I. General Principles
A. CONCEPT AND PURPOSE OF TAXATION
1. Definition
● Taxation is
○ The inherent power of the sovereign exercised through the legislature
○ To impose burdens upon subjects and objects within its jurisdiction
○ For the purpose of raising revenues
○ To carry out the legitimate objects of the government
2. Purpose
● The purposes of taxation are: primary and secondary purposes
○ Primary purpose is revenue raising to provide the wherewithal for the government to
perform the functions for which it was created
○ Secondary purposes are
■ Sumptuary or regulatory (to implement police power)
■ Compensatory (to implement the social justice objectives of the government)
■ Implement the eminent domain powers of the government
3. Distinguish: tax and other forms of exactions
● Source of tax is the taxing power of the State, source of a license fee is the police power of the State
● Purpose of tax is to raise revenue while the purpose of a license fee is for regulation
● Amount of taxation is limitless, while the amount of a license fee shall only be the amount necessary
to carry out the regulation
● The fee imposed by a city on liquor vendors for the privilege of selling liquor is a license fee. It is
not tax; hence, the liquor vendors cannot state that they are subject to double taxation.
● Tariff: imposed on articles which are traded internationally
● Toll: paid for the use of another’s property; amount depends upon the cost of construction or
maintenance of the public improvement used
● License and Regulatory fee: under police power; regulate certain businesses or occupations;
expenses for supervision; right to exercise a privilege
● Assessment: levied only on land; levied because of an increased value of land benefited by public
improvement
● Debt: based on contract; imprisonment is a sanction for non-payment of tax for debt it is not;
draws interest when it is so stipulated or where there is default
● Penalty: sanction imposed as a punishment for violations of law or acts deemed injurious; designed
to regulate conduct
B. POWER OF TAXATION, POLICE POWER, AND EMINENT DOMAIN (FEU reviewer has a
table for these 3)
● Power of taxation is an essential and inherent attribute of sovereignty belonging as a matter of right to ever
independent government without being expressly granted by the people (Pepsi Cola Bottling Company v.
Mun of Tanauan, Leyte, Feb 27, 1976)
Category
Definition
Taxation
Power to enforce
proportional contributions
for the support of the
government and for
public purpose
Police Power
Power to enact laws to
promote the general
welfare of the people
Eminent Domain
Power to take private
property for public use
upon payment of just
compensation
Purpose
Necessity of delegation
Revenue and support for
General welfare
the government
No delegation is necessary Due delegation before
because it is inherent
LGU can exercise it
Authority
Government
Government
Persons affected
Community or class of
individuals
Taxes paid become part of
public funds
Community or class of
individuals
There is no transfer of
title, at most there is
restraint
No direct and immediate
benefits received by the
person affected
Limited. Sufficient to
cover cost of regulation
Superior
Effect of transfer of
property rights
Benefits
Presumption of receipt of
benefits of every person
Amount of imposition
Unlimited. Based on
government needs.
Relationship to the non- Inferior
impairment clause of
the Constitution
Limitation
Constitutional and
inherent limitations
Property taken
Generally money
Public interest and due
process
Any property other than
money
Public use
Due delegation before
LGU or private party may
exercise
Government or private
persons
Owner of the property
Transfer of right to
property
Person affected receives
just compensation
No imposition. Paid the
FMV of his property
Superior
Public purpose and just
compensation
Property usually land
C. THEORY AND BASIS OF TAXATION
1. Lifeblood theory - without revenue raised from taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government would be paralyzed for lack of motive power to
activate and operate it (CIR v. Algue, Feb 17, 1988)
2. Necessity theory - the exercise of the power to tax emanates from necessity, because without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-being of the people
(CIR v. BPI, April 17, 2007)
3. Benefits-received theory - taxpayers receive benefits from taxes through the protection the State
affords to them. For the protection they get arises their obligation to support the government through
the payment of taxes (CIR v. Algue Inc., February 17, 1988)
D. JURISDICTION OVER SUBJECT AND OBJECTS
a)
b)
c)
d)
Tax laws cannot operate beyond a State's territorial limits.
The government cannot tax a particular object of taxation which is not within its territorial jurisdiction.
Property outside ones’ jurisdiction does not receive any protection of the State.
If a law is passed by Congress, it must always see to it that the object or subject of taxation is within the
territorial jurisdiction of the taxing authority.
E. PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal adequacy - means that the sources of revenue should be sufficient to meet the demands of
public expenditures
2. Theoretical justice - or equality; means that the tax burden should be proportionate to the taxpayer’s
ability to pay (also called ability to pay principle)
3. Administrative feasibility - tax law should be capable of convenience, just and effective
administration
F. INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION
•
Inherent Limitations – inherent limitations proceed from the very nature of the taxing power itself. The
taxing power has very distinct and positive limitations some of which in its very nature and exist whether
declared or not declared in the written constitution.
-
Public Purpose
-
-
-
o Proceeds from tax must be used for:
Support of the Government
Some of the recognized objects of Government
Promote the welfare of the community (not individuals)
Situs of taxation or territoriality – taxing power of a country is limited to person and property within and
subject to its jurisdiction
o Place of taxation
State where the subject to be taxed has a situs may rightfully levy and collect the tax
Situs is necessarily in the state which has jurisdiction or which exercises dominion over the
subject in question
o Factors to consider:
Subject matter
Nature of the tax
Citizenship
Residence of the taxpayer
International comity or treaty – state cannot tax another state based on the principle of sovereign equality
of states i.e. tax law passed imposing taxes on foreign ambassadors is not a valid law.
Non-delegability of the Taxing power (enactment of tax laws) - power of taxation is purely legislative,
hence the power cannot be delegated either to the executive or judicial departments. The limitation arises
from the doctrine of separation of powers (has exceptions)
Exemption of the Government
o Agencies performing governmental functions are tax exempt unless expressly taxed
o Agencies performing proprietary functions are subject to tax unless expressly exempted
o GOCC’s performing proprietary functions are subject to tax, however the following are granted
exemptions:
GSIS
SSS
PHIC
PCSO
Local water districts
•
1.
2.
3.
4.
5.
6.
7.
8.
Constitutional Limitations on the Taxing Power
Prohibition against imprisonment for non- payment of Poll tax (Sec. 20, Art. III, Constitution);
Uniformity and Equality of taxation; (Sec. 28(1), Art. IV);
Progressive system of taxation; (Sec. 28(1), Art. IV);
Grant by Congress of authority to the President to impose Tariff rates (Sec. 28(2), Art VI);
Origin of revenue and tariff bills (Sec. 24, Art VI);
Prohibition on the Use of public money or property for religious purposes (Sec 28(3), Art. VI);
Tax Exemption of Religious, charitable and educational entities (Sec. 28(3), Art. VI);
Veto power of the President (Sec. 27(2), Art. VI);
9.
10.
11.
12.
13.
Majority vote of Congress for grant of tax; Exemption (Sec 28(6), Art.VI);
Non Impairment of Jurisdiction of the Supreme Court (Section 5 (2)(b), Art.VIII);
Special assessments (Sec. 29, par 3, Art. VI);
Grant of power to Local Government Units to create its own sources of revenue (Secs. 5 & 6, Art. X)
Tax exemption of non-stock, non-profit Educational institutions (Sec. 4 (3 and 4) Art. XIV);
G. STAGES OR ASPECTS OF TAXATION
• The three stages or aspects of taxation are:
o Levy which is the imposition of the tax
Also involves the determination by Congress of the subject and object of taxation as well as
the rate
o Assessment and collection, which refers to the determination of the tax to be paid and the
implementation of the tax law
Assessment – determination of the amount of tax to be paid
Collection – prescribes the means, process and method of implementing the tax law for the
purpose of satisfying the tax obligation
o Payment is the compliance by the taxpayer with the tax laws
Includes whatever remedies that are available to him under law
H. REQUISITES OF A VALID TAX
• The requisites for a valid tax are:
o Should be for public purpose
o Rule of taxation should be uniform
o Either the person or property taxed be within the jurisdiction of the taxing authority
o Assessment and collection of certain kinds of taxes guarantees against injustice to individuals,
especially by way or notice and opportunity for hearing be provided
o Tax must not impinge on the inherent and constitutional limitations on the power of taxation
I. KINDS OF TAXES
• Taxes may be classified:
o Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of
taxation
Further classified into direct and indirect taxes
o In accordance with the determination of amount into specific, ad valorem, mixed or compound
• Taxes may be classified according to:
o Object or subject (personal, property, privilege or excise)
o Burden or incidence (direct or indirect)
o Tax rates (specific, ad valorem, mixed)
o Purposes (general or fiscal or revenue, or special)
o Scope (national or local)
o Graduation or rate (progressive, regressive proportionate)
J. GENERAL CONCEPTS IN TAXATION
1. Prospectivity of tax laws – tax laws do not have retroactive application. Previously assessed and
demanded tax may still be collected because the repeal is to be construed as an exemption that must be
stricly construed. Tax laws do not have any retroactive application even if favorable to the taxpayer
because tax laws are not considered as part of criminal law.
2. Imprescriptibility – GR: right of the government to collect taxes is imprescriptible because the very
existence of the state depends upon the exercise of this power
3. Situs of taxation – place of taxation; the general rule is that the taxing power cannot go beyond the
territorial limits of the taxing authority. Basically, the state where the subject to be taxed has
a situs may rightfully levy and collect the tax; situs is necessarily in the state which has jurisdiction or
which exercises dominion over the subject in question.
4. Double taxation – imposing a tax on the same subject or object twice
a. Strict sense – violates the equal protection, as well ast the uniformity and equality of protection
clauses of the 1987 constitution; there could only be 1 tax collected.
b. Broad sense (not a defense against the imposition of taxes); no violation of the constitution
concepts of equal protection, uniformity and equality of taxation. Two laws are both valid,
hence there are two payments and the tax burden falls twice.
c. Tax treaties as relief from double taxation – method of avoiding occurrence of double taxation;
reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer
avoid simultaneous taxation in 2 different jurisidcitions.
TAX TREATIES – agreement entered into between sovereign states for purposes of
eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual
trade and investment
5. Escape from taxation – means employed by a taxpayer whether legal or illegal, so as not to pay or
absorb the burden of a tax that is imposed
a. Shifting of tax burden – transferring the economic burden from the one who pays the tax to
another
b. Distinguish: tax avoidance and tax evasion
Tax avoidance – exploitation by the taxpayer of legally permissible alternative rates or methods
of assessing taxable property or income in order to reduce or entirely avoid tax liability. (ex.
