineralproductsaresoldorconsignedabroadbythelesseeorownerofthemineunderC.I.F. terms, the actual cost of ocean freight and insurance shall bededucted: Provided, however, That in the caseofmineral concentrate, not traded in commodityexchangesinthePhilippinesorabroad,suchascopperconcentrate,theactualmarketvalueshallbetheworldpricequotationsoftherefinedmineralproductscontentthereofprevailinginthesaidcommodityexchanges,afterdeductingthesmelting,refiningandotherchargesincurredintheprocessofconvertingthemineralconcentratesintorefinedmetaltradedinthosecommodityexchanges."Minerals"shallmeanallnaturallyoccurringinorganicsubstances(foundinnature)whetherinsolid,liquid,gaseousoranyintermediatestate."Mineral products" shallmean things produced andprepared in amarketable state by simple treatment processes such aswashing or drying, butwithout undergoing anychemicalchangeorprocessormanufacturingbythelessee,concessionaireorownerofminerallands."Quarry resources"shallmeananycommonstoneorothercommonmineral substancesas theDirectorof theBureauofMinesandGeo‐Sciencesmaydeclare tobequarryresourcessuchas,butnotrestrictedto,marl,marble,granite,volcaniccinders,basalt,tuffandrockphosphate:Provided,Thattheycontainnometalorothervaluablemineralsineconomicallyworkablequantities.

DOCUMENTARYSTAMPSTAX

StampTaxesUponDocuments,LoanAgreements,InstrumentsandPapers

• Upon documents, instruments, loan agreements and papers, and uponacceptances, assignments, salesand transfersof theobligation, rightorproperty incident thereto, there shall be levied, collected and paid for,andinrespectofthetransactionsohadoraccomplished

• By the person making, signing, issuing, accepting, or transferring thesame wherever the document is made, signed, issued, accepted or

transferredwhentheobligationorrightarisesfromPhilippinesourcesorthepropertyissituatedinthePhilippines,andthesametimesuchactisdoneortransactionhad

• That whenever one party to the taxable document enjoys exemptionfromthetaxhereinimposed,theotherpartywhoisnotexemptshallbetheonedirectlyliableforthetax.

TAXBASE DESCRIPTION RATES ADDITIONALINFORMATION/NOTES

Stamp Tax onOriginal Issue ofSharesofStock

Oneveryoriginalissue,whetheronorganization,reorganization or for any lawful purpose, ofshares of stock by any association, company orcorporation

Onepeso (P1.00) on each Twohundred pesos(P200), or fractional part thereof, of the parvalue,ofsuchsharesofstock

Accrual doesn't happen at the issuance of stockcertificatebutattheissuanceoftheshare.Accrualofdocumentarystamptaxwhenthere isperfectionforcontractofsaleofsharesofstock


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Stamp Tax onSales, AgreementstoSellMemorandaof Sales, Deliveriesor Transfer ofShares orCertificates ofStock

Onallsales,oragreementstosell,ormemorandaof sales, or deliveries. Or transfer of shares orcertificatesofstock inanyassociation,company,or corporation, or transfer of such securities byassignment in blank, or by delivery, or by anypaper or agreement, or memorandum or otherevidencesoftransferorsalewhetherentitlingtheholderinanymannertothebenefitofsuchstock,ortosecurethefuturepaymentofmoney,orforthefuturetransferofanystock

Seventy‐five‐centavos (P0.75) on each Twohundred pesos (P200), or fractional partthereof,oftheparvalueofsuchstock

Thatonlyonetaxshallbecollectedoneachsaleor transferof stock fromoneperson toanother,regardlessofwhetherornotacertificateofstockis issued, indorsed, or delivered in pursuance ofsuchsaleortransferThat in the case of stock without par value theamount of the documentary stamp tax hereinprescribed shall be equivalent to twenty‐fivepercent(25%)ofthedocumentarystamptaxpaidupontheoriginalissueofsaidstock

Stamp Tax onBonds,Debentures,Certificate of Stockor IndebtednessIssued in ForeignCountries.

Onallbonds,debentures,certificatesofstock,orcertificatesofindebtednessissuedinanyforeigncountry,thereshallbecollectedfromthepersonsellingortransferringthesameinthePhilippines

Such as tax as is required by law on similarinstrumentswhenissued,soldortransferredinthePhilippines

Accrual doesn't happen at the issuance of stockcertificatebutattheissuanceoftheshare.Accrualofdocumentarystamptaxwhenthere isperfectionforcontractofsaleofsharesofstockThetaxispaid5daysaftertheendofthemonthonwhichthesaleoccured

Stamp Tax onCertificates ofProfits or Interestin Property orAccumulations

Onall certificatesofprofits,oranycertificateormemorandumshowinginterestinthepropertyoraccumulations of any association, company orcorporation, and on all transfers of suchcertificatesormemoranda

Fifty centavos (P0.50) on each Two hundredpesos (P200),or fractionalpart thereof,of thefacevalueofsuchcertificateormemorandum.

StampTaxonBankChecks, Drafts,Certificates ofDeposit notBearing Interest,and OtherInstruments

On each bank check, draft, or certificate ofdeposit not drawing interest, or order for thepayment of any sum of money drawn upon orissuedbyanybank,trustcompany,oranypersonorpersons,companiesorcorporations,atsightorondemand

One peso and fifty centavos (P1.50) for eachcheck

Stamp Tax on AllDebtInstruments

Oneveryoriginalissueofdebtinstruments

One peso (P1.00) on each Twohundred pesos(P200), or fractional part thereof, of the issuepriceofanysuchdebtinstruments

Forsuchdebtinstrumentswithtermsoflessthanone (1) year, the documentary stamp tax to becollected shall be of a proportional amount inaccordancewiththerationofitsterminnumberofdaystothreehundredsixty‐five(365)days


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Only one documentary stamp tax shall beimposedoneitherloanagreement,orpromissorynotesissuedtosecuresuchloan.DebtInstruments• Instruments representing borrowing and

lending transactions including but notlimited to debentures, certificates ofindebtedness, due bills, bonds, loanagreements, including those signed abroadwherein theobjectof contract is locatedorused in the Philippines, instruments andsecurities issued by the government of anyof its instrumentalities, deposit substitutedebt instruments, certificates or otherevidencesofdepositsthatareeitherdrawinginterest significantlyhigher than the regularsavingsdeposittakingintoconsiderationthesizeof thedepositand the risks involvedordrawing interest and having a specificmaturity date, orders for payment of anysumofmoneyotherwisethanatsightorondemand, promissory notes, whethernegotiable or non‐negotiable, except banknotesissuedforcirculation

Stamp Tax on AllBillsofExchangeorDrafts

On all bills of exchange (between points withinthePhilippines)ordrafts

Thirty centavos (P0.30) on each Two hundredpesos (P200),or fractionalpart thereof,of thefacevalueofanysuchbillofexchangeordraft

Stamp Tax UponAcceptance of Billsof Exchange andOthers

Upon any acceptance or payment of any bill ofexchange or order for the payment of moneypurporting to be drawn in a foreign country butpayableinthePhilippines,

Thirty centavos (P0.30) on each Two hundredpesos (P200),or fractionalpart thereof,of theface value of any such bill of exchange, ororder, or the Philippine equivalent to suchvalue,ifexpressedinforeigncurrency.

Stamp Tax onForeign Bills ofExchange and

On all foreign bills of exchange and letters ofcredit (including orders, by telegraph orotherwise, for the payment of money issued by

Thirty centavos (P0.30) on each Two hundredpesos (P200),or fractionalpart thereof,of thefacevalueofanysuchbillofexchangeorletter


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LettersofCredit expressorsteamshipcompaniesorbyanypersonor persons) drawn in but payable out of thePhilippinesinasetofthree(3)ormoreaccordingtothecustomofmerchantsandbankers

of credit, or the Philippine equivalent of suchfacevalue,ifexpressedinforeigncurrency.

Stamp Tax on LifeInsurancePolicies

Onall policiesof insuranceorother instrumentsby whatever name the same may be called,wherebyanyinsuranceshallbemadeorreneweduponanylifeorlives

Fifty centavos (P0.50) on each Two hundredpesos (P200),or fractionalpart thereof,of theamountofpremiumcollected

Stamp Tax onPolicies ofInsurance UponProperty

Onall policiesof insuranceorother instrumentsby whatever name the same may be called, bywhich insuranceshallbemadeorreneweduponproperty of any description, including rents orprofits, against peril by sea or on inlandwaters,orbyfireorlightning

Fifty centavos (P0.50) on each Four pesos(P4.00), or fractional part thereof, of theamountofpremiumcharged

Thatnodocumentarystamptaxshallbecollectedonreinsurancecontractsoronanyinstrumentbywhich cession or acceptance of insurance risksunder any reinsurance agreement is effected orrecorded.

Stamp Tax onFidelity Bonds andOther InsurancePolicies

On all policies of insurance or bonds orobligations of the nature of indemnity for loss,damage or liability made or renewed by anyperson, association, company or corporationtransacting the business of accident, fidelity,employer’s liability, plate, glass, steam, boiler,burglar, elevator, automatic sprinkler, or otherbranch of insurance (except life, marine, inland,and fire insurance), and all bonds, undertakings,or recognizances, conditioned for theperformance of the duties of any office orposition, for the doing or not doing of anythingtherein specified, and on all obligationsguaranteeing the validity or legality of any bondorotherobligations issuedbyanyprovince,city,municipality, or other public body ororganization,andonallobligationsguaranteeingthe title to any real estate, or guaranteeing anymercantile credits, which may be made orrenewed by any such person, company orcorporation

Fifty centavos (P0.50) on each Four pesos(P4.00), or fractional part thereof, of thepremiumcharged.

Stamp Tax onPolicies ofAnnuities and Pre‐

Onallpoliciesofannuities,orother instrumentsby whatever name the same may be called,wherebyanannuitymaybemade,transferredor

Fifty centavos (P0.50) on each Two hundredpesos (P200),or fractionalpart thereof,of thepremium or installment payment or contract


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NeedPlans redeemedOn pre‐need plans, the documentary stamp taxshallbe

pricecollectedTwentycentavos(P0.20)onteachTwohundredpesos (P200),or fractionalpart thereof,of thepremiumorcontributioncollected

Stamp Tax onIndemnityBonds

Onallbondsforindemnifyinganyperson,firmorcorporationwhoshallbecomeboundorengagedas surety for thepaymentof any sumofmoneyor for the due execution or performance of thedutiesofanyofficeorpositionor toaccount formoney received by virtue thereof, and on allother bonds of any description, except such asmay be required in legal proceedings, or areotherwiseprovidedforherein

Thirty centavos (P0.30) on each Four pesos(P4.00), or fractional part thereof, of thepremiumcharged

Stamp Tax onCertificates

Oneachcertificateofdamagesorotherwise,andon every certificate or document issued by anycustomsofficer,marinesurveyor,orotherpersonactingassuch,andoneachcertificateissuedbyanotary public, and on each certificate of anydescription required by law or by rules orregulations of a public office, or which is issuedfor the purpose of giving information, orestablishing proof of a fact, and not otherwisespecifiedherein

Fifteenpesos(P15.00)

Stamp Tax onWarehouseReceipts

On eachwarehouse receipt for property held instorage inapublicorprivatewarehouseoryardforanypersonotherthantheproprietorofsuchwarehouseoryard

Fifteenpesos(P15.00) No tax shall be collected on each warehousereceipt issued to any one person in any onecalendar month covering property the value ofwhichdoesnotexceedTwohundredpesos(P200)

Stamp Tax on Jai‐Alai, Horse RacingTickets, lotto orOther AuthorizedNumbersGames

Oneachjai‐alai,horseraceticket, lotto,orotherauthorizednumbergames

Tencentavos(P0.10) That if the cost of the ticket exceeds One peso(P1.00),anadditionaltaxofTencentavos(P0.10)on every One peso (P1.00), or fractional partthereof,shallbecollected.

Stamp Tax on Billsof Lading orReceipts

Oneach set of bills of ladingor receipts (exceptcharter party) for any goods, merchandise oreffects shipped from one port or place in thePhilippines to another port or place in thePhilippines(exceptonferriesacrossrivers),orto

One peso (P1.00), if the value of such goodsexceeds One hundred pesos (P100) and doesnotexceedOneThousandpesos(P1,000)Ten pesos (P10), if the value exceeds One

That freight tickets covering goods,merchandiseor effects carried as accompanied baggage ofpassengers on land and water carriers primarilyengaged in the transportation of passengers areherebyexempt


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anyforeignport thousandpesos(P1,000)

Stamp Tax onProxies

On each proxy for voting at any election forofficersofanycompanyorassociation,orforanyotherpurpose,exceptproxiesissuedaffectingtheaffairs of associations or corporations organizedforreligious,charitableorliterarypurposes

Fifteenpesos(P15.00)

Stamp Tax onPowersofAttorney

On each power of attorney to perform any actwhatsoever, except acts connected with thecollection of claims due from or accruing to theGovernmentoftheRepublicofthePhilippines,orthe government of any province, city ormunicipality

Fivepesos(P5.00)

Stamp tax onLeases and OtherHiringAgreements

On each lease, agreement, memorandum, orcontract for hire, use or rent of any lands ortenements,orportionsthereof

Threepesos (P3.00) for thefirstTwothousandpesos (P2,000), or fractional part thereof, andan additional One peso (P1.00) for every OneThousand pesos (P1,000) or fractional partthereof, in excess of the first Two thousandpesos(P2,000)foreachyearofthetermofsaidcontractoragreement

Stamp Tax onMortgages,PledgesandDeedsofTrust

Oneverymortgageorpledgeof lands,estate,orproperty, realorpersonal,heritableormovable,whatsoever,where the sameshallbemadeasasecurity for the payment of any definite andcertain sum of money lent at the time orpreviouslydueandowingofforbornetobepaid,being payable and on any conveyance of land,estate,orpropertywhatsoever, in trustor tobesold, or otherwise converted into money whichshall be and intendedonly as security, either byexpressstipulationorotherwiseOnanymortgage,pledge,ordeedoftrust,wherethe same shall be made as a security for thepayment of a fluctuating account or futureadvanceswithoutfixedlimit

When the amount secured does not exceedFive thousand pesos (P5,000), Twenty pesos(P20.00).On each Five thousand pesos (P5,000), orfractional part thereof in excess of Fivethousand pesos (P5,000), an additional tax ofTenpesos(P10.00).Documentary stamp tax on such mortgage,pledge or deed of trust shall be computed ontheamountactuallyloanedorgivenatthetimeof the execution of the mortgage, pledge ordeed of trust, additional documentary stamptax shall be paid which shall be computed onthebasisoftheamountadvancedorloanedat

That if the full amount of the loan or credit,granted under the mortgage, pledge or deed oftrust shall be computed on the amount actuallyloaned or given at the time of the execution ofthemortgage,pledgeordeedoftrust.However, if subsequent advances are made on


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theratesspecifiedabove suchmortgage,pledgeordeedoftrust,additionaldocumentarystamptaxshallbepaidwhichshallbe computed on the basis of the amountadvancedorloanedattheratesspecifiedaboveThat if the full amount of the loan or credit,granted under the mortgage, pledge or deed oftrust is specified in such mortgage, pledge ordeed of trust, the documentary stamp taxprescribed in this Section shall be paid andcomputedonthefullamountoftheloanorcreditgranted.Illustration:Loansecuredbyapromissorynote.Andinthepromissorynote,thereisamortgagegiven, how many documentary stamp taxesshouldbepaid?• Thedocumentarystamptaxtobepaidisthe

higher/highest of values, to avoid doublepayment

Whatifthepromissorynoteandmortgagewereindifferentinstruments?• Ifthepromissorynoteissuccessfullyproven

to be connected with the mortgage, thenyou can use the aforementioned rule—higherofthevalues

• Butifthemortgagecoversadifferentaspectandnottheloan/promissorynote,thentwopaymentsofDST

Stamp tax onDeeds of Sale andConveyances ofRealProperty

On all conveyances, deeds, instruments, orwritings, other than grants, patents or originalcertificates of adjudication issued by theGovernment, whereby any land, tenement, orother realty sold shall be granted, assigned,transferred or otherwise conveyed to thepurchaser,orpurchasers,ortoanyotherpersonor persons designated by such purchaser orpurchasers

When the consideration, or value received orcontracted to be paid for such realty aftermakingproperallowanceofanyencumbrance,doesnot exceedOne thousandpesos (P1,000)fifteenpesos(P15.00).For each additional One thousand Pesos(P1,000),orfractionalpartthereof inexcessofOne thousand pesos (P1,000) of such

That when one of the contracting parties is theGovernment the tax herein imposed shall bebasedontheactualconsideration.When it appears that the amount of thedocumentary stamp tax payable hereunder hasbeen reduced by an incorrect statement of theconsideration in any conveyance, deed,instrument or writing subject to such tax the


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considerationorvalue,Fifteenpesos(P15.00).

Commissioner, provincial or city Treasurer, orother revenueofficer shall, from theassessmentrolls or other reliable source of information,assess the property of its truemarket value andcollectthepropertaxthereon.~@~Capital asset= whole selling price/FMW issubjectedtoCGTof6%Ordinary asset= 12% VAT; 6% CWT; 1.5DSTsubjectedtoincometaxandCWT**You first need to take away the VATcomponentbeforeyou imposetheDSTandvice‐versa

Stamp Tax onCharterPartiesandSimilarInstruments

Oneverycharterparty,contractoragreementforthecharterofanyship,vesselorsteamer,oranyletterormemorandumorotherwritingbetweenthe captain, master or owner, or other personacting as agent of any ship, vessel or steamer,andanyotherpersonorpersonsfororrelatingtothe charter of any such ship, vessel or steamer,and on any renewal or transfer of such charter,contract,agreement,letterormemorandum

If the registered gross tonnage of the ship,vessel or steamer does not exceed onethousand(1,000)tons,andthedurationofthecharter or contract does not exceed six (6)months, Five hundred pesos (P500); and foreachmonthorfractionofamonthinexcessofsix (6)months, anadditional taxof Fiftypesos(P50.00)shallbepaid.If the registered gross tonnage exceeds onethousand(1,000)tonsanddoesnotexceedtenthousand(10,000)tons,andthedurationofthecharter or contract does not exceed six (6)months,Onethousandpesos (P1,000);and foreachmonthorfractionofamonthinexcessofsix (6) months, an additional tax of Onehundredpesos(P100)shallbepaid.If the registered gross tonnage exceeds tenthousand(10,000)tonsandthedurationofthecharter or contract does not exceed six (6)months, One thousand five hundred pesos(P1,500); and for eachmonth or fraction of amonthinexcessofsix(6)months,anadditional


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tax ofOnehundred fifty pesos (P150) shall bepaid.

Stamp Tax onAssignments andRenewals ofCertainInstruments

Upon each and every assignment or transfer ofanymortgage,leaseorpolicyofinsurance,ortherenewal or continuance of any agreement,contract,charter,oranyevidenceofobligationorindebtednessbyalteringorotherwise

Same rate as that imposed on the originalinstrument

DOCUMENTSANDPAPERSNOTSUBJECTTOSTAMPTAX

1. Policies of insurance or annuities made or granted by a fraternal orbeneficiarysociety,order,associationorcooperativecompany,operatedon the lodge system or local cooperation plan and organized andconducted solely by the members thereof for the exclusive benefit ofeachmemberandnotforprofit.

2. Certificatesofoathsadministeredtoanygovernmentofficialinhisofficialcapacity or of acknowledgment by any government official in theperformanceofhisofficialduties,writtenappearanceinanycourtbyanygovernment official, in his official capacity; certificates of theadministrationofoathstoanypersonastotheauthenticityofanypaperrequiredtobefiledincourtbyanypersonorpartythereto,whethertheproceedingsbecivilorcriminal;papersanddocumentsfiledincourtsbyorforthenational,provincial,cityormunicipalgovernments;affidavitsofpoorpersons for thepurposeofprovingpoverty; statementsandothercompulsoryinformationrequiredofpersonsorcorporationsbytherulesandregulationsofthenational,provincial,cityormunicipalgovernmentsexclusivelyforstatisticalpurposesandwhicharewhollyfortheuseofthebureauorofficeinwhichtheyarefiled,andnotattheinstanceorfortheuse or benefit of the person filing them; certified copies and othercertificates placed upon documents, instruments and papers for thenational,provincial,cityormunicipalgovernments,madeattheinstanceandforthesoleuseofsomeotherbranchofthenational,provincial,cityormunicipalgovernments;andcertificatesoftheassessedvalueoflands,notexceedingTwohundredpesos(P200)invalueassessed,furnishedbytheprovincial,cityormunicipalTreasurertoapplicantsforregistrationoftitletoland.

3. Borrowing and lending of securities executed under the SecuritiesBorrowing and lending Program of a registered exchange, or in

accordance with regulations prescribed by the appropriate regulatoryauthority

a. However, That any borrowing or lending of securitiesagreementascontemplatedhereofshallbedulycoveredbyamastersecuritiesborrowingandlendingagreementacceptabletotheappropriateregulatoryauthority,andwhichagreementsis duly registered and approved by the Bureau of InternalRevenue.(BIR).

4. Loanagreementsorpromissorynotes, theaggregateofwhichdoesnotexceed Two hundred fifty thousand pesos (P250,000), or any suchamountasmaybedeterminedbyheSecretaryofFinance,executedbyanindividualforhispurchaseoninstallmentforhispersonaluseorthatofhisfamilyandnotforbusinessorresale,barterorhireofahouse,lot,motorvehicle,applianceorfurniture

a. However,thattheamounttobesetbytheSecretaryofFinanceshall be in accordance with a relevant price index but not toexceed ten percent (10%) of the current amount and shallremaininforceatleastforthree(3)years.

5. Sale,barterorexchangeofsharesofstocklistedandtradedthroughthelocalstockexchangeforaperiodoffive(5)yearsfromtheeffectivityofthisAct.

6. Assignmentortransferofanymortgage, leaseorpolicyof insurance,orthe renewalorcontinuanceofanyagreement, contract, charter,oranyevidence of obligation or indebtedness, if there is no change in thematuritydateor remainingperiodofcoverage fromthatof theoriginalinstrument.

7. Fixed income and other securities traded in the secondary market orthroughanexchange.


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8. Derivatives: Provided, That for purposes of this exemption, repurchaseagreementsandreverserepurchaseagreementsshallbetreatedsimilarlyasderivatives.

9. Interbranchorinterdepartmentaladvanceswithinthesamelegalentity.10. All forbearances arising from sales or service contracts including credit

card and trade receivables: Provided, That the exemptionbe limited tothoseexecutedbythesellerorserviceprovideritself.

11. Bankdepositaccountswithoutafixedtermormaturity.12. Allcontracts,deeds,documentsandtransactionsrelatedtotheconduct

ofbusinessoftheBankoSentralngPilipinas.13. TransferofpropertypursuanttoSection40(c)(2)oftheNationalInternal

RevenueCodeof1997,asamended.14. Interbank call loans with maturity of not more than seven (7) days to

cover deficiency in reserves against deposit liabilities, including thosebetweenoramongbanksandquasibanks.

TimeforFilingandPaymentoftheTax

• ExceptasprovidedbyrulesandregulationspromulgatedbytheSecretaryof Finance, upon recommendation of the Commissioner, the tax returnprescribedinthisSectionshallbefiledwithinten(10)daysafterthecloseof the month when the taxable document was made, signed, issued,accepted,or transferred,and the tax thereonshallbepaidat thesametimetheaforesaidreturnisfiled.

• Buttakenote,RR6‐2001,thishasbeenshortenedinto5days• SecretaryofFinancemayprescriberulesandregulationsforthepayment

ofDST

REMEDIESUNDERTHETAXCODEOF1997

TaxDelinquencyVs.TaxDeficiency

• Ataxpayerisconsidereddelinquentinthepaymentofhistaxwheno The self‐assessed tax per return filed by the taxpayer on the

prescribeddatewasnotpaidorpartiallypaid;oro ThedeficiencytaxassessedbytheBIRbecamefinalandexecutory.

• Deficiencymeans:

o Theamountbywhichthetaximposedbylaw,asdeterminedbythecommissioner or his duly authorized representative exceeds theamountshownasthetaxbythetaxpayeronhisreturn;or

o Ifnoamountisshownasthetaxbythetaxpayeruponhisreturnorno tax return was filed, then the amount by which the tax wasdetermined by the commissioner or his duly authorizedrepresentativeexceedstheamountpreviouslyassessed(orcollectedwithoutassessment)asadeficiency.

• Remediesareapplicabletoissuesofdeficiency

Taxdelinquency TaxdeficiencyCan immediately be collectedadministrativelythroughtheissuanceofa warrant of distraint and levy or byjudicialaction

A deficiency tax can likewise becollectedthroughadministrativeand/orjudicialprocessexceptthat ithastogothrough the process of filing of aprotest,etc.

The filing of a civil action for thecollection of the delinquent tax in theCTA or ordinary court is the properremedy

An action for the collection of adeficiency taxwith theCTAorordinarycourt requires that the assessmentbecome final and executory, otherwisethe samemay be dismissed for lack ofjurisdiction.

SeeSection203:PeriodofLimitationUponAssessmentandCollection

• Except as provided in Section 222, internal revenue taxes shall beassessedwithin three (3) years after the last day prescribed by law forthe filingof the return,andnoproceeding in courtwithoutassessmentforthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuchperiod

• Inacasewhereareturnisfiledbeyondtheperiodprescribedbylaw,thethree(3)‐yearperiodshallbecountedfromthedaythereturnwasfiled.ForpurposesofthisSection,areturnfiledbeforethelastdayprescribedbylawforthefilingthereofshallbeconsideredasfiledonsuchlastday.

Illustration:


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CIRvs.IslandGarmentManufacturingCorpGRNoL‐46644September11,1987

.FACTS:IslandGarmentisadulylicensedandoperatingcorporationundertheEmbroideryLaw. It imports textile fabrics, cotton piece goods formanufacture into finishedgarmentswhich itreexportsbackto its foreignsuppliersunderthesupervisionofthe Embroidery Board. In turn, it receives payment for labor costs, overheadexpenses, and margin profits. Under the Embroidery Law, said corporation isexempt from its importation of fabrics and textiles. However, its net income issubjecttoincometax.

Onalaterdate,thecorporationwasassessedfordeficiencyincometaxes,towhichthecorporationprotestedagainst. TheAppealBoardorderedthecancellationoftheassessments.HELD:Theletterfiledbyrespondentwasn'tpro‐formaandconsideredasreconsiderationand thus, suspended the running of period for the perfection of the appeal. Asstatedinthepertinentlaw,theperiodfortheperfectionofappealtotheCTAis30daysfromreceiptofanadversedecisionoftheCIR,CollectorofCustoms. Inthiscase, the respondent corporation timely filed itsappealas it filed the sameafterthelapseof16daysfromreceiptofletterdenyingwithfinalityitsprotest.On the issue of deficiency, the CIR was validly overruled in its assessment. Anassessment fixes and determines the tax liability of a taxpayer. As soon as it isserved, an obligation arises on the part of the taxpayer concerned to pay theamountassessedanddemanded.Hence,assessmentsshouldn'tbebasedonmerepresumptionsnomatterhowreasonableorlogicalsaidpresumptionsmaybe.

ASSESSMENTPROCESS(RR12‐99;SECTION228NIRC)

• Afterthefilingofthereturnofthetaxpayertogetherwiththepayment

oftaxes.Itisthedutyofthegovernmenttoascertainthecorrectnessofthe returns filed and if there exists any deficiency or fraud in the saidreturns.

1. IssuanceofavalidLetterofAuthority,LetterNotice,TaxVerificationNotice

2. ExaminationofBooks,paperandrecords

SEC. 5. Power of the Commissioner toObtain Information, and to Summon,Examine,andTakeTestimonyofPersons.‐ Inascertainingthecorrectnessofany return, or in making a return when none has been made, or indetermining the liability of any person for any internal revenue tax, or incollectinganysuchliability,orinevaluatingtaxcompliance,theCommissionerisauthorized:xxx

Calendar:31December

200815April2009

Assessment:3years;15April2012• Finalassessmentprepared

• Dulyreceivedbythetaxpayer

LOA:120dayperiod;LN/TVN:salesandpurchasesmade

,comparesrecords

BIRwillserveLOA/LN/TVNandwillaskthepreparationofrecords

Afterinvestigation,

letterof

informalconference

Within15days,taxpayermustreply

BIRwillreview

LetterofPreliminary

Assessment

FinalAssessment

Notice

Protest


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(B)ToObtainonaregularbasisfromanypersonotherthanthepersonwhoseinternal revenue tax liability is subject to auditor investigation,or fromanyofficeorofficerofthenationaland localgovernments,governmentagenciesand instrumentalities, including the Bangko Sentral ng Pilipinas andgovernment‐ownedor‐controlledcorporations,any informationsuchas,butnot limited to, costs and volume of production, receipts or sales and grossincomesoftaxpayers,andthenames,addresses,andfinancialstatementsofcorporations, mutual fund companies, insurance companies, regionaloperating headquarters of multinational companies, joint accounts,associations,jointventuresofconsortiaandregisteredpartnerships,andtheirmembers;(C) To summon the person liable for tax or required to file a return, or anyofficeroremployeeofsuchperson,oranypersonhavingpossession,custody,or care of the books of accounts and other accounting records containingentries relating to the business of the person liable for tax, or any otherperson, to appear before the Commissioner or his duly authorizedrepresentativeatatimeandplacespecified inthesummonsandtoproducesuchbooks,papers,records,orotherdata,andtogivetestimony;SEC. 6. Power of the Commissioner to make assessments and PrescribeadditionalRequirementsforTaxAdministrationandEnforcement.‐(A)ExaminationofReturnsandDeterminationofTaxDue.‐AfterareturnhasbeenfiledasrequiredundertheprovisionsofthisCode,theCommissionerorhis duly authorized representative may authorize the examination of anytaxpayerandtheassessmentofthecorrectamountoftax:Provided,however;That failure to file a return shall not prevent the Commissioner fromauthorizingtheexaminationofanytaxpayer.The tax or any deficiency tax so assessed shall be paid upon notice anddemandfromtheCommissionerorfromhisdulyauthorizedrepresentative.Anyreturn,statementofdeclarationfiled inanyofficeauthorizedtoreceivethesameshallnotbewithdrawn:Provided,Thatwithinthree(3)years fromthe date of such filing , the samemay bemodified, changed, or amended:Provided, further, That no notice for audit or investigation of such return,statementordeclarationhasinthemeantimebeenactuallyserveduponthetaxpayer.

3. NoticeofInformalConference

3.1.1 Notice for informal conference. — The Revenue Officer whoauditedthetaxpayer'srecordsshall,amongothers,stateinhisreportwhetheror not the taxpayer agrees with his findings that the taxpayer is liable fordeficiency tax or taxes. If the taxpayer is not amenable, based on the saidOfficer'ssubmittedreportof investigation,thetaxpayershallbeinformed,inwriting,bytheRevenueDistrictOfficeorbytheSpecialInvestigationDivision,asthecasemaybe(inthecaseRevenueRegionalOffices)orbytheChiefofDivisionconcerned(inthecaseoftheBIRNationalOffice)ofthediscrepancyordiscrepancies in the taxpayer'spaymentofhis internal revenue taxes, forthepurposeof"InformalConference,"inordertoaffordthetaxpayerwithanopportunity to present his side of the case. If the taxpayer fails to respondwithin fifteen (15) days from date of receipt of the notice for informalconference, he shall be considered in default, in which case, the RevenueDistrictOfficerortheChiefoftheSpecialInvestigationDivisionoftheRevenueRegionalOffice,ortheChiefofDivisionintheNationalOffice,asthecasemaybe, shall endorse the case with the least possible delay to the AssessmentDivision of the Revenue Regional Office or to the Commissioner or his dulyauthorized representative, as the case may be, for appropriate review andissuanceofadeficiencytaxassessment,ifwarranted.

a. OnmatterthattaxpayersandBIRagreepaymentmaybemade

using the “Agreement Form”. On other matter not inagreement,theprocesscontinues.