Availing of all deductions allowed by law or refraining from engaging in activities subject to
tax); tax saving device within the means sanctioned by law. Should be used in good faith.
Tax evasion – scheme used outside of lawful means and when availed of, usually subjects the
taxpayer to further or additional civil or criminal liabilities.; connotes fraud through the use of
pretenses and forbidden devices to lessen or defeat taxes
6. Exemption from taxation – act of the State in divesting itself of its prerogative to collect taxes upon
certain subjects and objects of taxation; a waiver by the State of an act of sovereignty hence to be
strictly construed against the taxpayer. Granted only upon the clearest intention and should not exist by
mere implication otherwise the very existence of the State would be imperiled for lack of wherewithal
to perform its functions. Taxation is the rule and exemption is the exception.
7. Equitable recoupment – where the refund of tax illegally or erroneously collected or overpaid by a
taxpayer is barred by prescription, a tax presently being assessed against a taxpayer may be recouped or
setoff against the tax whose refund is now barred by prescription. Not applicable to the Philippines
because of the lifeblood doctrine. Filipinos would become lazy in paying.
8. Prohibition on compensation and set-off
- GR: taxes cannot be the subject of compensation or set-off
REASON:
a. lifeblood theory
b. taxes are not contractual obligation but arise out of duty to and are the positive acts of government, to
the making and enforcing of which the personal consent of the individual taxpayer is not required.
c. Government and taxpayer are not mutually creditors and debtors of each other
COMPENSATION – extinguishing an obligation when 2 persons, in their own right, are creditors and
debtors of each other
9. Compromise – a contract whereby the parties, through mutual agreement, make reciprocal
concessions, in order to avoid a litigation or put an end to one already commenced.
10. Tax amnesty – general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violation of a tax law. It is never favored or presumed.
K.
CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND
REGULATIONS
•
•
•
•
•
•
•
RULE: statute will not be construed as imposing a tax unless it does so clearly, expressly and
unambiguously. A tax cannot be imposed without clear and express words for that purpose.
General rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax
laws and the provisions of a taxing act are not to be extended by implication.
Imposition of taxes strictly interpreted against the State
No liberal interpretation of revenue laws
Court can only interpret and not look into the wisdom of the law
Should not be unduly exacted or presumed to go beyond what the law expressly and clearly declares
Burdens are not to be imposed or presumed to be imposed beyond what statutes expressly and clearly
import
II. NATIONAL TAXATION
A. TAXING AUTHORITY
1. Jurisdiction, power, and functions of
the Commissioner of Internal Revenue
Powers and duties of the BIR [JEnAReS]
1. Assessment and collection of all
national internal revenue taxes, fees
and charges;
2. Enforcement of all forfeitures,
penalties and fines;
3. Execution of judgments in all cases
decided in its favor (by the CTA and
regular courts);
4. Give effect and administer the
supervisory and police powers
conferred to it by the NIRC and other
laws;
5. Recommend to the Secretary of
Finance all needful rules and
regulations
for
the
effective
enforcement of the provision of the
NIRC.
Powers of the Commissioner of Internal
Revenue
1.
Power to interpret tax laws and to
decide cases (Sec. 4, NIRC);
2.
Power to obtain information and
to summon/examine and take testimony
of persons (Sec. 5, NIRC);
Purposes of these powers (Commissioner)
1. To ascertain correctness of the return;
2. To make a return when none has been
made;
3. To determine liability of any person
for any internal revenue tax;
4. To collect such liability;
5. To evaluate tax compliance.
Scope of such powers [SO-Ass2- Sex]
1. To examine any book, paper, record,
or other data which may be relevant
or material to such inquiry;
2. To obtain any information (costs,
volume of production, receipts, sales,
gross income) on a regular basis,
from any person other than the person
under investigation and any office or
officer
of
the
national/local
government;
3. To summon the following to produce
records and to give testimony:
a. The person liable for tax or
required to file a return;
b. Any officer or employee of such
person;
c. Any person having in his
possession, custody and care the
books of accounts, accounting
records of entries related to the
business of such taxpayer.
4. Power to make assessments and
prescribe additional requirements for
tax administration and enforcement
(Sec. 6, NIRC);
5. Power to assign internal revenue
officers and other employees (Secs.
16 and 17, NIRC);
6. Power to suspend the business
operations of a taxpayer for
vialations of VAT rules (Sec. 115,
NIRC)
The CIR is also authorized: (TInDER
PRIM)
1. To terminate taxable period for
reasons provided in the NIRC;
2. To make or amend return in case
taxpayer fails to file a return or files a
false or fraudulent return;
3. To examine returns and determine
tax due;
4. To prescribe any additional
requirements for the submission or
preparation of financial statements
accompanying tax returns;
5. To inquire into bank deposits of
a. Decedent to determine his gross
income;
b. A taxpayer who filed application
to compromise payment of tax
liability by reason of financial
incapacity;
c. A specific taxpayer or taxpayers
subject of a request for the supply
of tax information from a foreign
tax authority pursuant to an
international convention or
agreement on tax matters.
7. To delegate powers vested upon him
to subordinate officials with rank
equivalent to Division Chief or
higher, subject to limitations and
restrictions imposed under the rules
and regulations.
8. To prescribe real property values;
9. To take inventory of goods of any
taxpayer, and place any business
under observation or surveillance IF
there is reason to believe that such is
not declaring his correct income,
sales or receipts for tax purposes;
10. To register tax agents.
When the CIR can suspend the business
operation of a taxpayer
1. In the case of VAT-registered person:
a. Failure to issue receipts or
invoices; a. Failure to file a VAT
return as required under Sec. 114; or
b. Understatement of taxable sales or
receipts by 30% or more of his
correct taxable sales or receipts for
the taxable quarter.
2. Failure of any person to register as
required under Sec. 236:
. . . not less than 5 days and shall be
lifted only upon compliance with
whatever requirements prescribed by the
CIR in the closure order
Powers of the BIR which cannot be
delegated [RICA]
1. To Recommend promulgation of
rules and regulations by the Secretary
of Finance;
2. To Issue rulings of first impression or
to reverse, revoke or modify any
existing rule of the BIR;
3. GR: To Compromise or abate any tax
liability;
XPN: The Regional Evaluation
Board may compromise assessments
involving deficiency taxes of
P500,000 or less and minor crime
violations.
4. To Assign or reassign internal
revenue officers to establishments
where articles subject to excise tax
are kept.
GR: Errors or mistakes of administrative
officials (including the BIR) should never be
allowed to jeopardize the financial position
of the government
XPN: Statute of limitations in the collection
of taxes. (make assessment within the 3-year
period)
Powers of the Commissioner to interpret
tax laws and to decide tax cases
Power to interpret
a) The NIRC, and
b) Other tax laws.
Power to decide on
a) Disputed assessments,
b) Refunds of internal revenue taxes,
c) Fees or other charges, and penalties
imposed in relation thereto,
d) Other matters arising under the NIRC or
other laws or portions thereof administered
by the BIR.
Non-retroactivity of rulings
The rulings of the BIR are not retroactive. . .
not be given retroactive application if it will
be prejudicial to the taxpayers.
Except in the following cases:
1. Where the taxpayer deliberately
misstates or omits material facts from
his return or any document required of
him by the BIR;
2. Where the facts subsequently gathered
by the BIR are materially different
from the facts on which the ruling is
based; or
3. Where the taxpayer acted in bad faith
(Sec. 246, NIRC).
2. Rule-making authority of the Secretary
of Finance
General principles on the rule-making power
1. Rules and regulations, as well as
administrative opinions and rulings,
ordinarily should deserve weight and
respect by the courts.
2. All such issuances must not override,
but must remain consistent and in
harmony with the law they seek to
apply and implement.
3. Administrative rules and regulations
are intended to carry out, neither to
supplant nor to modify, the law (CIR v.
CA, G.R. No. 108358, January 20,
1995).
Specific Provisions to be Contained in
Rules and Regulations Rules and
regulations must contain provisions
specifying, prescribing, or defining: (just
picked 5 out of 10)
1. The time and manner in which
Revenue Regional Director shall
canvass their respective Revenue
Regions to discover persons and
property liable to national internal
revenue taxes, and the manner their
lists and records of taxable persons and
taxable objects shall be made and kept.
2. The forms of labels, brands or marks
to be required on goods subject to
excise tax, and the manner how the
labeling, branding or marking shall be
effected.
3. The condition and manner for goods
intended for export, which if not
exported would be subject to an excise
tax, shall be labeled, branded or
marked.
4. The conditions to be observed by
revenue officers respecting the
institutions and conduct of legal
actions and proceedings;
5. The manner tax returns, information
and reports shall be prepared and
reported and the tax collected and paid,
as well as the conditions under which
evidence of payment shall be furnished
the taxpayer, and the preparation and
publication of tax statistics.
Various Kinds of Revenue Issuances by
the CIR (picked 5/11)
1. Revenue Regulations (RRs) – issuances
signed by the Secretary of Finance
(SoF), upon recommendation of the CIR,
that specify, prescribe or define rules and
regulations for the effective enforcement
of the provisions of the Tax Code.
2. Revenue Delegation of Authority
Orders (RDAOs) - issuances signed by
the CIR which refer to functions
delegated by the CIR to revenue officials
in accordance with law.
3. Revenue Audit Memorandum Orders
(RAMOs) – declarations of audit
programs of the BIR for a specific
taxable year signed by the CIR.
4. BIR Rulings – official positions of the
CIR to queries raised by taxpayers and
other stakeholders relative to
clarification and interpretation of tax
laws. Rulings may come in different
forms: a. BIR Rulings b. VAT Rulings c.
Rulings issued by International Tax
Affairs Division (ITAD); and d. Rulings
issued thru delegated authorities or
unnumbered rulings
5. Revenue Bulletins (RBs) – periodic
issuances, notices and official
announcements of the CIR that
consolidate the BIR’s position on certain
issues, for the guidance of the public
signed by the CIR.
Large Taxpayer
is anyone who satisfies any of the following criteria:
1. For VAT - Business establishment with
VAT paid or payable of at least P100,000
for any quarter of the preceding taxable
year;
2. For Excise Tax - Business establishment
with excise tax paid or payable of at least
P1 million for the preceding taxable year;
3. For Corporate Income Tax - Business
establishment with annual income tax paid
or payable of at least P1 million for the
preceding taxable year; and
4. For Withholding Tax - Business
establishment with withholding tax
payment or remittance of at least P1
million for the preceding taxable year.
The Secretary of Finance may modify or add to
the above criteria for determining a large
taxpayer after considering economic factors.
B. INCOME TAX - tax on a person's income,
emoluments, profits arising from property,
practice of profession, conduct of trade or
business or on the pertinent items of gross income
1. Definition, nature, and general principles
a. Income tax systems
i.
Global - System employed
where the tax system views
indifferently the tax base and
generally treats in common
all categories of taxable
income of the individual (Tan
v. Del Rosario, Jr., 237
SCRA 324, 331).
ii.
Schedular
System
employed where the income
tax treatment varies and is
made to depend on the kind
or category of taxable income
of the taxpayer.
iii. Others - Semi-schedular or
semi-global tax system – All
compensation
income,
business or professional
income, capital gain, passive
income, and other income not
subject to final tax are added
together to arrive at the gross
income. After deducting the
allowable deductions and
exemptions from the gross
income, the taxable income is
subjected to one set of
graduated tax rate for
individual
or
normal
corporate income tax rate for
corporation.
b. Features of the Philippine income
tax law
1. Direct tax– Tax burden is borne
by the income recipient upon
whom the tax is imposed. It is a
tax demanded from the very
person who, it is intended or
desired, should pay it (i.e income
tax, donor’s tax, estate tax). On
the other hand, indirect tax is a tax
demanded in the first instance
from one person in the
expectation and intention that he
can shift the burden to someone
else (i.e. value-added tax
[“VAT”], where the seller is liable
to pay the output VAT, but shifts
the burden to the buyer).
2. Progressive tax– Tax base
increases as the tax rate increases.
It is founded on the “ability to
pay” principle.
3. Comprehensive – It adopted the
citizenship
principle,
the
residence principle and the source
principle.
4. Semi-schedular or semi-global tax
system.
c. Criteria in imposing Philippine
income tax
i.
Citizenship or nationality
principle– A citizen of the
Philippines is subject to
Philippine income tax a. On
his worldwide income, if he
resides in the Philippines; b.
Only on his income from
sources
within
the
Philippines, if he qualifies as
a non-resident citizen.
ii.
Residence or domicile
principle– A resident alien is
liable to pay Philippine
income tax on his income
from sources within the
Philippines but is exempt
from tax on his income from
sources
outside
the
Philippines.
iii. Source principle – An alien
is subject to Philippine
income tax because he
derives income from sources
within the Philippines. A
non-resident alien or nonresident foreign corporation
is liable to pay Philippine
income tax on income from
sources
within
the
Philippines, despite the fact
that he has not set foot in the
Philippines.
d. General principles of income tax - General
Principles of Income Taxation in the
Philippines. –
Except when otherwise provided by the code:
(A) A citizen of the Philippines residing therein
is taxable on all income derived from sources
within and without the Philippines;
(B) A nonresident citizen is taxable only on
income derived from sources within the
Philippines;
(C) An individual citizen of the Philippines who
is working and deriving income from abroad as
an overseas contract worker is taxable only on
income derived from sources within the
Philippines: Provided, That a seaman who is a
citizen of the Philippines and who receives
compensation for services rendered abroad as a
member of the complement of a vessel engaged
exclusively in international trade shall be treated
as an overseas contract worker;
(D) An alien individual, whether a resident or not
of the Philippines, is taxable only on income
derived from sources within the Philippines;
(E) A domestic corporation is taxable on all
income derived from sources within and without
the Philippines; and
(F) A foreign corporation, whether engaged or
not in trade or business in the Philippines, is
taxable only on income derived from sources
within the Philippines
e. Types of Philippine income taxes [MC2F3 –
BINGOS]
1. Minimum corporate income
tax (MCIT)
2. Capital gains tax on sale or
exchange of unlisted shares of
stock
of
a
domestic
corporation classified as
capital asset
3. Capital gains tax on sale or
exchange of real property
located in the Philippines
classified as capital asset
f. Kinds of taxpayers
1. Individuals
a. Citizen
i.
Resident Citizen (RC)
ii.
Non-Resident Citizen
(NRC)
b. Aliens
i.
ii.
(1)
i.
i.
Resident Alien (RA)
Non-Resident Alien (NRA)
Engaged in Trade or
Business (NRA-ETB)
(2) Not Engaged in Trade or
Business (NRA-NETB)
iii. Special Alien c. Special
class
of
individual
employees
Minimum wage earner
2. Corporations
a. Domestic b. Foreign
Resident foreign corporation
(RFC)
ii.
Non-resident foreign corporation
(NRFC)
b. Joint venture and
consortium
c. Partnership
3. Estates
4. Trusts
Importance of knowing the classification of
taxpayers
In order to determine the applicable [GREED]
1. Gross income
2. Income tax Rates
3. Exclusions from gross income
4. Exemptions
5. Deductions
g. Taxable period
1. Calendar period
The 12 consecutive months starting from
January 1 and ending December 31.
Instances when calendar year shall be the
basis for computing net income
1. When the taxpayer is an
individual
2. When the taxpayer does not keep
books of account
3. When the taxpayer has no annual
accounting period
4. When the taxpayer is an estate or
a trust
NOTE: Taxpayers other than a corporation
are required to use only the calendar year.
The final adjustment return shall be filed on
or before the fifteenth (15th) day of April.
2. Fiscal period - It is a period of 12 months
ending on the last day of any month other
than December (NIRC, Sec. 22 [Q]).
NOTE: The final adjustment return shall be
filed on or before the fifteenth (15th) day of
the fourth (4th) month following the close of
the fiscal year.
3. Short period
GR: The taxable period, whether it is a
calendar year or fiscal year always consists of
12 months.
XPN: Instances when the taxpayer may have
a taxable period of less than 12 months
1. When the corporation is newly
organized
and
commenced
operations on any day within the
year
2. When the corporation changes its
accounting period
3. When a corporation is dissolved
4. When the Commissioner of
Internal Revenue, by authority,
terminates the taxable period of a
taxpayer (NIRC, Sec. 6[D]). 5. In
case of final return of the decedent
and such period ends at the time of
his death
other hand, the creditor does
not receive any income upon
payment because it is merely a
return of capital.
ii.
2. Concept of income
a. Definition - Income refers to all
wealth which flows into the taxpayer
other than as mere return of capital. It
includes the forms of income
specifically described as gains and
profits, including gains derived from
the sale or other disposition of capital
assets.
Objects being taxed in income taxation
1. Fruit of Capital
2. Fruit of Labor
3. Fruit of Labor and Capital combined
b. When income is taxable
i.
Existence of income
A primary consideration in income
taxation is that there must be
income before there could be
income taxation (Domondon,
2013).
Receipts not considered as
income:
a. Advance payments or deposits
for payments; Advances are not
revenues of the period in which
they are received but as revenue
of the period or periods in
which they are earned.
b. Property
received
as
compensation but subject to
forfeiture;
c. Assessments for additional
corporate contributions;
d. Increments resulting from
revaluation of property; Until
the revalued property is
disposed of there is no income
realized.
e. Parent’s
share
in
the
accumulated and current equity
on subsidiaries’ net earnings
prior to distribution;
f. Money earmarked for some
other persons not included in
gross income;
g. Money or property borrowed;
Borrowed money has to be
repaid by the debtor. On the
Realization of income
Under
the
realization
principle, revenue is generally
recognized when both of the
following conditions are met:
a. The earning process is
complete
or
virtually
complete
b. An exchange has taken
place
NOTE: Mere increase in the
value of property is not
considered as income for
tax purposes since it is an
unrealized increase in
capital
Increase in the net worth of
a taxpayer
. . . is taxable if it is the result
of the receipt of unreported
or
unexplainable
tax
income. However, if they
are merely shown as
correction of errors in its
entries in its books relating
to its indebtedness to
certain creditor which had
been
erroneously
overstated or listed as
outstanding when they had
in fact been duly paid, they
are not taxable.
iii.
Recognition of income
When income considered
received for Philippines
income tax purposes:
a. If actually or physically
received by taxpayer; or
b. If constructively received
by taxpayer.
Actual
vis-a-vis
constructive receipt
1. Actual receipt – income
may be actual receipt or
physical receipt.
2. Constructive receipt –
occurs when money
consideration
or
its
equivalent is placed at the
control of the person who
rendered the service
without restriction by the
payor (Sec. 4.108-4, R.R.
16-2005).
The income is credited to the
account of the taxpayer and
set apart for him which he can
withdraw at any time without
restrictions and/or conditions
although not yet actually
received by him physically or
reduced to his possession is
already taxable to him.
c. Tests in determining whether income
is earned for tax purposes
i.
Realization test -There is no
taxable
income
unless
income is deemed realized.
Revenue
is
generally
recognized
when
both
conditions are met:
a. The earning process is
complete or virtually
complete; and
b. An exchange has
taken place
ii.
Claim of right doctrine or
doctrine of ownership,
command or control - A
taxable gain is conditioned
upon the presence of a claim
of right to the alleged gain
and the absence of a definite
unconditional obligation to
return or repay.
iii.
Economic befit test or
doctrine of proprietary
interest - Taking into
consideration the pertinent
provisions of law, income
realized is taxable only to the
extent that the taxpayer is
economically benefited
iv. Severance test - Income is
recognized when there is
separation of something
which is of exchangeable
value
d. Methods of accounting - Accounting
methods for tax purposes comprise a set
of rules for determining how to report
income and deductions.
As a general rule, the law does not
provide for a specific method of
accounting to be employed by the
taxpayer. The law only authorizes the
CIR to employ particular method of
accounting of income where:
a. The taxpayer does not employ a
method for computing income, or
b. The taxpayer’s method for
accounting does not clearly
reflect the income.
i. Distinguish: cash and accrual
method
Cash Method - income is recognized
only upon actual or constructive receipt
of cash payments or property but no
deductions are allowed from the cash
income unless actually disbursed
through an actual or constructive
payment in cash or property; income is
earned when cash is collected, and
expense is incurred when cash is
disbursed.
Accrual Method - income is
recognized in the period it is earned,
regardless of whether it has been
received or not; expenses are accounted
for in the period they are incurred and
not in the period they are paid.
Amounts of income accrue when the
right to receive them become fixed,
when there is a created enforceable
liability. Similarly, liabilities are
accrued when fixed and determinable
in amount, without regard to
indeterminacy merely of time of
payment.
ii.
Special
method:
installment,
deferred
payment, percentage of
completion (in long-term
contracts)
Sale on a deferred payment basis means sale of
real property, the initial payments of which in the
year of sale exceed 25% of the gross selling price.