4. IssuanceofthePreliminaryAssessmentNotice(PAN)

a. Taxpayer isgiven15days tocontest,otherwisehe isconsidered indefault, this isdonebya“REPLY”within15days.TheREPLY isnotmandatoryanddoesnotfullytackletheissuescontainedinthePAN.

b. ExceptionstotheuseofPAN (a) When the finding for any deficiency tax is the result of

mathematicalerrorinthecomputationofthetaxasappearingonthefaceofthereturn;or

(b) When a discrepancy has been determined between the taxwithheldandtheamountactuallyremittedbythewithholdingagent;or


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(c) Whenataxpayerwhooptedtoclaimarefundortaxcreditofexcess creditable withholding tax for a taxable period wasdeterminedtohavecarriedoverandautomaticallyappliedthesame amount claimed against the estimated tax liabilities forthetaxablequarterorquartersofthesucceedingtaxableyear;or

(d) When the excise tax due on exciseable articles has not beenpaid;or

(e) When the article locally purchasedor importedby anexemptperson,suchas,butnotlimitedto,vehicles,capitalequipment,machineries and spare parts, has been sold, traded ortransferredtonon‐exemptpersons.

5. IssuanceoftheFormalAssessmentNotice(FAN)andletterofdemand

a. Statethefacts,laws,rulesandregulationswhichtheassessmentisbasedotherwiseitisvoid.

b. Sent by registeredmail or by personal delivery, if using the latter, thesame shouldbe acknowledged in theduplicate copywith the followinginformation:1)name,2)signature,3)designationandauthority,4)dateofreceipt.

PNZMarketingvs.Com.CTACaseNo.5726Dec.14,2001

FACTS:Petitioner was engaged in business as importer and dealer of powdered andskimmedmilk and other related product. Petitioner received formal assessmentnotice and Demand letter from herein Respondent stating therein Petitioner'sallegeddeficiency incometax liability for theyear1994.Asadmitted, theallegeddeficiency income tax assessment issued against the Petitioner arose from thefollowingadjustmentstoPetitioner'sincometaxreturn,towit:(a) DisallowanceoftheinterestexpenseintheamountofP1,053,885.00;(b) DisallowanceofthesalaryexpenseintheamountofP489,865.35;and(c) ImputationofunrecordedincomeintheamountofP394,625.58.Petitioner seeks reconsideration as the assessment was bereft of any law orregulationuponwhichitwasbased.

HELD:ThefirstissuedealsmainlywiththesufficiencyoftheassessmentnoticeinsofarascompliancewithSection228oftheTaxCodeisconcerned.ItmustbestressedthatSection228requirestheRespondenttoinformthetaxpayerinwritingofthelawsandthefactsonwhichtheassessmentismade,otherwisetheassessmentshallbevoid.Simplyput,itisincumbentupontheRespondenttoshowclearlythelegalandthefactualbaseswhichledhimtoissuethesaiddeficiencyincometaxassessmentinthefirstplace.Thestrictnessofthisrulerunsparalleltothedueprocessclauseas it obliges the Respondent not only to lay down the law from which theassessment is based but more importantly, the surrounding circumstancessupporting the assessment. For it is believed that it is only through a detailedappraisal of its basis that the taxpayermay be able to dispute the imposition oragreewithit.The case at bar is no exception to the rule. A perusal of the records indicates asuccessfulattemptonRespondent'sparttocomplywiththerules.Theassessmentnotice, while vague at first glance is subsequently cured by the demand letterwhichshows the legaland factualbasis relieduponby theRespondent in issuingthe assessment The demand letter, as thus worded contains the reasons why adeficiency income tax assessment was issued against the Petitioner. It reflectssomenotabledisallowanceontheBusinessexpenseof thePetitioner for reasonssuchasthefollowing:a) interestincomehasnosupportingdocumentpursuanttoSection29;b) thattheincomeisunrecordedwhichisfactual;andc) that there is discrepancy in the declared salary expense as provided inRevenueRegulationsNo.4‐93.To the court’s mind, these explanations are sufficient compliance with therequirementsofSection228oftheTaxCode.

ArtexDevelopmentCovs.NLRC187SCRA611(opportunitytobeheard)

FACTS:*alleged illegal dismissal of the employees of Artex for not being given theopportunitytobeheard.HELD:


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TheconfirmationcopiesofthetelegraphednoticesofthevarioushearingsbeforetheLaborArbitershowedthat thetelegramswereproperlysentanddelivered intheordinarycourseofbusiness.Asthepetitionerhadnotchangeditsaddress,nordidtheTelegraphicCommunicationOfficeadvisethesenders(hereinrespondents)that the telegrams were undelivered, and as petitioner had in fact received allcopies of the Labor Ministry's resolutions and decisions sent to its address, thepresumptionisthatitreceivedthenoticesofhearing.Even if thepetitionerwasnotheardatthestageofmediationandfact‐finding, itmaynotcomplainoflackofdueprocessforitwasgivenanopportunitytopresentits sideof thecontroversywhen itsmotions for reconsiderationandappealweregiven due course. What due process abhors is not lack of previous notice, butabsolutelackofopportunitytobeheardNOTE:

• Protest by taxpayer of the FAN within thirty days otherwise the samebecomesfinalandexecutorywhereinthetaxpayercannolongercontesttheassessment.

ProtestingofAssessmentWhen the Commissioner or his duly authorized representative finds that propertaxesshouldbeassessed,heshallfirstnotifythetaxpayerofhisfindings:provided,however,Thatapreassessmentnoticeshallnotberequiredinthefollowingcases:

1. When the finding for any deficiency tax is the result of mathematicalerror in the computation of the tax as appearing on the face of thereturn;or

2. Whenadiscrepancyhasbeendeterminedbetweenthetaxwithheldandtheamountactuallyremittedbythewithholdingagent;or

3. When a taxpayer who opted to claim a refund or tax credit of excesscreditablewithholding tax fora taxableperiodwasdetermined tohavecarriedoverandautomaticallyappliedthesameamountclaimedagainstthe estimated tax liabilities for the taxable quarter or quarters of thesucceedingtaxableyear;or

4. Whentheexcisetaxdueonexciseablearticleshasnotbeenpaid;or

5. When the article locally purchased or imported by an exempt person,suchas,butnotlimitedto,vehicles,capitalequipment,machineriesandspareparts,hasbeensold,tradedortransferredtonon‐exemptpersons.

• The taxpayers shall be informed inwriting of the law and the facts onwhichtheassessmentismade;otherwise,theassessmentshallbevoid.

• Withinaperiodtobeprescribedbyimplementingrulesandregulations,thetaxpayershallberequiredtorespondtosaidnotice. If thetaxpayerfailstorespond,theCommissionerorhisdulyauthorizedrepresentativeshallissueanassessmentbasedonhisfindings.

• Suchassessmentmaybeprotestedadministrativelybyfilingarequestforreconsiderationorreinvestigationwithinthirty(30)daysfromreceiptofthe assessment in such form and manner as may be prescribed byimplementingrulesandregulations.

• Within sixty (60) days from filing of the protest, all relevant supportingdocuments shall have been submitted; otherwise, the assessment shallbecomefinal.

• If theprotest isdenied inwholeor inpart,or isnotacteduponwithinone hundred eighty (180) days from submission of documents, thetaxpayeradverselyaffectedbythedecisionorinactionmayappealtotheCourt of Tax Appeals within thirty (30) days from receipt of the saiddecision, or from the lapse of one hundred eighty (180)‐day period;otherwise,thedecisionshallbecomefinal,executoryanddemandable.

COLLECTIONPROCESS

• TheissuanceoftheFinalAssessmentNoticelegallycreatesataxliability

of thetaxpayerwhich isbeingdemanded in theaccompanying letterofdemand.

6. FilingOfAnAdministrativeProtestByTheTaxpayerAgainstTheAssessment

1. Donewithinthirtydaysfromreceiptotherwisetheassessmentbecomesfinal.

2. Mustspecifythefollowing:a. Completenameandaddressoftaxpayerb. Natureoftherequestofwhetheritisforreconsiderationor

reinvestigationi. Ifreconsideration–questionofappreciationofthe

lawii. Ifreinvestigation–newlydiscoveredevidencewhich

istobepresented.c. Taxableperiodcoveredd. Assessmentnumber


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e. Dateofreceiptofassessmentnumberordemandletteri. Itemizedstatementoffindingswhichareagreed

uponwhichshouldbepaidimmediately.f. Itemizedscheduleoftheadjustmentstowhichthetaxpayer

doesnotagreeto.g. Statementoffactsandlawtosupporttheprotest.

DifferenceBetweenReconsiderationandReinvestigation

• Request for reconsideration— refers to a plea of re‐evaluation of theassessment on the basis of existing recordswithout need of additionalevidence.Itmayinvolvebothaquestionoffactoroflaworboth.

• Request for reinvestigation — refers to a plea of re‐evaluation of anassessmentonthebasisofnewlydiscoveredoradditionalevidencethatataxpayerintendstopresentinthereinvestigation.Itmayalsoinvolveaquestionoffactorlaworboth.

• CIR v. Philippine Global Communications, 31 October 2006: The maindifference between the two types of protests lies in the records orevidencetobeexaminedbyinternalrevenueofficers,whetherthereareexisting records or newly discovered evidence. It is a request forreinvestigationandnotreconsiderationthatinterruptstherunningofthestatuteoflimitationsonthecollectionoftheassessedtax.

3. Submissionofdocumentaryevidencewithinsixtydaysoffilingofprotest.

4. Upon the submission of documentary evidence or memorandum, the

commissionerisgiventhe180daystoactupontheprotest.• Thereareissueswhenthe180‐dayperiodstartstorun• Ifthereisnoadditionaldocumentsfiled.Ifthememoisfiledbeforethe

lapseof60daysorafterthelapseof60days.

OCEANICWIRELESSNETWORKV.COMMISSIONERCTACASE61111,3NOVEMBER2004

FACTS:Petitioner was issued final assessment notices. It duly filed its protest to theassessed deficiency taxes and submitted the needed documentary evidence tosupport its claim. However, within the 180‐day period that the Commissioneroughttohaveactedonthematter,thesamewasn'tabletorenderitsdecisionand

after180plus30daysdidpetitionerbelatedlyfiledapetitionforreviewwiththeCTA.HELD:Petitionerhavingfailedtocomplywiththerequirementofthelawindisputinganassessment, the samebecame final, executoryanddemandable. The law isquiteclearonthismatter:SEC.228.Protesting of Assessment. — When the Commissioner or his dulyauthorizedrepresentativefindsthatpropertaxesshouldbeassessed,heshallfirstnotify the taxpayer of his findings: Provided, however, That a pre‐assessmentnoticeshallnotberequiredinthefollowingcases:xxxxxxxxxSuch assessment may be protested administratively by filing a request forreconsideration or reinvestigation within thirty (30) days from receipt of theassessmentinsuchformandmannerasmaybeprescribedbyimplementingrulesand regulations. Within sixty (60) days from filing of the protest, all relevantsupportingdocumentsshallhavebeensubmitted;otherwise,theassessmentshallbecomefinal.Iftheprotestisdeniedinwholeorinpart,orisnotacteduponwithinonehundredeighty (180)days fromsubmissionofdocuments, thetaxpayeradverselyaffectedby thedecisionor inactionmayappeals to theCourtofTaxAppealswithin thirty(30)daysfromreceiptofthesaiddecision,or fromthe lapseoftheonehundredeighty(180)‐dayperiod;otherwise,thedecisionshallbecomefinal,executoryanddemandable.Undoubtedly, a taxpayer has sixty (60) days from the filing of the protest tosubmittherelevantdocumentstosupportitsprotest,otherwise,theassessmentbecomesfinal.Withinonehundredeighty(180)daysfromthesubmissionoftherelevantdocuments,therespondentshouldactontheprotest.Iftherespondentrenderedhisdecisionwithin theperiodor failed toacton it, the remedyof thetaxpayeristofilewithinthirty(30)daysfromthereceiptofthedecisionorfromthelapseofonehundredeighty(180)days,anappealtothiscourt,otherwise,theassessmentwillbecomefinal,executoryanddemandable.In the case at bar, petitioner failed to submit supporting documents contrary towhatwasjointlystipulatedbytheparties.Hence,thereckoningoftheonehundredeighty(180)‐dayperiodwouldbethedaytheprotestwasfiled,i.e.,onAugust16,


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1999.However, respondent failed to renderhis decisionwithin theonehundredeighty (180)daysoruntilFebruary12,2000.Asalreadydiscussed, theremedyofpetitionerwas to filewithin thirty (30) days therefroman appealwith this courtwhichwouldbeuntilMarch14,2000.ButsincethePetition forReviewwas filedonlyonMay12,2000,thesamewasdefinitelyfiledbeyondthedateprescribedbylaw.5. Issuanceofarevisedassessment

COLLECTORV.BATANGASTRANSPORTATION102PHIL822

FACTS:Respondentcompaniesaretwodistinctandseparatecorporationsengagedinthebusiness of land transportation bymeans ofmotor buses, and operating distinctandseparate lines. Itwasmanagedby twodifferentmanagersand if theyhadalinkwithoneanother,thatwouldbetheirpresident,whoowned30%ofthecapitalstocksofeachcompany.Duringthewar,theoperationsofbothcompanyceasedand itwasonlyaftertheliberationwhentheystartedtooperateagain.Followingthedecisionoftheboard,the two companiesweremanagedby oneperson after the previousmanager ofonecompanyresigned.Underthetheorythatbyvirtueofthejointemergencyoperationofbothandthepooling of their resources, the companies are deemed to have formed a jointventure and was assessed by the Commissioner for deficiency taxes. TheCommissioner then issued a revised assessment, crediting previous paymentsmade and this was appealed by the companies with the CTA. However, theCommissionerthenissuedanotherassessment,whichwasbiggerduetoitsallegederrorincrediting100%oftheirpreviouspayments.HELD:Governmentisnotboundbytheerrorscommittedbyitsagentsandtaxcollectorsinmakingtaxassessments,speciallywhenduetoamisinterpretationorapplicationofthetax laws,moresowhendoneingoodfaith;thatthetax lawsprovideforaprescriptive period within which the tax collectors may make assessments andreassessmentsinordertocollectallthetaxesduetotheGovernment,andthatif

theCollectorof InternalRevenue isnotallowed toamendhisassessmentbeforetheCourtof TaxAppeals, and sincehemaymakea subsequent reassessment tocollectadditionalsumswithinthesamesubjectofhisoriginalassessment,providedit is done within the prescriptive period, that would lead to multiplicity of suitswhichthelawdoesnotencourage;thatsincetheCollectorofInternalRevenue,inmodifyinghisassessment,maynotonlyincreasethesame,butmayalsoreduceit,if he finds that he has committed an error against the taxpayer, and may evenmake refunds of amounts erroneously and illegally collected, the taxpayer is notprejudiced;thatthehearingbeforetheCourtofTaxAppealspartakesofatrialdenovoandtheTaxCourtisauthorizedtoreceiveevidence,summonwitnesses,andgivebothparties, theGovernment and the taxpayer, opportunity topresent andargue their sides, so that the trueandcorrectamountof the tax tobecollected,maybedeterminedanddecided,whetherresultingintheincreaseorreductionoftheassessmentappealedtoit.Theresultisthattherulinganddoctrinenowbeinglaid by this Court is, that pending appeal before the Court of Tax Appeals, theCollectorofInternalRevenuemaystillamendhisappealedassessment,ashehasdoneinthepresentcase.

a. Cancellationofentireassessmentb. Revisionoftheassessmentinpartsc. Denialofprotest

6. Denialofprotest

• Iftheprotestofthetaxpayerisdeniedinwholeorinpart,thesameshallcontainthefollowing—

o State the facts, the applicable law, rules and regulations,jurisprudenceonwhich suchdecision isbased;otherwise, thedecisionshallbevoid

o Thatthesameisthefinaldecisionofthecommissioner

7. Within30daysfromthedenialoftheprotest,thetaxpayerisgiven30daystoappealtotheCTA

WhendoestheCTAhavejurisdiction?Exclusiveappellatejurisdictiontoreviewbyappeal

1. Decisions of the Commissioner of Internal Revenue in cases involvingdisputed assessments, refunds of internal revenue taxes, fees or othercharges,penaltiesinrelationthereto,orothermattersarisingunderthe


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National InternalRevenueorother lawsadministeredby theBureauofInternalRevenue;

2. Inaction by the Commissioner of Internal Revenue in cases involvingdisputed assessments, refunds of internal revenue taxes, fees or othercharges,penaltiesinrelationsthereto,orothermattersarisingundertheNational Internal Revenue Code or other laws administered by theBureauof InternalRevenue,where theNational InternalRevenueCodeprovides a specific period of action, inwhich case the inaction shall bedeemedadenial;

3. Decisions, orders or resolutions of theRegional Trial Courts in local taxcases originally decided or resolved by them in the exercise of theiroriginalorappellatejurisdiction;

4. DecisionsoftheCommissionerofCustoms incases involving liability forcustoms duties, fees or other money charges, seizure, detention orrelease of property affected, fines, forfeitures or other penalties inrelationthereto,orothermattersarisingundertheCustomsLaworotherlawsadministeredbytheBureauofCustoms;

5. Decisionsof theCentralBoardofAssessmentAppeals intheexerciseofitsappellatejurisdictionovercasesinvolvingtheassessmentandtaxationof real property originally decided by the provincial or city board ofassessmentappeals;

6. Decisionsof theSecretaryofFinanceoncustomscaseselevated tohimautomaticallyforreviewfromdecisionsoftheCommissionerofCustomswhich are adverse to theGovernment under Section 2315 of the TariffandCustomsCode;

7. Decisions of the Secretary of Trade and Industry, in the case ofnonagricultural product, commodity or article, and the Secretary ofAgriculture in the case of agricultural product, commodity or article,involvingdumpingandcountervailingdutiesunderSection301and302,respectively, of the Tariff and Customs Code, and safeguard measuresunderRepublicActNo.8800,whereeitherpartymayappealthedecisiontoimposeornottoimposesaidduties.

Jurisdictionovercasesinvolvingcriminaloffensesashereinprovided:

1. Exclusive original jurisdiction over all criminal offenses arising fromviolations of theNational Internal RevenueCode or Tariff and CustomsCodeandotherlawsadministeredbytheBureauofInternalRevenueorthe Bureau of Customs: Provided, however, That offenses or feloniesmentioned in this paragraph where the principal amount o taxes and

fees,exclusiveofchargesandpenalties,claimedis lessthanOnemillionpesos (P1,000,000.00) or where there is no specified amount claimedshallbetriedbytheregularCourtsandthejurisdictionoftheCTAshallbeappellate. Any provision of law or the Rules of Court to the contrarynotwithstanding, the criminal action and the corresponding civil actionfor therecoveryofcivil liability for taxesandpenaltiesshallatall timesbe simultaneously instituted with, and jointly determined in the sameproceedingbytheCTA,thefilingofthecriminalactionbeingdeemedtonecessarily carry with it the filing of the civil action, and no right toreservethefillingofsuchcivilactionseparatelyfromthecriminalactionwillberecognized.

2. Exclusiveappellatejurisdictionincriminaloffensesa. Overappealsfromthejudgments,resolutionsorordersofthe

RegionalTrialCourtsintaxcasesoriginallydecidedbythem,intheirrespectedterritorialjurisdiction.

b. Over petitions for review of the judgments, resolutions ororders of the Regional Trial Courts in the exercise of theirappellate jurisdiction over tax cases originally decided by theMetropolitanTrialCourts,MunicipalTrialCourtsandMunicipalCircuitTrialCourtsintheirrespectivejurisdiction.

Jurisdictionovertaxcollectioncasesashereinprovided:

1. Exclusive original jurisdiction in tax collection cases involving final andexecutory assessments for taxes, fees, charges and penalties: Provided,however,Thatcollectioncaseswheretheprincipalamountoftaxesandfees,exclusiveofchargesandpenalties,claimedis lessthanOnemillionpesos(P1,000,000.00)shallbetriedbytheproperMunicipalTrialCourt,MetropolitanTrialCourtandRegionalTrialCourt.

2. Exclusiveappellatejurisdictionintaxcollectioncases:a. Overappealsfromthejudgments,resolutionsorordersofthe

Regional Trial Courts in tax collection cases originally decidedbythem,intheirrespectiveterritorialjurisdiction.

b. Over petitions for review of the judgments, resolutions ororders of the Regional Trial Courts in the Exercise of theirappellate jurisdiction over tax collection cases originallydecidedbytheMetropolitanTrialCourts,MunicipalTrialCourtsand Municipal Circuit Trial Courts, in their respectivejurisdiction."


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LASCONAREALTYCORP.V.COMMISSIONERCTACASE5777

FACTS:Respondent issuedanassessmentnoticetopetitioner. The latterfiled itsprotestandinreply,respondentaverredthatwhileitagreeswiththeargumentsadvancedbypetitioner,thesamecouldn'tbeentertainedasthecasewasn'televatedtotheCTA,asallegedlyprovidedforbythelaw.HELD:The wordings of Section 228 of the Tax Code clearly provide that it is only thedecision not appealed by the taxpayer that becomes final, executory anddemandable. Otherwise, the authors of the law could have easily included thewordassessmentasalsobecomingfinal,executoryanddemandableshouldtheBIRfailtoactontheprotestwithin180days.Theword'decisions'inparagraph1,Section7ofRepublicAct1125,quotedabove,has been interpreted to mean the decisions of the Commissioner of InternalRevenue on the protest of the taxpayer against the assessments. Definitely, saidworddoesnotsignifytheassessmentitself.Verily, incasesof inaction,Section228oftheTaxCodemerelygavethetaxpayeranoption:first,hemayappealtotheCourtofTaxAppealswithinthirty(30)daysfromthelapseoftheonehundredeighty(180)dayperiodprovidedforunderthesaidsection,orsecond,hemaywaituntiltheCommissionerdecidesonhisprotestbefore he elevates his case. This Court believes that the taxpayerwas given thisoptionsothat incasehisprotest isnotacteduponwithinthe180‐dayperiod,hemaybeabletoseekimmediatereliefandneednotwaitforanindefiniteperiodoftimefortheCommissionertodecide.ButifhechoosestowaitforapositiveactiononthepartoftheCommissioner,thenthesamecouldnotresultintheassessmentbecomingfinal,executoryanddemandable.

TAXREMEDIES:NATIONALTAXES

REMEDIESOFTHEGOVERNMENT

COLLECTIONOFTAXLIABILITY

Nocourtinjunctionagainsttaxcollectionrule

• No court shall have the authority to grant an injunction to restrain thecollectionofanynationalinternalrevenuetax,feeorchargeimposedbythisCode.

• Payasyoufilerule(cf.Section56[A][1])MotionforSuspensionofCollectionofTax(Rule12)SECTION1. Where,pursuanttotheprovisionsofsection11ofRepublicActNo.1125,thecollectionbytheBureauofInternalRevenueortheCommissionerofCustoms of the amount of the taxpayer's liability—whether such collection besoughtbymeansofademandforpaymentorbylevy,distraintand/orsaleofanypropertyofthetaxpayer,asprovidedbyexistinglaw—mayjeopardizetheinterestoftheGovernmentand/orthetaxpayer,theinterestedpartymayfileamotionforthesuspensionofthecollectionofthetaxliability.SECTION2. ThemotionforthesuspensionofthecollectionofthetaxmaybefiledtogetherwiththePetitionforRevieworwiththeAnswer,asthecasemaybe, or in a separate motion filed by the interested party at any stage of theproceedings.SECTION3. Themotionforthesuspensionofthecollectionofthetaxshallbeunderoathandshallstateclearlyanddistinctlythefactsandthegroundsreliedupon by the movant in support of the suspension of the collection of the tax.SECTION4. Unless a shorter period is fixed by the Court because of theurgencyofthemotion,theadversepartyshall,withinfivedaysafteracopyofthemotionisreceivedbyhim,filehisOppositionthereto,whichshallstateclearlyanddistinctlythefactsandthegroundsrelieduponbyhiminsupportofhisOpposition.SECTION5. TheClerkofCourtshall,uponreceiptofthesaidOpposition,setthe motion shall be given preference over all other cases. At the hearing, bothparties shall submit their respective evidence in support of their respectivecontentions.However,forthesakeofexpediency,uponmotionofthepartiesorbythe Court motu proprio, the hearing of the motion for the suspension of thecollection of the taxmay be consolidatedwith the hearing on themerits of thecase.

REPUBLICV.LIMTIANTENG16SCRA584

FACTS:


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Respondentincludedinitstaxreturnasbeginninginventorytheoutrunofcopraitincurredduringthepreviousyear. Intheauditandexaminationof itsbooks, theCommissionerexcludedthesame,whichresultedtoahigher incometaxpayable.Respondentsoughtreconsiderationof its tax liability. Consequently, theSolicitorGeneral demanded the payment of the deficiency income tax otherwise judicialaction would be instituted without further notice. Respondent reiterated itsrequestforreinvestigation.TheCommissionerrepliedthatsaidrequestshallonlybe granted if awaiver of the statute of limitations be issuedby the respondent.Respondent failed to file thewaiverand thus judicial actioncommencedand thecourtruledagainstrespondent,absentanyordertopaysurcharge.HELD:NowhereintheTaxCodeistheCollectorofInternalRevenuerequiredtorulefirston a taxpayer's request for reinvestigation before he can go to court for thepurposeof collecting the taxassessed.On the contrary, Section305of the sameCodewithholdsfromallcourts,excepttheCourtofTaxAppealsunderSection11of Republic Act 1125, the authority to restrain the collection of any nationalinternal‐revenuetax,feeorcharge,therebyindicatingthelegislativepolicytoallowthe Collector of Internal Revenue much latitude in the speedy and promptcollectionoftaxes.Thereasonisobvious.Itisupontaxationthatthegovernmentchieflyreliestoobtainthemeansthecarryonitsoperations,anditisoftheutmostimportancethatthemodesadoptedtoenforcecollectionoftaxesleviedshouldbesummaryandinterferedwithaslittleaspossible.Nogovernmentcouldexistifalllitigantswerepermittedtodelaythecollectionofitstaxes.Taxpayer failure to appeal to the Court of Tax Appeals in due time made theassessmentinquestionfinal,executoryanddemandable.AndwhentheactionwasinstitutedonSeptember2,1958toenforcethedeficiencyassessmentinquestion,itwasalreadybarredfromdisputingthecorrectnessoftheassessmentorinvokingany defense that would reopen the question of his tax liability on merits.Otherwise,theperiodofthirtydaysforappealtotheCourtofTaxAppealswouldmakelittlesense.In a proceeding like this the taxpayer's defenses are similar to those of thedefendant in a case for the enforcement of a judgment by judicial action underSection6ofRule39oftheRulesofCourt.Noinquirycanbemadethereinastothemeritsoftheoriginalcaseorthejustnessofthejudgmentreliedupon,otherthanbyevidenceofwantofjurisdiction,ofcollusionbetweentheparties,oroffraudinthepartyofferingtherecordwithrespecttotheproceedings.

*If this casewould happen today, the Commissioner ismandated to answer theprotest of the taxpayer and state the facts and laws uponwhich his assessmentwasmade.Heshouldlikewisestatethefinalityoftheassessment.TemporaryRestrainingOrderv.RA9337(seeAbakadaGuroPartyList)SummaryRemediesDistraintofPersonalProperty

• Upon the failure of the person owing any delinquent tax or delinquentrevenuetopaythesameat thetimerequired, theCommissionerorhisdulyauthorizedrepresentative,iftheamountinvolvedisinexcessofOnemillionpesos(P1,000,000),ortheRevenueDistrictOfficer,iftheamountinvolvedisOnemillionpesos(P1,000,000)orless,shallseizeanddistraintanygoods,chattelsoreffects,andthepersonalproperty,includingstocksandother securities,debts, credits,bankaccounts, and interests inandrights to personal property of such persons ;in sufficient quantity tosatisfythetax,orcharge,togetherwithanyincrementtheretoincidenttodelinquency, and the expenses of the distraint and the cost of thesubsequentsale.

• A report on thedistraint shall,within ten (10) days from receipt of thewarrant,be submittedby thedistrainingofficer to theRevenueDistrictOfficer, and to the Revenue Regional Director: Provided, That theCommissionerorhisdulyauthorizedrepresentativeshall,subjecttorulesand regulations promulgated by the Secretary of Finance, uponrecommendationoftheCommissioner,havethepowertoliftsuchorderofdistraint:Provided,further,ThataconsolidatedreportbytheRevenueRegional Director may be required by the Commissioner as often asnecessary.

LevyonRealProperty

• After the expiration of the time required to pay the delinquent tax ordelinquent revenue as prescribed in this Section, real propertymay belevied upon, before simultaneously or after the distraint of personalpropertybelonging to thedelinquent.To thisend,any internal revenueofficer designated by the Commissioner or his duly authorizedrepresentativeshallprepareadulyauthenticatedcertificateshowingthenameofthetaxpayerandtheamountsofthetaxandpenaltyduefrom


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him. Said certificate shall operate with the force of a legal executionthroughoutthePhilippines.

• Levyshallbeaffectedbywritinguponsaidcertificateadescriptionoftheproperty uponwhich levy ismade.At the same time,writtennotice ofthelevyshallbemailedtoorservedupontheRegisterofDeedsfortheprovinceorcitywhere theproperty is locatedandupon thedelinquenttaxpayer, or if he be absent from the Philippines, to his agent or themanagerofthebusinessinrespecttowhichtheliabilityarose,oriftherebenone,totheoccupantofthepropertyinquestion.

• In case the warrant of levy on real property is not issued before orsimultaneouslywith thewarrant of distraint on personal property, andthepersonal property of the taxpayer is not sufficient to satisfy his taxdelinquency, the Commissioner or his duly authorized representativeshall,withinthirty(30)daysafterexecutionofthedistraint,proceedwiththelevyonthetaxpayer'srealproperty.

• Within ten (10) days after receipt of thewarrant, a report on any levyshallbesubmittedbythelevyingofficertotheCommissionerorhisdulyauthorizedrepresentative:Provided,however,ThataconsolidatedreportbytheRevenueRegionalDirectormayberequiredbytheCommissioneras often as necessary: Provided, further, That the Commissioner or hisduly authorized representative, subject to rules and regulationspromulgatedby theSecretaryofFinance,upon recommendationof theCommissioner, shallhave theauthority to liftwarrantsof levy issued inaccordancewiththeprovisionshereof.

ExceptionsastoPeriodofLimitationofAssessmentandCollectionofTaxes.

1. Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailuretofileareturn,thetaxmaybeassessed,oraproceedingincourtfor the collection of such taxmay be filed without assessment, at anytime within ten (10) years after the discovery of the falsity, fraud oromission: Provided, That in a fraudassessmentwhichhasbecome finalandexecutory,thefactoffraudshallbejudiciallytakencognizanceofinthecivilorcriminalactionforthecollectionthereof.

2. Waiver of prescriptive period—If before the expiration of the timeprescribed in Section 203 for the assessment of the tax, both theCommissionerandthetaxpayerhaveagreedinwritingtoitsassessmentaftersuchtime,thetaxmaybeassessedwithintheperiodagreedupon.The period so agreed upon may be extended by subsequent written

agreementmade before the expiration of the period previously agreedupon.

3. Any internal revenue tax which has been assessedwithin the period oflimitation as prescribed in paragraph (a) hereof may be collected bydistraintorlevyorbyaproceedingincourtwithinfive(5)yearsfollowingtheassessmentofthetax.

4. Any internal revenue tax, which has been assessed within the periodagreeduponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraintorlevyorbyaproceedingincourtwithintheperiodagreedupon in writing before the expiration of the five (5) ‐year period. Theperiod so agreed upon may be extended by subsequent writtenagreementsmadebeforetheexpirationoftheperiodpreviouslyagreedupon.

5. Provided, however, That nothing in the immediately preceding andparagraph(a)hereofshallbeconstruedtoauthorizetheexaminationandinvestigationor inquiry into any tax return filed in accordancewith theprovisionsofanytaxamnestylawordecree.