Output tax shall be recognized by the seller and
input tax shall accrue to the buyer at the time of
the execution of the instrument of sale. Payments
that are subsequent to “initial payments” shall no
longer be subject to output VAT.
Installment: a person who regularly sells or
otherwise disposes of personal property on the
installment plan may return as income therefrom
in any taxable year that proportion of the
installment payments actually received in that
year, which the gross profit realized or to be
realized when payment is completed, bears to the
total contract price. an individual who sells or
disposes of real property, considered as capital
asset, and is otherwise qualified to report the gain
therefrom under Subsection (B) may pay the
capital gains tax in installments under rules and
regulations to be promulgated by the Secretary of
Finance, upon recommendation of the
Commissioner.
Percentage of completion method. An
estimated percentage of how close the project is
to being completed in taken by taking the cost to
date for the project over the total estimated cost.
Then multiply the percentage calculated by the
total project revenue to compute revenue for the
period. A taxpayer can use the completedcontract method to account for home
construction contracts.
Classification of income
As to source:
1. Gross income and taxable income
from sources within the Philippines
2. Gross income and taxable income
from
sources
without
the
Philippines
3. Income partly within or partly
without the Philippines
Situs of Income
Income from sources within the Philippines
1. Interests derived from sources within
the Philippines
2. Dividends from domestic and foreign
corporations, if more than 50% of its
gross income for the three-year period
ending with the close of the taxable
year prior to the declaration of
dividends was derived from sources
within the Philippines
3. Compensation for services performed
within the Philippines
4. Rentals and royalties from properties
located in the Philippines or any
interest in such property including
rentals or royalties for the use of or for
the privilege of using within the
Philippines intellectual property rights
such as trademarks, copyrights,
patents, etc.
5. Gains on sale of real property located
in the Philippines
6. Gains on sale of personal property
other than shares of stock within the
Philippines
7. Gains on sale of shares of stock in a
domestic corporation
Income from sources without the Philippines
1. Interest and dividends derived from
sources other than those within the
Philippines
2. Compensation for services performed
outside the Philippines
3. Rentals and royalties from properties
located outside the Philippines or any
interest in such property including
rentals or royalties for the use of or for
the privilege of using outside the
Philippines intellectual property rights
such as trademarks, copyrights,
patents, etc
Income derived partly within and partly
without the Philippines
Gains, profits, or incomes other than
those enumerated above shall be
allocated or apportioned to sources
within or without the Philippines
Summary rules on determination of situs
according to kinds of income
3. Gross income
a. Definition Except when otherwise
provided, gross income means all
income derived from whatever
source…
“Income from whatever source”
includes all income not expressly
excluded or exempted from the class
of taxable income, irrespective of the
voluntary or involuntary action of the
taxpayer in producing the income
(Gutierrez v. CIR, CTA Case No. 65,
August 31, 1955).
Therefore, the source is immaterial –
whether derived from illegal, legal, or
immoral sources, it is taxable
*Formula (Proportionate) Phil. Gross Income
x Dividend received = Income within Entire
Gross Income
c. Sources of income subject to tax
i. Compensation income Compensation
income includes all remuneration for
services rendered by an employee for his
employer unless specifically excluded
under the NIRC
ii. Fringe benefits Fringe benefit is any
good, service or other benefit furnished
or granted by an employer, in cash or in
kind, in addition to basic salaries, to an
individual employee, except a rank and
file employee, such as but not limited to:
1. Housing
2. Expense account
3. Vehicle of any kind
b. Distinguish: gross income, net
income, and taxable income
Taxable income or net income This
refers to the pertinent items of gross
income specified in the NIRC, less the
deductions and/or personal and
additional exemptions, if any,
authorized for such types of income
by the NIRC or other special laws.
4. Household personnel such as
maid, driver and others
(AND 6 MORE)
iii. Professional income - Professional
income refers to the fees received by a
professional from the practice of his
profession, provided that there is no
employer-employee
relationship
between him and his clients.
The existence or nonexistence of
employer-employee relationship is
material to determine whether the
income is a compensation income or
professional income. If the employer-
employee relationship is present, then it
is considered compensation income.
Otherwise, it is a professional income.
iv. Income from business
The term “gross income” derived from
business shall be equivalent to gross
sales less sales returns, discounts and
allowances and cost of goods sold. . .
gross receipts less sales returns,
allowances and discounts.
v. Income from dealings in property
Distinguish ordinary asset and capital asset
“Capital assets” include property held by
the taxpayer whether or not connected
with his trade or business, but the term
does not include any of the following,
which are consequently considered
“ordinary assets”:
1. Stock in trade of the taxpayer or
other property of a kind which
would be properly included in the
inventory of the taxpayer if on
hand at the close of the taxable
year;
2. Property held by the taxpayer
primarily for sale to customers in
the ordinary course of trade or
business;
3. Property used in the trade or
business of a character which is
subject to the allowance for
depreciation provided in sec. 34
(f) of the nirc; or
4. Real property used in trade or
business of the taxpayer.
Types of gains (NOT SURE IF CORRECT)
1. Ordinary assets – refer to properties held by
the taxpayer used in connection with his trade or
business which includes the following: [SOUR]
a. Stock in trade of the taxpayer or other
property of a kind which would properly
be included in the inventory of the
taxpayer if on hand at the close of the
taxable year;
b. Property held by the taxpayer primarily
for sale to customers in the ordinary
course of trade or business;
c. Property used in the trade or business of
a character which is subject to the
allowance for depreciation provided in
the nirc; and
d. Real property used in trade or business of
the taxpayer.
Special rules pertaining to income or loss from
dealings in property classified as capital asset
(loss limitation rule, loss carry-over rule,
holding period rule)
Capital Loss Limitation Rule
Losses from sale or exchanges of capital assets
shall be allowed only up to the extent of the gains
from such sales or exchanges (NIRC, Sec. 39
(C)).
Thus, under this capital loss limitation rule,
capital loss is deductible only up to the extent of
capital gain. The taxpayer can only deduct capital
loss from capital gain. If there is no capital gain,
then no deduction is allowed because you cannot
deduct capital loss from ordinary gain.
Rationale: To allow the deduction of nonbusiness (capital) losses from business (ordinary)
income or gain could mean the reduction or even
elimination of taxable income of the taxpayer
through personal, non-business related expense,
resulting in substantial losses of revenue to the
government
Where the capital loss limitation rule will not
apply:
- If a bank or trust company is incorporated under
the laws of the Philippines,
- a business whose substantial part is the receipt
of deposits, - sells any bond, debenture, note
or certificate or other evidence of
indebtedness issued by any corporation, with
interest coupons or in registered form,
- any losses resulting from such sale shall not be
subject to the above limitations and shall not
be included in determining the applicability
of such limitation to other losses (NIRC,
Sec. 39 [C])
Net Capital Loss Carry Over (NCLCO)
If any taxpayer, other than a corporation, sustains
in any taxable year a net capital loss, such loss
(in an amount not in excess of the net income for
such year) shall be treated in the succeeding
taxable year as a loss from the sale or exchange
of a capital asset held for not more than 12
months (NIRC, Sec. 39 [D]).
Rules with regard to NCLCO
• NCLCO is allowed only to individuals,
including estates and trusts.
• The net loss carry-over shall not exceed
the net income for the year sustained and
•
•
is deductible only for the succeeding
year.
The capital assets must not be real
property or stocks listed and traded in the
stock exchange.
Capital asset must be held for not more
than 12 months.
Holding period rule (long term capital gain visàvis short term capital gain)
Where the taxpayer held the capital asset sold for
more than 12 months, the gain derived therefrom
is taxable only to the extent of 50%.
Consequently, if the taxpayer held the capital
asset sold for a year or less, the whole gain shall
be taxable. The same also applies to capital loss.
It is a form of tax avoidance since the taxpayer
can exploit it in order to reduce his tax due
(NIRC, Sec. 39 [B]).
NOTE: Holding period does not find application
in the case of disposition of:
• Shares of stock; and
• Real property considered as capital
asset, whether the seller is an
individual, trust, estate or a private
corporation.
Only
individual
taxpayers can avail of the holding
period rule. It is not allowed to
corporations.
Tax-free exchanges - refer to those enumerated
in Section 40(c)(2) of the NIRC of 1997 that are
not subject to Income Tax, Capital Gains Tax,
Documentary Stamp Tax and/or Valude-added
Tax, as the case may be
a. 2 Kinds (wasn’t in the syllabus):
i. Transfer to a controlled
corporation – no gain or loss
shall be recognized if
property is transferred to a
corporation y a person in
exchange for stock or unit of
participation in such
corporation of which as a
result such exchange said
person, alone or together with
others (not exceeding 4
persons), gains control of
said corporation
ii. Merger or Consolidation no –
no gain or loss shall be
recognized in pursuance of a
plan of merger or
consolidation --- (a) a
corporation which is a party
to a merger or consoliation,
exchanges property solely for
stock in a corporation which
is a party to the merger or
consolidation, (b) a
shareholder exchanges stock
in a corporation, which is a
party to the merger or
consolidation, solely for the
stock of another corporation
also a party to the merger or
consolidation, or (c) a
security holder of a
corporation, which is a party
to the merger or
consolidation, exchanges his
securities in such sorporation,
solely for stock or securities
in another corporation, a
party to the merger or
consolidation
VI. Passive Investment Income
a) Interest Income – Gross income derived
from interest
• Generally, interests are taxable
income, unless exempted by law,
whether or not usurious.
• Gross income deriving from interest
should only refer to such interest as
arising from indebtedness (whether
business or non-business, legal or
illegal), that is compensation for the
loan or forebearance of money,
goods, or credits.
b) Dividend
• Dividend – payments made by a
corporation to its shareholder
members; it is the portion of
corporate profits paid out to
stockholders, direct or indirect.
• Direct dividend – one where
the paying corporation
acknowledges the distribution
of dividend through a
resolution of the Board of
Directors declaring such
distribution as distribution of
dividend
• Indirect Dividend –
distribution of profits
disguised as payment of
services, properties, etc.
• BOTH DIRECT AND
INDIRECT ARE SUBJECT
TO TAX
• TYPES OF DIVIDENDS
• Cash dividends – dividends
paid out in currency, and are
usually taxable to the
recipient in the year they are
paid.
• Property dividends –
dividends paid out in form of
noncash asset from the
issuing corporation or
another corporation such as a
subsidiary corporation.
• Liquidating Dividends –
generally, not a dividend.