CivilActionandCriminalAction

1. Bydistraintofgoods,chattels,oreffects,andotherpersonalpropertyofwhatevercharacter, includingstocksandothersecurities,debts,credits,bankaccountsandinterestinandrightstopersonalproperty,andbylevyuponrealpropertyandinterestinrightstorealproperty;and

2. Bycivilorcriminalaction.

• Eitherof theseremediesorbothsimultaneouslymaybepursued in thediscretion of the authorities charged with the collection of such taxes:Provided,however,That the remediesofdistraintand levy shallnotbeavailedofwheretheamountoftaxinvolveisnotmorethanOnehundredpesos(P100).

• Thejudgmentinthecriminalcaseshallnotonly imposethepenaltybutshall also order payment of the taxes subject of the criminal case asfinallydecidedbytheCommissioner.

• The Bureau of Internal Revenue shall advance the amounts needed todefray costs of collection bymeans of civil or criminal action, includingthe preservation or transportation of personal property distrained andthe advertisement and sale thereof, as well as of real property andimprovementsthereon.


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FormandModeofProceedings• Civil and criminal actions and proceedings instituted in behalf of the

Governmentunder theauthorityof thisCodeorother lawenforcedbythe Bureau of Internal Revenue shall be brought in the name of theGovernmentofthePhilippinesandshallbeconductedbylegalofficersofthe Bureau of Internal Revenue but no civil or criminal action for therecovery of taxes or the enforcement of any fine, penalty or forfeitureunder this Code shall be filed in court without the approval of theCommissioner.

ARCHESV.BELLOSILLO20SCRA32

FACTS:Arches was assessed for deficiency income taxes which he didn't contest.Thereafter, the Commissioner sought the recovery of the sums of moneyequivalenttothepaymentofincometaxdeficiency.Archescontestedthis,onthegroundthattheassessmentwasn'tapprovedbytheRevenueCommissioner. Thetrialcourtoverruledthisclaim.HELD:The question of whether this suit should bear the approval of the RevenueCommissioner isnot jurisdictional,butonerelatingtocapacitytosueoraffectingthecauseofactiononly.So,inrulingonsaidquestion,whatevererror.—ifany—themunicipalcourtcommitted,wasmerelyanerrorof judgment,notcorrectiblebycertiorari.

REPUBLICV.HIZONGR130430,13DECEMBER1999

FACTS:Respondentwas issuedadeficiency incometaxassessmentbytheBIRwhichwasuncontested. Consequently, warrants of levy and distraint were issued for thepayment of deficiency taxes. After three years from the issuance, respondentsoughtreconsiderationoftheorder.HELD:

Sec.7ofthepresentCodeauthorizestheBIRCommissionertodelegatethepowersvestedinhimunderthepertinentprovisionsoftheCodetoanysubordinateofficialwiththerankequivalenttoadivisionchieforhigher,exceptthefollowing:"(a)ThepowertorecommendthepromulgationofrulesandregulationsbytheSecretaryofFinance;(b)Thepowertoissuerulingsoffirstimpressionortoreverse,revokeormodify any existing ruling of the Bureau; (c) The power to compromise or abateunder §204(A) and (B) of this Code, any tax deficiency: Provided, however, thatassessments issuedbytheRegionalOffices involvingbasicdeficiencytaxesof fivehundred thousand pesos (P500,000.00) or less, and minor criminal violations asmaybedeterminedbyrulesandregulationstobepromulgatedbytheSecretaryofFinance, upon the recommendationof theCommissioner, discoveredby regionaland district officials,may be compromised by a regional evaluation boardwhichshall be composed of the Regional Director as Chairman, the Assistant RegionalDirector,headsoftheLegal,AssessmentandCollectionDivisionsandtheRevenueDistrict Officer having jurisdiction over the taxpayer, as members; and (d) Thepower to assign or reassign internal revenue officers to establishments wherearticlessubjecttoexcisetaxareproducedorkept.NoneoftheexceptionsrelatestotheCommissioner'spowertoapprovethefilingoftaxcollectioncases."Sec.229of theCodemandates thata request for reconsiderationmustbemadewithin 30 days from the taxpayer's receipt of the tax deficiency assessment,otherwise the assessment becomes final, unappealable and, therefore,demandable.Thenoticeofassessmentforrespondent'staxdeficiencywas issuedbypetitioneron July18,1986.On theotherhand, respondentmadeher requestfor reconsideration thereofonlyonNovember3,1992,without statingwhenshereceivedthenoticeof taxassessment.Sheexplainedthatshewasconstrainedtoaskforareconsideration inordertoavoidtheharassmentofBIRcollectors. Inalllikelihood,shemusthavebeenreferringtothedistraintandlevyofherpropertiesbypetitioner's agentswhich tookplaceon January12,1989.Evenassuming thatshe first learned of the deficiency assessment on this date, her request forreconsiderationwas nonetheless filed late since shemade itmore than 30 daysthereafter.Hence,herrequestforreconsiderationdidnotsuspendtherunningoftheprescriptiveperiodprovidedunder§223(c).AlthoughtheCommissioneractedonherrequestbyeventuallydenyingitonAugust11,1994,this isofnomomentand does not detract from the fact that the assessment had long becomedemandable.

PoliciesofDecentralization


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Sec.7ofthepresentCodeauthorizestheBIRCommissionertodelegatethepowersvestedinhimunderthepertinentprovisionsoftheCodetoanysubordinateofficialwiththerankequivalenttoadivisionchieforhigher,exceptthefollowing:

1. Thepower to recommend thepromulgationof rulesand regulationsbytheSecretaryofFinance;

2. The power to issue rulings of first impression or to reverse, revoke ormodifyanyexistingrulingoftheBureau;

3. Thepowertocompromiseorabateunder§204(A)and(B)of thisCode,any tax deficiency: Provided, however, that assessments issued by theRegionalOfficesinvolvingbasicdeficiencytaxesoffivehundredthousandpesos (P500,000.00) or less, and minor criminal violations as may bedeterminedbyrulesandregulationstobepromulgatedbytheSecretaryofFinance,upon the recommendationof theCommissioner,discoveredby regional and district officials, may be compromised by a regionalevaluation board which shall be composed of the Regional Director asChairman, the Assistant Regional Director, heads of the Legal,Assessment and Collection Divisions and the Revenue District Officerhavingjurisdictionoverthetaxpayer,asmembers;and

4. The power to assign or reassign internal revenue officers toestablishmentswherearticlessubjecttoexcisetaxareproducedorkept.

UNGABV.CUSI97SCRA877

FACTS:Pending decision on the protest on the assessment it made, the Commissionerinstituted criminal actions against Ungab for tax evasion with the RTC. Ungabquestions thisasheallegedthatdecisionon theprotest isaconditionprecedentforfilingofacriminalactionincourt.HELD:What is involvedhere isnot the collectionof taxeswhere theassessmentof theCommissionerof InternalRevenuemaybereviewedbytheCourtofTaxAppeals,but a criminal prosecution for violations of the National Internal Revenue Codewhichiswithinthecognizanceofcourtsoffirstinstance.Whiletherecanbenocivilaction to enforce collection before the assessment procedures provided in theCodehavebeenfollowed,thereisnorequirementfortheprecisecomputationandassessmentofthetaxbeforetherecanbeacriminalprosecutionundertheCode.

Thecontentionismade,andishererejected,thatanassessmentofthedeficiencytax due is necessary before the taxpayer can be prosecuted criminally for thecharges preferred. The crime is completewhen the violator has, as in this case,knowinglyandwillfully filed fraudulent returnswith intent toevadeanddefeatapartorallofthetax.Anassessmentofadeficiencyisnotnecessarytoacriminalprosecutionforwillfulattempttodefeatandevadetheincometax.Acrimeiscompletewhentheviolatorhas knowingly and willfully filed a fraudulent return with intent to evade anddefeatthetax.Theperpetrationofthecrimeisgroundeduponknowledgeonthepartofthetaxpayerthathehasmadeaninaccuratereturn,andthegovernment'sfailure todiscover theerror andpromptly to assesshasno connectionswith thecommissionofthecrime.

PEOPLEV.PATANAO20SCRA712

FACTS:CommissionerassessedPatanaofordeficiencyincometaxes. Formerallegedthatlatter filed fraudulent returns,not reflectiveof the true income. Patanaosoughtthedismissalofthecomplaintonthegroundthathewasacquittedearlieroninthecriminalcasesfiledagainsthim.HELD:InapplyingtheprincipleunderlyingthecivilliabilityofanoffenderunderthePenalCodetoacaseinvolvingthecollectionoftaxes,thecourtaquofellintoerror.Thetwocasesarecircumscribedby factualpremiseswhicharediametricallyopposedtoeacheither,andarefoundedonentirelydifferentphilosophies.UnderthePenalCode the civil liability is incurredby reasonof theoffender's criminal act. Stateddifferently, the criminal liability gives birth to the civil obligation such thatgenerally, ifone isnot criminally liableunder thePenalCode,hecannotbecomecivilly liable thereunder. The situation under the income tax law is the exactopposite.Civil liabilitytopaytaxesarisesfromthefact,forinstance,thatonehasengaged himself in business, and not because of any criminal act committed byhim. The criminal liability arises upon failure of the debtor to satisfy his civilobligation.Theincongruityofthefactualpremisesandfoundationprinciplesofthetwo cases is one of the reasons for not imposing civil indemnity on the criminal


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infractoroftheincometaxlaw.Anotherreason,ofcourse,isfoundinthefactthatwhile section 73 of the National Internal Revenue Code has provided theimpositionofthepenaltyofimprisonmentorfine,orboth,forrefusalorneglecttopay income taxor tomakea return thereof, it failed toprovide thecollectionofsaidtaxincriminalproceedings.Theonlycivilremediesprovided,forthecollectionofincometax,inChaptersIandII,TitleIXoftheCodeandsection316thereof,aredistraintofgoods,chattels,etc.orbyjudicialaction,whichremediesaregenerallyexclusive in the absence of a contrary intent from the legislator. (People vs.Arnault,G.R.No.L‐4288,November20,1952;Peoplevs.Tierra,G.R.Nos.L‐17177‐17180, December 28, 1964) Considering that the Government cannot seeksatisfactionofthetaxpayer'scivilliabilityinacriminalproceedingunderthetaxlawor, otherwise stated, since the said civil liability is not deemed included in thecriminal action, acquittal of the taxpayer in the criminal proceeding does notnecessarilyentailexonerationfromhisliabilitytopaythetaxes.Itiserrortohold,asthelowercourthasheld,thatthejudgmentinthecriminalcasesNos.2089and2090bars theaction in thepresent case. Theacquittal in the said criminal casescannotoperatetodischargedefendantappelleefromthedutyofpayingthetaxeswhich the law requires tobepaid, since thatduty is imposedby statuteprior toand independently of any attempts by the taxpayer to evade payment. Saidobligation is not a consequence of the felonious acts charged in the criminalproceeding,norisitamerecivilliabilityarisingfromcrimethatcouldbewipedoutbythejudicialdeclarationofnon‐existenceofthecriminalactscharged.

CIRV.CA257SCRA200

FACTS:

1. President issuedMO creating task force to investigate tax liabilities ofmanufacturersengagedintaxevasion.

2. TaskforcefoundthatFortuneisengagedinghostwholesalebuyersa. Fortune sells its products in “lower”wholesale price to these

ghostentitiesb. Theseghostentitiesselltootherwholesalersandcustomersat

higherpricec. Claims it is conduit incorporator and non existing individual

buyersasitsgrosssale3. CIRandprosecutorfiledcriminalcaseforevasionoftax4. InjunctionandTRO–procedural

HELD:Thecriminalcasescannotprospervalidly.

1. Asfoundbythecourt,no industry isas intenselysupervisedbyBIRandNTA

2. Registeredwholesalepriceisusedtocomputetheadvaloremtax3. ButtheregisteredwholesalepriceisregisteredwithBIRinorderforBIR

tohaveclosesupervisionovertheindustryandassurecorrectpayment4. Fraud cannotbepresumed. If therewas fraud, there shouldhavebeen

connivance of BIR official who supervised and monitored Fortune’sproductionactivities.

5. Butnosuchallegationhasbeenmade6. thereispresumptionthatBIRpersonnelperformedtheirdutiesinregular

courseinensuingthatcorrecttaxesarepaid.7. Before it can be prosecuted for tax evasion, deficiency income should

firstbeestablished8. CIRhasnotyetresolvedMRuptothepresent9. Inplainwords,beforeone isprosecuted forwillfulattempttoevadeor

defeatanytaxundersec253,255oftaxcode,thefactthatataxisduemustfirstbeproved.

10. ConflictwithUngab?Seedoctrine.a. Itfollowsthat,undertheUngabdoctrine,thefilingofacriminal

complaint for fraudulent tax evasion would be proper evenwithoutapreviousassessmentofthecorrecttax.

b. The argument that the Ungab doctrine will not apply to thecaseatbarbecause it involvesa factual settingdifferent fromthatof thecaseatbar, iserroneous.TheUngabcase involvedthe filing of a fraudulent income tax return because thedefendant failed to report his income derived from sale ofbananasaplings.Inthecaseatbar,thecomplaintsfiledbeforetheDOJforinvestigationchargeprivatewholesalerespondentswith fraudulent concealment of the actual price of productssold through declaration of registered wholesale prices lowerthantheactualwholesaleprices,resultinginunderpaymentofincome,advalorem,andvalue‐addedtaxes.Bothcasesinvolve,therefore, fraudulent schemes to evade payment to theGovernmentofcorrecttaxes.


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MARCOSV.CAGR120880,5JUNE1997

FACTS:HELD:Theapprovalof thecourt, sitting inprobate,orasasettlement tribunalover thedeceased is not a mandatory requirement in the collection of estate taxes. Itcannot therefore be argued that the Tax Bureau erred in proceeding with thelevying and sale of the properties allegedly owned by the late President, on theground that it was required to seek first the probate court's sanction. There isnothing in the Tax Code, and in the pertinent remedial laws that implies thenecessityoftheprobateorestatesettlementcourt'sapprovalofthestate'sclaimforestatetaxes,beforethesamecanbeenforcedandcollected.Onthecontrary,underSection87oftheNIRC,itistheprobateorsettlementcourtwhich is bidden not to authorize the executor or judicial administrator of thedecedent's estate to deliver any distributive share to any party interested in theestate,unlessit isshownaCertificationbytheCommissionerofInternalRevenuethat the estate taxes have been paid. This provision disproves the petitioner'scontention that it is the probate court which approves the assessment andcollectionoftheestatetax.IfthereisanyissueastothevalidityoftheBIR'sdecisiontoassesstheestatetaxes,this should have been pursued through the proper administrative and judicialavenuesprovidedforbylaw.Section229oftheNIRCtellsushow:Sec.229.Protestingofassessment.�WhentheCommissionerofInternalRevenueorhisdulyauthorizedrepresentativefindsthatpropertaxesshouldbeassessed,heshall firstnotify the taxpayerofhis findings.Withinaperiod tobeprescribedbyimplementingregulations,thetaxpayershallberequiredtorespondtosaidnotice.Ifthetaxpayerfailstorespond,theCommissionershallissueanassessmentbasedonhisfindings.Such assessment may be protested administratively by filing a request forreconsiderationorreinvestigation insuchformandmannerasmaybeprescribed

by implementing regulations within (30) days from receipt of the assessment;otherwise,theassessmentshallbecomefinalandunappealable.If the protest is denied in whole or in part, the individual, association orcorporation adversely affectedby the decisionon theprotestmay appeal to theCourt of Tax Appeals within thirty (30) days from receipt of said decision;otherwise,thedecisionshallbecomefinal,executoryanddemandable.(AsinsertedbyP.D.1773)Apartfromfailingtofiletherequiredestatetaxreturnwithinthetimerequiredforthe filing of the same, petitioner, and the other heirs never questioned theassessments served upon them, allowing the same to lapse into finality, andpromptingtheBIRtocollect thesaid taxesby levyingupontheproperties leftbyPresidentMarcos.Theomissiontofileanestatetaxreturn,andthesubsequentfailuretocontestorappealtheassessmentmadebytheBIRisfataltothepetitioner'scause,asundertheabove‐citedprovision,incaseoffailuretofileareturn,thetaxmaybeassessedat any timewithin tenyears after theomission, andany tax soassessedmaybecollectedbylevyuponrealpropertywithinthreeyearsfollowingtheassessmentofthetax.Sincetheestatetaxassessmenthadbecomefinalandunappealablebythepetitioner'sdefaultasregardsprotestingthevalidityofthesaidassessment,thereisnownoreasonwhytheBIRcannotcontinuewiththecollectionofthesaidtax.Any objection against the assessment should have been pursued following theavenuepaved in Section 229of theNIRConprotests on assessments of internalrevenuetaxes.ForfeituresRemedyforEnforcementofForfeitures

• The forfeiture of chattels and removable fixtures of any sort shall beenforcedbytheseizureandsale,ordestruction,ofthespecificforfeitedproperty.

• The forfeiture of real property shall be enforced by a judgment ofcondemnationandsaleinalegalactionorproceeding,civilorcriminal,asthecasemayrequire.

WhenPropertytobeSoldorDestroyed

• Salesofforfeitedchattelsandremovablefixturesshallbeeffected,sofaraspracticable,inthesamemannerandunderthesameconditionsasthe


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publicnoticeandthetimeandmannerofsaleasareprescribedforsalesofpersonalpropertydistrainedforthenon‐paymentoftaxes.

• Distilled spirits, liquors, cigars, cigarettes, othermanufactured productsoftobacco,andallapparatususedIorabouttheillicitproductionofsucharticles may, upon forfeiture, be destroyed by order of theCommissioner,whenthesaleofthesameforconsumptionorusewouldbeinjurioustopublichealthorprejudicialtotheenforcementofthelaw.

• Allotherarticlessubjecttoexcisetax,whichhavebeenmanufacturedorremoved in violation of this Code, as well as dies for the printing ormakingofinternalrevenuestampsandlabelswhichareinimitationoforpurport to be lawful stamps, or labelsmay, upon forfeiture, be sold ordestroyedinthediscretionoftheCommissioner.

• Forfeitedpropertyshallnotbedestroyeduntilat leasttwenty(20)daysafterseizure.

DispositionoffundsRecoveredinLegalProceedingsorObtainedfromForfeitures

• All judgments and monies recovered and received for taxes, costs,forfeitures, finesandpenaltiesshallbepaid to theCommissionerorhisauthorizeddeputiesasthetaxesthemselvesarerequiredtobepaid,andexcept as specially provided, shall be accounted for and dealtwith thesameway.

Cf.SuspensionofRunningofStatuteofLimitations

• The running of the Statute of Limitations provided in Sections 203 and222onthemakingofassessmentandthebeginningofdistraintorlevyaproceeding in court for collection, in respect of anydeficiency, shall besuspended for the period duringwhich the Commissioner is prohibitedfrom making the assessment or beginning distraint or levy or aproceedingincourtandforsixty(60)daysthereafter

o When the taxpayer requests for a reinvestigation which isgrantedbytheCommissioner;

o When the taxpayer cannotbe located in theaddressgivenbyhim in the return filed uponwhich a tax is being assessed orcollected: Provided, that, if the taxpayer informs theCommissioner of any change in address, the running of theStatuteofLimitationswillnotbesuspended;whenthewarrantof distraint or levy is duly served upon the taxpayer, hisauthorizedrepresentative,oramemberofhishouseholdwith

sufficient discretion, and no property could be located; andwhenthetaxpayerisoutofthePhilippines.

REPUBLICV.ENRIQUEZ166SCRA608

FACTS:The commissioner issued a warrant of distraint of personal property of theMaritimeCompanytosatisfydeficiencytaxes.Someofthepropertyseizedwere2barges.Consequentlythepetitionerinformedthesheriffthesubjectbargeswerealready not owned by the company as theywere already subjected to distraint.Thisnotwithstanding, the sheriff sold thebarges inpublicauctionand issued thecorrespondingcertificatesofsaletothehighestbidders.HELD:Itissettledthattheclaimofthegovernmentpredicatedonataxlienissuperiortotheclaimofaprivate litigantpredicatedona judgment.Thetax lienattachesnotonlyfromtheserviceofthewarrantofdistraintofpersonalpropertybutfromthetime the tax became due and payable. Besides, the distraint on the subjectproperties ofMaritimeCompany of the Philippines aswell as the notice of theirseizureweremadebypetitioner, throughtheCommissionerof InternalRevenue,longbeforethewritofexecutionwasissuedbytheRegionalTrialCourtofManila,Branch 31. There is no question then that at the time thewrit of executionwasissued, the two (2) barges,MCP‐1 andMCP‐4, were no longer properties of theMaritime Company of the Philippines. The power of the court in execution ofjudgments extends only to properties unquestionably belonging to the judgmentdebtor. Execution sales affect the rights of the judgment debtor only, and thepurchaserinanauctionsaleacquiresonlysuchrightasthejudgmentdebtorhadatthetimeofsale.Itisalsowell‐settledthatthesheriffisnotauthorizedtoattachorlevyonpropertynotbelongingtothejudgmentdebtor.Compromise

1. A reasonable doubt as to the validity of the claim against the taxpayerexists;or

2. The financial position of the taxpayer demonstrates a clear inability topaytheassessedtax.


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The compromise settlement of any tax liability shall be subject to the followingminimumamounts:

1. Forcasesoffinancialincapacity,aminimumcompromiserateequivalenttotenpercent(10%)ofthebasicassessedtax;and

2. Forothercases,aminimumcompromiserateequivalenttofortypercent(40%)ofthebasicassessedtax.

3. Wherethebasictax involvedexceedsOnemillionpesos(P1,000.000)orwherethesettlementofferedislessthantheprescribedminimumrates,thecompromiseshallbesubjecttotheapprovaloftheEvaluationBoardwhich shall be composedof theCommissioner and the four (4)DeputyCommissioners.

CasesWhichCanBeCompromised

1. Delinquentaccounts;2. Cases under administrative protest pending in the Regional Offices,

Revenue District Offices, Legal Service, Large Taxpayer Service (LTS),CollectionService,EnforcementServiceandotherofficesintheNationalOffice;

3. Civiltaxcasesbeingdisputedbeforethecourts,e.g.,MTC,RTC,CTA,CA,SC;

4. Collectioncasesfiledincourts;5. Criminal violations, other than those already filed in court or those

involvingcriminaltaxfraud;and6. Casescoveredbypre‐assessmentnoticesbuttaxpayerisnotagreeableto

thefindingsoftheauditofficeasconfirmedbythereviewoffice.EXCEPTIONS:

1. Withholdingtaxcases;2. Criminaltaxfraudcases;3. Criminalviolationsalreadyfiledincourt;4. Delinquent accounts with duly approved schedule of installment

payments;5. Caseswherefinalreportsofreinvestigationorreconsiderationhavebeen

issuedresultingtoreductionintheoriginalassessmentandthetaxpayerisagreeable tosuchdecision.Ontheotherhand,otherprotestedcasesshallbehandledbytheRegionalEvaluationBoard(REB)ortheNationalEvaluationBoard(NEB)onacasetocasebasis;and

6. Caseswhichbecomefinalandexecutoryafterfinaljudgmentofacourt.

Compromise:DoubtfulValidityofAssessment1. Thedelinquent account or disputed assessment is one resulting froma

jeopardyassessment(Forthispurpose,"jeopardyassessment"shallrefertoataxassessmentwhichwasassessedwithoutthebenefitofcompleteor partial audit by an authorized revenue officer, who has reason tobelieve that the assessment and collection of a deficiency tax will bejeopardizedbydelaybecauseofthetaxpayer'sfailuretocomplywiththeaudit and investigation requirements to present his books of accountsand/orpertinentrecords,ortosubstantiatealloranyofthedeductions,exemptions,orcreditsclaimedinhisreturn);or

2. Theassessment seems tobearbitrary innature,appearing tobebasedonpresumptionsandthere isreasontobelievethat it is lacking in legaland/orfactualbasis;or

3. The taxpayer failed to file an administrative protest on account of theallegedfailuretoreceivenoticeofassessmentorpreliminaryassessmentand there is reason to believe that the assessment is lacking in legaland/orfactualbasis;or

4. The taxpayer failed to file a request for reinvestigation/reconsiderationwithin30daysfromreceiptoffinalassessmentnoticeandthereisreasontobelievethattheassessmentislackinginlegaland/orfactualbasis;or

5. The taxpayer failed to elevate to the Court of Tax Appeals (CTA) anadversedecisionof theCommissioner,orhisauthorizedrepresentative,insomecases,within30daysfromreceiptthereofandthereisreasontobelievethattheassessmentislackinginlegaland/orfactualbasis;or

6. The assessments were issued on or after January 1, 1998, where thedemandnoticeallegedlyfailedtocomplywiththeformalitiesprescribedunderSec.228oftheTaxCodeof1997;or

7. Assessments made based on the "Best Evidence Obtainable Rule" andthereisreasontobelievethatthesamecanbedisputedbysufficientandcompetentevidence

Compromise:FinancialCapability1. Thecorporationceasedoperationorisalreadydissolved;or2. The taxpayer is suffering from surplus or earnings deficit resulting to

impairmentintheoriginalcapitalbyatleast50%;or3. Thetaxpayerissufferingfromanetworthdeficitcomputedbydeducting

total liabilities(netofdeferredcredits)fromtotalassets(netofprepaidexpenses,deferredcharges,pre‐operatingexpenses,aswellasappraisal


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increases in fixed assets), taken from the latest audited financialstatements;or

4. The taxpayer is a compensation incomeearnerwithnoother sourceofincome and the family's grossmonthly compensation income does notexceedthelevelsofcompensationincomeprovidedforunderSec.4.1.1oftheseRegulations,anditappearsthatthetaxpayerpossessesnootherleviable/distrainableassets,otherthanhisfamilyhome;or

5. The taxpayer has been granted by the Securities and ExchangeCommission (SEC) or by any competent tribunal a moratorium orsuspensionofpaymentstocreditors,orotherwisedeclaredbankruptorinsolvent.

**The Commissioner shall not consider any offer for compromise settlement byreason of financial incapacity unless and until the taxpayerwaives in writing hisprivilege of the secrecy of bank deposits under Republic Act No. 1405 or underothergeneralorspecial laws,andsuchwaivershallconstituteastheauthorityoftheCommissionertoinquireintothebankdepositsofthetaxpayer.

Abatement/Cancellation1. The tax or any portion thereof appears to be unjustly or excessively

assessed;or2. The administration and collection costs involved do not justify the

collectionoftheamountdue.**All criminal violations may be compromised except: (a) those already filed incourt,or(b)thoseinvolvingfraud.

DEFICIENCYTAXASSESSMENT

MeaningofAssessment/Deficiency1. Theamountbywhichthetax imposedbythisTitleexceedstheamount

shown as the tax by the taxpayer upon his return; but the amount soshown on the return shall be increased by the amounts previouslyassessed (or collected without assessment) as a deficiency, anddecreased by the amount previously abated, credited, returned orotherwiserepaidinrespectofsuchtax;or

2. Ifnoamountisshownasthetaxbythetaxpayeruponthisreturn,orifnoreturn is made by the taxpayer, then the amount by which the taxexceeds the amounts previously assessed (or collected withoutassessment) as a deficiency; but such amounts previously assessed or

collected without assessment shall first be decreased by the amountspreviously abated, credited returned or otherwise repaid in respect ofsuchtax.

KindsofTaxAssessment

1. Table assessment—theBIRdidn't proceed to theoffice of taxpayer butinsteadusedfinancialstatementstodeterminetaxliabilities;notfavored

2. Jeopardyassessment—tableassessmentbutwithinthe3yearperiod,theBIRhasn'tdoneanyauditingorlegworkyet;heisforcedtousewhateverhehasonhand

Self‐Assessment

• Rememberthepay‐as‐you‐filerule

REPUBLICV.RICARTE12NOVEMBER1985

FACTS:Following the amendment of the internal revenue code, Ricarte made a self‐assessment and paid accordingly following the same. An assessment noticewassenttohimbytheBIRforallegeddeficiencyincometaxes.HELD:Clearly, before the amendment, the taxpayer files his income tax return and theCollector (now Commissioner) of Internal Revenue assesses the tax due andnotifies the taxpayer thereof.On theotherhand,under theamendatoryact, thetaxpayerassesseshimself,fileshisreturnandisrequiredtopaythetaxasshowninhis returnuponfilingthereof.Thisprocedure iscommonlyknownasthe"pay‐as‐you‐file" system. In other words, under the old law, the Collector of InternalRevenue was required to assess the tax due, while under R.A. No. 2343 thetaxpayer himself computes the tax on the basis of the figures appearing in hisincometaxreturn.The CFI erroneously held that the subsequent assessment made on January 19,1961wasbasedontheamendatoryact.Appellee filedhis incometax return for theyear1958onMarch2,1959and thesamewasassessedbytheBureauofInternalRevenueonApril6,1959.Thetaxwas


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paidintwoinstallments.TheBureauofInternalRevenuereviewedthesaidreturnand foundoutadeficiency in theassessment itpreviouslymadeand the incometax paid by the appellee. A notice of assessment was sent to the appellee onJanuary 19, 1961. Such subsequent assessment undertaken by the Bureau ofInternalRevenuewasbasedmerelyontheincometaxreturnfiledbytheappelleewherenoassessmenthasbeenmadebyhim.Ashasbeensaid,theamountoftaxduewas previously computed by theBureau of Internal Revenue. Finding that itmadeanerror, theBureaureassessedthe incometaxreturnof theappellee;butsuch reassessment was made pursuant to the old law and not under theamendatoryact.However,Weagreewiththelowercourtthatthepresentactionwasfiledaftertheprescriptiveperiodof five (5)yearsprovided for inSection332(c)of theNationalInternalRevenueCode.

TUPAZV.ULEP316SCRA118

FACTS:InformationwasfiledagainstspousesTupazascorporateofficersofacorporationfor non‐payment of corporate income tax. The prosecutor moved then for thewithdrawal of information on the ground that the spouseswere exempted frompaying contractor’s taxes. The judge dismissed the case on the motion ofprosecutor.Thereafter,prosecutormovedfortherevivaloftheinformationonthegroundofpalpablemistake.Thejudgesustainedthemotionoftheprosecutorandresurrectedthecase.HELD:At the outset, itmust be stressed that "internal revenue taxes are self‐assessingandnofurtherassessmentbythegovernmentisrequiredtocreatethetaxliability.An assessment, however, is not altogether inconsequential; it is relevant in theproperpursuitofjudicialandextra‐judicialremediestoenforcetaxpayerliabilitiesand certain matters that relate to it, such as the imposition of surcharges andinterest,andintheapplicationofstatutesoflimitationsandintheestablishmentoftaxliens."Anassessmentcontainsnotonlyacomputationoftaxliabilities,butalsoa demand for payment within a prescribed period. The ultimate purpose ofassessmentistoascertaintheamountthateachtaxpayeristopay.Anassessmentisanoticetotheeffectthattheamountthereinstatedisdueastaxandademand

forpaymentthereof.Assessmentsmadebeyondtheprescribedperiodwouldnotbebindingonthetaxpayer.Exceptions

1. Taxpayerperiodisterminated2. Taxaudits3. Taxliens4. Dissolution

DeficiencyAssessment

• Afterthereturnisfiled,theCommissionershallexamineitandassessthecorrectamountofthetax.ThetaxordeficiencyincometaxsodiscoveredshallbepaiduponnoticeanddemandfromtheCommissioner.

IllegalandVoidAssessment

• The taxpayers shall be informed inwriting of the law and the facts onwhichtheassessmentismade;otherwise,theassessmentshallbevoid.

VICTORIA’SMILLINGV.CTAL‐24213,13MARCH1968

FACTS:Thecorrespondingtaxesdueonthesaidmachinerieswerepaidunderprotest.Victorias, however, did not appeal from all the aforesaid assessments to theProvincial Board of Assessment Appeals as required in Section 17 of theAssessmentLaw. Instead,onApril24,1953 it fileda complaintwith theCourtofFirst Instance of Negros Occidental against the Provincial Treasurer of NegrosOccidental, alleging inter alia, that the assessor erroneously did not follow the"straightlinemethod"indeterminingthedepreciationofitsmachineries.HELD:It is settled in our jurisdiction that where an assessment is illegal and void, theremedyofataxpayer,whoalreadypaidtherealtytaxunderprotest,istocourtoffirst instance.On theotherhand,where theassessment ismerelyerroneous,hisrecourse istofileanappeal intheProvincialBoardofAssessmentAppealswithin60daysfromreceiptoftheassessment.


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Anassessmentisillegalandvoidwhentheassessorhasnopowertoactatall.Itiserroneouswhentheassessorhasthepowerbuterrsintheexerciseofthatpower.In thiscase, theProvincialAssessorofNegrosOccidentalhad thepower tomaketheassessments inquestionunderSection7of theAssessmentLaw.Atanyrate,theauthorityoftheassessorisnotdisputedbyVictorias.Since theProvincialAssessorhad thepower tomake theassessments,but in theexerciseofsuchpowerhedeviatedfromtheproceduresetdownbylaw,inthatheemployedthe"fixedpercentageofdiminishingbookvaluemethod"insteadofthe"straight linemethod" in depreciating themachineries, logically, the assessmentshouldbeconsideredaserroneous.Inwhichevent,Victoria'sremedy,pursuanttoSection 17 of the Assessment Law, was to appeal to the Provincial Board ofAssessmentAppeals.ErroneousAssessment

• TheassessorhasthepowertoactbuterredintheexerciseofthepowerPrinciplesGoverningAssessments

1. Presumptionofcorrectnessofassessments2. Assessmentsarenotbasedonpresumptionsnomatterhowlogical3. Assessmentsisdiscretionaryonthepartofthecommissioner4. Authoritytoassessmaybedelegated5. Assessmentmustbedelegatedtotheproperparty6. Investigativepowersofthecommissioner7. Commissioner must state in a clear and unequivocal language the

decision8. Fraudcases9. Mandamuswillnotlieagainstdiscretion

NoEstoppelAgainsttheGovernmentDisputablePresumption:DulyDirectedandMailedLetterisDeemedReceived

• Rulesonmailinglettersofauthorityorassessment• Itshouldnotbepersonalbutregisteredmail:dateofmailingisthedate

ofreceipt• If made through personal service, date of receipt is the actual date of

receiptofthetaxpayerorhisrepresentative

• Iftaxpayeriscorporation,itmustbemadetoitsofficersauthorizedintheRulesofCourt(*rememberRulesonserviceofsummons)

PRESCRIPTIONOFRIGHTTOASSESSANDCOLLECTTAXES

PrescriptionofRighttoAssessSEC. 203. Period of Limitation Upon Assessment and Collection. ‐ Except asprovided inSection222, internal revenuetaxesshallbeassessedwithin three (3)years after the last day prescribed by law for the filing of the return, and noproceeding in courtwithout assessment for the collection of such taxes shall bebegunaftertheexpirationofsuchperiod:Provided,Thatinacasewhereareturnisfiled beyond the period prescribed by law, the three (3)‐year period shall becounted fromtheday the returnwas filed.Forpurposesof thisSection,a returnfiledbeforethelastdayprescribedbylawforthefilingthereofshallbeconsideredasfiledonsuchlastday.SEC.222. Exceptionsas toPeriodof LimitationofAssessmentandCollectionofTaxes.‐(a) Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailure

to file a return, the tax may be assessed, or a proceeding in court for thecollectionofsuchtaxmaybefiledwithoutassessment,atanytimewithinten(10)yearsafterthediscoveryofthefalsity,fraudoromission:Provided,Thatinafraudassessmentwhichhasbecomefinalandexecutory,thefactoffraudshall be judicially taken cognizance of in the civil or criminal action for thecollectionthereof.

(b) If before the expiration of the time prescribed in Section 203 for the

assessmentofthetax,boththeCommissionerandthetaxpayerhaveagreedinwriting to its assessmentafter such time, the taxmaybeassessedwithinthe period agreed upon. The period so agreed upon may be extended bysubsequent written agreement made before the expiration of the periodpreviouslyagreedupon.

(c) Any internal revenue tax which has been assessed within the period of

limitationasprescribedinparagraph(a)hereofmaybecollectedbydistraintor levy or by a proceeding in court within five (5) years following theassessmentofthetax.


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(d) Any internal revenue tax,whichhasbeenassessedwithin theperiodagreed

uponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraintor levyorbyaproceeding incourtwithin theperiodagreedupon inwritingbeforetheexpirationofthefive(5)‐yearperiod.Theperiodsoagreeduponmay be extended by subsequent written agreements made before theexpirationoftheperiodpreviouslyagreedupon.

(e) Provided,however,Thatnothingintheimmediatelyprecedingandparagraph

(a)hereof shallbeconstrued toauthorize theexaminationand investigationorinquiryintoanytaxreturnfiledinaccordancewiththeprovisionsofanytaxamnestylawordecree.

GUAGUAELECTRICV.COLLECTOR 19SCRA790

FACTS:Actingonthebeliefthat itwasentitledtoasmallerrateoffranchisetax,Guaguafiled for refund for alleged excess payments. CIR was granted refund but for acertainextentonly.Guaguasoughtreconsiderationofthedecision.In the meanwhile, the CIR made an assessment against Guagua for deficiencyfranchisetaxes,andreconsidereditsdecisiontograntrefundtoGuagua.Itallegedthat Guaguawasn't entitled to any refund andwas actually liable for deficiencytaxes.HELD:Where the CIR seeks to recover from the taxpayer an amount which waserroneously refunded, said amount is in effect an assessment for deficiencyfranchise tax and the rules on prescription provided for in the Tax Code iscontrolling.NOTES:

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. ‐ no suit orproceeding shall be maintained in any court for the recovery of any nationalinternal revenue tax hereafter alleged to have been erroneously or illegallyassessed or collected, or of any penalty claimed to have been collectedwithout

authority,ofanysumallegedtohavebeenexcessivelyorinanymannerwrongfullycollectedwithoutauthority,orofany sumalleged tohavebeenexcessivelyor inanymannerwrongfully collected,until a claim for refundorcredithasbeendulyfiled with the Commissioner; but such suit or proceeding may be maintained,whetherornotsuchtax,penalty,orsumhasbeenpaidunderprotestorduress.Inanycase,nosuchsuitorproceedingshallbefiledaftertheexpirationoftwo(2)yearsfromthedateofpaymentofthetaxorpenaltyregardlessofanysuperveningcause thatmay arise after payment: Provided, however, That the Commissionermay,evenwithoutawrittenclaimtherefor,refundorcreditanytax,whereonthefaceofthereturnuponwhichpaymentwasmade,suchpaymentappearsclearlytohavebeenerroneouslypaid.

• Itisimportanttoknowthedatesofpayment• For example, quarterly VAT payments are paid every 25th and they are

consideredfinal.Thus,the2‐yearperiodstartstorunfromthispoint.• If the Commissioner denies your claim before the end of the 2‐year

period,yourremedyistoappealtotheCTA30‐daysfromreceiptofthedenial

• IftheCommissionerdeniesyourclaimafterthe2‐yearperiod,thereisnoremedyanylonger

• If the Commissioner denies your claim on the last day of the 2‐yearperiod,youaregivenanadditionalonedaytoappeal

• Ifyoufileyourclaimforrefund1daybeforethelastday,onthenextday,without receiving any decision, you appeal to the CTA and alleged thatyouwill losebenefitbyprescription ifyouwait for thedecision. Valid?Yes, you are still entitled given that it was still within the prescriptiveperiod.

CIRVS.SUYOCCONSOLIDATEDMINING 104 PHIL 819 (TAXPAYER CANNOT CLAIM PRESCRIPTION WHEN IT WAS THEPARTYASKINGFORREINVESTIGATION)

FACTS:Respondentcompanywasn'tabletofileitsincometaxreturnsbyvirtueofthewar.After thewar, a lawwas passedwherein an extension for filing tax returnswasgranted. Due to the destruction and loss of its company records, the companyaskedforextensionforfilingandwasdulygranted.Thereafter, itwasabletofile


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amendedreturnsateachstepadocumentoftheirsisreconstructed.TheCIRthenassessed them for deficiency and the company asked for reassessment andreinvestigation, which again was granted. With the new assessment given it, itthen filed an appealwith the CTA, alleging that prescription has kicked in and itcouldn'tnolongerbeassessedbytheCIR.HELD:Amererequestforreinvestigationorreconsiderationmaynotsuspendtherunningof the period of limitations for in such a case, there is a need of a writtenagreement to extend theperiodbetween theCollector and the taxpayer. Therearecaseshoweverwhereataxpayermaybepreventedfromsettingupthedefenseofprescriptionevenifhehasn'tpreviouslywaiveditaswhenbyhisrequestsandpositiveactsthegovernment,hasbeen,forgoodreasons,persuadedtopostponecollection tomake himself feel that the demandwasn't unreasonable or that noharassmentismeantforthegovernment.

REPUBLICVS.LOPEZ 117PHIL.575,578(1963)(PERIODWHEREINREINVESTIGATIONWASCONDUCTEDTOBEDEDUCTEDFROMPRESCRIPTIVEPERIOD.)

FACTS:HELD:

COMM.VS.SISON 117PHIL892,895(1963)

FACTS:HELD:Whenshouldbethewaiverofstatuteoflimitationssigned?

• It shouldbe signedbyboth the taxpayer and theCommissioner beforetheendoftheprescriptiveperiod

Whatshouldbeincludedinthewaiverfortheprotectionoftheclient?• Theperiodofextensionortheexactdate• Thewaivershouldn'tbeundated

BISAYALANDTRANSPORTATIONCOVS.COLLECTORL‐12100&L‐11812,MAY19,1959

FACTS:Petitioner acquired equipment from theUSwhich it used in its operations of itsbuses,withoutpaymentofthecorrespondingcompensatingandspecifictaxes.Oninvestigationof itsbooks, itwas foundout that the companyalsowasn't able topaydocumentarystamptaxes,commoncarrier’stax,etc.Itwasthenassessedforthedeficiencyandtheappellatecourtsustainedthedeficiency.HELD:Thereisnomerittothecontentionthattheprescriptiveperiodshouldbecountedfrom the filing of the income tax returns. The income tax returns reflect theincomeforagiventaxableyearandthetaxpayerisnotsupposedtodeclareinsaidreturns that he has purchased or received that are subject to compensating tax.Generally,suchpurchasesarenotincomeandthusnotrighttobeplacedinthetaxreturns.

BUTUANSAWMILL,INC.VSCTA 16SCRA277,FEB.28,1961

FACTS:PetitionersoldtoJapanesefirmslogsatpricesFOB.Thesepricesincludedcostsforloading,wharfage,stevedoring,andothercosts. Upon investigation itwas foundout that therewasno sales tax return filed and accordingly, no taxwaspaid forsuchsales.Thecompanywasthenassessedfordeficiencytaxesaswellasinterestsandsurcharges.HELD:Aqnincometaxreturncannotbeconsideredasareturnforcompensatingtaxforpurposesofcomputingtheperiodofprescriptionandthatataxpayerinorderforhimselftoavailofthebenefitsmustfileareturnfortheparticulartax.otherwise,if hedoesn't file a return, anassessmentmadewithin the time stated in the taxcode.


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Itisundisputedthatpetitionerfailedtofileareturnforthedisputedyearsandthisomissionwasdiscoveredon4yearsafterthelastreturnwasfiled.

CIRVS.AYALASECURITIES 70SCRA204,MAR.31,1976

FACTS:Respondent corporationwasassessed foraccumulated surplusdeficiency incometaxestowhichitdulyprotestedagainst.Petitionerthenwroterespondent“advisethat your request for reconsideration will be the subject matter of furtherreinvestigation and a thorough analysis of the issues involved conditionedhowever,upontheexecutionofyourclientoftheenclosedformofwaiverofthedefenseofprescription.”Therespondentwasn'tabletosignthewaiverform.Thereafter,therewasdemandfortheunpaidtaxes.Apetitionforreviewwasfiledwith theCTAandoneof theallegationswas that theprescriptionperiodalreadykickedin.HELD:As theassessmentwasmadebeyond the5‐yearperiodprescribedunderSection331oftheCode,thesamewasmadeaftertheprescriptiveperiodhadexpired,andtherefore,wasn'tanymorebindingontheAyalaSecuritiesCorporation.

AZNARVS.CIR 58SCRA519

FACTS:ThelateMatiasAznarfiledhisincometaxreturns.However,theCIRsuspiciousoftheamountsreportedconsideringtheperson’sobviouswealthcausedthelocalBIRexaminertoascertainthetaxpayerstrueincome.IntheendAznarwasassessedfordeficiency income taxes which upon reinvestigation was reduced and furtherreducedbytheCTAuponappeal.HELD:Theproper and reasonable interpretationof said provision shouldbe that in thethreedifferentcasesof(1)falsereturn,(2)fraudulentreturnwithintenttoevadetax,(3)failuretofileareturn,thetaxmaybeassessed,oraproceedingincourtfor

thecollectionofsuchtaxmaybebegunwithoutassessment,atanytimewithintenyearsafter thediscoveryof the (1) falsity, (2) fraud, (3)omission.Our stand thatthe law should be interpreted to mean a separation of the three differentsituationsoffalsereturn,fraudulentreturnwithintenttoevadetax,andfailuretofile a return is strengthened immeasurably by the last portion of the provisionwhich segregates the situations into three different classes, namely "falsity","fraud" and "omission". That there is a difference between "false return" and"fraudulentreturn"cannotbedenied.Whilethefirstmerelyimpliesdeviationfromthe truth,whether intentional or not, the second implies intentional or deceitfulentrywithintenttoevadethetaxesdue.Theordinaryperiodofprescriptionof5yearswithinwhichtoassesstaxliabilitiesunder Sec. 331 of the NIRC should be applicable to normal circumstances, butwhenever thegovernment isplacedatadisadvantage soas toprevent its lawfulagents from proper assessment of tax liabilities due to false returns, fraudulentreturnintendedtoevadepaymentoftaxorfailuretofilereturns,theperiodoftenyearsprovidedforinSec.332(a)NIRC,fromthetimeofthediscoveryofthefalsity,fraudoromissionevenseemstobeinadequateandshouldbetheoneenforced.Therebeingundoubtedlyfalsetaxreturnsinthiscase,WeaffirmtheconclusionoftherespondentCourtofTaxAppealsthatSec.332(a)oftheNIRCshouldapplyandthattheperiodoftenyearswithinwhichtoassesspetitioner'staxliabilityhadnotexpiredatthetimesaidassessmentwasmade

CIRVS.JAVIERJR. 199SCRA824,JULY31,1991

FACTS:This is that famouscasewhereinthetaxpayer footnoted inhis incometaxreturnthatheerroneouslyreceivedmoneybutalreadyspentthesame.HELD:Thefraudcontemplatedbylawinthefilingofincometaxreturnsisactualandnotconstructive. Itmustbe intentional fraudconsistingofdeceptionandwillfulanddeliberate inducement foronetogiveup its right. Connecting to thecaseatbar,there isno intentional fraudto justifythe impositionof fraudchargesagainstthetaxpayer.

REPUBLICVS.ACEVEDO


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22SCRA1356

FACTS:AcebedowasissuedaNoticeofAssessmentfordeficiencyincometaxfortheyear1948 in the amount of P5,962.83. The said Noticewas issued on September 24,1949,butthecomplaintforthedeficiencywasfiledonlyonDecember27,1961.It was found out during the proceedings that Acebedo requested for areinvestigation of the deficiency on October 11, 1949. However, there were norecords of any action upon said request. Furthermore, it appeared thatAcebedosigneda“waiverofthestatuteoflimitations”onDecember17,1959.Acebedo filed for dismissal of the case on the ground of prescription. The CFIgrantedthedismissal.UnderthethenNIRC,assessmentmaybecollectedthroughjudicialactionbutonlyif such actionbegun: (1)within five years after the assessmentof the tax; or (2)prior to theexpirationofanyperiod for collectionagreedupon inwritingby theparties,providedthattheagreementwasenteredintowithintheaforementionedfiveyearperiod.Theperiodagreeduponmaybeextendedbysubsequentwrittenagreements.HELD:Thedelay incollectioncannotbeattributedtothedefendant. Hisrequestswereunheededandtherewasnothingtoimpedetheenforcementofthetaxliabilitybythe means provided by law. More than 5 years have transpired since theassessmentwasmade. Prescriptionhasalreadyset inmakingsubsequenteventsno longer revive the right of action. The written waiver by the defendant isinconsequentialasitwasexecutedafterthe5‐yearperiod.

SINFOROSAALCAVS.CA 26SCRA136

FACTS:AlcawasassessedforspecifictaxesandlaterontheCIRdemandedpaymentofthedeficiencytaxes.Atfirstblush,theassessmentanddemandwasmadebeyondtheprescriptiveperiodgivenbylaw.Evenso,thetaxpayerhadearlieronsubmittedawaiver,whichwasmadewithinthe5‐yearperiod.

HELD:Thewaiverisnotonlyanextensionoftheperiodoflimitationsbutarenunciationofpetitioner’srightto invokethedefenseofprescriptionwhichwasthenalreadyavailable to her. There is nothing wrong about this kind of waiver just like anyotherright,therighttoavailofthedefenseiswaivable.

RPVS.LIMDEYU 10SCRA738

FACTS:Defendantfiledaccordinglyherincometaxreturnsandwhenshewasassessedfordeficiency,shepaid.Thereafter,shewasassessedfordeficiencytaxestowhichsheprotestedandsoughtreinvestigation.On1956,shesignedawaiverofthestatuteoflimitationsofthetaxcode.HELD:For the 10‐year period to kick in, fraud shouldn't only be alleged but itmust beestablished. Fraud not having been proven in the case at bar, the period oflimitationis5yearsfromthefilingofreturn,.Further,thewhateverwaiverismadeby the taxpayer cannot be interpreted to likewise include those taxes alreadyprescribed.

CIRVS.BFGOODRICH G.R.NO.104171,FEB24,1999

FACTS:HELD:Prescription periods is provided for by law to protect taxpayers from anyunreasonableexamination,investigationorassessment.Inconnectiontothis,Section15oftheNLRCdoesn'tprovideanexceptiontothestatute of limitations on the issuanceof the assessment. By allowing the initialassessment tobemadeon thebasisof thebestevidenceobtainable,andhavingmade its initial assessment, the Commissioner couldn't have been authorized toissue,beyondthe5‐yearprescriptiveperiodthesecondandthirdassessments.


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BOISECASCADEPHILS,INC.VS.CIRCTACASENO.2858,MARCH30,1987

HELD:Section331ofthe1972TaxCodeprovidesthatBIRhas5years fromthefilingoftheincometaxreturn.TheexceptionunderSection332(b),whichiswhenthereisawaiverof statuteof limitation is not applicable in this case. TheCodeprovidesthatforittobevalid,thewaivermustbeinwritingandmustbebothsignedbytheCommissionerofInternalRevenueandthetaxpayer.AclosescrutinyofthewaiverofthestatuteoflimitationallegedlysignedbybothBoiseandCommissionershowthat Revenue District Officer Sixto J. Javier had merely attested the aforesaidwaiver;thataforesaidofficerdidnotsignthewaivereitherfororbyvirtueoftheauthorityoftheCommissionerofInternalRevenue.Clearly,foralllegalintentsandpurposes of the above law, Section 332 of the National Internal Revenue Code,therewasno validwaiver executedbyhereinCommissionerof Internal Revenueandpetitionertostoptherunningoftheperiodwithinwhichtovalidlyassessthetaxinquestion.

CARNATIONPHILS.,INC.VS.CIR CTACASENO.4263,JANUARY26,1993

HELD:Although the period of prescription is waivable by agreement, theremust exist,however,2essentialrequisitesforthewaivertobevalid:first,thewaivermustbeentered intobefore expirationof the timeprescribed formaking an assessment;andsecond, theCommissionerand the taxpayermusthaveconsented thereto inwriting.

MARCOSVS.CA, G.R.NO.120880,JUNE5,1997

CIRVS.RASCOR G.R.NO.128315,JUNE29,1999

FACTS:

HELD:The issuance of an assessment is vital in determining the period of limitationregardingitsproperissuanceandtheperiodwithinwhichtoprotestit.Section203of theNIRCprovidesthat internal revenuetaxesmustbeassessedwithin3yearsfrom the last day of filing a return. Another section provides for a period of 10years in casesof fraudulent returns. Necessarily, a taxpayerneeds tobe certainthataspecificdocumentisanassessment.Inthiscase,thenoticesenttothetaxpayerisnotanassessment.Itonlycontaineda computation of the liability of the taxpayer but absent any demand for itspayment.Neither the NIRC nor the regulations governing the protest of assessments11provideaspecificdefinitionorformofanassessment.However,theNIRCdefinesthe specific functions and effects of an assessment. To consider the affidavitattached to theComplaintasaproperassessment is to subvert thenatureofanassessmentandtosetabadprecedentthatwillprejudiceinnocenttaxpayers.True,as pointed out by the private respondents, an assessment informs the taxpayerthat he or she has tax liabilities. But not all documents coming from the BIRcontainingacomputationofthetaxliabilitycanbedeemedassessments.Assessmentisanoticedulysenttothetaxpayer.Indeed,anassessmentisdeemedmade only when the collector of internal revenue releases, mails or sends suchnotice to the taxpayer. In thepresentcase, the revenueofficers'Affidavitmerelycontainedacomputationofrespondents'taxliability.Itdidnotstateademandoraperiodforpayment.Worse,itwasaddressedtothejusticesecretary,nottothetaxpayers.

TUPAZVS.ULEP GR127777,OCTOBER1,1999

HELD:Thetaxpayerhasn'tcommittedanyviolationfornon‐paymentoftax.Theoffensewas committed only after the finality of the assessment coupled with thetaxpayer’s refusal topay the taxeswithin theallottedperiod. In this case,whenthenoticeofassessmentwasissued,thetaxpayerstillhad30daystoprotestthesame. Ashedidn'tprotest, theassessmentbecamefinalandunappeallable.And


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consequently,whenthecomplaintwas filedagainsthim, itwaswithin the5‐yearperiod.PrescriptiontotheRighttoCollect

• Except as provided in Section 222, internal revenue taxes shall beassessedwithin three (3) years after the last day prescribed by law forthe filingof the return,andnoproceeding in courtwithoutassessmentforthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuchperiod:Provided,Thatinacasewhereareturnisfiledbeyondtheperiodprescribed by law, the three (3)‐year period shall be counted from theday the return was filed. For purposes of this Section, a return filedbefore the last day prescribed by law for the filing thereof shall beconsideredasfiledonsuchlastday.

Exceptions(recap)

(a) Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailuretofileareturn,thetaxmaybeassessed,oraproceedingincourtfor the collection of such taxmay be filed without assessment, at anytime within ten (10) years after the discovery of the falsity, fraud oromission: Provided, That in a fraudassessmentwhichhasbecome finalandexecutory,thefactoffraudshallbejudiciallytakencognizanceofinthecivilorcriminalactionforthecollectionthereof.

(b) If before the expiration of the time prescribed in Section 203 for theassessment of the tax, both the Commissioner and the taxpayer haveagreed in writing to its assessment after such time, the tax may beassessedwithintheperiodagreedupon.Theperiodsoagreeduponmaybe extended by subsequent written agreement made before theexpirationoftheperiodpreviouslyagreedupon.

(c) Any internal revenue taxwhichhas been assessedwithin theperiodoflimitation as prescribed in paragraph (a) hereof may be collected bydistraintorlevyorbyaproceedingincourtwithinfive(5)yearsfollowingtheassessmentofthetax.

(d) Any internal revenue tax, which has been assessed within the periodagreeduponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraintorlevyorbyaproceedingincourtwithintheperiodagreedupon in writing before the expiration of the five (5) ‐year period. Theperiod so agreed upon may be extended by subsequent writtenagreementsmadebeforetheexpirationoftheperiodpreviouslyagreedupon.

(e) Provided, however, That nothing in the immediately preceding andparagraph(a)hereofshallbeconstruedtoauthorizetheexaminationandinvestigationor inquiry into any tax return filed in accordancewith theprovisionsofanytaxamnestylawordecree.

SuspensionOfPrescriptivePeriods

• The running of the Statute of Limitations provided in Sections 203 and222onthemakingofassessmentandthebeginningofdistraintorlevyaproceeding in court for collection, in respect of anydeficiency, shall besuspended for the period duringwhich the Commissioner is prohibitedfrom making the assessment or beginning distraint or levy or aproceedingincourtandforsixty(60)daysthereafter;whenthetaxpayerrequests for a reinvestigation which is granted by the Commissioner;whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthereturn filed upon which a tax is being assessed or collected: Provided,that,ifthetaxpayerinformstheCommissionerofanychangeinaddress,therunningoftheStatuteofLimitationswillnotbesuspended;whenthewarrant of distraint or levy is duly served upon the taxpayer, hisauthorizedrepresentative,oramemberofhishouseholdwithsufficientdiscretion, andnoproperty couldbe located;andwhen the taxpayer isoutofthePhilippines.

CIRVS.SISON 7SCRA824

Itissettledthatthe5yr.PeriodofSec.332ontheNIRCistobecountedfromthelastrevisedassessmentresultingfromareinvestigationaskedforbythetaxpayer.Where a taxpayer demands for a reinvestigation, the time employed inreinvestigatingshouldbedeductedfromthetotalperiodoflimitation.

REPUPLICVS.ABLAZA 108PHIL1705

The lawprescribing a limitationof actions for the collectionof the income tax isbeneficialbothtotheGovernmentandtoitscitizens;totheGovernmentbecausetaxofficerswouldbeobligedtoactpromptlyinthemakingofassessment,andtocitizensbecauseafterthelapseoftheperiodofprescriptioncitizenswouldhaveafeelingofsecurityagainstunscrupuloustaxagentswhowillalwaysfindanexcuse


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toinspectthebooksoftaxpayers,nottodeterminethelatter'srealliability,buttotakeadvantageofeveryopportunitytomolestpeaceful,law‐abidingcitizens.Without such legal defense taxpayerswould furthermore be under obligation toalwayskeeptheirbooksandkeepthemopenforinspectionsubjecttoharassmentbyunscrupuloustaxagents.Thelawonprescriptionbeingaremedialmeasureshouldbeinterpretedinawayconducivetobringingaboutthebeneficientpurposeofaffordingprotectiontothetaxpayer within the contemplation of the Commission which recommend theapprovalofthelaw.

CIRVS.CAPITOLSUBD. 10SCRA773

While it is true that the said letter did not specifically use thewords “review orreconsideration”,therequestitselfforanexplanationofthedisallowancesmadeintheassessmentineffectwasanexceptiontothecorrectnessthereof.

PALANCAVS.CIR 4SCRA263

All that is required by the provisions of section 332 (c) of the NIRC to start therunning of the period of limitation therein prescribed is to distraint or levy, orinstituteaproceedingincourt,within5yearsaftertheassessmentofthetax.A judicialaction for thecollectionof the tax isbegunby the filingofacomplaintwiththepropercourtoffirstinstance,orwheretheassessmentisappealedtothecourt of tax appeals, by filing an answer to the taxpayer’s petition for reviewwhereinthepaymentofthetaxesareprayedfor.Thesummaryremedyofdistraintorlevyisbegunbytheissuanceofawarrantofdistraintandlevyanditisnotnecessarythatitactuallybeexecutedtobeeffective.Therightof thecommissionerof internal revenuetocollectbysummarymethodhas theeffectof stopping the runningofprescriptiononceawarrantofdistraintandlevyisissued.

REPUBLICVS.KER&CO.LTD. 18SCRA207SEPT.29,1966

Section 331 of the Revenue Code explicitly provides, in mandatory terms, thatinternal revenuetaxesshallbeassessedwithin5yearsafter thereturnwas filed,andnoproceedings incourtwithoutassessment, for thecollectionofsuchtaxes,shallbebegunafterexpirationofsuchperiod

CIRVS.ALGUE 158SCRA9,FEB.17,1988

CIRVS.WYETHSUACOLABORATORIESINC.&CTA202SCRA125,SEPT.30,1991

Settledistherulethattheprescriptiveperiodprovidedbylawtomakeacollectionby distraint or levy or by a proceeding in court is interrupted once a taxpayerrequestsforreinvestigationorreconsiderationoftheassessment

CIRVS.UNIONSHIPPINGCORP. 185SCRA547,MAY21,1990

REMEDIESOFTHETAXPAYER

RemediesBeforePaymentoftheTax

• Withinaperiodtobeprescribedbyimplementingrulesandregulations,thetaxpayershallberequiredtorespondtosaidnotice. If thetaxpayerfailstorespond,theCommissionerorhisdulyauthorizedrepresentativeshallissueanassessmentbasedonhisfindings.

• Suchassessmentmaybeprotestedadministrativelybyfilingarequestforreconsiderationorreinvestigationwithinthirty(30)daysfromreceiptofthe assessment in such form and manner as may be prescribed byimplementingrulesandregulations.

• Within sixty (60) days from filing of the protest, all relevant supportingdocuments shall have been submitted; otherwise, the assessment shallbecomefinal.


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• If theprotest isdenied inwholeor inpart,or isnotacteduponwithinone hundred eighty (180) days from submission of documents, thetaxpayeradverselyaffectedbythedecisionorinactionmayappealtotheCourt of Tax Appeals within thirty (30) days from receipt of the saiddecision, or from the lapse of one hundred eighty (180)‐day period;otherwise,thedecisionshallbecomefinal,executoryanddemandable.

DefensesAgainsttheAssessment

AGUINALDOINDUSTRIESCO.VS.CIR112SCRA136,FEB.25,1982C/OP.AQUINO

FACTS:Aguinaldo Industries Corporation the manufacture of fishing nets (a tax‐exemptindustry)andthemanufactureoffurniture.Foraccountingpurposes,eachdivisionis provided with separate books of accounts as required by the Department ofFinance. Petitioner acquired a parcel of land inMuntinglupa, Rizal, as site of thefishing net factory. Subsequently sold it and bought a parcel of land inMarikinaHeights which was supposedly suitable for their needs. Petitioner derived profitfromthissalewhichwasenteredasmiscellaneousincometodistinguishitfromitstax‐exemptincome.

During 1957, the examiners found that the petitioner deducted from its grossincomeanadditionalremunerationpaidtotheofficersofpetitionerandthatthisamountwas taken from the net profit of the sale of a land not in the course oftradeorbusiness.Thedeductionwasdisallowed.CTAagreedwiththeBIR.

ISSUESANDRATIO:1.Istheprofitderivedfromthesalenottaxableforitistax‐exemptincome?

No.Itwasimplicitlyadmittedthattheprofititderivedfromthesalewasataxablegainwhichwasthereasonwhyfortaxpurposesthepetitionerdeductedthebonustoitscorporateofficers.Itwasonlyafterthesaiddecisionhadbeenrenderedandonamotionforreconsiderationthereof,thattheissueoftaxexemptionwasraisedby the petitioner for the first time. It was thus not one of the issues raised bypetitionerinhispetitionandsupportingmemorandumintheCourtofTaxAppeals.

Thiscannotbepermitted, for thesamereason thatunderlies the requirementofpriorexhaustionofadministrative remedies togiveadministrativeauthorities theprioropportunitytodecidecontroversieswithin itscompetence,andinmuchthesamewaythat,onthejudiciallevel,issuesnotraisedinthelowercourtcannotberaisedforthefirsttimeonappeal.

2. Is thebonus given to theofficers anordinary andnecessarybusiness expensedeductible for income tax purposes and is thepetitioner not liable for surchargeandinterestforlatepayment?

No. There is no evidenceof any service actually renderedbypetitioner's officerswhich couldbe thebasisof agrant to themofabonusoutof theprofitderivedfrom the sale. This being so, the payment of a bonus to them out of the gainrealized from the sale cannot be considered as a selling expense; nor can it bedeemedreasonableandnecessarysoastomakeitdeductiblefortaxpurposes.