Characterized as gain from
sale or exchange of shares
subject to ordinary income
tax.
c) Royalty income
• Royalty - not defined in the Tax
Code but is defined in Merriam
Webster Dictionary as a share of the
earnings as from invention, book or
play, paid to the inventor, writer, etc.
for the right to make, use or publish
the same
d) Rental income – Section 32(A)(5) of the Tax
Code provides that “rent” paid by the lessee
for the use of lease of property is taxable
income to the lessor
• Rent – amount paid for the use or
enjoyment of a thing (real or
personal) or right
• Rent Income may be in the form of:
• Case, at stipulated price
• Obligations of the lessor to
third persons paid or assumed
by the lessee in consideration
of the contract of lease such
as real property taxes
assumed by the lessee on the
property being leased,
insurance or other fixed
charges. Such payments shall
be considered rental
payments to be reported by
the lessor as part of its
taxable income
• Advanced payment which
may be prepaid rent, or a
security deposit that is
applied to rental is a taxable
income of the lessor
• prepaid rent shall be
reported as income in
full in the year of
receipt, regardless of
the accounting
method used by the
lessor
• NON-TAXABLE RENT – advanced
rentals representing option money
for the property as well as security
deposits to insure faithful
performance of certain obligations of
the lessee are not considered as
income on the part of the lessor
VII. Annuities and proceeds from life insurance
or other types of insurance
•
•
•
•
Annuity income – refers to specified income
payable at stated intervals for a fixed or
contingent period, often for the recipient’s
life, in consideration of a stipulated
premium paid either in prior instalment
payments or in a single payment.
o Annuity payments represent a part
which is taxable and not taxable
o amount received representing return
of premium are considered return of
capital and so, should be excluded in
the determination of taxable income
o annuity received representing
interest or amounts over the
premiums paid are considered Return
on Capital, and so should form part
of the recipient’s taxable income
Proceeds of Life Insurance – proceeds from
life insurance policies paid to the heirs or
beneficiaries upon the death of the insured,
whether in a single sum or otherwise, but if
such amounts are held by the insurer under
an agreement to pay interest thereon, the
interest payments shall be included in gross
income
o The amount received by the insured,
as return of premiums paid by him
under life insurance, endowment,
or annuity contracts, either during
the term or at maturity of the term
mentioned in the contact or upon
surrender of the contract is not
subject to income tax
Value of property acquired by gift, bequest,
devise, or descent is excluded in the
determination of gross income. However,
income from such property, as well as gift,
bequest, devise, or descent shall be
included in gross income.
Recovery of damages, representing
compensation for personal injuries arising
from libel, defamation, slander, breach or
promise to marry, alienation of affection are
not subject to income tax, and shall not be
included in gross income.
o EXAMPLES TAXABLE
DAMAGES
▪ Representing recovery of lost
income
▪ Compensation for unrealized
earnings
▪ Interest on non-taxable
damages
▪ Interest for non-taxable
damages
o EXAMPLES OF NON-TAXABLE
DAMAGES
▪ Representing recovery of lost
capital
▪ Actual damages for injuries
suffered
▪
▪
▪
▪
Moral damages for grief,
anxiety, etc.
Exemplary damages
Damages for loss of earning
capacity
Damages for loss of goods
and other belongings
VIII. Prizes and Awards
• Prize – an award to be given to a person or a
group of people to recognize and reward
actions or achievements.
o Are also given to publicize
noteworthy or exemplary behaviour,
and to provide incentives for
improved outcomes and competitive
efforts.
• Winnings – for tax purposes, should refer to
rewards/income by virtue of chance or bets.
GENERALLY, PRIZES AND WINNINGS
ARE TAXABLE UNLESS EXEMPT
• Prizes and awards- prizes included in the
gross income are the following:
o Prizes received by resident citizen,
non-resident citizen, resident alien,
and NRAETB from sources within
the Philippines in the amount of
10,000 or less
o Prizes received by resident citizens
regardless of the amount from
sources outside the Philippines.
o Prizes received by a domestic
corporation regardless of amount and
source
o Prizes received by a resident foreign
corporation from sources within the
Philippines regardless of amount.
IX. Pension, retirement befit, or separation payrefers to allowances paid regularly to a person on
his retirement or to his dependents on his death,
in consideration of past services, meritorious
work, age, loss or injury. Pensions included in
the gross income are those not considered
exclusions in gross income.
X. Income from any source
• Condonation of indebtedness- the creditor in
favour of the taxpayer-debtor provided that
the indebtedness was allowed as a deduction
from the gross income in the preceeding
year- it shall be included as part of the gross
income in the year debt was condoned to the
extent of the income tax benefit of said
deduction.
• Recovery of accounts previously written offprovided that it has been previously allowed
as a deduction from the gross income on the
preceding years- it shall be included as part
of the gross income in the year of recovery
to the extent of the income tax benefit of
said deduction.
•
Receipt of tax refunds or credit- taxes paid
or incurred in connection with the taxpayer’s
profession, trade, or business- it shall be
included as part of the gross income in the
year of receipt to the extent of the income
tax benefit of said deduction.
d. Exclusions
i.
Rationale
• Represent a return of capital
• Are not strictly income, gain, or profit at
all
• are expressly exempted under the
Constitution, tax treaties, or tax laws
• to preserve separation of the Church and
State
• benefit society by encouraging civic
achievements and sports competitions
• to subsidize/ incentivize in order to
relieve government’s burden
• for benevolence or charity
• in deference to age, physical condition,
and financial incapacity.
• Taxpayers who may avail
ii.
Taxpayers who may avail
• All taxpayers, individual, and
corporation may avail of the exclusions
which are not considered as taxable
income.
iii.
Distinguish: exclusions, deductions, and tax
credits
• Tax exclusion- are items of income,
gain or profit earned or received, but the
taxpayer does not need to report it as
part of his gross income because they are
exempted from taxation by virtue of a
law or treaty.
• Tax Deductions- are amounts that are
allowed to be subtracted from gross
income to arrive at the taxable or net
income. It reduces taxable income.
• Tax Credits- are refunds of excess
income tax paid over the total income
tax due in the entire taxable income for
the tax period. It also refers to the
amount of foreign tax paid by the
taxpayer on its declared gross income,
and is deducted from the income tax due,
reducing the taxpayers’ tax liability.
iv.
Exclusions under the Constitution
• Section 28, Art VI
• Section 4(3), Art XIV
4. Deductions
• Deductions -These refer to items or amounts
authorized by law to be subtracted from
pertinent items of gross income to arrive at
the taxable income.
• Nature of deductions: The items of amounts
allowed as deductions represent the
expenses (reduction of wealth) of the
taxpayer (other than personal expenses and
capital expenditures) in earning the income
(increase of wealth) subject to tax as well as
reasonable living expenses.
a. General rule
• Deductions must be paid or incurred in
connection with the taxpayer’s trade,
business, or profession.
• Deductions must be supported by adequate
receipts or invoices (XPN: standard
deduction).
• The withholding and payment of tax
required must be shown.
b. Concept of return of capital
• The amount representing return of capital
should be deducted from the proceeds from
the sales of assets and should not be subject
to income tax. Cost of goods purchased for
resale, with proper adjustment for opening
and closing inventories are deducted from
gross sales in computing gross income.
c. Distinguish: itemized deductions and
optional standard deduction
d. Requisites before deductions are allowed
• There must be specific provision of law
allowing the deductions, since deductions do
not exist by implication.
• The requirements of deductibility must be
met. Refer to discussions on itemized
deductions for the requirements of each
deduction.
• There must be proof of entitlement to the
deductions. The burden of proof to establish
the validity of claimed deduction is on the
taxpayer. This is consistent with the rule that
tax exemptions must be strictly construed
against the taxpayer and liberally in favor of
the State.
• The deductions must not have been waived.
• The withholding and payment of tax required
must be shown (Domondon, 2013).
e. Items not deductible
• No deduction shall in any case be allowed in
respect to:
o Personal, living or family expenses –
These are personal expenses and not
related to the conduct of trade or
business.
o Any amount paid out for new
buildings of for permanent
improvements, or betterments made
to increase the value of any property
or estate – These are capital
expenditures added to the cost of the
property and the periodic
depreciation is the amount that is
considered as deductible expense.
NOTE: Shall not apply to intangible
drilling and development costs
incurred in petroleum operations
which
are
deductible
under
Subsection (G)(1) of Sec. 34 of the
NIRC.
o Any amount expended in restoring
property or in making good the
exhaustion thereof for which an
allowance is or has been made
(Major Repairs)
o Premiums paid on any life insurance
policy covering the life of any officer
or employee, or of any person
financially interested in any trade or
business carried on by the taxpayer,
individual or corporate, when the
taxpayer is directly or indirectly a
beneficiary under such policy (Sec.
36 [A], NIRC)
NOTE: A person is said to be
financially
interested
in
the
taxpayer’s business, if he is a
stockholder thereof or if he receives
as compensation his share of the
profits of the business.
o Interest expense, bad debts, and
losses from sales of property
between related parties
o Bribes, kickbacks and other similar
payments
o Items where the requisites for
deductibility are not met
5. Income tax on individuals
a. Resident citizens, non-resident citizens,
and resident aliens
i.
Coverage
ii.
Taxation
on
compensation
income
Compensation
income
includes all remuneration for
services rendered by an
employee for his employer
unless specifically excluded
under the NIRC.
The test is whether such
income is received by virtue
of an employer-employee
relationship.
o Inclusions
iii.
iv.
o Monetary compensation
a) Regular
salary/wage
b) Separation
pay/retirement
benefit
not
otherwise
exempt
c) Bonuses, 13th
month pay, and
other
benefits
not exempt
d) Director’s fees
o Non-monetary
compensation
▪ Fringe benefit not
subject to tax
o Exclusions
o Fringe
benefit
subject to tax
o De
minimis
benefit
o 13th month pay
and
other
benefits
and
payments
specifically
excluded from
taxable
compensation
income
Taxation of business
income/income from
practice of profession
i. Schedular tax system –
System employed where
the income tax treatment
varies and is made to
depend on the kind or
category of taxable
income of the taxpayer
ii. 8% option - May be
availed only by qualified
individuals engaged in
the business or practice
of profession whose
gross sales/receipts and
other non-operating
income does not exceed
3,000,000 pesos
Taxation of partners
in
a
general
professional
partnership
ii. GPP are not
subject to income
tax
but
are
required to file
information
returns for its
income for the
purpose
of
i.
furnishing
information as to
the share in the net
income of the
partnership,
which
each
partner
should
include in his
individual return.
iii. Partners shall be
liable for income
tax
in
their
separate
and
individual
capacities.
iv. GPP
is
only
required to file a
return for its
income,
except
income exempt
under Sec. 32 (B)
of the NIRC,
setting forth the
items of gross
income and of
deductions
allowed, and the
names, Taxpayer
Identification
Numbers (TIN),
addresses
and
shares of each of
the partners (Sec.