ABRAVALLEYCOLLEGEVS.HON.AQUINOL‐39086,JUNE15,1988C/OP.AQUINO

FACTS:Petitionerisaneducationalcorporationandinstitutionofhigherlearning.OnJuly10,1972 inthecourtaquotoannulanddeclarevoidthe"NoticeofSeizure'andthe "Notice of Sale" of its lot and building located at Bangued, Abra, for non‐payment of real estate taxes and penalties. Said "Notice of Seizure" covered thecollege lot and building. The "Notice of Sale"was caused to be served upon thepetitionerbytherespondenttreasurersforthesaleatpublicauctionofsaidcollegelotandbuildingforthesatisfactionofthesaidtaxes.Dr.Millareofferedthehighestbidwhichwasdulyaccepted.Thecertificateofsalewascorrespondinglyissuedtohim.Afterthesaleoftheschoolpremisesatpublicauction,therespondentJudge,Hon. Aquino ordered the respondents provincial and municipal treasurers todelivertotheClerkofCourttheproceedsoftheauctionsale.Thetrialcourtfoundthat the school is recognized by the government and is offering Primary, HighSchool and College Courses, that it is located a few meters from the plaza andabout 120meters from the Court of First Instance building, that the elementarypupilsarehoused ina two‐storeybuildingacross the street, that thehigh schooland college students are housed in themain building, that the Directorwith his


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familyisinthesecondfloorofthemainbuilding;andthattheannualgrossincomeoftheschoolreachesmorethanonehundredthousandpesos.ISSUESANDRATIO:1. Is the primary use of the school lot and building is the basic and controllingguide,normandstandardtodeterminetaxexemption,andnotthemereincidentalusethereof?Yes. The exemption in favor of property used exclusively for charitable oreducationalpurposesisnotlimitedtopropertyactuallyindispensablebutextendsto facilities which are incidental to and reasonably necessary for theaccomplishmentofsaidpurposes.Thetestofexemptionfromtaxationistheuseofthepropertyforpurposesmentioned intheConstitution.However,whiletheuseofthesecondfloorofthemainbuildinginthecaseatbarforresidentialpurposesoftheDirectorandhisfamily,mayfindjustificationundertheconceptofincidentaluse,whichiscomplimentarytothemainorprimarypurposeeducational,theleaseof the first floor thereof to the Northern Marketing Corporation cannot by anystretchoftheimaginationbeconsideredincidentaltothepurposeofeducation.

2.Canfactsnotraisedinthelowercourtbetakenupforthefirsttimeonappeal?

GeneralRule:No.TheleasewasraisedforthefirsttimeinthisCourt.Thematterwasnottakenupinthecourt.Itisaxiomaticthatfactsnotraisedinthelowercourtcannotbe takenup for the first timeonappeal.Nonetheless, asanexception tothe rule, this Court has held that although a factual issue is not squarely raisedbelow, still in the interestof substantial justice, thisCourt is notprevented fromconsidering a pivotal factual matter. The Supreme Court is clothed with ampleauthority to review palpable errors not assigned as such if it finds that theirconsiderationisnecessaryinarrivingatajustdecision.

Note:Sinceonlyaportionisusedforpurposesofcommerce,itisonlyfairthathalfoftheassessedtaxbereturnedtotheschoolinvolved.

CIRVS.PROCTER&GAMBLEPMC204SCRA377,DECEMBER2,1991C/OP.AQUINO

FACTS:Procter and Gamble Philippines is a wholly owned subsidiary of Procter andGambleUSA(PMC‐USA),anon‐residentforeigncorporationinthePhilippines,notengaged in trade andbusiness therein. PMC‐USA is the sole shareholder of PMCPhilippinesand isentitled to receive incomefromPMCPhilippines in the formofdividends, if not rents or royalties. For the taxable years 1974 and 1975, PMCPhilippinesfileditsincometaxreturnandalsodeclareddividendsinfavorofPMC‐USA.In1977,PMCPhilippines,invokingthetax‐sparingprovisionofSection24(b)as thewithholding agent of the Philippine Governmentwith respect to dividendtaxespaidbyPMC‐USA,filedaclaimfortherefundof20percentagepointportionofthe35percentagewholetaxpaidwiththeCommissionerofInternalRevenue.ISSUESANDRATIO:1.Canfactsnotraisedinthelowercourtbetakenupforthefirsttimeonappeal?No.Thepreliminaryaspectsof thequestionof the capacityofP&G‐Phil. tobringthepresentclaimfor refundor taxcreditwas raised for the first timeonappeal,i.e., in the proceedings before this Court on the Petition for Review filed by theCommissioner of Internal Revenue. The question was not raised by theCommissionerontheadministrativelevel,andneitherwasitraisedbyhimbeforethe CTA. The BIR should not be allowed to defeat an otherwise valid claim forrefund by raising this question of alleged incapacity for the first time on appealbeforethisCourt.Thisisclearlyamatterofprocedure.Itisaquestionoffairness.Should theBIR,unlikeanyother litigant,beallowed to raise for the first timeonappealquestionswhichhadnotbeenlitigatedeither inthelowercourtorontheadministrativelevel?For,ifpetitionerhadattheearliestpossibleopportunity,i.e.,at the administrative level, demanded that P&G‐Phil. produce an expressauthorizationfromitsparentcorporationtobringtheclaimforrefund,thenP&G‐Phil. would have been able forthwith to secure and produce such authorizationbefore filing theaction in the instant case. Theactionherewas commenced justbeforeexpirationofthetwo(2)‐yearprescriptiveperiod.2. Is P&G‐Phil. a "taxpayer" under Section 309 (3) of the NIRC and can it claimrefundorcreditinbehalfofP&G‐USA?Yes. Awithholding agent is in fact the agent bothof the government andof thetaxpayer,andthatthewithholdingagentisnotanordinarygovernmentagent.Thelawsetsnoconditionforthepersonal liabilityofthewithholdingagenttoattach.The reason is to compel the withholding agent to withhold the tax under all


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circumstances. Ineffect, the responsibility for the collectionof the taxaswell asthepaymentthereofisconcentrateduponthepersonoverwhomtheGovernmenthas jurisdiction. Thus, thewithholdingagent is constituted theagentofboth theGovernmentandthetaxpayer.Withrespecttothecollectionand/orwithholdingofthe tax, he is the Government's agent. In regard to the filing of the necessaryincometaxreturnandthepaymentofthetaxtotheGovernment,heistheagentofthetaxpayer.Thewithholdingagent,therefore,isnoordinarygovernmentagentespeciallybecauseunderSection53(c)heisheldpersonallyliableforthetaxheisdutyboundtowithhold;whereastheCommissionerandhisdeputiesarenotmadeliable by law. As pointed out, the withholding agent is also an agent of thebeneficialownerofthedividendswithrespecttothefilingofthenecessaryincometaxreturnandwithrespecttoactualpaymentofthetaxtothegovernment,suchauthoritymayreasonablybeheldtoincludetheauthoritytofileaclaimforrefundand to bring an action for recovery of such claim. This implied authority isespecially warranted where, is in the instant case, the withholding agent is thewholly owned subsidiary of the parent‐stockholder and therefore, at all times,undertheeffectivecontrolofsuchparent‐stockholder.Note:thisisareversaloftheoftheCommissionervs.Procter&GamblePhilippinesGRL‐66838,15April1988Inthatcaseitwasheldthat:The issue raised isonemade for the first timebefore theSupremeCourt.Underthe sameunderlying principle of prior exhaustion of administrative remedies, onthejudiciallevel,issuesnotraisedinthelowercourtcannotbegenerallyraisedforthe first timeon appeal.Nonetheless, it is axiomatic that the state canneverbeallowed to jeopardize the government’s financial position. The submissionof theCommissionerthatPMCPhilippines isbutawithholdingagentofthegovernmentandthereforecannotclaimreimbursementofallegedoverpaidtaxes,iscompletelymeritorious. The real party in interest is PMC‐USA,which should prove that it isentitledundertheUSTaxCodetoaUSForeignTaxCreditequivalenttoatleast20percentage points spared orwaived as otherwise considered or deemed paid bytheGovernment.Herein,theclaimantfailedtoshoworjustifythetaxreturnofthedisputed 15% as it failed to show the actual amount credited by the USGovernmentagainsttheincometaxduefromPMC‐USAonthedividendsreceivedfromPMCPhilippines;topresenttheincometaxreturnofPMC‐USAfor1975whenthedividendswerereceived;andtosubmitdulyauthenticateddocumentshowingthattheUSgovernmentcreditedteh20%taxdeemedpaidinthePhilippines.

RemediesAftertheAssessmentSeeAuthorityofCommissionertoAbateorCompromise(above).RecoveryofTaxErroneouslyorIllegallyCollected

• Nosuitorproceedingshallbemaintainedinanycourtfortherecoveryofany national internal revenue tax hereafter alleged to have beenerroneouslyorillegallyassessedorcollected,orofanypenaltyclaimedtohavebeencollectedwithoutauthority,ofanysumallegedtohavebeenexcessivelyorinanymannerwrongfullycollectedwithoutauthority,orofany sum alleged to have been excessively or in anymannerwrongfullycollected,until a claim for refundorcredithasbeenduly filedwith theCommissioner;butsuchsuitorproceedingmaybemaintained,whetherornotsuchtax,penalty,orsumhasbeenpaidunderprotestorduress.

• Inanycase,nosuchsuitorproceedingshallbefiledaftertheexpirationof two (2) years from the date of payment of the tax or penaltyregardless of any supervening cause that may arise after payment:Provided,however,ThattheCommissionermay,evenwithoutawrittenclaimtherefor,refundorcreditanytax,whereonthefaceofthereturnuponwhich paymentwasmade, such payment appears clearly to havebeenerroneouslypaid.

JudicialRemediesSeeCTAjurisdictionunderRA9282.ProcedureofAppealtotheCTA

• Any party adversely affected by a decision, ruling or inaction of theCommissioner of Internal Revenue, the Commissioner of Customs, theSecretaryofFinance,theSecretaryofTradeandIndustryortheSecretaryof Agriculture or the Central Board of Assessment Appeals or theRegional Trial Courtsmay file an appealwith theCTAwithin thirty (30)daysafterthereceiptofsuchdecisionorrulingoraftertheexpirationoftheperiodfixedbylawforactionasreferredtoinSection7(a)(2)herein.

• Appeal shall bemade by filing a petition for reviewunder a procedureanalogous to thatprovided forunderRule42of the1997RulesofCivilProcedurewith the CTAwithin thirty (30) days from the receipt of thedecisionorrulingorinthecaseofinactionashereinprovided,fromtheexpirationoftheperiodfixedbylawtoactthereon.ADivisionoftheCTA


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shallheartheappeal:Provided,however,Thatwithrespecttodecisionsor rulingsof theCentralBoardofAssessmentAppealsand theRegionalTrial Court in the exercise of its appellate jurisdiction appeal shall bemadebyfilingapetitionforreviewunderaprocedureanalogoustothatprovidedforunderrule43ofthe1997RulesofCivilProcedurewiththeCTA,whichshallhearthecaseenbanc.

• Allothercasesinvolvingrulings,ordersordecisionsfiledwiththeCTAasprovidedforinSection7shallberaffledtoitsDivisions.Apartyadverselyaffectedbyaruling,orderordecisionofaDivisionoftheCTAmayfileamotion for reconsiderationofnewtrialbefore the sameDivisionof theCTAwithinfifteens(15)daysfromnoticethereof:Provide,however,Thatincriminalcases,thegeneralruleapplicableinregularCourtsonmattersofprosecutionandappealshalllikewiseapply.

• No appeal taken to the CTA from the decision of the Commissioner ofInternalRevenueor theCommissionerofCustomsor theRegional TrialCourt,provincial,cityormunicipaltreasurerortheSecretaryofFinance,theSecretaryofTradeand IndustryandSecretaryofAgriculture,as thecasemaybeshallsuspendthepayment,levy,distraint,and/orsaleofanypropertyofthetaxpayerforthesatisfactionofhistaxliabilityasprovidedbyexistinglaw:Provided,however,ThatwhenintheopinionoftheCourtthe collection by the aforementioned government agencies mayjeopardizetheinterestoftheGovernmentand/orthetaxpayertheCourtanystageoftheproceedingmaysuspendthesaidcollectionandrequirethe taxpayer either to deposit the amount claimed or to file a suretybondfornotmorethandoubletheamountwiththeCourt.

• IncriminalandcollectioncasescoveredrespectivelybySection7(b)and(c)of thisAct, theGovernmentmaydirectly file thesaidcaseswith theCTAcoveringamountswithinitsexclusiveandoriginaljurisdiction.

CTAFindingofFactConclusive

• FollowingdoctrineofNasiadv.CourtofTaxAppeals,29November1974AppealofCTADecisionsAppealtotheCTAenbanc

• No civil proceeding involvingmatter arising under theNational InternalRevenue Code, the Tariff and Customs Code or the Local GovernmentCodeshallbemaintained,exceptashereinprovided,untilandunlessan

appeal has been previously filed with the CTA and disposed of inaccordancewiththeprovisionsofthisAct.

• Apartyadverselyaffectedbya resolutionofaDivisionof theCTAonamotion for reconsideration or new trial, may file a petition for reviewwiththeCTAenbanc.

AppealtotheSupremeCourt

• ApartyadverselyaffectedbyadecisionorrulingoftheCTAenbancmayfile with the Supreme Court a verified petition for review on certioraripursuanttoRule45ofthe1997RulesofCivilProcedure.

STATUTORYOFFENSESANDPENALTIES

(SECTIONS247TO281)

AdditionstoTaxGeneralProvisions

(a) TheadditionstothetaxordeficiencytaxprescribedinthisChaptershallapplytoalltaxes,feesandchargesimposedinthisCode.TheAmountsoaddedtothetaxshallbecollectedatthesametime,inthesamemannerandaspartofthetax.

(b) IfthewithholdingagentistheGovernmentoranyofitsagencies,politicalsubdivisions or instrumentalities, or a government‐owned or controlledcorporation, the employee thereof responsible for thewithholding andremittanceofthetaxshallbepersonallyliablefortheadditionstothetaxprescribedherein.

(c) the term "person", as used in this Chapter, includes an officer oremployeeofacorporationwhoassuchofficer,employeeormember isunderadutytoperformtheactinrespectofwhichtheviolationoccurs.

CivilPenalties(A) There shall be imposed, in addition to the tax required to be paid, a penaltyequivalenttotwenty‐fivepercent(25%)oftheamountdue,inthefollowingcases:

(1) Failuretofileanyreturnandpaythetaxduethereonasrequiredunderthe provisions of this Code or rules and regulations on the dateprescribed;or


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(2) UnlessotherwiseauthorizedbytheCommissioner,filingareturnwithaninternal revenue officer other than those with whom the return isrequiredtobefiled;or

(3) Failure to pay the deficiency tax within the time prescribed for its

paymentinthenoticeofassessment;or(4) Failuretopaythefullorpartoftheamountoftaxshownonanyreturn

required to be filed under the provisions of this Code or rules andregulations,orthefullamountoftaxdueforwhichnoreturnisrequiredtobefiled,onorbeforethedateprescribedforitspayment.

(B) IncaseofwillfulneglecttofilethereturnwithintheperiodprescribedbythisCodeorbyrulesandregulations,orincaseafalseorfraudulentreturniswillfullymade, thepenalty tobe imposedshallbe fiftypercent (50%)of thetaxorof thedeficiency tax, in case, any payment has beenmade on the basis of such returnbefore the discovery of the falsity or fraud: Provided, That a substantialunderdeclaration of taxable sales, receipts or income, or a substantialoverstatementofdeductions,asdeterminedbytheCommissionerpursuanttotherules and regulations to be promulgated by the Secretary of Finance, shallconstituteprima facieevidenceofa falseor fraudulent return:Provided, further,That failure to report sales, receipts or income in an amount exceeding thirtypercent(30%)ofthatdeclaredperreturn,andaclaimofdeductionsinanamountexceeding (30%) of actual deductions, shall render the taxpayer liable forsubstantial underdeclarationof sales, receiptsor incomeor foroverstatementofdeductions,asmentionedherein.Interest(A)InGeneral.‐Thereshallbeassessedandcollectedonanyunpaidamountoftax,interestattherateoftwentypercent(20%)perannum,orsuchhigherrateasmaybeprescribedbyrulesandregulations,fromthedateprescribedforpaymentuntiltheamountisfullypaid.(B)DeficiencyInterest.‐Anydeficiencyinthetaxdue,asthetermisdefinedinthisCode, shall be subject to the interest prescribed in Subsection (A) hereof,whichinterest shallbeassessedandcollected fromthedateprescribed for itspaymentuntilthefullpaymentthereof.(C)DelinquencyInterest.‐Incaseoffailuretopay:

1. Theamountofthetaxdueonanyreturntobefiled,or2. Theamountofthetaxdueforwhichnoreturnisrequired,or

3. A deficiency tax, or any surcharge or interest thereon on the due dateappearinginthenoticeanddemandoftheCommissioner,thereshallbeassessed and collected on the unpaid amount, interest at the rateprescribed inSubsection(A)hereofuntil theamount is fullypaid,whichinterestshallformpartofthetax.

(D) Interest on Extended Payment. ‐ If any person required to pay the tax isqualifiedandelectstopaythetaxoninstallmentundertheprovisionsofthisCode,but fails topay the taxorany installmenthereof,oranypartof suchamountorinstallment on or before the date prescribed for its payment, or where theCommissionerhasauthorizedanextensionoftimewithinwhichtopayataxoradeficiencytaxoranypartthereof,thereshallbeassessedandcollectedinterestatthe rate hereinabove prescribed on the tax or deficiency tax or any part thereofunpaidfromthedateofnoticeanddemanduntilitispaid.FailuretoFileCertainInformationReturns

• Inthecaseofeachfailuretofileaninformationreturn,statementorlist,orkeepanyrecord,orsupplyanyinformationrequiredbythisCodeorbytheCommissioneronthedateprescribedtherefor,unlessitisshownthatsuch failure isdue to reasonablecauseandnot towillfulneglect, thereshall, upon notice and demand by the Commissioner, be paid by theperson failing to file, keep or supply the same, One thousand pesos(1,000) foreach failure:Provided,however,That theaggregateamounttobeimposedforallsuchfailuresduringacalendaryearshallnotexceedTwenty‐fivethousandpesos(P25,000).

FailureofaWithholdingAgenttoCollectandRemitTax

• Anypersonrequiredtowithhold,accountfor,andremitanytaximposedbythisCodeorwhowillfullyfailstowithholdsuchtax,oraccountforandremitsuchtax,oraidsorabets inanymannertoevadeanysuchtaxorthe payment thereof, shall, in addition to other penalties provided forunder this Chapter, be liable upon conviction to a penalty equal to thetotalamountofthetaxnotwithheld,ornotaccountedforandremitted.

FailureofaWithholdingAgenttorefundExcessWithholdingTax

• Any employer/withholding agent who fails or refuses to refund excesswithholdingtaxshall,inadditiontothepenaltiesprovidedinthisTitle,beliabletoapenaltytothetotalamountofrefundswhichwasnotrefunded


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totheemployeeresultingfromanyexcessoftheamountwithheldoverthetaxactuallydueontheirreturn.

Crimes,OtherOffenses,andForfeituresAttempttoEvadeorDefeatTax

• AnypersonwhowillfullyattemptsinanymannertoevadeordefeatanytaximposedunderthisCodeorthepaymentthereofshall,inadditiontootherpenaltiesprovidedbylaw,uponconvictionthereof,bepunishedbya fine not less than Thirty thousand (P30,000) but notmore than Onehunderdthousandpesos(P100,000)andsufferimprisonmentofnotlessthantwo(2)yearsbutnotmorethanfour (4)years:Provided,That theconvictionoracquittalobtainedunder thisSectionshallnotbeabar tothefilingofacivilsuitforthecollectionoftaxes.

FailuretoFileReturn,SupplyCorrectandAccurateInformation,PayTaxWithholdandRemitTaxandRefundExcessTaxesWithheldonCompensation

• Any person required under this Code or by rules and regulationspromulgatedthereundertopayanytaxmakeareturn,keepanyrecord,orsupplycorrecttheaccurateinformation,whowillfullyfailstopaysuchtax,makesuchreturn,keepsuchrecord,orsupplycorrectandaccurateinformation,orwithholdorremittaxeswithheld,orrefundexcesstaxeswithheldoncompensation,atthetimeortimesrequiredbylaworrulesand regulations shall, in addition to other penalties provided by law,upon conviction thereof, be punished by a fine of not less than Tenthousandpesos(P10,000)andsuffer imprisonmentofnot lessthanone(1)yearbutnotmorethanten(10)years.

• Any personwho attempts tomake it appear for any reason that he oranotherhasinfactfiledareturnorstatement,oractuallyfilesareturnorstatement and subsequently withdraws the same return or statementafter securing the official receiving seal or stamp of receipt of internalrevenueofficewhereinthesamewasactuallyfiledshall,uponconvictiontherefor, be punished by a fine of not less than Ten thousand pesos(P10,000)butnotmorethanTwentythousandpesos(P20,000)andsufferimprisonmentofnot lessthanone(1)yearbutnotmorethanthree(3)years.

PenalLiabilityofCorporations

• Any corporation, association or general co‐partnership liable for any ofthe acts or omissions penalized under this Code, in addition to thepenalties imposed herein upon the responsible corporate officers,partners,oremployeesshall,uponconvictionforeachactoromission,bepunishedbyafineofnotlessthanFiftythousandpesos(P50,000)butnotmorethanOnehundredthousandpesos(P100,000).

PenalLiabilityforMakingFalseEntries,RecordsorReports,orUsingFalsifiedorFakeAccountableForms1. Any financial officer or independent Certified Public Accountant engaged to

examineandauditbooksofaccountsoftaxpayersunderSection232(A)andanypersonunderhisdirectionwho:

(1) Willfullyfalsifiesanyreportorstatementbearingonanyexaminationor

audit, or renders a report, including exhibits, statements, schedules orother forms of accountancy work which has not been verified by himpersonally or under his supervisionor by amember of his firmor by amemberofhisstaffinaccordancewithsoundauditingpractices;or

(2) Certifies financial statements of a business enterprise containing an

essentialmisstatementoffactsoromissioninrespectofthetransactions,taxableincome,deductionandexemptionofhisclient;or

2. Anypersonwho:

(1) Not being an independent Certified Public Accountant according toSection 232(B) or a financial officer, examines and audits books ofaccountsoftaxpayers;or

(2) Offerstosignandcertifyfinancialstatementswithoutaudit;or

(3) Offers any taxpayer the use of accounting bookkeeping records for

internal revenue purposes not in conformity with the requirementsprescribedinthisCodeorrulesandregulationspromulgatedthereunder;or

(4) Knowinglymakesanyfalseentryorentersanyfalseorfictitiousnamein

thebooksofaccountsorrecordmentionedintheprecedingparagraphs;or


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(5) Keepstwo(2)ormoresetsofsuchrecordsorbooksofaccounts;or

(6) Inanywaycommitsanactoromission, inviolationof theprovisionsof

thisSection;or

(7) FailstokeepthebooksofaccountsorrecordsmentionedinSection232inanativelanguage,EnglishorSpanish,ortomakeatrueandcompletetranslation as required in Section 234 of this Code, or whose books ofaccounts or records kept in a native language, English or Spanish, andfound to be atmaterial variancewith books or records kept by him inanotherlanguage;or

(8) Willfully attempts in any manner to evade or defeat any tax imposed

under this Code, or knowingly uses fake or falsified revenue officialreceipts, Letters of Authority, certificates authorizing registration, TaxCredit Certificates, Tax DebitMemoranda and other accountable formsshall,uponconvictionforeachactoromission,bepunishedbyafinenotlessthanFiftythousandpesos(P50,000)butnotmorethanOnehundredpesos(P100,000)andsufferimprisonmentofnotlessthantwo(2)yearsbutnotmorethansix(6)years.

Iftheoffender isaCertifiedPublicAccountant,hiscertificateasaCertifiedPublicAccountantshallbeautomaticallyrevokedorcancelleduponconviction.In thecaseof foreigners,convictionunder thisCodeshall result inhis immediatedeportationafterservingsentence,withoutfurtherproceedingsfordeportation.UnlawfulPursuitofBusiness

• Anypersonwhocarriesonanybusinessforwhichanannualregistrationfee is imposed without paying the tax as required by law shall, uponconvictionforeachactoromission,bepunishedbyafineofnotlessthanFivethousandpesos(P5,000)butnotmorethanTwentythousandpesos(P20,000)andsufferimprisonmentofnotlessthansix(6)monthsbutnotmorethantwo(2)years:Provided,Thatinthecaseofapersonengagedin the business of distilling, rectifying, repacking, compounding ormanufacturinganyarticlesubjecttoexcisetax,heshall,uponconvictionfor each act or omission, be punished by a fine of not less than Thirtythousand pesos (P30,000) but not more than Fifty thousand pesos

(P50,000)andsufferimprisonmentofnotlessthantwo(2)yearsbutnotmorethanfour(4)years.

IllegalCollectionofForeignPayments

• Anypersonwhoknowinglyundertakesthecollectionofforeignpaymentsas provided under Section 67 of this Code without having obtained alicense therefor, or without complyingwith its implementing rules andregulations,shall,uponconvictionforeachactoromission,bepunishedbyafineofnotlessthanTwentythousandpesos(P20,000)butnotmorethanFiftythousandpesos(P50,000)andsufferimprisonmentofnotlessthanone(1)yearbutnotmorethantwo(2)years.

UnlawfulPossessionofCigarettePaperinBobbinsorRolls,Etc

• It shall be unlawful for any person to have in his possession cigarettepaper inbobbinsor rolls, cigarette tippingpaperor cigarette filter tips,without the corresponding authority therefor issued by theCommissioner. Any person, importer, manufacturer of cigar andcigarettes, who has been found guilty under this Section, shall, uponconvictionforeachactoromission,bepunishedbyafineofnotlessthanTwenty thousand pesos (P20,000) but not more than One hundredthousandpesos (P1000,000) and suffer imprisonment for a termofnotless than six (6) years and one (1) day but not more than twelve (12)years.

UnlawfulUseofDenaturedAlcohol

• Any person who for the purpose of manufacturing any beverage, usesdenaturedalcoholor alcohol speciallydenatured tobeused formotivepowerorwithdrawnunderbondforindustrialusesoralcoholknowinglymisrepresented to be denatured to be unfit for oral intake or whoknowinglysellsoroffersforsaleanybeveragemadeinwholeor inpartfromsuchalcoholorwhousessuchalcoholforthemanufactureofliquidmedicinal preparations taken internally, or knowingly sells or offers forsale such preparations containing as an ingredient such alcohol, shalluponconvictionforeachactoromissionbepunishedbyafineofnotlessthanTwentythousandpesos(P20,000)butnotmorethanOnehundredthousand pesos (P100,000) and suffer imprisonment for a term of notless than six (6) years and one (1) day but not more than twelve (12)years.


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Any personwho shall unlawfully recover or attempt to recover by distillation orother process any denatured alcohol or who knowingly sells or offers for sale,conceals or otherwise disposes of alcohol so recovered or redistilled shall besubjecttothesamepenaltiesimposedunderthisSection.ShipmentorRemovalofLiquororTobaccoProductsunderFalseNameorBrandorasanImitationofanyExistingorOtherwiseKnownProductNameorBrand

• Anypersonwhoships,transportsorremovesspirituous,compoundedorfermentedliquors,winesoranymanufacturedproductsoftobaccounderany other than the proper name or brand known to the trade asdesignating the kind and quality of the contents of the cask, bottle orpackage containing the same or as an imitation of any existing orotherwiseknownproductnameorbrandorcausessuchacttobedone,shall,uponconvictionforeachactoromission,bepunishedbyafineofnot less thanTwenty thousandpesos (P20,000)butnotmore thanOnehundredthousandpesos(P1000,000)andsufferimprisonmentofnotlessthansix(6)yearsandone(1)daybutnotmorethantwelve(12)years.

Unlawful Possession or Removal of Articles Subject to Excise Tax withoutPaymentoftheTax

• Anypersonwhoownsand/orisfoundinpossessionofimportedarticlessubject toexcisetax, thetaxonwhichhasnotbeenpaid inaccordancewith law, or any person who owns and/or is found in possession ofimportedtax‐exemptarticlesotherthanthosetowhomtheyare legallyissuedshallbepunishedby:

(a) Afineofnot lessthanOnethousandpesos(P1,000)normorethanTwothousandpesos(P2,000)andsufferimprisonmentofnot less than sixty (60) days but notmore than one hundred(100) days, if the appraised value, to be determined in themanner prescribed in the Tariff and Customs Code, includingdutiesandtaxes,ofthearticlesdoesnotexceedOnethousandpesos(P1,000).

(b) A fine of not less than Ten thousand pesos (P10,000) but notmore than Twenty thousand pesos (P20,000) and sufferimprisonmentofnotlessthantwo(2)yearsbutnotmorethanfour (4)years, if theappraisedvalue, tobedetermined in themanner prescribed in the Tariff and Customs Code, includingduties and taxes, of the articles exceeds One thousand pesos(P1,000)butdoesnotexceedFiftythousandpesos(P50,000);

(c) AfineofnotlessthanThirtythousandpesos(P30,000)butnotmore than Sixty thousand pesos (P60,000) and sufferimprisonmentofnotlessthanfour(4)yearsbutnotmorethansix (6) years, if the appraised value, to be determined in themanner prescribed in the Tariff and Customs Code, includingduties and taxes of the articles is more than Fifty thousandpesos (P50,000) but does not exceed One hundred fiftythousandpesos(P150,000);or

(d) A fineofnot less thanFifty thousandpesos (P50,000)butnotmorethanOnehundredthousandpesos(P100,000)andsufferimprisonmentofnotlessthanten(10)yearsbutnotmorethantwelve (12) years, if the appraised value, to bedetermined inthe manner prescribed in the Tariff and Customs Code,includingdutiesandtaxes,ofthearticlesexceedsOnehundredfiftythousandpesos(P150,000).

• Any personwho is found in possession of locallymanufactured articlessubject toexcisetax, thetaxonwhichhasnotbeenpaid inaccordancewithlaw,oranypersonwhoisfoundinpossessionofsucharticleswhichare exempt from excise tax other than those to whom the same islawfully issuedshallbepunishedwitha fineofnot less than (10) timestheamountofexcisetaxdueonthearticlesfoundbutnotlessthanFivehundredpesos (P500)andsuffer imprisonmentofnot less than two (2)yearsbutnotmorethanfour(4)years.

• Anymanufacturer, owner or person in charge of any article subject toexcisetaxwhoremovesorallowsorcausestheunlawfulremovalofanysuch articles from theplace of productionor bondedwarehouse, uponwhich the excise tax has not been paid at the time and in themannerrequired,andanypersonwhoknowinglyaidsorabetsintheremovalofsucharticlesasaforesaid,orconcealsthesameafterillegalremovalshall,for the first offense, be punished with a fine of not less than ten (10)timestheamountofexcisetaxdueonthearticlesbutnotlessthanOnethousandpesos(P1,000)andsufferimprisonmentofnotlessthanone(1)yearbutnotmorethantwo(2)years.

• Themereunexplainedpossessionofarticlessubjecttoexcisetax,thetaxonwhichhasnotbeenpaid inaccordancewith law,shallbepunishableunderthisSection.

Failure or refusal to Issue Receipts or Sales or Commercial Invoices, ViolationsrelatedtothePrintingofsuchReceiptsorInvoicesandOtherViolations


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(a) Any personwho, being required under Section 237 to issue receipts orsales or commercial invoices, fails or refuses to issue such receipts ofinvoices, issues receipts or invoices that do not truly reflect and/orcontainalltheinformationrequiredtobeshowntherein,orusesmultipleor double receipts or invoices, shall, upon conviction for each act oromission, be punished by a fine of not less than One thousand pesos(P1,000) but not more than Fifty thousand pesos (P50,000) and sufferimprisonmentofnot less thantwo(2)yearsbutnotmorethan four (4)years.

(b) AnypersonwhocommitsanyoftheactsenumeratedhereundershallbepenalizedinthesamemannerandtothesameextentasprovidedforinthisSection:

(1) Printingof receipts or salesor commercial invoiceswithoutauthorityfromtheBureauofInternalRevenue;or

(2) Printingofdoubleormultiplesetsofinvoicesorreceipts;or(3) Printing of unnumbered receipts or sales or commercial

invoices, not bearing the name, business style, TaxpayerIdentificationNumber,andbusinessaddressofthepersonorentity.

OffensesRelatingtoStamps

• Any personwho commits any of the acts enumerated hereunder shall,uponconviction thereof,bepunishedbya fineofnot less thanTwentythousand pesos (P20,000) but not more than Fifty thousand pesos(P50,000)andsufferimprisonmentofnotlessthanfour(4)yearsbutnotmorethaneight(8)years:

(a) making,importing,selling,usingorpossessingwithoutexpressauthority from the Commissioner, any die for printing ormakingstamps,labels,tagsorplayingcards;

(b) Erasingthecancellationmarksofanystamppreviouslyused,oraltering thewritten figuresor lettersorcancellationmarksoninternalrevenuestamps;

(c) Possessingfalse,counterfeit,restoredoralteredstamps,labelsor tags or causing the commission of any such offense byanother;

(d) Selling or offering for sale any box or package containingarticlessubjecttoexcisetaxwithfalse,spuriousorcounterfeitstamps or labels or selling from any such fraudulent box,packageorcontainerasaforementioned;or

(e) Giving away or accepting from another, or selling, buying orusing containers on which the stamps are not completelydestroyed.

FailuretoObeySummons

• Anypersonwho,beingdulysummonedtoappeartotestify,ortoappearandproducebooksofaccounts,records,memorandaorotherpapers,ortofurnishinformationasrequiredunderthepertinentprovisionsofthisCode,neglectstoappearortoproducesuchbooksofaccounts,records,memorandaorotherpapers,ortofurnishsuch information,shall,uponconviction, be punished by a fine of not less than Five thousand pesos(P5,000) but not more than ten thousand pesos (P10,000) and sufferimprisonment of not less than one (1) year but notmore than two (2)years.

DeclarationunderPenaltiesofPerjury

• Any declaration, return and other statement required under this Code,shall, inlieuofanoath,containawrittenstatementthattheyaremadeunder the penalties of perjury. Any person who willfully files adeclaration,returnorstatementcontaininginformationwhichisnottrueandcorrectastoeverymaterialmattershall,uponconviction,besubjecttothepenaltiesprescribedforperjuryundertheRevisedPenalCode.

OtherCrimesandOffenses

1. MisdeclarationorMisrepresentationofManufacturersSubject toExciseTax.‐Anymanufacturerwho, inviolationoftheprovisionsofTitleVIofthisCode,misdeclaresintheswornstatementrequiredthereinorinthesales invoice, any pertinent data or information shall be punished by asummarycancellationorwithdrawalofthepermittoengageinbusinessasamanufacturerofarticlessubjecttoexcisetax.

2. Forfeiture of Property Used in Unlicensed Business or Dies Used forPrinting False Stamps, Etc. ‐ All chattels, machinery, and removablefixturesofanysortused intheunlicensedproductionofarticlessubjectto excise tax shall be forfeited.Dies and other equipment used for theprintingormakingofanyinternalrevenuestamp,labelortagwhichisinimitationoforpurports tobea lawful stamp, label or tag shall alsobeforfeited.

3. Forfeiture of Goods Illegally Stored or Removed. ‐ Unless otherwisespecificallyauthorizedbytheCommissioner,allarticlessubjecttoexcise


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taxshouldnotbestoredorallowedtoremaininthedistillerywarehouse,bondedwarehouseorotherplacewheremade,afterthetaxthereonhasbeen paid; otherwise, all such articles shall be forfeited. Articleswithdrawn from any such place or from customs custody or importedinto thecountrywithout thepaymentof the required tax shall likewisebeforfeited.

ViolationsCommittedbyGovernmentEnforcementOfficersEveryofficial,agent,oremployeeoftheBureauof InternalRevenueoranyotheragencyoftheGovernmentchargedwiththeenforcementoftheprovisionsofthisCode, who is guilty of any of the offenses herein below specified shall, uponconviction for each act or omission, be punished by a fine of not less than Fiftythousand pesos (P50,000) but not more than One hundred thousand pesos(P100,000)andsuffer imprisonmentofnot less than ten (10)yearsbutnotmorethanfifteen(15)yearsandshall likewisesufferanadditionalpenaltyofperpetualdisqualification to hold public office, to vote, and to participate in any publicelection:

1. Extortion or willful oppression through the use of his office or willfuloppressionandharassmentofataxpayerwhorefused,declined,turneddownorrejectedanyofhisoffersspecifiedinparagraph(d)hereof;

2. Knowingly demanding or receiving any fee, other or greater sums thatare authorized by law or receiving any fee, compensation or reward,exceptasbylawprescribed,fortheperformanceofanyduty;

3. Willfully neglecting to give receipts, as by law required, for any sumcollected in the performance of duty or willfully neglecting to performanyotherdutiesenjoinedbylaw;

4. Offering or undertaking to accomplish, file or submit a report orassessment on a taxpayer without the appropriate examination of thebooksofaccountsortax liability,orofferingorundertakingtosubmitareportorassessmentlessthantheamountduetheGovernmentforanyconsideration or compensation, or conspiring or colludingwith anotherorotherstodefraudtherevenuesorotherwiseviolatetheprovisionsofthisCode;

5. Neglectingorbydesignpermittingtheviolationofthe lawbyanyotherperson;

6. Making or signing any false entry or entries in any book, ormaking orsigninganyfalsecertificateorreturn;

7. Allowing or conspiring or colluding with another to allow theunauthorized retrieval,withdrawalor recallof any return, statementordeclarationafter thesamehasbeenofficially receivedbytheBureauofInternalRevenue;

8. Havingknowledgeor informationofanyviolationofthisCodeorofanyfraud committed on the revenues collectible by the Bureau of InternalRevenue, failure to report such knowledge or information to theirsuperiorofficer,orfailuretoreportasotherwiserequiredbylaw;and

9. Without theauthorityof law,demandingoracceptingorattempting tocollect,directlyorindirectly,aspaymentorotherwiseanysumofmoneyorotherthingofvalueforthecompromise,adjustmentorsettlementofany charge or complaint for any violation or alleged violation of thisCode.

Provided, That the provisions of the foregoing paragraph notwithstanding, anyinternalrevenueofficerforwhichaprimafaciecaseofgravemisconducthasbeenestablished shall, after due notice and hearing of the administrative case andsubject to Civil Service Laws, be dismissed from the revenue service: Provided,further, That the term "gravemisconduct", as defined in Civil Service Law, shallincludetheissuanceoffakelettersofauthorityandreceipts,forgeryofsignature,usurpationofauthorityandhabitualissuanceofunreasonableassessments.ViolationofWithholdingTaxProvisionEveryofficeroremployeeoftheGovernmentoftheRepublicofthePhilippinesorany of its agencies and instrumentalities, its political subdivisions, as well asgovernment‐owned or controlled corporations, including the Bangko Sentral ngPilipinas (BSP), who, under the provisions of this Code or rules and regulationspromulgated thereunder, is charged with the duty to deduct and withhold anyinternal revenue tax and to remit the same in accordancewith theprovisions ofthisCodeandotherlawsisguiltyofanyoffensehereinbelowspecifiedshall,uponconviction for each act or omission be punished by a fine of not less than Fivethousand pesos (P5,000) but not more than Fifty thousand pesos (P50,000) orsufferimprisonmentofnotlessthansix(6)monthsandone(1)daybutnotmorethantwo(2)years,orboth:

(a) Failingorcausingthefailuretodeductandwithholdanyinternalrevenuetax under any of thewithholding tax laws and implementing rules andregulations;

(b) Failingorcausingthefailuretoremittaxesdeductedandwithheldwithinthetimeprescribedbylaw,andimplementingrulesandregulations;and


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(c) Failingorcausing the failure to file returnor statementwithin the timeprescribed, or rendering or furnishing a false or fraudulent return orstatement required under the withholding tax laws and rules andregulations.

OtherPenalProvisionsPenaltyforSecondandSubsequentOffenses

• Inthecaseofreincidence,themaximumofthepenaltyprescribedfortheoffenseshallbeimposed.

ViolationofOtherProvisionsofthisCodeorRulesandRegulationsinGeneral

• Any person who violates any provision of this Code or any rule orregulation promulgated by the Department of Finance, for which nospecificpenaltyisprovidedbylaw,shall,uponconvictionforeachactoromission, be punishedby a fine of notmore thanOne thousandpesos(P1,000)orsufferimprisonmentofnotmorethansix(6)months,orboth.

Penalty for Selling, Transferring, Encumbering or in Any Way Disposing ofPropertyPlacedUnderConstructiveDistraint

• Any taxpayer, whose property has been placed under constructivedistraint,whosells, transfers,encumbersor inanywaydisposesofsaidproperty,oranypartthereof,withouttheknowledgeandconsentoftheCommissioner, shall, upon conviction for each act or omission, bepunished by a fine of not less than twice the value of the property sosold,encumberedordisposedofbutnot lessthanFiveThousandpesos(P5,000),orsuffer imprisonmentofnot less thantwo(2)yearsandone(1)daybutnotmorethanfour(4)years,ofboth.

FailuretoSurrenderPropertyPlacedUnderDistraintandLevy

• Anypersonhavinginhispossessionorunderhiscontrolanypropertyorrights to property, upon which a warrant of constructive distraint, oractual distraint and levy has been issued shall, upon demand by theCommissioneror anyofhisdeputiesexecuting suchwarrant, surrendersuch property or right to property to the Commissioner or any of hisdeputies, unless such property or right is, at the timeof such demand,subject to an attachment or execution under any judicial process. Anypersonwho fails or refuses to surrender any of such property or rightshallbeliableinhisownpersonandestatetotheGovernmentinasum

equal to thevalueof thepropertyor rightsnot so surrenderedbutnotexceedingtheamountofthetaxes(includingpenaltiesand interest) forthecollectionofwhichsuchwarranthadbeenissued,togetherwithcostand interest if any, from the date of such warrant. In addition, suchpersonshall,uponconvictionforeachactoromission,bepunishedbyafine of not less than Five thousand pesos (P5,000), or sufferimprisonment of not less than six (6)months and one (1) day but notmorethantwo(2)years,orboth.

ProcuringUnlawfulDivulgenceofTradeSecrets

• AnypersonwhocausesorprocuresanofficeroremployeeoftheBureauofInternalRevenuetodivulgeanyconfidentialinformationregardingthebusiness,incomeorinheritanceofanytaxpayer,knowledgeofwhichwasacquired by him in the discharge of his official duties, and which it isunlawfulforhimtoreveal,andanypersonwhopublishesorprintsinanymanner whatever, not provided by law, any income, profit, loss orexpenditureappearing inany incometax return, shallbepunishedbyafine of not more than Two thousand pesos (P2,000), or sufferimprisonmentofnotlessthansix(6)monthsnormorethanfive(5)years,orboth.

ConfiscationandForfeitureoftheProceedsorInstrumentsofCrime

• Inadditiontothepenalty Imposedfor theviolationof theprovisionsofTitle X of this Code, the same shall carry with it the confiscation andforfeiture in favor of the government of the proceeds of the crime orvalue of the goods, and the instruments or toolswithwhich the crimewas committed: Provided, however, That if in the course of theproceedings, it is established that the instruments or tools used in theillicit act belong to a third person, the same shall be confiscated andforfeitedafterduenoticeandhearinginaseparateproceedinginfavoroftheGovernment if suchthirdperson leased, let,charteredorotherwiseentrusted the same to theoffender:Provided, further, That in case thelesseesubleased,ortheborrower,charterer,ortrusteeallowedtheuseof the instruments or tools to the offender, such instruments or toolsshall, likewise, be confiscated and forfeited: Provided, finally, Thatpropertyofcommoncarriersshallnotbesubjecttoforfeiturewhenusedin the transactionof their business as such common carrier, unless theowneroroperatorofsaidcommoncarrierwas,atthetimeoftheillegalact,aconsentingpartyorprivythereto,withoutprejudicetotheowner's


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rightofrecoveryagainsttheoffenderinacivilorcriminalaction.Articleswhicharenotsubjectoflawfulcommerceshallbedestroyed.

SubsidiaryPenalty

• IfthepersonconvictedforviolationofanyoftheprovisionsofthisCodehasnopropertywithwhich tomeet the fine imposeduponhimby thecourt, or is unable to pay such fine, he shall be subject to a subsidiarypersonalliabilityattherateofone(1)dayforeachEightpesosandfiftycentavos (P8.50) subject to the rules established in Article 39 of theRevisedPenalCode.

PrescriptionforViolationsofanyProvisionofthisCode

• All violations of any provision of this Code shall prescribe after Five (5)years.

• Prescription shall begin to run from the day of the commission of theviolationofthelaw,andifthesamebenotknownatthetime,fromthediscovery thereof and the institution of judicial proceedings for itsinvestigationandpunishment.

• The prescription shall be interrupted when proceedings are institutedagainsttheguiltypersonsandshallbegintorunagainiftheproceedingsaredismissedforreasonsnotconstitutingjeopardy.

• ThetermofprescriptionshallnotrunwhentheoffenderisabsentfromthePhilippines.

Informer'sRewardtoPersons Instrumental intheDiscoveryofViolationsoftheNational Internal Revenue Code and in the Discovery and Seizure of SmuggledGoods

(A) For Violations of the National Internal Revenue Code. ‐ Any person,exceptaninternalrevenueofficialoremployee,orotherpublicofficialoremployee, or his relativewithin the sixthdegreeof consanguinity,whovoluntarily gives definite and sworn information, not yet in thepossessionoftheBureauofInternalRevenue,leadingtothediscoveryoffrauds upon the internal revenue laws or violations of any of theprovisions thereof, thereby resulting in the recovery of revenues,surchargesandfeesand/ortheconvictionoftheguiltypartyand/ortheimposition of any of the fine or penalty, shall be rewarded in a sumequivalent to ten percent (10%) of the revenues, surcharges or feesrecovered and/or fine or penalty imposed and collectedorOneMillionPesos (P1,000,000) per case, whichever is lower. The same amount of

rewardshallalsobegiventoaninformerwheretheoffenderhasofferedtocompromisetheviolationof lawcommittedbyhimandhisofferhasbeen accepted by the Commissioner and collected from the offender:Provided, That should no revenue, surcharges or fees be actuallyrecovered or collected, such person shall not be entitled to a reward:Provided,further,Thattheinformationmentionedhereinshallnotrefertoacasealreadypendingorpreviously investigatedorexaminedbytheCommissioner or any of his deputies, agents or examiners, or theSecretary of Finance or any of his deputies or agents: Provided, finally,Thattherewardprovidedhereinshallbepaidunderrulesandregulationsissued by the Secretary of Finance, upon recommendation of theCommissioner.

(B) ForDiscoveryandSeizureofSmuggledGoods.‐Toencouragethepublicto extend full cooperation in eradicating smuggling, a cash rewardequivalenttotenpercent(10%)ofthefairmarketvalueofthesmuggledand confiscated goods or One Million Pesos (P1,000,000) per case,whichever is lower, shall be given to persons instrumental in thediscoveryandseizureofsuchsmuggledgoods.

• Thecashrewardsofinformersshallbesubjecttoincometax,collectedas

afinalwithholdingtax,atarateoftenpercent(10%).• The provisions of the foregoing Subsections notwithstanding, all public

officials,whetherincumbentorretired,whoacquiredtheinformationinthe courseof theperformanceof their dutiesduring their incumbency,areprohibitedfromclaiminginformer'sreward.

LOCALGOVERNMENTTAXATION

PowertoCreateSourcesofRevenue

• Each local government unit shall exercise its power to create its ownsources of revenue and to levy taxes, fees, and charges subject to theprovisions herein, consistent with the basic policy of local autonomy.Such taxes, fees, and charges shall accrue exclusively to the localgovernmentunits


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FundamentalPrinciplesForLocalTaxation

(a) Taxationshallbeuniformineachlocalgovernmentunit;(b) Taxes,fees,chargesandotherimpositionsshall:

(1) beequitableandbasedasfaraspracticableonthetaxpayer'sabilitytopay;

(2) beleviedandcollectedonlyforpublicpurposes;(3) notbeunjust,excessive,oppressive,orconfiscatory;(4) notbecontrarytolaw,publicpolicy,nationaleconomicpolicy,

orintherestraintoftrade;(c) Thecollectionoflocaltaxes,fees,chargesandotherimpositionsshallin

nocasebelettoanyprivateperson;(d) TherevenuecollectedpursuanttotheprovisionsofthisCodeshallinure

solely to the benefit of, and be subject to the disposition by, the localgovernmentunit levying the tax, fee, chargeorother impositionunlessotherwisespecificallyprovidedherein;and,

(e) Each local government unit shall, as far as practicable, evolve aprogressivesystemoftaxation.

CommonLimitationOnTaxationOfLocalGovernments(Section130)

1. Incometax,exceptonbanksandotherfinancialinstitutions2. Documentarystamptax3. TaxesonEstate, inheritanceorgiftsandotheracquisitionsmortiscausa

exceptasmayotherwisebeprovidedinthecode.a. Exceptiontotherule

i. Taxonrealpropertyownershipii. Scopeoftaxingpowers(Section151)—

Except as otherwise provided in this Code, the city,may levy the taxes, fees, and charges which theprovince or municipality may impose: Provided,however,Thatthetaxes,feesandchargesleviedandcollected by highly urbanized and independentcomponentcitiesshallaccruetothemanddistributedinaccordancewiththeprovisionsofthisCode.Theratesoftaxesthatthecitymaylevymayexceedthe maximum rates allowed for the province or

municipality by not more than fifty percent (50%)except the rates of professional and amusementtaxes.

4. Customsduties5. Taxes,fees,chargesandotherimpositionupongoodscarriedinandout6. Taxes, feesandchargesonagricultural andaquaticproductswhen sold

bymarginalfarmersa. Note Section 131 (a)‐‐"Agricultural Product" includes the yield

of the soil, such as corn, rice, wheat, rye, hay. coconuts,sugarcane,tobacco,rootcrops,vegetables,fruits,flowers,andtheir by‐products; ordinary salt; all kinds of fish; poultry; andlivestockandanimalproducts,whetherintheiroriginalformornot.

Thephrase"whetherintheiroriginalformornot"referstothetransformation of said products by the farmer, fisherman,producer or owner through the application of processes topreserveorotherwisetopreparesaidproductsformarketsuchasfreezing,drying,salting,smoking,orstrippingforpurposesofpreservingorotherwisepreparingsaidproductsformarket

7. TaxesonbusinessenterprisescertifiedbytheBoardofInvestment…8. ExcisetaxesonarticlesenumeratedundertheNIRC…9. Percentage tax or VAT on sales barters or exchanges of goods and

services….10. Taxesongrossreceiptsoftransportationcontractorsandpersonsengage

inthetransportationofpassengers…11. Taxesonpremiumspaidforreinsuranceorretrocession.12. Taxesfeeschargesfortheregistrationofmotorvehicles13. Taxes, feesorotherchargesonPhilippineproductsactuallyexportedas

providedinthecode.Limitationisontheexportbutnotonthebusinessofexportingsaidproducts.

14. TaxesandfeesonCountrysideandBarangayBusinessEnterprises…15. Taxesfeesorchargesofanykindonthenationalgovernment…

Importantdoctrines—

1. Tax of five percent on gross receipts of rentals or lease of space inprivately ownedmarkets constitutes a valid “license tax or fee” for the


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regulation rather than incometax.–ProgressiveDevelopmentCorp.vs.QuezonCityG.R.no.3608124April1999.

2. Tax on capital investment or purchasesmade during the preceding taxperiodisnotasalestaxandmaybelevied.Tatelvs.Viras,48SCRA79

3. Taxbasedonthe“sellingdistributionofrefinedandmanufacturedoils…based on themonthly allocation actually delivered and distributed andintendedforsale..thefollowingtaxpayablemonthly…”wasdeemedtobe invalid because it is directly dependent upon which the owner orsupplieroftheitemizedproductsgenerateseverymonth.

4. Tax on the volume of goods produced or manufactured is not apercentagetaxnorasalestaxbecausethetaxisnotbasedonsalesandthe tax imposed does not have a direct link on production. The tax isbased on criteria of volume for the tax base. (for 100,000 to 200,000gallonsataxofP300.00pesos;from200,001to400,000gallonsataxofP600.00)

LocalTaxingAuthority

• Thepowertoimposeatax,fee,orchargeortogeneraterevenueunderthisCode shallbeexercisedby the sanggunianof the local governmentunitconcernedthroughanappropriateordinance.

TAXESIMPOSEDBYLOCALGOVERNMENTUNITS

Province

1. Transfertax2. Printingandpublications3. Franchisetax(see“inlieuofprovisioninthecasesgiven.)4. Taxonsandgravelandquarryresources5. ProfessionalTax6. Amusementtaxes7. AnnualFixedtaxperdeliverytruck…

TaxonTransferofRealEstateOwnership

1. Theprovincemay imposea taxonthesale,donation,barter,oronanyothermodeoftransferringownershiportitleofrealpropertyattherateofnotmorethanfiftypercent(50%)oftheonepercent(1%)ofthetotalconsideration involved in the acquisition of the property or of the fairmarketvalueincasethemonetaryconsiderationinvolvedinthetransferis not substantial, whichever is higher. The sale, transfer or other

disposition of real property pursuant to R.A. No. 6657 shall be exemptfromthistax.

2. Forthispurpose,theRegisterofDeedsoftheprovinceconcernedshall,beforeregisteringanydeed,requirethepresentationoftheevidenceofpaymentofthistax.Theprovincialassessorshalllikewisemakethesamerequirementbefore cancelling anold tax declaration and issuing a newoneinplacethereof,Notariespublicshallfurnishtheprovincialtreasurerwith a copy of any deed transferring ownership or title to any realpropertywithinthirty(30)daysfromthedateofnotarization.

• It shall be the duty of the seller, donor, transferor, executor or

administrator topay thetaxherein imposedwithinsixty (60)days fromthedateoftheexecutionofthedeedorfromthedateofthedecedent'sdeath.

o What’s wrong with the aforementioned provision? Insettlementoftheestate,youaregiven6monthstosettlewhilein this case, you are only given 60 days from the date of thedecedenttopay

TaxonBusinessofPrintingandPublishing

• Theprovincemayimposeataxonthebusinessofpersonsengagedintheprinting and/or publication of books, cards, posters, leaflets, handbills,certificates, receipts, pamphlets, and others of similar nature, at a ratenotexceedingfiftypercent(50%)ofonepercent(1%)ofthegrossannualreceiptsfortheprecedingcalendaryear.

• In the case of a newly started business, the tax shall not exceed one‐twentieth (1/20) of one percent (1%) of the capital investment. In thesucceeding calendar year, regardless of when the business started tooperate, the tax shall be based on the gross receipts for the precedingcalendaryear,oranyfractionthereof,asprovidedherein.

• The receipts from the printing and/or publishing of books or otherreading materials prescribed by the Department of Education, Cultureand Sports as school texts or references shall be exempt from the taxhereinimposed.

TaxonFranchises

• Notwithstandinganyexemptiongrantedbyanylaworotherspeciallaw,theprovincemayimposeataxonbusinessesenjoyingafranchise,attheratenotexceeding fiftypercent (50%)ofonepercent (1%)of thegross


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annual receipts for the preceding calendar year based on the incomingreceipt,orrealized,withinitsterritorialjurisdiction.

• In the case of a newly started business, the tax shall not exceed one‐twentieth (1/20) of one percent (1%) of the capital investment. In thesucceeding calendar year, regardless of when the business started tooperate, the tax shall be based on the gross receipts for the precedingcalendaryear,oranyfractionthereon,asprovidedherein.

TaxonSand,Gravel,andOtherQuarryResources

• Theprovincemaylevyandcollectnotmorethantenpercent(10%)offairmarket value in the locality per cubic meter of ordinary stones, sand,gravel,earth,andotherquarryresources,asdefinedundertheNationalInternalRevenueCode,asamended,extractedfrompubliclandsorfromthebedsof seas, lakes, rivers, streams, creeks, andotherpublicwaterswithinitsterritorialjurisdiction.

• The permit to extract sand, gravel and other quarry resources shall beissuedexclusivelybytheprovincialgovernor,pursuanttotheordinanceofthesangguniangpanlalawigan.

• Theproceedsofthetaxonsand,gravelandotherquarryresourcesshallbedistributedasfollows:

(1) Province‐Thirtypercent(30%);(2) Component City or Municipality where the sand, gravel, and

other quarry resources are extracted ‐ Thirty percent (30%);and

(3) Barangaywhere the sand, gravel, and other quarry resourcesareextracted‐Fortypercent(40%).

ProfessionalTaxes

1. The province may levy an annual professional tax on each personengaged in the exercise or practice of his profession requiringgovernmentexaminationatsuchamountandreasonableclassificationasthesangguniangpanlalawiganmaydeterminebutshallinnocaseexceedThreehundredpesos(P300.00).

2. Every person legally authorized to practice his profession shall pay theprofessional tax to the province where he practices his profession orwherehemaintainshisprincipalofficeincasehepracticeshisprofessioninseveralplaces:Provided,however,Thatsuchpersonwhohaspaidthecorrespondingprofessionaltaxshallbeentitledtopracticehisprofession

in any part of the Philippines without being subjected to any othernationalorlocaltax,license,orfeeforthepracticeofsuchprofession.

3. Anyindividualorcorporationemployingapersonsubjecttoprofessionaltax shall require payment by that person of the tax on his professionbeforeemploymentandannuallythereafter.

4. The professional tax shall be payable annually, on or before the thirty‐first (31st) day of January. Any person first beginning to practice aprofession after themonth of Januarymust, however, pay the full taxbefore engaging therein. A line of profession does not become exemptevenifconductedwithsomeotherprofessionforwhichthetaxhasbeenpaid. Professionals exclusively employed in the government shall beexemptfromthepaymentofthistax.

5. Anypersonsubjecttotheprofessionaltaxshallwriteindeeds,receipts,prescriptions, reports,booksofaccount,plansanddesigns, surveysandmaps, as the casemay be, the number of the official receipt issued tohim.

AmusementTax

1. The province may levy an amusement tax to be collected from theproprietors, lessees, or operators of theaters, cinemas, concert halls,circuses,boxingstadia,andotherplacesofamusementata rateofnotmorethanthirtypercent(30%)ofthegrossreceiptsfromadmissionfees.

2. In the case of theaters or cinemas, the tax shall first be deducted andwithheld by their proprietors, lessees, or operators and paid to theprovincial treasurer before the gross receipts are divided between saidproprietors, lessees, or operators and the distributors of thecinematographicfilms.

3. The holding of operas, concerts, dramas, recitals, painting and artexhibitions, flower shows, musical programs, literary and oratoricalpresentations,exceptpop,rock,orsimilarconcertsshallbeexemptfromthepaymentofthetaxhereonimposed.

4. The sangguniang panlalawigan may prescribe the time, manner, termsandconditionsforthepaymentoftax. Incaseoffraudorfailuretopaythe tax, the sangguniang panlalawigan may impose such surcharges,interestandpenaltiesasitmaydeemappropriate.

5. The proceeds from the amusement tax shall be shared equally by theprovinceandthemunicipalitywheresuchamusementplacesarelocated.

Municipalities


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BusinessTaxes

1. A fixed annual tax ranging from aminimumof P 165.00 based on the

grosssalesorreceiptsfortheprecedingcalendaryearofmanufacturers,assemblers,repackers…

2. AfixedannualtaxrangingfromaminimumofP18.00toamaximumof50% of 1% on the gross sales for the preceding calendar year ofwholesalers,distributors…

3. Afixedannualtaxonexporterandonmanufacturers,millers,producers…Pleasenotethetaxisnotontheexportbutontheexporter.

4. A fixed annual tax of 1% or 2% of the gross sales or receipts of theprecedingyearonretailers…

5. Afixedannualtax…oncontractorsandvariousindependentcontractors.6. Afixedannualtax…onthegrossreceiptsfortheprecedingcalendaryear

ofbanksandfinancialinstitutions…7. AfixedannualtaxonpeddlersnotexceedingP50.008. Ataxonanybusiness,provided,howeverthatinthecaseofanybusiness

subjecttotheexcise,VatorpercentagetaxundertheNIRCtherateshallnotexceed2%of thegross salesor receipts for theprecedingcalendaryear.

a. Problem: Which will prevail over transportation contractorsand operators—the exemption under Section 133 or this?Solution: Thegrossreceiptsofcommoncarriersderivedfromtheir incoming and outgoing freight shall not be subjected tolocaltaxesimposedbytheLGU(cf.Section117oftheNIRC)

Notes:

• The authority of municipalities to impose a tax on business subject toexcise,VATundertheNIRC isconfinedonlytothe impositionofa fixedannualtax.I.E.whosetaxbaseistheamountofgrosssalesorreceiptsfortheprecedingtaxableyearofthetaxpayer.Anytaximpositionbasedoncurrent years sales or production subject to the Vat or percentage orexcisetaxwouldbeinviolationofSec.133oftheLGC.

• Municipalities in the Metro Manila area may levy taxes at rates notexceeding50%ofthemaximumratesimposableunderSec.144LGC.

• TaxSitusofthebusinessistheplacewherethesaleiseffectedifabranchor sales office is there located; if there is no branch or sales office islocatedwherethesale iseffectedthesaleshallbedulyrecorded inthe

principalofficeandtaxablebythelocalgovernmentwheretheprincipalbusiness office and the factory, project office, plant or plantation arelocated to the extent, respectively, of the thirty percent (30%) andseventypercent (70%)of the sale. If theplantationand the factory arelocatedindifferentplaces,60%ofthe70%shallbeallocatedtothelocalgovernmentwherethefactoryissituatedand40%ofthe70%tothelocalgovernment where the plantation is located. In cases of multiplefactories,the70%shallbeallocatedamongthefactoriesbasedontheirproduction.

FeesandChargesa. Reasonablefeesandchargesonbusinessandoccupationorcalling…b. Reasonablefeesforthesealingandlicensingofweightsandmeasuresc. Fisheryrental,feesandcharges…

Cities

• The cities may impose taxes, fees and charges that the provinces andmunicipalitiesmay levy but not exceeding 50%of suchmaximum ratesexcepttheratesofprofessionalandamusementtaxes.

BusinessTax

1. ThetaxesimposedunderSection143shallbepayableforeveryseparateor distinct establishment or place where business subject to the tax isconducted and one line of business does not becomeexempt by beingconductedwith someotherbusiness forwhich such taxhasbeenpaid.Thetaxonabusinessmustbepaidbythepersonconductingthesame.

2. In cases where a person conducts or operates two (2) or more of thebusinessesmentioned in Section 143 of this Codewhich are subject tothe same rateof tax, the tax shall be computedon the combined totalgrosssalesorreceiptsofthesaidtwo(2)ormorerelatedbusinesses.

3. Incaseswhereapersonconductsoroperatestwo(2)ormorebusinessesmentioned in Section 143 of this Code which are subject to differentrates of tax, the gross sales or receipts of each business shall beseparatelyreportedforthepurposeofcomputingthetaxduefromeachbusiness.

Barangay


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a. Taxes, on stores or retailers with fixed business establishment whosegrosssalesorreceiptsfortheprecedingcalendaryeardoesnotexceedP50,000.00incitiesandP30,000inmunicipalities.

b. Servicechargeforservicesrenderedinconnectionwiththeregulationoftheuseofbarangay‐ownedproperties.

c. Reasonablefeesandcharges1. Oncommercialbreedingoffightingcocks,cockfights,andcockpits.2. Onplacesofrecreationwhichchargeadmissionfees.3. Onbillboardssignboardsandoutdooradvertisement.

• Nocityormunicipalitymay issueany licenseorpermit foranybusinessoractivityunlessa clearance is firstobtained from thebarangaywherethebusinessislocated.(Sec.152LGC)

COMMUNITYTAXES

PersonsLiable• InhabitantofthePhilippines18yearsandabove,or;• Whohasbeenregularlyemployedonawageorsalarybasis forat least

30consecutivedaysinacalendaryear;or,• Engagedinbusinessoroccupation,or,• Who owns real property with an aggregate assessed value of one

thousandpesosormore,or,• Whoisrequiredtofileanincometaxreturn• Basictax• Five pesos and one peso for every one thousand pesos of income

regardlessofsourceorfromownershipofrealpropertywhichinnocaseshallexceed5,000.00pesos

EntitiesLiable

• Every corporation, joint stock company, partnership, joint account,association, or insurance companies, but excluding general professionalpartnershipsandjointventureforconstructionprojects…

• Basictaxo P 500 pesos and p 2.00 for every five thousand pesos in real

property of the corporationwhere the property is situated. P2.00 for every five thousand pesos in earnings derived frombusiness.