55, NIRC)
Taxation of passive income
Passive income refers to
income derived from any
activity in which the taxpayer
has no active participation or
involvement.
“income subject to final tax”
The recipient is no longer required to include the
item of income subjected to “final tax” as part of
his gross income in his income tax returns.
Ex. Interest income from bank deposits
i. Taxation of capital gains
a) Income from sale of shares of
stock of a Philippine corporation
- what is controlling is w/n the
shares of stock are traded in the local
stock exchange, not where the actual
sale happened
*Traded in the stock exchange –
subject to percentage tax based on
gross selling price
*Not Traded in stock exchange –
subject to capital gains tax based on
capital gain
- if purchased from a dealer in
securities, it shall be treated as
ordinary asset and the ordinary gain,
if any, shall be subject to the
graduated income tax rates (if
individual seller) or normal corporate
income tax (if corporate seller)
sources within the Philippines as interest, cash
and/or
property dividends,
rents, salaries, wages, premiums, annuities,
compensation, remuneration, and
other fixed determinable or casual gains,
profits, and income
- tax is equal to 25% of such income
Persons liable of paying capital gains
tax:
1. Individual – both citizens and
aliens
2. Corporations – domestic and
foreign
3. Estates and trusts
d. Aliens employed by regional
headquarters, regional operating
headquarters, offshore banking units,
and petroleum service contractors
b) Income from sale of real
property situated in the Philippines
- covers sales, exchanges, or other
dispositions and includes government
taking through expropriation
- a final tax of 6% shall be imposed on
the higher amount between:
*Zonal Value – as determined by
CIR
*Assessed Value – fair market
value as shown in the
schedule of values of the Provincial
and City assessors
*Real Property – as to individual
taxpayers, trust, and estate
*Land/Building – with respect to
domestic corporations
*Property not located in the
Philippines – subject to
ordinary
income but subject to foreign credit
c) Income from sale, exchange, and
other disposition of other capital
assets
b. Non-resident aliens engaged in trade or
business
– taxed on their income derived from all sources
within the Philippines in the same manner as an
individual citizen or a resident alien
individual
- schedule rate of 5-32%
- granted Personal and Additional exemptions
subject to the rule of reciprocity
c. Non-resident aliens not engaged in trade
or business
- taxed on their income received from all
e. Individual tax payers exempt from
income tax
i. Minimum wage earner
- a worker in the private sector paid the
statutory minimum or;
- a worker in the public sector with
compensation of not more than the
statutory
minimum in the non-agricultural sector
*Statutory minimum wage – rate fixed
by the Regional Tripartite Wage and
productivity Board as defined by the
Bureau of Labor and Employment
Statistics (BLES) of the Department of
Labor and Employment
Exemption covers: income, holiday pay,
overtime pay, night shift differential and
hazard
- unless minimum wage earners receive
“other benefits” exceeding P82,000 shall
be
taxable
on
the
EXCESS benefits
ii.
Exemptions granted under
international agreements
those
employed
by
Foreign
Embassies/Diplomatic Missions such as:
(they are all non-citizens and nonpermanent residents)
1. Diplomatic agents
2. Members of the family of the diplomatic
agent forming part of their respective
households
3. Members of the administrative and
technical staff of the mission together with
members of their family
4. Members of the service staff of the
diplomatic mission
5. Private servants of members of the
mission
6. Income tax on corporations
*includes
- partnerships
- joint stock companies
- joint accounts
- associations
- insurance companies
1. taxable income is zero
2. If taxable income is negative
3. If MCIT is greater than NCIT
due
- comparison is made at the
end of the taxable year
*MCIT is not unconstitutional
*does not include
- General Partnerships
- the distributive share of each partner in a GP
shall form part of the partner’s gross income in
its individual tax return subject to graduated
income tax rates
- Joint Venture or consortium formed for
purposes of undertaking construction projects
- JVs engaged in petroleum, coal, geothermal,
and other energy operations
a. Domestic corporations – corporation
created or organized in the Philippines or under
its laws and is
liable for its income from
sources within and without
i. Taxation-in general
a) Regular Corporate Income Tax
(RCIT) – or Normal Income Tax; 30% if taxable
income
from
all
sources within and without the Philippines
- paid when this is higher than
MCIT
b) Minimum Corporate Income
Tax (MCIT) – 2% of gross income
- commences to be imposed on a
corporation on its 4th taxable year
- paid quarterly and on a yearly
basis
- came about as a result of the
perceived inadequacy of the self-assessment
system in
capturing the true
income of companies
- Congress wanted to stop the
practice of corporation, that while having large
turnovers,
report minimal or
negative net income through under declaration or
overdeduction of
expenses
otherwise known as tax shelters
- purpose is to forestall the
prevailing practice of corporations of
overclaiming deductions
in order to
reduce their income tax payment
- a corporation must pay the
MCIT whenever its normal corporate income tax
is lower
than the MCIT or
when a firm reports a net loss in its tax return
because:
- it is imposed on gross income
and not on capital thus not arbitrary of
confiscatory
- not an additional tax imposition
but imposed in lieu of normal net income tax if
the
latter is suspiciously
low
- no legal objection to a broader
tax base resulting from the elimination of all
deductible
items and at the same
time, the reduction of the applicable tax rate
*Suspension of MCIT – the law
authorizes
Sec.
of
Finance,
upon
recommendation of
BIR to
suspend imposition on the following grounds:
1. Prolonged labor dispute –
losses arising from a strike which lasted for more
than 6
months with a taxable
period and which has caused the temporary shut
down of business
operations
2. Force majeure – a cause due to
an irresistible force as by act of God
3. Legitimate Business Reverses
– losses due to fire, theft, or embezzlement or
economic
reason as determined
by the Sec. of Finance
c) Taxation of passive income
*includes
- interests from any currency bank
deposit, yield or any other monetary benefits
from deposit substitutes and
from trust fund and similar arrangement from
sources within
the Philippines (20%)
- interest income earned from
sources outside the PH are not subject to the final
tax of
20% but included in
the gross income and subject to NCIT
*Exempted: when dividends are
received from Domestic Corporation (Intercorporate
Dividend)
d) Taxation of capital gains
- for land or buildings owned by
the DC
*Imposed when:
e)
Improperly
accumulated
earnings tax
- subject to those corporations
who permit the accumulation of earnings to be
more than
what is reasonable for
the needs of the business (10%)
- these are profits of a corporation
that are accumulated, instead of distributing them
to its
shareholders for the purpose
of avoiding the income tax with respect to its
shareholders
or
the
shareholders of another corporation
- if there is a reasonable need
behind the accumulation IAET will not be
imposed
*Determination of “reasonable
needs”
- use the Immediacy test which
states that the corporation must prove an
immediate need
for
the
accumulation of the earnings or profits
- it must be shown that the
controlling intention of the taxpayer is manifest
at the time of
accumulation
- the accumulated profits must be
used within a reasonable time after the close of
the
taxable year
*Examples of Reasonable needs
- allowance for the increase of
accumulation up to 100% of the paid-up capital
- for corporate expansion
approved by the BoD
- for building, plant or equipment
acquisition approved by the BoD
- for compliance with any loan or
pre-existing obligation
- earnings required by law or
applicable regulations to be retained
- in case of subsidiaries of foreign
corporations, intended for investments within the
PH
*Examples of beyond reasonable
need
- investment of a substantial
amount in unrelated business or in stock or
securities in
unrelated
business
- investment in bonds and other
long term securities
- accumulation of earnings in
excess of 100% of paid-up capital
*IAET does not apply to
- publicly held corporations
- banks and other non-bank
financial intermediaries
- insurance companies
- taxable partnerships
- general professional partnership
- non-taxable joint ventures
- enterprises duly registered with
the Philippine Economic Zone of Authority and
other
special
economic
zones
ii. Proprietary educational institutions and nonprofit hospitals
Tax Rate and Base –10% tax on taxable income
(except on income subject to capital gains tax and
passive income subject to final tax) within and
without the Philippines
Caveat: If gross income from unrelated trade or
business or other activity exceeds 50% of total gross
income derived from all sources, the tax rate of 30%
shall be imposed on the entire taxable income.
Unrelated trade, business or other activity – any
trade, business or other activity, the conduct of
which is not substantially related to the exercise or
performance by such educational institution or
hospital of its primary purpose or function.
Proprietary educational institution – any private
school maintained and administered by private
individuals or groups with an issued permit to
operate from the DECS, CHED or TESDA. [Sec.
27(B), NIRC]
iii. Government-owned or controlled
corporations, agencies, instrumentalities
GOCCS
General rule: GOCCs are taxable as any other
corporation engaged in similar business, industry or
activity
Exceptions:
Government Service Insurance System (GSIS)
Social Security System (SSS) Philippine Health
Insurance Corporation (PHIC) Local water districts
(LWDs) [Sec. 27(C), NIRC19]
Government agencies or instrumentalities
General rule: The government is exempt from tax.
Exception: When it chooses to tax itself. Nothing
can prevent Congress from decreeing that even
instrumentalities or agencies of the government
performing governmental functions may be subject
to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one
can doubt its wisdom. [Mactan Cebu Airport v
Marcos, G.R. No. 120082 (1996)]
4.
iv. Foreign currency deposits
Income derived by a depository bank under the
expanded foreign currency deposit system from:
1.
2.
3.
foreign currency transactions with
nonresidents, offshore banking units in the
Philippines, local commercial banks,
including branches of foreign banks
authorized by the BSP to transact business
with foreign currency depository system units
and other depository banks under the EFCDS
(expanded foreign currency deposit system) –
exempt from income tax except net income
from transactions specified by the Secretary
of Finance upon recommendation by the
Monetary Board – subject to regular income
tax payable by banks
foreign currency loans granted to residents
(other than offshore banking units in the
Philippines)– interest income subject to a
final tax of 10%
income of nonresidents, individuals or
corporations, from transactions with
depository banks under the EFCDS (expanded
foreign currency deposit system) – exempt
from income tax
4.
Domestic Corporations and Resident Foreign
Corporations - exempt from income tax
5.
Offshore Banking Units - exempt from
income tax
b. Resident foreign corporations
1.
2.
3.
A corporation organized under the laws of a
foreign country, which is engaged in trade or
business in the Philippines. [See “Doing
Business” definition under the FIA above]
Taxable only on income derived from sources
within the Philippines.
A Philippine branch of a foreign corporation
duly licensed by the SEC is considered a
resident foreign corporation. Thus, only the
income of the Philippine branch from sources
within the Philippines is subject to Philippine
income tax.
As general rule, the head office of a foreign
corporation is the same juridical entity as its
branch in the Philippines following the single
entity concept. Thus, the income from sources
within the Philippines of the foreign head
office shall thus be taxable to the Philippine
branch. But, when the head office of a foreign
corporation independently and directly
invested in a domestic corporation without the
funds passing through its Philippine branch,
the taxpayer, with respect to the tax on
dividend income, would be the non-resident
foreign corporation itself and the dividend
income shall be subject to the tax similarly
imposed on non- resident foreign
corporations. [Marubeni v. Commissioner,
G.R. No. 76573 (1989)]
a) Regular Corporate Income Tax (RCIT)
Default income tax. Except as otherwise provided,
income tax of 30% is imposed on taxable income.
Applies equally to both: (a) Domestic corporations
(on income from within and without the
Philippines) and (b) Resident Foreign Corporations
(on income from within the Philippines)
b) Minimum Corporate Income Tax (MCIT)
a. Applies to domestic corporations and Resident
Foreign Corporations whenever such corporations
(i) have zero or negative taxable income, or
whenever the (ii) MCIT is greater than the normal
income tax due.
b. Imposed beginning the fourth taxable year from
the taxable year the corporation commenced its
business operations. For purposes of MCIT, the
taxable year in which business operations
commenced shall be the year when the corporation
registers with the BIR (not in which
the corporation started commercial operations).
c. Tax rate: 2% of Gross Income
c) Branch Profits Remittance Tax (BPRT)
•
•
Applies to non-resident foreign
corporations. Imposed on profits remitted
by the Philippine branch to the head office.
Collected as Final Withholding Tax
[Sec.57, NIRC]
Taxable transaction – any profit remitted by a
branch to its head office
Capital gain from sale of shares of stock not
traded in the stock exchange
Tax Rate and Base – 15% final tax based on the
total profits applied or earmarked for remittance
without any deduction for the tax component
(except those activities registered with PEZA).
•
The following are not treated as branch profits
unless effectively connected with the conduct of
trade or business in the Philippines:
•
Interests, dividends, rents, royalties
(including remuneration for technical
services),
salaries, wages,
•
premiums, annuities, emoluments, or
other fixed or determinable annual, periodic
or casual gains, profits, income and capital
gains received during each taxable year
from all sources within the Philippines
Interest from deposits and yield or any other
monetary benefit from deposit substitutes and
from trust funds and similar arrangements and
royalties
•
20% final tax on: (i) interest on any
currency bank deposit, (ii) yield or any
other monetary benefit from deposit
substitutes, trust funds and similar
arrangements, and (iii) royalties
•
1. gross revenue derived from (a) carriage of
persons, excess baggage, cargo and mail (b)
originating from the Philippines in a continuous and
uninterrupted flight, (c) irrespective of the place of
sale or issue and the place of payment of the ticket
or passage document
2. tickets revalidated, exchanged and/or indorsed to
another international airline – part of GPB if
passenger boards a plane in a port or point in the PH
3. flights which originate from the PH, but
transshipment of passenger takes place at a port
outside PH on another airline – part of GPB only
the aliquot portion of the cost of the ticket
corresponding to the leg flown from the PH to
transshipment point [RR 15-2002]
Collected as Final Withholding Tax
[Sec.57, NIRC]
Interest Income derived by a domestic
corporation from depository bank under the
expanded foreign currency deposit system
[Section 27 (D)(1), NIRC17]
•
Tax Rate and Base – 2.5% on Gross Philippine
Billings (GPB)
GPB means:
d) Taxation of passive income
•
ii. Resident foreign corporations subject to
preferential tax rates
a) International carriers
•
•
Final tax on net capital gains realized
during the taxable year from the sale,
barter, exchange or other disposition of
shares of stock in a domestic corporation
not listed and traded through a local stock
exchange: 15% of net capital gains [Section
27 (D)(2), NIRC18]
15% final income tax
Collected as Final Withholding Tax
[Sec.57,
NIRC]
e) Taxation of capital gains
b) Foreign currency deposit units and off shore
banking units
Off-shore Banking Units
Income derived by OBUs authorized by the BSP
from:
1.
2.
foreign currency transactions with
nonresidents, other Offshore Banking Units,
local commercial banks, including branches of
foreign banks authorized by the BSP to
transact business with Offshore Banking Units
– exempt from income tax
except net income from transactions specified
by the Secretary of Finance upon
recommendation by the Monetary Board –
subject to regular income tax payable by
banks
Income derived by a depository bank under the
expanded foreign currency deposit system from:
Regional operating headquarters
1. branch established in the Philippines by
multinational companies which are engaged in any
of the following services: (i) general administration
and planning; (ii) business planning and
coordination; (iii) sourcing and procurement of raw
materials and components; (iv) corporate finance
advisory services; (v) marketing control and sales
promotion; (vi) training and personnel management;
(vii) logistic services; (viii) research and
development services and product development;
(ix) technical support and maintenance; (x) data
processing and communications; and (xi) business
development. [Sec. 22 (EE), NIRC]
1.
2. tax of 10% of their taxable income
3.
foreign currency loans granted to residents
(other than offshore banking units in the
Philippines)– interest income subject to a final
tax of 10%
4.
income of non residents, individuals or
corporations, from transactions with OBUs –
exempt from income tax
Resident Depositary Banks (Foreign Currency
Deposit Units)
foreign currency transactions with
nonresidents, offshore banking units in the
Philippines, local commercial banks,
including branches of foreign banks
authorized by the BSP to transact business
with foreign currency depository system units
and other depository banks under the
expanded foreign currency deposit system –
exempt from income tax
2.
except net income from transactions specified
by the Secretary of Finance upon
recommendation by the Monetary Board –
subject to regular income tax payable by
banks
3.
foreign currency loans granted to residents
(other than offshore banking units in the
Philippines)– interest income subject to a final
tax of 10%
4.
income of nonresidents, individuals or
corporations, from transactions with
depository banks under the expanded foreign
currency deposit system – exempt from
income tax
c) Regional or are headquarters and regional
operating
headquarters
Non-resident foreign corporations (NRFC) - a
corporation which is not domestic and not
engaged in trade or business in the Philippines
and is liable for income from sources within and
without
Taxation of NRFC in general
1. NCIT – 30% on gross income from sources
within the Philippines (NIRC, Sec. 28 [B])
2. Non-resident Cinematographic Film
owner, lessor or distributor – 25% of its gross
income from all sources within the
Philippines
3. Non-resident owner or lessor of vessels
chartered by Philippine nationals – 4.5% of
gross rentals, lease, or charter fees
4. Non-resident owner or lessor of aircraft,
machineries and other equipment – 7.5% of
gross rentals or fees
5. Interest on foreign loans – 20% of interest
6. Intercorporate Dividends – 15% of
dividends
received
from
Domestic
Corporation
7. Capital Gains from Sale of Shares of Stock
not traded in the Stock Exchange – 5-10% of
capital gains
NOTE: A casual activity in the Philippines by
a foreign corporation does not amount to
engaging in trade or business in the
Philippines for income tax purposes. For such
a foreign corporation to be considered
engaged in trade or business, business
transactions must be continuous (N.V.
Reederij v. CIR, G.R. No. L-46029, June 23,
1998).
Regional or area headquarters
1. branch established in the Philippines by
multinational companies and which headquarters do
not earn or derive income from the Philippines and
which act as supervisory, communications and
coordinating center for their affiliates, subsidiaries,
or branches in the Asia-Pacific Region and other
foreign markets [Sec. 22 (DD), NIRC]
NRFCs subject to preferential tax rates
2. not subject to income tax
Corporations exempt from income tax
The following organizations shall not be taxed in
respect to income received by them as such: (Sec. 30,
NIRC)
1. Labor, agricultural or horticultural organization,
not organized principally for profit;
a. Provincial fairs and like associations of a
quasi-public character designed to encourage
development of better agricultural and
horticultural products through a system of
awards, prizes and premiums, and whose
income derived from gate receipts, entry fees,
donations, etc. is used exclusively to meet
necessary expenses of upkeep and operation
are thus exempt.
b. The holding of periodical race
meets by associations, the profits
from which inure to the benefit of
their stockholder are not tax exempt.
Similarly, corporations engaged in
growing agricultural or horticultural
products or raising livestock or
similar products for profits are subject
to tax (R.R. No. 2, Sec. 25).
2. Mutual savings banks and cooperative banks,
either domestic or foreign, provided that:
a. No capital represented by shares;
b. Earnings, less only the expenses of
operating, are distributable wholly among the
depositors;
c. It is operated for mutual purposes and
without profit NOTE: If the deposits are
made compulsory under contract between the
bank and the depositors and is operated for
speculation rather for savings, the bank is not
qualified as a mutual savings bank.
3. Fraternal Beneficiary Society, Order or
Association, provided that:
a. It must be operated under lodge system or
for the exclusive benefit of the members of
society, with parent and local organizations
which are active;
b. There must be an established system of
payment to its members or their dependents
of life, sick, accident or other benefits;
c. No part of the net income inures to the
benefit of the stockholders/members
4. Cemetery Companies, provided that:
a. It must be owned and operated exclusively
for the benefit of their owners;
b. It is not operated for profit.
5. Religious, Charitable, Scientific, Athletic or
Cultural Corporations, provided that:
a. It is organized and operated for one or more
specified purposes;
b. No part of the net income inures to the
benefit of the any private stockholder or
individual St. Luke’s Medical Center, Inc.
fails to meet an indispensable requirement
under Section 30(E) –operated exclusively
for charitable purposes – to be completely tax
exempt from all its income. It admitted
paying patients from which profit is derived.
(CIR v. St. Luke’s Medical Center, Inc., 682
SCRA 66)
6. Business, Chamber of Commerce, or Board of
Trade, provided that:
a. It is an association of persons having some
common business interest;
b. Its activities are limited to work for such
common interests;
c. Not engaged in a regular business for
profit;
d. No part of the net income inures to the
benefit of any private stockholder or
individual
7. Civic league, provided that:
a. It is not organized for profit but operated
exclusively for purposes beneficial to the
community as a whole. In general,
organizations engaged in promoting the
welfare of mankind;
b. Sworn affidavit filed with the BIR showing
the following:
i. Character of the league or
organization
ii. Purpose for which it was organized
iii. Actual activities
iv. Sources of income and disposition
thereof, and
v. All facts relating to the operation of
the organization which affects it right
to exemption.
vi. The copy of articles of
incorporation, by laws and financial
statements should be attached to the
sworn affidavit
8.