Exemptions• Diplomaticandconsularservices• TransientswhosestayinthePhilippinesdoesnotexceedthreemonths.

EnactmentAndEffectivityOfLocalTaxOrdinance

• Thepowertoimposeatax,feeorchargeortogeneraterevenueforlocalgovernment units may be exercised by the sangguniang panlalawigan,panglungsod,bayanorbarangayconcerned.Apublichearingisrequiredforsuchordinanceconductedforsuchpurpose.

• Theordinanceonceapprovedbythelocalsanggunianissenttothelocalchief executive for signature. The local chief executive may veto suchordinance by signifying his disapproval in writing. Sanggunian mayoverridethevetobyavoteof2/3ofallmemberswhichwillbedeemedapproved even if without the signature of the local chief executive.Failuretoactonthebillbythelocalchiefexecutiveshallalsobedeemedapprovalunderthefollowingperiods:15daysofinactionincasesoftheprovince,10daysinactionincasesofcitiesandmunicipalities.

• Effectivityshallbetendaysafterposting.AuthorityToGrantTaxExemptions

• Local government units may, through ordinance grant tax exemptions,incentives or relief under such terms and conditions they may deemnecessary.Sec.192LGC.

• All previously existing tax exemptions has beenwithdrawn by the localgovernment code except for those provided therein. There is also anexceptionprovidedforlocalwaterdistricts,cooperativesdulyregisteredunderR.A. No.6938,non‐stockandnon‐profithospitalandeducationalinstitution.

REMEDIESOFTAXPAYERS

RemediesPriorToAnAssessmenta. AdministrativeAppealtotheSecretaryofjustice

i. An ordinance may be raised on appeal within 30 days from theeffectivity thereofwiththeSecretaryof Justice.TheSecretaryshallrenderadecisionwithin60daysfromthedateofreceiptofappeal.Within30daysfromthedecisionoftheSecretaryorthelapseofthe


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60dayperiod,anactionmaybeinitiatedbythetaxpayerinacourtofcompetentjurisdiction.(Sec.187LGC)

b. Actionfordeclaratoryrelief

RemediesAfterAnAssessmenta. ProtestanAssessment

1. Within60daysfromthereceiptofanassessment,thetaxpayermayfile a written protest with the treasurer, failure to file the saidprotestshall render theassessment finalandunappealable.Within60days fromreceiptof thewrittenprotest, the treasurer shall acton the said protest. Within 30 days from the decision of thetreasurer, thetaxpayermayappeal thedecisionof thetreasurer inthecourtofcompetentjurisdiction.(Note,normallytheMTCorRTCdependingontheamountoftheclaim.)

b. Anactionforrefund.1. Taxpayermaypay the taxassessed,with the specification that the

taxisbeingpaidunderprotestandthenfileaclaimforrefundwithinthe two year period of limitation. The payment, if made with anassessment must be paid within 60 days from the assessmentthereofotherwiseitbecomesfinalandexecutory.

2. The taxpayer is also required to file a claim for a refundwith thetreasurer within the two year period before any action can beinstitutedinanycourtwithinthetwoyearperiod.(Sec.196LGC)

TAXINGPOWERS

PROV.OFBULACANVS.COURTOFAPPEALS G.R.126232NOV.27,1998

1. Aprovincehasnoauthoritytoimposethetaxesongravel,sand,stones,

earthandotherquarryresourcesextractedfromprivatelands2. AprovincemaynotlevyexcisetaxesonarticlesalreadytaxedbytheNIRC

FIRSTPHIL.INDUSTRIALVS.COURTOFAPPEALS G.R.125948DEC.29,1998

1. The local government has no authority to impose another tax on thecommon carriers as the same is already taxed under the LocalGovernmentCode

2. TotaxthesameagainwoulddefeatthepurposeoftheCode

MACTANCEBUVS.MARCOS,ET.AL. G.R.120082SEPT.11,1996

LTOVS.CITYOFBUTUAN G.R.131512JAN.20,2000

1. Registration and licensing functions are vested in the LTO while

franchisingandregulatoryresponsibilitieshasbeenvestedintheLTFRB2. LGUhavethepowertoregulatetheoperationoftricycles‐for‐hireandto

grantfranchisesfortheoperationthereof3. The power is however subject to the guidelines prescribed by the

DepartmentofTransportationandCommunications

CITYGOVT.OFSANPABLOVS.REYES G.R.127708MARCH25,1999

• The tax exemptions or incentives granted to or presently enjoyed by

naturalorjuridicalpersonsarewithdrawnupontheeffectivityoftheLGCexceptwithrespecttothoseentitiesexpresslyenumerated

MERALCOVS.PROVINCEOFLAGUNA GR.NO.131359MAY5,1999

• Local government units have the inherent power to tax except to the

extentthatsuchpowermightbedelegatedtothemeitherbybasiclaworbystatute

REYESVS.CA G.R.118233DEC.10,1999


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• Thelawrequiresthatthedissatisfiedtaxpayerwhoquestionsthevalidityof the tax ordinance must file his appeal to the Secretary of Justice,within30daysfromeffectivitythereof.IncasetheSecretarydecidestheappeal,aperiodofalso30daysisallowedfortheaggrievedpartytogothecourt.ButiftheSecretarydoesn'tdecide,afterthelapseof60days,apartycouldalreadyproceedtoseekreliefincourt.

DOF–BUREAUOFLOCALGOVERNMENTFINANCEOPINION 03‐29‐1993

REALPROPERTYTAXATION

Impositions

1. An annual ad valorem tax thatmay be levied by the provincial, city ormunicipalityonrealpropertysuchasland,building,machineryandotherimprovementsaffixedorattachedtotherealproperty.

2. Specialleviesbythesamelocalgovernment,suchasa. AnadditionalonepercentforthespecialeducationFundb. Additionaltaxonidlelandsc. Speciallevies.

PropertiesSubjectToTax,Sec.145

• Kindlynotethedefinitionofthefollowing:a)realproperty;b)machinery;andc)improvements.ThedefinitionofrealpropertyundertheLGCisanexpandeddefinitionof realpropertiesundertheNewCivilCode.Pleasenote that machineries embrace machines or equipment, mechanicalcontrivances, instruments, appliances or apparatus which may or maynot be attached, permanently or temporarily to the real property. Itincludes facilities used for production and mobile, self‐poweredmachinerynotattachedtotherealpropertybutareactually,directlyandessentially used tomeet the needs of the industry, business or activity(Sec.199[o],LGC)

FundamentalPrinciplesofRealPropertyTaxation

1) Realpropertyshallbeappraisedatitscurrentandfairmarketvalue2) Realpropertyshallbeclassifiedforassessmentpurposesonthebasisof

itsactualuse.3) Real property shall be assessed on the basis of a uniform classification

withineachlocalpoliticalsubdivision

4) Theappraisal,assessmentandlevyofrealpropertyfortaxationpurposesandthecollectionoftherealpropertytaxshallnotbelettoanyperson.

5) Theappraisalandassessmentofrealpropertyshallbeequitable.ClassesOfRealProperty‐

1. Residential2. Agricultural3. Commercial4. Industrial5. Mineral6. Timberland7. Special

a. Actually,directlyandexclusivelyusedforhospitals,cultural,orscientificpurposes.

b. Thoseownedbylocalwaterdistrictsc. Government owned and controlled corporations rendering

essentialpublicservicesinthesupplyanddistributionofwaterand/orgenerationandtransmissionofelectricpower.

ValuationOfTheProperty

• Theassessmentorrealpropertyshallnotbeincreasedoftenerthatonceevery three years except in cases of new improvements substantiallyincreasingthevalueofsaidpropertyorchangeinitsactualuse.

NotificationofNeworRevisedAssessment.

• When real property is assessed for the first time or when an existingassessment is increased or decreased, the provincial, city or municipalassessor shallwithin thirty (30)daysgivewrittennoticeof suchneworrevised assessment to the person in whose name the property isdeclared.Thenoticemaybedeliveredpersonallyorbyregisteredmailorthroughtheassistanceofthepunongbarangaytothelastknownaddressofthepersontobeserved.

AppraisalandAssessmentofMachinery

(a) The fair market value of a brand‐newmachinery shall be the acquisitioncost. In all other cases, the fair market value shall be determined bydividing the remaining economic life of themachinery by its estimatedeconomiclifeandmultipliedbythereplacementorreproductioncost.

(b) If the machinery is imported, the acquisition cost includes freight,


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insurance, bank and other charges, brokerage, arrastre and handling,duties and taxes, plus charges at the present site. The cost in foreigncurrencyof importedmachinery shallbeconverted topesocoston thebasisofforeigncurrencyexchangeratesasfixedbytheCentralBank.

ImpositionofRealPropertytaxes

• The provincial,municipal and city legislature shall fix a uniform rate ofrealpropertytaxapplicabletotheirrespectivelocalitiesasfollows:1) Provinces–notexceedingonepercent(1%)oftheassessedvalueof

therealproperty.2) CitiesandmunicipalitiesinthemetropolitanManilaarea–notmore

than2%ofsuchassessedvalue.ExemptionsfromRealPropertytaxes

1. Real property owned by the Republic of the Philippines or any of itspolitical subdivisions except when the beneficial use thereof has beengranted,forconsiderationorotherwise,toataxableperson.

2. Charitable institutions, churches, parsonages, or convent appurtenantthereto, mosques, non‐profit or religious cemeteries, and all lands,buildings and improvement actually, directly and exclusively used forreligious,charitableoreducationalpurpose.

3. All pieces of machinery and equipment that are actually, directly andexclusively used by local water districts and government owned orcontrolledcorporationsengaged in thesupplyanddistributionofwaterand/orgenerationandtransmissionofelectricpower

4. AllrealpropertyownedbythedulyregisteredcooperativesasprovidedforunderR.A.No.6938

5. Machineryandequipmentusedforpollutioncontrolandenvironmentalprotection.All existing exemptions except as provided for above, including thosegranted to government owned and controlled corporation, prior to theeffectivityoftheLGCof1991hasbeenwithdrawn.

ProofofExemptionofRealPropertyfromTaxation

• Everypersonbyor forwhomrealproperty isdeclared,who shall claimtax exemption for such property under this Title shall file with theprovincial,cityormunicipalassessorwithinthirty(30)daysfromthedateof the declaration of real property sufficient documentary evidence in

support of such claim including corporate charters, title of ownership,articlesof incorporation,by‐laws,contracts,affidavits,certificationsandmortgagedeeds,andsimilardocuments.

• If the required evidence is not submitted within the period hereinprescribed,thepropertyshallbelistedastaxableintheassessmentroll.However,ifthepropertyshallbeproventobetaxexempt,thesameshallbedroppedfromtheassessmentroll.

NotificationofTransferofRealPropertyOwnership

• Anypersonwho shall transfer realpropertyownership toanother shallnotify the provincial, city or municipal assessor concerned within sixty(60)daysfromthedateofsuchtransfer.Thenotificationshallincludethemode of transfer, the description of the property alienated, the nameandaddressofthetransferee.

Duty of Registrar of Deeds to Appraise Assessor of Real Property Listed inRegistry.

1. ToascertainwhetherornotanyrealpropertyenteredintheRegistryofProperty has escaped discovery and listing for the purpose of taxation,theRegistrarofDeedsshallprepareandsubmittotheprovincial,cityormunicipalassessor,within six (6)months fromthedateofeffectivityofthis Code and every year thereafter, an abstract of his registry, whichshallincludebriefbutsufficientdescriptionoftherealpropertiesenteredtherein,theirpresentowners,andthedatesoftheirmostrecenttransferor alienation accompanied by copies of corresponding deeds of sale,donation,orpartitionorotherformsofalienation.

2. ItshallalsobethedutyoftheRegistrarofDeedstorequireeverypersonwhoshallpresent for registrationadocumentof transfer,alienation,orencumbranceofrealpropertytoaccompanythesamewithacertificatetotheeffectthattherealpropertysubjectofthetransfer,alienation,orencumbrance,asthecasemaybe,hasbeenfullypaidofallrealpropertytaxes due thereon. Failure to provide such certificate shall be a validcause for the Registrar of Deeds to refuse the registration of thedocument.

PreparationofScheduleofFairMarketValues

• Beforeanygeneralrevisionofpropertyassessmentismadepursuanttothe provisions of this Title, there shall be prepared a schedule of fairmarket values by the provincial, city and municipal assessor of the


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municipalities within the Metropolitan Manila Area for the differentclasses of real property situated in their respective local governmentunits for enactment by ordinance of the sanggunian concerned. Theschedule of fair market values shall be published in a newspaper ofgeneral circulation in the province, city ormunicipality concerned or inthe absence thereof, shall be posted in the provincial capitol, city ormunicipalhallandintwootherconspicuouspublicplacestherein.

ActualUseofRealPropertyasBasisforAssessment.

• Realpropertyshallbeclassified,valuedandassessedonthebasisof itsactual use regardless ofwhere located,whoever owns it, andwhoeverusesit.

• Note:marketvaluexassessment level=assessedvalue;alwaysuse themarketvalueasassessedvalueisonlyacreatureofthemarketvalue

RemediesForTheCollectionOfRealPropertyTaxes1. Extrajudicialremedyoflevy2. Judicialaction

• The collection may be enforced through either or both of the above

administrativeandjudicialremedies,alternativelyorsimultaneously,andthe use or non‐use of one remedy shall not be a bar against theavailmentoftheother.

• Demand for payment is not necessary, it is enough that a notice ofdelinquencyispostedandpublishedunderSection254oftheLGC.

LevyOnRealProperty

1. Issuanceofthenoticeofdelinquencya. Effected by posting a notice at the main entrance of the

provincial capital and in a publicly conspicuous place in eachbarangayofthelocalgovernmentunit.(Sec.254LGC)

2. WarrantofLevya. If the taxes remain unpaid, a warrant of levy is issued and

mailed to the delinquent owner or person having interesttherein, theassessor, theRegistryofDeeds, for itsannotationinthetaxdeclarationandtitle.(Sec.258LGC.)

3. Advertisement

a. Withinthirtydaysaftertheissuanceofthewarrantoflevy,thetreasurer shall advertise the sale at public auction of the realproperty. This shall be done by posting a notice at the mainentrance of the provincial, city ormunicipality building and apublic and conspicuous place in the barangay where theproperty is situated and by publication once a week for twoconsecutiveweeks in a newspaper of general circulation. Theannouncement shall state the amount of taxes, penalties andcost, the date andplace of sale; nameof taxpayerwhom thetaxwasassessedandthedescriptionofthepropertytobesold.

4. AuctionsaleRedemptionofRealPropertyafterSale

• The delinquent taxpayer is given one year from the date of theregistrationofsaletoredeemthesamebypayingthelocaltreasurerthetotal amountof taxes andpenaltiesdueup to thedateof redemption.Suchpaymentshallinvalidatethesalecertificateissuedtothepurchaserandshallentitlethepersonmakingthesametocertificateofredemptionfrom the treasurer. (Sec. 261, LGC). Thedelinquent taxpayer shall havethe right of the possession over the property soldwithin the one yearperiodofreduction.

MACTANCEBUVS.MARCOS,ET.AL. G.R.120082SEPT.11,1996

FACTS:TheMCIAAwascreatedunderaspeciallawandwasgrantedexemptionfromtaxesthatmaybe imposedby thenational governmentor anyof its instrumentalities.However, the local government of Cebu assessed it for realty tax for parcels ofland.Itcontestedthisandsincethelocalgovernmentwantedtoissueawarrantoflevy,itsoughtdeclaratoryrelief.HELD:Thus,readingtogetherSection133,232and234oftheLGC,weconcludethatasageneral rule, as laid down in Section 133 the taxing powers of local governmentunitscannotextendtothelevyofinteralia,"taxes,fees,andchargesofanykindoftheNationalGovernment,itsagenciesandinstrumentalties,andlocalgovernmentunits"; however, pursuant to Section 232, provinces, cities, municipalities in the


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MetropolitanManilaAreamay imposetherealproperty taxexcepton, interalia,"real property owned by the Republic of the Philippines or any of its politicalsubdivisions except when the beneficial used thereof has been granted, forconsiderationorotherwise,toataxableperson",asprovidedinitem(a)ofthefirstparagraphofSection234.As to taxexemptionsor incentivesgranted toorpresentlyenjoyedbynaturalorjuridical persons, including government‐owned and controlled corporations,Section193oftheLGCprescribesthegeneralrule,viz., theyarewithdrawnuponthe effectivity of the LGC, except upon the effectivity of the LGC, except thosegrantedto localwaterdistricts,cooperativesdulyregisteredunderR.A.No.6938,non stock and non‐profit hospitals and educational institutions, and unlessotherwiseprovidedintheLGC.ThelatterprovisocouldrefertoSection234,whichenumeratesthepropertiesexemptfromrealpropertytax.Butthe lastparagraphofSection234furtherqualifiestheretentionoftheexemptioninsofarastherealproperty taxesareconcernedby limiting theretentiononly to thoseenumeratedthere‐in; all others not included in the enumeration lost the privilege upon theeffectivity of the LGC. Moreover, even as the real property is owned by theRepublicofthePhilippines,oranyofitspoliticalsubdivisionscoveredbyitem(a)ofthefirstparagraphofSection234,theexemptioniswithdrawnifthebeneficialuseof such property has been granted to taxable person for consideration orotherwise.Since the last paragraph of Section 234 unequivocally withdrew, upon theeffectivityof the LGC,exemptions from realproperty taxesgranted tonaturalorjuridicalpersons, includinggovernment‐ownedor controlled corporations,exceptasprovidedinthesaidsection,andthepetitioneris,undoubtedly,agovernment‐ownedcorporation,itnecessarilyfollowsthatitsexemptionfromsuchtaxgranteditinSection14ofitscharter,R.A.No.6958,hasbeenwithdrawn.Anyclaimtothecontrary can only be justified if the petitioner can seek refuge under any of theexceptionsprovided inSection234,butnotunderSection133,as itnowasserts,since,asshownabove,thesaidsectionisqualifiedbySection232and234.

NAPOCORVS.PROVINCEOFLANAO G.R.96700NOV.19,1996

FACTS:

NAPOCOR was the owner of real properties comprising its hydroelectric powerplant complex. It was assessed by the local government for payment of realtytaxes.Lettersofdemandweresentuptotheextentofschedulinganauctionsale.Petitionerfiledforarestrainingorderandwasgranted.HELD:The exemption is not only legally defensible, but also logically unassailable. Theproperties inquestioncomprisethesiteoftheentireAgus IIHydroelectricPowerPlant Complex, which generates and supplies relatively cheap electricity to theislandofMindanao.Thesearegovernmentproperties,whollyownedbypetitionerand devoted directly and solely for public service and utilized in theimplementationofthestatepolicyofbringingaboutthetotalelectrificationofthecountryattheleastcosttothepublic,throughthedevelopmentofpowerfromallsources tomeet the needs of industrial development and rural electrification. Itcan be noted, from RA 6395, PD 380 and PD 938, that petitioner's non‐profitcharacter has been maintained throughout its existence, and that petitioner ismandated to devote all its returns from capital investment and excess revenuesfromoperationstoitsexpansion.Onaccountthereof,andtoenablepetitionertopay its indebtedness and obligations and in furtherance of the state policy onelectrification and power generation, petitioner has always been exempted fromtaxes.Consequently,theassessmentandlevyon(aswellasthesaleof)thepropertiesofpetitionerbyrespondentswerenullandvoidforhavingbeeninmadeinviolationofSection10ofP.D.938andSection40(a)oftheRealPropertyTaxCode.At this juncture, we hasten to point out that the foregoing ruling is solely withrespecttothepurportedrealtytaxliabilitiesofpetitionerfortheperiodfromJune14,1984toDecember31,1989.

RAULSESBRENOVS.CBAA G.R.106588MAR.24,1997

FACTS:Sesbrenoboughtrealpropertytowhich itconstructedaresidentialproperty. Heduly registered the same for taxationpurposesanddeclared thereinheownedaresidential housemadeof strongmaterials. However, the field inspectors foundotherwise—what he constructed was a 5‐storey buildingmade of materials. As


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such, they increased by 1000% the assessmentmade on the property, to whichpetitionernaturallycontested.HELD:The cited provisionmerely defines "market value." It does not in anyway directthatthemarketvalueasdefinedthereinshouldbeusedasbasisindeterminingthevalue of a property for purposes of real property taxation. On the other hand,Section 5 of PD 464 provides unequivocally that "(a)ll real property, whethertaxable or exempt, shall be appraised at the current and fair market valueprevailinginthelocalitywherethepropertyissituated."Contrarytopetitioner'scontention,acquisitioncostcannotbeand isnotthesolebasisof thecurrentandfairmarketvalueofaproperty.Thecurrentvalueof likepropertiesandtheiractualorpotentialuses,amongothers,arealsoconsidered.

ANTONIOCALLANTAVS.OMBUDSMAN G.R.115253‐74JAN30,1998

May officials and employees of the Office of the City Assessor reduce the newassessedvaluesofrealpropertiesuponrequestsoftheaffectedpropertyowners?Toforestallthepracticeof initiallysettingunreasonablyhighreassessmentvaluesonly toeventuallychange themtounreasonably lowervaluesupon"requests"ofproperty owners, the law gives no such authority to the city assessor or hissubalterns. Seemingly innocuous occasions for mischief and veiled opportunitiesfor graft should be excised from the public system. Built‐in checks should bezealouslyobservedsothattheingeniousandshrewdcannotcircumventthemandtheaudaciouscannotviolatethemwithimpunity.FACTS:It isallegedthata‐general revisionofassessmentwasconductedbytheOfficeoftheCityAssessorin1988andsometimethereafter.Noticesofassessmenttogetherwith the new tax declarations were subsequently sent to the property owners.Thereafter, respondents,without the authorityof the Local BoardofAssessmentAppeals,reassessedthevaluesofcertainproperties,incontraventionofSec.30ofP.D.464.Thesaidassessmentresulted in thereductionofassessedvaluesof theproperties.

Inseveralsimilarlywordedletter‐complaintsdatedDecember19,1991,theCityofCebu simultaneously filed criminal and administrative charges against the above‐enumeratedofficersandstaffoftheCityAssessor'sOfficefor"violationsofSection106 of the Real Property Tax Code[,] for gross negligence or willful under‐assessmentofrealpropertieswithinthecity's taxing jurisdictionandforviolationofSec.3(e)ofR.A.3019,otherwiseknownastheAnti‐GraftandCorruptPracticesAct[,]fortheactofcausingundueinjurytotheCityGovernmentbygivingprivatepersonsunwarrantedbenefits,advantagesorpreferencesinthedischargeoftheirofficialandadministrative functions throughmanifestpartiality,evidentbad faithor gross inexcusable negligence by reassessing the real properties of taxpayerswithout any authority whatsoever, thereby resulting in the reduction of taxassessmentstotheprejudiceofthecitygovernmentHELD:Petitionersanchorthevalidityoftheiractsupontheabsenceofaspecificprovisionoflawexpresslyprohibitingtheassessorfrommakingadjustmentsorcorrectionsintheassessmentofrealproperties,anduponthelong‐standingpracticeofthecityassessor'soffice inmakingsuchadjustments/correctionsbelieved ingoodfaithtobesanctionedunderSec.22,PD464.Thisisbereftofanymerit.Undertheprocedure,theissuanceofanoticeofassessmentbythelocalassessorshall be his last action on a particular assessment. On the side of the propertyowner,itisthislastactionwhichgiveshim[the]righttoappealtotheLocalBoardof Assessment Appeals. The above procedure also, does not grant the propertyownertheremedyoffilingamotionforreconsiderationbeforethelocalassessor.Theactofhereinpetitionersinprovidingthecorrespondingnoticesofassessmentthechanceforthepropertyownersconcernedtofileamotionforreconsiderationandforactingonthemotionsfiledisnot inaccordancewith lawandinexcessoftheirauthorityandthereforeconstitutesultraviresacts.

BELENFIGUERRASVS.CA G.R.119172MAR.25,1999

FACTS:


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Petitionerwastheownerofaparcelofland.Shereceivedanassessmentfromthemunicipal assessor by virtue of two ordinances issued by the SB—one fixing fairmarket values and another issuing the assessment levels corresponding to each.Thisprompted thepetitioner to file forprohibitionbut thiswasoverruledby theCA.HELD:Petitionerisrightincontendingthatpublichearingsarerequiredtobeconductedpriortotheenactmentofanordinanceimposingrealpropertytaxes.R.A.No.7160provides that an ordinance levying taxes, fees, or charges "shall not be enactedwithoutanypriorpublichearingconductedforthepurpose."However,itisnoteworthythatapartfromherbareassertions,petitionerFiguerreshasnotpresentedanyevidence toshowthatnopublichearingswereconductedprior to the enactment of the ordinances in question. On the other hand, theMunicipality ofMandaluyong claims that public hearingswere indeed conductedbeforethesubjectordinanceswereadopted,althoughitlikewisefailedtosubmitany evidence to establish this allegation. However, in accordance with thepresumptionofvalidity in favorofanordinance, theirconstitutionalityor legalityshould be upheld in the absence of evidence showing that the procedureprescribedbylawwasnotobservedintheirenactment.In view of 188 and 511(a) of R.A. No. 7160, an ordinance fixing the assessmentlevelsapplicabletothedifferentclassesofrealpropertyinalocalgovernmentunitand imposing penal sanctions for violations thereof (such as OrdinanceNo. 125)shouldbepublished in full for three (3)consecutivedays inanewspaperof localcirculation,whereavailable,withinten (10)daysof itsapproval,andposted inatleasttwo(2)prominentplacesintheprovincialcapitol,city,municipal,orbarangayhallforaminimumofthree(3)consecutiveweeks.Apartfromherallegations,petitionerhasnotpresentedanyevidencetoshowthatthesubjectordinanceswerenordisseminatedinaccordancewiththeseprovisionsofR.A.No.7160.Ontheotherhand,theMunicipalityofMandaluyongpresentedacertificate,datedNovember12,1993,ofWilliardS.Wong,SanggunianSecretaryoftheMunicipality ofMandaluyong that "OrdinanceNo. 125, S‐1993 . . . has beenposted in accordancewith 59(b) of R.A.No. 7160, otherwise knownas the LocalGovernmentCodeof1991."

TYVS.TRAMPE

G.R.NO.117577,DEC.1,1995.

FACTS:Petitionerswereassessedbythemunicipalassessorforrealtytaxesovertheirrealproperties. They asked for reconsideration and thinking this is not yet enough,theyfiledapetitionforprohibitionintheRTC.HELD:Comingdowntospecifics,Sec.9ofP.D.921requiresthatthescheduleofvaluesofrealpropertiesintheMetropolitanManilaareashallbepreparedjointlybythecityassessorsinthedistrictscreatedtherein:whileSec.212ofR.A.7160statesthatthescheduleshallbeprepared"bytheprovincial,cityandmunicipalassessorsof themunicipalitieswithintheMetropolitanManilaAreaforthedifferentclassesofrealproperty situated in their respective local government units for enactment byordinanceofthesanggunianconcerned...."It is obvious that harmony in these provisions is not only possible, but in factdesirable, necessary and consistent with the legislative intent and policy. Byreadingtogetherandharmonizingthesetwoprovisions,wearriveatthefollowingstepsinthepreparationofthesaidschedule,asfollows:1.Theassessor ineachmunicipalityor city in theMetropolitanManilaarea shallprepare his/her proposed schedule of values, in accordance with Sec. 212, R.A.7160.2.Then,theLocalTreasuryandAssessmentDistrictshallmeet,perSec.9,P.D.921.Intheinstantcase,thatdistrictshallbecomposedoftheassessorsinQuezonCity,Pasig,Marikina,MandaluyongandSanJuan,pursuanttoSec.1ofsaidP.D.Inthismeeting,thedifferentassessorsshallcomparetheirindividualassessments,discussand thereafter jointly agree and produce a schedule of values for their district,taking into account the preamble of said P.D. that they should evolve "aprogressiverevenueraisingprogramthatwillnotundulyburdenthetaxpayers".3.Theschedule jointlyagreeduponby theassessorsshall thenbepublished inanewspaperofgeneral circulationandsubmitted to the sanggunianconcerned forenactmentbyordinance,perSec.212,R.A.7160.


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Althoughasarule,administrativeremediesmustfirstbeexhaustedbeforeresorttojudicialactioncanprosper,thereisawell‐settledexceptionincaseswherethecontroversydoesnotinvolvequestionsoffactbutonlyoflaw.Inthepresentcase,the parties, even during the proceedings in the lower court on 11 April 1994,alreadyagreed"thattheissuesinthepetitionarelegal",andthus,noevidencewaspresentedinsaidcourt.In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conductedsolelyforthepurposeofascertainingthefacts...."ItfollowsthatappealstothisBoardmaybefruitfulonlywherequestionsoffactareinvolved.Again,theprotestcontemplatedunderSec.252ofR.A.7160isneededwherethereisaquestionasto the reasonablenessof theamount assessed.Hence, if a taxpayerdisputes thereasonableness of an increase in a real estate tax assessment, he is required to"firstpaythetax"underprotest.Otherwise,thecityormunicipaltreasurerwillnotactonhisprotest. In the caseatbenchhowever, thepetitionersarequestioningtheveryauthorityandpowerof theassessor,actingsolelyand independently, toimpose the assessment and of the treasurer to collect the tax. These are notquestionsmerely of amounts of the increase in the tax but attacks on the veryvalidityofanyincrease.

PROTESTCASES

PaymentUnderProtest

• All protests of real property taxes shall first be paid prior to beingentertained.Itisnecessaryforthetaxpayertoindicateinthetaxreceiptsthat the payment was made under protest. The taxpayer shall thensubmithiswrittenprotestwiththegroundsthereofwithin30daystothemunicipal,cityorprovincialtreasurer.Thetreasurer isgivenaperiodof60daystodecidetheprotest.

• Iftheprotestisdecidedinfavorofthetaxpayer,theamountshalleitherberefundedorappliedasataxcredittoanyotherexistingorfuturetaxliability of the protestant. If the protest is denied, the same may beappealedtotheboardofassessmentappeals.

REFUNDCASES

ClaimForRefund• Thetaxpayermayclaimforarefundoftaxesillegallyorerroneouslypaid

byfilingawrittenclaimforrefundwithinatwoyearperiodfromthedatethetaxpayer isentitledthereto. If theclaimwasdeniedornotactedordecided upon within 60 days the taxpayer may avail himself of theremediesthroughtheBoardofAssessmentappeals.

BOARDOFASSESSMENTAPPEALS

• Any taxpayerorpersonhaving legal interest in thepropertywho isnotsatisfiedwiththeactionoftheprovincial,cityormunicipalassessormaywithin60daysfromthedateofwrittennoticeofassessment,appealtothe Local Board of Assessment Appeals. Such appeal does not suspendthe collection of the tax as assessed without prejudice to a lateradjustment.

• Theboardshalldecideonthematterwithin120daysfromthereceiptofthe appeal. The decision of the LBAA may, within 30 days from thereceipt thereof by the taxpayer, be appealed to the Central Board ofAssessment Appeals. The decision of the CBAA is final and executoryhoweverthesamemaybeappealedunderRule43oftheRevisedRulesofCivilProceduretotheCourtofAppeals.

EffectofAppealonthePaymentofRealPropertyTax

• AppealonassessmentsofrealpropertymadeundertheprovisionsofthisCodeshall,innocase,suspendthecollectionofthecorrespondingrealtytaxes on the property involved as assessed by the provincial or cityassessor, without prejudice to subsequent adjustment depending uponthefinaloutcomeoftheappeal.

TIUVS.COURTOFAPPEALS G.R.127410JANUARY20,1999

FACTS:TheCongresspassedintolawRA7227entitled“AnActAcceleratingtheConversionofMilitaryReservationsIntoOtherProductiveUses,CreatingtheBasesConversionand Development Authority for this Purpose, Providing Funds Therefore and forOther Purposes”, creating the Subic Special Economic Zone (SSEZ). SSEZ hasmultiplebenefits suchas (1) free flowormovementofgoodsandcapital; (2) tax


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and duty‐free importations of raw materials, capital and equipment; (3) noexchangecontrolpolicy;(4)bankingandfinanceshallbeliberalized.HELD:

(1) Theequal‐protectionguaranteedoesnotrequireterritorialuniformityoflaws.

(2) Thefundamentalrightofequalprotectionofthelawisnotabsolute,butissubjecttoreasonableclassification.

(3) Classification,tobevalid,must(1)restonsubstantialdistinctions,(2)begermane to the purpose of the law, (3) not be limited to existingconditionsonly,and(4)applyequallytoallmembersofthesameclass.

(4) Furthermore, RA 7227 clearly vests in the President the authority todelineatethemetesandboundsoftheSSEZ.

SITUSOFTAXATION:CASES

PHILIPPINEMATCHCOVS.CITYOFCEBU L‐30745JAN.181978WHERETHESALEWASBOOKED

FACTS:OrdinanceNo.279ofCebuCity (approvedby themayoronMarch10,1960andalsoapprovedbytheprovincialboard)is"anordinanceimposingaquarterlytaxongrosssalesorreceiptsofmerchants,dealers, importersandmanufacturersofanycommoditydoingbusiness"inCebuCity.Itimposesasalestaxofonepercent(1%)onthegrosssales, receiptsorvalueofcommoditiessold,bartered,exchangedormanufacturedinthecityinexcessofP2,000aquarter.Section9oftheordinanceprovides that, for purposes of the tax, "all deliveries of goods or commoditiesstored in the City of Cebu, or if not stored are sold" in that city, "shall beconsidered as sales" in the city and shall be taxable. Thus, it would seem thatunder the tax ordinance sales of matches consummated outside of the city aretaxableaslongasthematchessoldaretakenfromthecompany'sstockstoredinCebuCity.ThePhilippineMatchCo.,Ltd.,whoseprincipalofficeisinManila,isengagedinthemanufactureofmatches. Its factory is locatedatPunta,Sta.Ana,Manila. It shipscases or cartons of matches from Manila to its branch office in Cebu City forstorage, sale and distribution within the territories and districts under its Cebu

branch or thewhole Visayas‐Mindanao region. Cebu City itself is just one of theelevendistrictsunderthecompany'sCebuCitybranchoffice.PhilippineMatch sought the refund of a portion of the sales tax collected fromthembyvirtueofapartofitwasassessedbasedonsaleswhichtranspiredoutsideofthecityandthatsomeofthematcheswerejuststoredinthecityanddelivereddirectly to customers outside of Cebu. This was denied by the City Treasurer,promptingPhilippineMatchtofileacase incourt. Thetrialcourt invalidatedthetaxontransfersofmatchestosalesmenassignedtodifferentagenciesoutsideofthe city and on shipments of matches to provincial customers pursuant to theinstructions of the newsmen It ordered the defendants to refund to the plaintiffthe sumofP8,923.55as taxespaidout the saidout‐of‐towndeliverieswith legalrateofinterestfromtherespectivedatesofpayment.The trial court characterized the tax on the other two transactions as a "storagetax"andnotasales tax. Itassumedthat thesaleswereconsummatedoutsideofthecityand,hence,beyondthecity'staxingpower.The city did not appeal from that decision. The company appealed from thatportionofthedecisionupholdingthetaxonsalesofmatchestocustomersoutsideofthecitybutwhichsaleswerebookedandpaidforinCebuCity,andalsofromthedismissalofitsclaimfordamagesagainstthecitytreasurer.HELD:Weholdthattheappealisdevoidofmeritbemusethecitycanvalidlytaxthesalesofmatchestocustomersoutsideofthecityaslongastheorderswerebookedandpaidforinthecompany'sbranchofficeinthecity.Thosematchescanberegardedas sold in the city, as contemplated in theordinance,because thematchesweredeliveredtothecarrierinCebuCity.Generally,deliverytothecarrierisdeliverytothebuyer.Adifferentinterpretationwoulddefeatthetaxordinanceinquestionorencouragetaxevasionthroughthesimpleexpedientofarranging for thedeliveryofthematchesattheout.skirtsofthecitythroughthepurchasewereeffectedandpaidforinthecompany'sbranchofficeinthecity.The taxing power of cities,municipalities andmunicipal districtsmay be used (1)"upon any person engaged in any occupation or business, or exercising anyprivilege" therein; (2) for services rendered by those political subdivisions orrendered in connection with any business, profession or occupation beingconducted therein, and (3) to levy, for public purposes, just and uniform taxes,


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licenses or fees. Applying that jurisdictional test to the instant case, it is at onceobviousthatsalesofmatchestocustomersoutsideoilCebuCity,whichsaleswerebookedandpaidfor inthecompany'sbranchoffice inthecity,aresubjecttothecity'staxingpower.Thesalesintheinstantcasewereinthecityandthematchessold were stored in the city. The fact that the matches were delivered tocustomers, whose places of business were outside of the city, would not placethose sales beyond the city's taxing power. Those sales formed part of themerchandisingbusinessbeingassignedonbythecompanyinthecity. Inessence,theyarethesameassalesofmatchesfullyconsummatedinthecity.

ILOILOBOTTLERSINC.VS.CITYOFILOILO G.R.NO.52019AUG19,1988

FACTS:PlaintiffwasanoperatorofabottlingplantinPavia,Iloilo.Inthemeanwhile,citygovernmentofIloiloenactedanordinanceorderingthepaymentofmunicipaltaxby bottling, manufacturing and distributing plants, regardless of destination ofdeliveries.PlaintiffpurchasedabottlingplantinIloiloCitybutsubsequentlyclosedthe same and moved all to its original plant. Thereafter, the city governmentassesseditformunicipaltaxes.HELD:Thetaxordinanceimposesataxonpersons,firms,andcorporationsengagedinthebusinessof:1.distributionofsoft‐drinks2.manufactureofsoft‐drinks,and3.bottlingofsoftdrinkswithintheterritorialjurisdictionoftheCityofIloilo.ThereisnoquestionthatafterittransferreditsplanttoPavia,Iloiloprovince,IloiloBottlers,Inc.nolongermanufactured/bottleditssoftdrinkswithinIloiloCity.Thus,itcannotbetaxedasonefallingunderthesecondorthethirdtypeofbusiness.Theresolution of this case therefore hinges on whether the company may beconsideredengagedinthedistributionofsoftdrinksinIloiloCity,evenafterithadtransferred its bottling plant to Pavia, so as to be within the purview of theordinance.

IloiloBottlers,Inc.disclaimsliabilityontwogrounds:First,itcontendsthatsinceitisnotengagedintheindependentbusinessofdistributingsoft‐drinks,butthatitsactivityofsellingismerelyanincidentto,orisanecessaryconsequenceofitsmainorprincipalbusinessofbottling,thenitisNOTliableunderthecitytaxordinance.Second,itclaimsthatonlymanufacturersorbottlershavingtheirplantsinsidetheterritorialjurisdictionofthecityarecoveredbytheordinance.Thesecondgroundismanifestlydevoidofmerit.Itisclearfromtheordinancethatthree types of activities are covered: (1) distribution, (2) manufacture and (3)bottlingofsoftdrinks.Apersonengagedinanyoralloftheseactivitiesissubjecttothetax.Thefirstground,however,meritsseriousconsideration.ThisCourthasalwaysrecognizedthattherighttomanufactureimpliestherighttosell/distributethemanufacturedproducts.Hence,fortaxpurposes,amanufacturerdoes not necessarily become engaged in the separate business of selling simplybecause it sells the products it manufactures. In certain cases, however, amanufacturer may also be considered as engaged in the separate business ofsellingitsproducts.To determine whether an entity engaged in the principal business ofmanufacturing,islikewiseengagedintheseparatebusinessofselling,itsmarketingsystemorsalesoperationsmustbelookedinto.ThisCourthadoccasiontodistinguishtwomarketingsystems:Under the first system, the manufacturer enters into sales transactions andinvoices the sales at its main office where purchase orders are received andapprovedbeforedeliveryordersaresenttothecompany'swarehouses,where inturn actual deliveries aremade.Nowarehouse sales aremade; nor are separatestores maintained where products may be sold independently from the mainoffice. The warehouses only serve as storage sites and delivery points of theproducts earlier sold at the main office. Under the second system, salestransactionsareenteredintoandperfectedatstoresorwarehousesmaintainedbythecompany.Anyonewhodesirestopurchasetheproductmaygotothestoreorwarehouseandtherepurchasethemerchandise.Thestoresandwarehousesserveassellingcenters.


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Entities operating under the first system are NOT considered engaged in theseparate business of selling or dealing in their products, independent of theirmanufacturing business. Entities operating under the second system areconsideredengagedintheseparatebusinessofselling.In the case at bar, the company distributed its softdrinks bymeans of a fleet ofdelivery trucks which went directly to customers in the different places in lloiloprovince. Sales transactions with customers were entered into and sales wereperfected and consummated by route salesmen. Truck sales were madeindependentlyoftransactionsinthemainoffice.ThedeliverytruckswerenotusedsolelyforthepurposeofdeliveringsoftdrinkspreviouslysoldatPavia.Theyservedas selling units. Theywerewhatwere called, until recently, "rolling stores". Thedeliverytruckswerethereforemuchthesameasthestoresandwarehousesunderthe second marketing system. Iloilo Bottlers, Inc. thus falls under the secondcategoryabove.That is, thecorporationwasengaged in theseparatebusinessofsellingordistributingsoft‐drinks,independentlyofitsbusinessofbottlingthem.ThetaximposedunderOrdinanceNo.5isanexcisetax.Itisataxontheprivilegeofdistributing,manufacturingorbottlingsoftdrinks.Beinganexcisetax, itcanbeleviedbythetaxingauthorityonlywhentheacts,privilegesorbusinessesaredoneorperformedwithinthejurisdictionofsaidauthoritySitusOfTaxation–LGC

(a) For purposes of collection of the taxes under Section 143of this Code,manufacturers, assemblers, repackers, brewers, distillers, rectifiers andcompounders of liquor, distilled spirits and wines, millers, producers,exporters, wholesalers, distributors, dealers, contractors, banks andother financial institutions, and other businesses, maintaining oroperating branch or sales outlet elsewhere shall record the sale in thebranchorsalesoutletmakingthesaleortransaction,andthetaxthereonshallaccrueandshallbepaid to themunicipalitywheresuchbranchorsales outlet is located. In caseswhere there is no such branch or salesoutlet in thecityormunicipalitywhere thesaleor transaction ismade,thesaleshallbeduly recorded in theprincipalofficeand the taxesdueshallaccrueandshallbepaidtosuchcityormunicipality.

(b) The following sales allocation shall apply tomanufacturers, assemblers,contractors, producers, and exporters with factories, project offices,plants,andplantationsinthepursuitoftheirbusiness:

(1) Thirty percent (30%) of all sales recorded in the principal officeshall be taxable by the city or municipality where the principalofficeislocated;and

(2) Seventypercent(70%)ofallsalesrecordedintheprincipalofficeshall be taxable by the city or municipality where the factory,projectoffice,plant,orplantationislocated.

(c) Incaseofaplantationlocatedataplaceotherthantheplacewherethefactoryislocated,saidseventypercent(70%)mentionedinsubparagraph(b)ofsubsection(2)aboveshallbedividedasfollows:(1) Sixtypercent(60%)tothecityormunicipalitywherethefactoryis

located;and(2) Forty percent (40%) to the city or municipality where the

plantationislocated.(d) In cases where a manufacturer, assembler, producer, exporter or

contractor has two (2) or more factories, project offices, plants, orplantationslocatedindifferentlocalities,theseventypercent(70%)salesallocationmentionedinsubparagraph(b)ofsubsection(2)aboveshallbeproratedamongthelocalitieswherethefactories,projectoffices,plants,andplantationsare located inproportiontotheirrespectivevolumesofproductionduringtheperiodforwhichthetaxisdue.

PRINCIPAL

30%FACTORYPLANTATION

70%30% FACTORY

42%

PLANTATION

28%

(e) Theforegoingsalesallocationshallbeappliedirrespectiveofwhetherornotsalesaremadeinthelocalitywherethefactory,projectoffice,plant,orplantationislocated.

COLLECTIONOFTAXES

TaxPeriodandMannerofPayment

• Unlessotherwiseprovided inthisCode,thetaxperiodofall localtaxes,feesandchargesshallbethecalendaryear.Suchtaxes,feesandchargesmaybepaidinquarterlyinstallments.

AccrualofTax


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• UnlessotherwiseprovidedinthisCode,all localtaxes,fees,andchargesshallaccrueonthefirst(1st)dayofJanuaryofeachyear.However,newtaxes,feesorcharges,orchangesintheratesthereof,shallaccrueonthefirst (1st) day of the quarter next following the effectivity of theordinanceimposingsuchnewleviesorrates.

TimeofPayment

• UnlessotherwiseprovidedinthisCode,all localtaxes,fees,andchargesshall be paid within the first twenty (20) days of January or of eachsubsequentquarter,asthecasemaybe.Thesanggunianconcernedmay,for a justifiable reason or cause, extend the time for payment of suchtaxes, fees, or charges without surcharges or penalties, but only for aperiodnotexceedingsix(6)months.

SurchargesandPenalties

• Thesanggunianmayimposeasurchargenotexceedingtwenty‐five(25%)oftheamountoftaxes,feesorchargesnotpaidontimeandaninterestat the rate not exceeding two percent (2%) per month of the unpaidtaxes,feesorchargesincludingsurcharges,untilsuchamountisfullypaidbutinnocaseshallthetotalthirty‐six(36%)months.

InterestonOtherRevenues

• Where the amount of any other revenue due a local government unit,exceptvoluntarycontributionsordonations,isnotpaidonthedatefixedin the ordinance, or in the contract, expressed or implied, or upon theoccurrenceoftheeventwhichhasgivenrisetoitscollection,thereshallbe collectedaspartof thatamountan interest thereonat the ratenotexceedingtwopercent(2%)permonthfromthedate it isdueuntil it ispaid, but in no case shall the total interest on the unpaid amount or aportionthereofexceedthirty‐six(36)months.

ExaminationofAccounts

• Theprovincial, city,municipalorbarangay treasurermay,byhimselforthrough any of his deputies duly authorized in writing, examine thebooks,accounts,andotherpertinentrecordsofanyperson,partnership,corporation, or association subject to local taxes, fees and charges inordertoascertain.assess,andcollectthecorrectamountofthetax,fee,orcharge.Suchexaminationshallbemadeduringregularbusinesshours,onlyonceforeverytaxperiod,andshallbecertifiedtobytheexamining

official.Suchcertificateshallbemadeofrecordinthebooksofaccountsofthetaxpayerexamined.

• Incasetheexaminationhereinauthorized ismadebyadulyauthorizeddeputy of the local treasurer, the written authority of the deputyconcernedshallspecificallystatethename,address,andbusinessofthetaxpayer whose books, accounts, and pertinent records are to beexamined,thedateandplaceofsuchexaminationandtheproceduretobefollowedinconductingthesame.

• Forthispurpose,therecordsoftherevenuedistrictofficeoftheBureauof Internal Revenue shall be made available to the local treasurer, hisdeputyordulyauthorizedrepresentative.

• Notethatthisinspectionislimitedtothesalesandgrossrevenuesonly

CIVILREMEDIES

LocalGovernment'sLien.• Local taxes, fees,chargesandother revenuesconstitutea lien,superior

toallliens,chargesorencumbrancesinfavorofanyperson,enforceableby appropriate administrative or judicial action, not only upon anypropertyorrightsthereinwhichmaybesubjecttothelienbutalsouponpropertyusedinbusiness,occupation,practiceofprofessionorcalling,orexerciseofprivilegewith respect towhich the lien is imposed.The lienmayonlybeextinguisheduponfullpaymentofthedelinquentlocaltaxesfeesandchargesincludingrelatedsurchargesandinterest.

CivilRemedies

(1) Byadministrativeactionthrudistraintofgoods,chattels,oreffects,andother personal property of whatever character, including stocks andothersecurities,debts,credits,bankaccounts,andinterestinandrightstopersonalproperty, andby levyupon real property and interest inorrightstorealproperty;

(2) Byjudicialaction.

• Either of these remedies or all may be pursued concurrently orsimultaneouslyatthediscretionofthelocalgovernmentunitconcerned.

DistraintofPersonalProperty

(a) Seizure‐Uponfailureofthepersonowinganylocaltax,fee,orchargetopaythesameatthetimerequired,thelocaltreasurerorhisdeputymay,


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uponwrittennotice,seizeorconfiscateanypersonalpropertybelongingto thatpersonoranypersonalproperty subject to the lien in sufficientquantitytosatisfythetax, fee,orcharge inquestion,togetherwithanyincrement thereto incident todelinquencyand theexpensesof seizure.In such case, the local treasurer or his deputy shall issue a dulyauthenticated certificate based upon the records of his office showingthe factofdelinquencyand theamountsof the tax, fee,or chargeandpenalty due. Such certificate shall serve as sufficient warrant for thedistraintofpersonalpropertyaforementioned,subjecttothetaxpayer'srighttoclaimexemptionundertheprovisionsofexistinglaws.Distrainedpersonal property shall be sold at public auction in themannerhereonprovidedfor.

(b) Accountingofdistrainedgoods.‐Theofficerexecutingthedistraintshall

makeor cause tobemadeanaccountof thegoods, chattelsoreffectsdistrained,acopyofwhichsignedbyhimselfshallbelefteitherwiththeowner or person fromwhose possession the goods, chattels or effectsaretaken,oratthedwellingorplaceorbusinessofthatpersonandwithsomeone of suitable age and discretion, to which list shall be added astatementofthesumdemandedandanoteofthetimeandplaceofsale.

(c) Publication ‐ The officer shall forthwith cause a notification to be

exhibited innot lessthanthree(3)publicandconspicuousplaces intheterritory of the local government unit where the distraint is made,specifyingthetimeandplaceofsale,andthearticlesdistrained.Thetimeof sale shall not be less than twenty (20) days after the notice to theowner or possessor of the property as above specified and thepublication or posting of the notice. One place for the posting of thenoticeshallbeattheofficeofthechiefexecutiveofthelocalgovernmentunitinwhichthepropertyisdistrained.

(d) Releaseofdistrainedpropertyuponpaymentpriortosale‐Ifatanytime

priortotheconsummationofthesale,alltheproperchargesarepaidtothe officer conducting the sale, the goods or effects distrained shall berestoredtotheowner.

(e) Procedureofsale‐Atthetimeandplacefixed inthenotice,theofficer

conductingthesaleshallsellthegoodsoreffectssodistrainedatpublicauctiontothehighestbidderforcash.Withinfive(5)daysafterthesale,

the local treasurer shallmake a report of theproceedings inwriting tothelocalchiefexecutiveconcerned.

Should the property distrained be not disposed of within one hundredand twenty (120) days from the date of distraint, the same shall beconsidered as sold to the local government unit concerned for theamountoftheassessmentmadethereonbytheCommitteeonAppraisaland to the extent of the same amount, the tax delinquencies shall becancelled.SaidCommitteeonAppraisalshallbecomposedofthecityormunicipaltreasureraschairman,witharepresentativeoftheCommissiononAuditandthecityormunicipalassessorasmembers.

(f) Disposition of proceeds ‐ The proceeds of the sale shall be applied to

satisfy the tax, including the surcharges, interest, and other penaltiesincidenttodelinquency,andtheexpensesof thedistraintandsale.Thebalanceoverandabovewhatisrequiredtopaytheentireclaimshallbereturned to the owner of the property sold. The expenses chargeableupon the seizure and sale shall embrace only the actual expenses ofseizureandpreservationofthepropertypendingthesale,andnochargeshallbeimposedfortheservicesofthelocalofficerorhisdeputy.Wherethe proceeds of the sale are insufficient to satisfy the claim, otherproperty may, in likemanner, be distrained until the full amount due,includingallexpenses,iscollected.

PersonalPropertyExemptFromDistraintandLevy

(a) Toolsandimplementsnecessarilyusedbythedelinquenttaxpayerinhistradeoremployment;

(b) One (1) horse, cow, carabao, or other beast of burden, such as thedelinquent taxpayer may select, and necessarily used by him in hisordinaryoccupation;

(c) Hisnecessaryclothing,andthatofallhisfamily;(d) Household furniture and utensils necessary for housekeeping and used

forthatpurposebythedelinquenttaxpayer,suchashemayselect,ofavaluenotexceedingTenthousandpesos(P10,000.00);

(e) Provisions, includingcrops,actuallyprovidedfor individualorfamilyusesufficientforfour(4)months;

(f) Theprofessionallibrariesofdoctors,engineers,lawyersandjudges;


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(g) Onefishingboatandnet,notexceedingthetotalvalueofTenthousandpesos (P10,000.00), by the lawful use of which a fisherman earns hislivelihood;and

(h) Anymaterial or article forming part of a house or improvement of anyrealproperty.

DistraintofRealProperty

• Aftertheexpirationofthetimerequiredtopaythedelinquenttax, fee,orcharge,realpropertymaybeleviedonbefore,simultaneously,orafterthedistraintofpersonalpropertybelongingtothedelinquent taxpayer.To thisend, theprovincial, cityormunicipal treasurer, as the casemaybe, shall prepare a duly authenticated certificate showing the name ofthetaxpayerandtheamountofthetax,fee,orcharge,andpenaltyduefromhim.Saidcertificateshalloperatewiththeforceofalegalexecutionthroughout the Philippines. Levy shall be effected bywriting upon saidcertificate the description of the property uponwhich levy ismade. Atthe same time, written notice of the levy shall bemailed to or servedupontheassessorandtheRegisterofDeedsoftheprovinceorcitywherethepropertyislocatedwhoshallannotatethelevyonthetaxdeclarationand certificateof title of theproperty, respectively, and thedelinquenttaxpayer or, if he be absent from the Philippines, to his agent or themanagerofthebusinessinrespecttowhichtheliabilityarose,oriftherebenone,totheoccupantofthepropertyinquestion.

• In case the levyon realproperty isnot issuedbeforeor simultaneouslywith the warrant of distraint on personal property, and the personalpropertyof the taxpayer is not sufficient to satisfyhisdelinquency, theprovincial, city ormunicipal treasurer, as the casemay be, shallwithinthirty(30)daysafterexecutionofthedistraint,proceedwiththelevyonthetaxpayer'srealproperty.

• A report on any levy shall, within ten (10) days after receipt of thewarrant, be submitted by the levying officer to the sanggunianconcerned.

CollectionThroughJudicialAction

• The local government unit concerned may enforce the collection ofdelinquent taxes, fees, charges or other revenues by civil action in anycourtofcompetentjurisdiction.ThecivilactionshallbefiledbythelocaltreasurerwithintheperiodprescribedinSection194ofthisCode.

PrescriptivePeriods 1. Local taxes, fees,orchargesshallbeassessedwithin five (5)years from

the date they became due. No action for the collection of such taxes,fees, or charges, whether administrative or judicial, shall be institutedaftertheexpirationofsuchperiod:Provided,That.taxes,feesorchargeswhichhaveaccruedbefore theeffectivityof thisCodemaybeassessedwithinaperiodofthree(3)yearsfromthedatetheybecamedue.

2. Incaseoffraudorintenttoevadethepaymentoftaxes,fees,orcharges,the samemay be assessedwithin ten (10) years from discovery of thefraudorintenttoevadepayment.

3. Local taxes, fees,orchargesmaybecollectedwithin five (5)years fromthe date of assessment by administrative or judicial action. No suchaction shall be instituted after the expiration of said period: Provided,however, That, taxes, fees or charges assessedbefore the effectivity ofthis Codemay be collectedwithin a period of three (3) years from thedateofassessment.

4. The running of the periods of prescription provided in the precedingparagraphsshallbesuspendedforthetimeduringwhich:

a. Thetreasurerislegallypreventedfrommakingtheassessmentofcollection;

b. The taxpayer requests for a reinvestigation and executes awaiver inwritingbeforeexpirationof theperiodwithinwhichtoassessorcollect;and

c. The taxpayer is out of the country or otherwise cannot belocated.

ProtestAnOrdinance

• Theprocedureforapprovaloflocaltaxordinancesandrevenuemeasuresshall be in accordancewith the provisions of this Code: Provided, Thatpublic hearings shall be conducted for the purpose prior to theenactment thereof: Provided, further, That any question on theconstitutionality or legality of taxordinancesor revenuemeasuresmayberaisedonappealwithinthirty(30)daysfromtheeffectivitythereoftotheSecretaryofJusticewhoshallrenderadecisionwithinsixty(60)daysfrom the date of receipt of the appeal: Provided, however, That suchappeal shall not have the effect of suspending the effectivity of theordinanceandtheaccrualandpaymentofthetax,fee,orchargeleviedtherein:Provided,finally,Thatwithinthirty(30)daysafterreceiptofthedecision or the lapse of the sixty‐day period without the Secretary of


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Justiceactingupontheappeal,theaggrievedpartymayfileappropriateproceedingswithacourtofcompetentjurisdiction.

DRILONVS.LIM G.R.NO.112497AUG4,1994

FACTS:QuestionontheconstitutionalityofSection187whichempowerstheSecretaryofJusticeregardingconstitutionalityorlegalityoftaxordinances.Inhis resolution, SecretaryDrilondeclared that therewerenowrittennoticesofpublichearingsontheproposedManilaRevenueCodethatweresenttointerestedparties as required by Art. 276(b) of the Implementing Rules of the LocalGovernmentCodenorwerecopiesof theproposedordinancepublished in threesuccessiveissuesofanewspaperofgeneralcirculationpursuanttoArt.276(a).Nominutesweresubmittedtoshowthattheobligatorypublichearingshadbeenheld.Neitherwerecopiesofthemeasureasapprovedpostedinprominentplacesinthecity in accordance with Sec. 511(a) of the Local Government Code. Finally, theManilaRevenueCodewasnottranslatedintoPilipinoorTagaloganddisseminatedamongthepeoplefortheirinformationandguidance,conformablytoSec.59(b)oftheCode.JudgePalattaofoundotherwise.HedeclaredthatalltheproceduralrequirementshadbeenobservedintheenactmentoftheManilaRevenueCodeandthattheCityofManilahadnotbeenable toprovesuchcompliancebefore theSecretaryonlybecausehehadgivenitonlyfivedayswithinwhichtogatherandpresenttohimalltheevidence(consistingof25exhibits)latersubmittedtothetrialcourt.HELD:Section187authorizestheSecretaryofJusticetoreviewonlytheconstitutionalityorlegalityofthetaxordinanceand,ifwarranted,torevokeitoneitherorbothofthesegrounds.Whenhealtersormodifiesorsetsasideataxordinance,heisnotalso permitted to substitute his own judgment for the judgment of the localgovernment that enacted themeasure. SecretaryDrilondid set aside theManilaRevenue Code, but he did not replace itwith his own version ofwhat the Codeshouldbe.Hedidnotpronouncetheordinanceunwiseorunreasonableasabasisfor itsannulment.Hedidnotsay that inhis judgment itwasabad law.Whathefound only was that it was illegal. All he did in reviewing the saidmeasurewas

determine if the petitioners were performing their functions in accordance withlaw,thatis,withtheprescribedprocedurefortheenactmentoftaxordinancesandthegrantofpowerstothecitygovernmentundertheLocalGovernmentCode.Asweseeit,thatwasanactnotofcontrolbutofmeresupervision.An officer in control lays down the rules in the doing of an act. If they are notfollowed, he may, in his discretion, order the act undone or re‐done by hissubordinate or hemay even decide to do it himself. Supervision does not coversuch authority. The supervisor or superintendentmerely sees to it that the rulesare followed,buthehimselfdoesnot laydownsuch rules,nordoeshehave thediscretiontomodifyorreplacethem. Iftherulesarenotobserved,hemayordertheworkdoneorre‐donebutonlytoconformtotheprescribedrules.Hemaynotprescribe his ownmanner for the doing of the act. He has no judgment on thismatterexcepttoseetoitthattherulesarefollowed.IntheopinionoftheCourt,Secretary Drilon did precisely this, and no more nor less than this, and soperformedanactnotofcontrolbutofmeresupervision.The issue of non‐compliancewith the prescribed procedure in the enactment oftheManila RevenueCode is anothermatter. The procedural requirements haveindeed been observed. Notices of the public hearings were sent to interestedpartiesasevidencedbyExhibitsG‐1to17.TheminutesofthehearingsarefoundinExhibits M, M‐1, M‐2, and M‐3. Exhibits B and C show that the proposedordinanceswerepublished in theBalitaandtheManilaStandardonApril21and25,1993,respectively,andtheapprovedordinancewaspublishedintheJuly3,4,5, 1993 issues of theManila Standard and in the July 6, 1993 issue of Balita, asshownbyExhibitsQ,Q‐1,Q‐2,andQ‐3.Theonlyexceptionsarethepostingoftheordinanceasapprovedbutthisomissiondoes not affect its validity, considering that its publication in three successiveissuesofanewspaperofgeneralcirculationwillsatisfydueprocess.Ithasalsonotbeenshownthatthetextoftheordinancehasbeentranslatedanddisseminated,butthisrequirementappliestotheapprovaloflocaldevelopmentplansandpublicinvestmentprogramsofthelocalgovernmentunitandnottotaxordinances.ProtestAnAssessment

• Whenthelocaltreasurerorhisdulyauthorizedrepresentativefindsthatcorrecttaxes,fees,orchargeshavenotbeenpaid,heshallissueanoticeofassessmentstatingthenatureofthetax,fee,orcharge,theamountofdeficiency,thesurcharges,interestsandpenalties.Withinsixty(60)days


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from the receipt of the notice of assessment, the taxpayer may file awritten protest with the local treasurer contesting the assessment;otherwise, the assessment shall become final and executory. The localtreasurershalldecidetheprotestwithinsixty(60)daysfromthetimeofits filing. If the local treasurer finds the protest to be wholly or partlymeritorious, he shall issue a notice cancelling wholly or partially theassessment. However, if the local treasurer finds the assessment to bewhollyorpartly correct,he shalldeny theprotestwhollyorpartlywithnoticetothetaxpayer.Thetaxpayershallhavethirty(30)daysfromthereceiptofthedenialoftheprotestorfromthelapseofthesixty(60)dayperiod prescribed herein within which to appeal with the court ofcompetent jurisdiction otherwise the assessment becomes conclusiveandunappealable.

ClaimForRefundOrTaxCredit

• Nocaseorproceedingshallbemaintainedinanycourtfortherecoveryofanytax,fee,orchargeerroneouslyorillegallycollecteduntilawrittenclaimforrefundorcredithasbeenfiledwiththelocaltreasurer.Nocaseor proceeding shall be entertained in any court after the expiration oftwo(2)yearsfromthedateofthepaymentofsuchtax,fee,orcharge,orfromthedatethetaxpayerisentitledtoarefundorcredit.

TAXEXEMPTIONPRIVILEGES

AuthoritytoGrant

• Local government units may, through ordinances duly approved, granttaxexemptions,incentivesorreliefsundersuchtermsandconditionsastheymaydeemnecessary.

WithdrawalofExemptions

• Unless otherwise provided in this Code, tax exemptions or incentivesgranted to, or presently enjoyed by all persons, whether natural orjuridical,includinggovernment‐ownedorcontrolledcorporations,exceptlocal water districts, cooperatives duly registered under R.A. No. 6938,non‐stock and non‐profit hospitals and educational institutions, areherebywithdrawnupontheeffectivityofthisCode.

TARIFFANDCUSTOMSCODE

RA1937customsandtariffcodeasamendedbyPD1464Sec.100 WhenimportationsbeginSec.101 ProhibitedImportationsSec.105 Conditionally‐FreeImportationsSec.106 DrawbacksSec.201 BasisofDutiableValueSec.301 Anti‐DumpingDutySec.302 CountervailingDutySec.303 MarkingDutySec.304 DiscriminatorydutySec.401 FlexibleTariffBookIITitleIVSec.1201useofcustomshouseSec.1202WhenImportationBeginsandDeemedTerminatedSec.1203Sec.1204TitleVISec.2202to2212search,seizure,arrestSec.2308to2317protestSec.2401‐2402judicialproceedingsRA4712RA7843anti–dumpingdutiesRA8181homeconsumptiontodutiablevalueRA8752Anti‐dumpingdutiesRA9135