Non-stock,
Non-Profit
Educational
Institutions;
9. Government Educational Institutions;
10. Mutual Fire Insurance Companies and like
Organizations;
Requisites for exemption:
a. Income is derived solely from assessments,
dues and fees collected from members;
b. Fees collected from members are for the sole
purpose of meeting its expenses To be exempt
from income tax, Sec. 30(E) of the NIRC
requires that a charitable institution must be
“organized and operated exclusively” for
charitable purposes. Likewise, to be exempt from
income tax, Sec. 30 (G) requires that the
institution be “operated exclusively” for social
welfare (CIR v. St. Luke’s, G.R. Nos. 195909
and 195960, September 26, 2012).
11.Farmers, Fruit Growers or like Associations;
Requisites for exemption:
a. Formed and organized as sales agent for
the purpose of marketing the product of its
members
b. No net income to the members
c. Proceeds of the sale shall be turned over to
them less necessary selling expenses on the
basis of the quantity of goods produced by
them
The income of whatever kind and character of the
foregoing organizations from any of their
properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject
to tax imposed under the NIRC.
The foregoing exempt corporations have common
requisites for exemption: [PrInSE]
1. Not organized and operated principally for profit;
2. No part of the net income inures to the benefit of
any member or individual;
3. No capital is represented by shares of stock; and
4. Educational or instructive in character. The
moment they invest their income or receive income
from their properties, real or personal conducted for
profit, such income derived from those properties is
subject to tax.
NOTE: If religious, charitable or social welfare
corporations derive income from their properties or
any of their activities conducted for profit, income
tax shall be imposed on said items of income
irrespective of their disposition (CIR v. YMCA, G.R.
No. 124043, October 14, 1998). However, in case of
non-stock, non-profit educational institution, as long
as the income is actually, directly and exclusively
used for educational purpose, such income is exempt
as provided for in Art. XIV, Sec. 3 of the 1987
Constitution.
Tax on other business entities: general
partnerships, general professional partnerships,
co-ownerships, joint ventures, and consortia
Tax on General Partnerships
Classifications of partnerships for tax purposes
1. General professional partnerships
2. Business partnership
Registration of partnership
Registration of a partnership is immaterial for
income tax purposes. It is taxable as long as the
following requisites concur: [AI]
1. There is an agreement, oral or writing, to
contribute money, property, or industry to a
common fund; and
2. There is an intention to divide the profits.
Treatment of loss in case the partnership
resulted in a loss
Results of operation of a partnership shall be treated
in the same way as a corporation. In case of loss, it
will be divided as agreed upon by the partners and
shall be taken by the individual partners in their
respective returns.
NOTE: The partners shall be entitled to deduct
their respective shares in the net operating loss from
their individual gross income.
Distributive share of a partner in the net income
of a business partnership
It is equal to each partner’s distributive share of the
net income declared by the partnership for a taxable
year after deducting the corresponding corporate
income tax. A partner’s distributive share is already
being subjected to a final tax; hence, it is no longer
needed to be reported in each partner’s individual
tax return.
NOTE: In a business partnership, there is no
constructive receipt of distributive share in the net
income.
Tax on General Professional Partnerships
GPP not subject to income tax
GPP are not subject to income tax but are required
to file information returns for its income for the
purpose of furnishing information as to the share in
the net income of the partnership, which each
partner should include in his individual return.
Partners shall be liable for income tax in their
separate and individual capacities.
GPP is only required to file a return for its income,
except income exempt under Sec. 32 (B) of the
NIRC, setting forth the items of gross income and
of deductions allowed, and the names, Taxpayer
Identification Numbers (TIN), addresses and shares
of each of the partners (Sec. 55, NIRC).
Partners shall nonetheless be liable for income tax
in their separate and individual capacities.
Computation of net income
For purposes of computing the distributive share of
the partners, the net income of the partnership shall
be computed in the same manner as a corporation
(Sec. 26, NIRC).
Each partner shall report his distributive share in the
net income of the partnership as gross income in his
separate return, whether actually or constructively
received.
Filing of returns and payment
Income Tax Return (ITR) A report made by the
taxpayer to the BIR of all gross income received
during the taxable year, the allowable deductions
including exemptions, the net taxable income, the
income tax rate, the income tax due, the income tax
withheld, if any, and the income tax still to be paid
or refundable (Domondon, 2013).
Individual return
Who are required to file; exceptions
GR: The following individuals are required to file an
income tax return:
1. Every Filipino citizen residing in the Philippines;
2. Every Filipino citizen residing outside the
Philippines, on his income from sources within the
Philippines;
3. Every alien residing in the Philippines, on income
derived from sources within the Philippines; and
4. Every nonresident alien engaged in trade or
business or in the exercise of profession in the
Philippines. (Sec. 51 [A] [1], NIRC)
The following are also required to filed ITR:
1. A citizen of the Philippines and any alien
individual engaged in business or practice of
profession within the Philippines, regardless of the
amount of gross income;
2. An individual deriving compensation concurrently
from two or more employers at any time during the
taxable year; and
3. An individual whose pure compensation income
derived from sources within the Philippines exceeds
Sixty thousand pesos (P250,000). (RMC 50-2018)
XPNS: The following individuals shall not be
required to file an income tax return:
1. An individual whose gross income does not
exceed his total personal and additional exemptions
for dependents;
2.
Individual
taxpayer
receiving
purely
compensation income, regardless of amount, from
only one employer in the Philippines for the calendar
year, the income tax of which has been withheld
correctly by said employer (Substituted Filing);
3. An individual whose sole income has been
subjected to final withholding tax;
4. A minimum wage earner or an individual who is
exempt from income tax (Sec. 51, NIRC).(Sec. 51
[A] [2], NIRC)
NOTE: Individuals not required to file an income tax
return may nevertheless be required to file an
information return.(Sec. 51 [A] [3], NIRC)
Substituted filing
Substituted filing applies only if all of the following
requirements are present:
1. The employee received purely compensation
income (regardless of amount) during the taxable
year;
2. The employee received the income from only one
employer in the Philippines during the taxable year;
3. The amount of tax due from the employee at the
end of the year equals the amount of tax withheld by
the employer;
4. The employee’s spouse also complies with all 3
conditions stated above;
5. The employer files the annual information return
(BIR Form No. 1604-CF);
6. The employer issues BIR Form No. 2316 to each
employee.
When and where to file
Except in cases where the Commissioner otherwise
permits, the return shall be filed with any of the
following:
1. Authorized agent bank,
2. Revenue District Officer,
3. Collection Agent or
4. Duly authorized city of municipal Treasurer in
which such person has his legal residence or
principal place of business, or if there be no legal
residence or principal place of business, with the
Office of the Commissioner.
For non-resident citizens, the return shall be filed
with the
1. Philippine Embassy, or
2. nearest Philippine Consulate, or
3. be mailed directly to the CIR (Sec. 51 [B], NIRC).
Corporate returns
Quarterly income tax - Quarterly income tax Every corporation shall file in duplicate a quarterly
summary declaration of its gross income and
deductions on a cumulative basis for the preceding
quarter or quarters upon which the income tax, as
provided in Title II of this Code, shall be levied,
collected and paid. The tax so computed shall be
decreased by the amount of tax previously paid or
assessed during the preceding quarters and shall be
paid not later than sixty (60) days from the close of
each of the first three (3) quarters of the taxable
year, whether calendar or fiscal year.
Final adjustment return
Final adjustment return Every corporation liable
to tax under Section 27 shall file a final
adjustment return covering the total taxable
income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made
during the said taxable year is not equal to the
total tax due on the entire taxable income of that
year, the corporation shall either: (A) Pay the
balance of tax still due; or (B) Carry-over the
excess credit; or (C) Be credited or refunded with
the excess amount paid, as the case may be. In
case the corporation is entitled to a tax credit or
refund of the excess estimated quarterly income
taxes paid, the excess amount shown on its final
adjustment return may be carried over and
credited against the estimated quarterly income
tax liabilities for the taxable quarters of the
suceeding taxable years. Once the option to
carry-over and apply the excess has been made,
it is considered irrevocable for that taxable
period.
When and where to file
When and where to file Quarterly Corporate
Income Tax. - (A) Place of Filing. - Except as the
Commissioner otherwise permits, the quarterly
income tax declaration required in Section 75
and the final adjustment return required in
Section 76 shall be filed with the authorized
agent banks or Revenue District Officer or
Collection Agent or duly authorized Treasurer of
the city or municipality having jurisdiction over
the location of the principal office of the
corporation filing the return or place where its
main books of accounts and other data from
which the return is prepared are kept. (B) Time
of Filing the Income Tax Return. - The corporate
quarterly declaration shall be filed within sixty
(60) days following the close of each of the first
three (3) quarters of the taxable year. The final
adjustment return shall be filed on or before the
fifteenth (15th) day of April, or on or before the
fifteenth (15th) day of the fourth (4th) month
following the close of the fiscal year, as the case
may be.
Return of corporations
dissolution or reorganization
contemplating
Return
of
Corporation
Contemplating
Dissolution or Reorganization. - Every
corporation shall, within thirty (30) days after the
adoption by the corporation of a resolution or
plan for its dissolution, or for the liquidation of
the whole or any part of its capital stock,
including a corporation which has been notified
of possible involuntary dissolution by the
Securities and Exchange Commission, or for its
reorganization, render a correct return to the
Commissioner, verified under oath, setting forth
the terms of such resolution or plan and such
other information as the Secretary of Finance,
upon recommendation of the commissioner,
shall, by rules and regulations, prescribe. The
dissolving or reorganizing corporation shall,
prior to the issuance by the Securities and
Exchange Commission of the Certificate of
Dissolution or Reorganization, as may be defined
by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of
the Commissioner, secure a certificate of tax
clearance from the Bureau of Internal Revenue
which certificate shall be submitted to the
Securities and Exchange Commission.
Return on capital gains realized from sale of
shares of stock and real estate
Return on Capital Gains Realized from Sale of
Shares of Stock not Traded in the Local Stock
Exchange. - Every corporation deriving capital
gains from the sale or exchange of shares of stock
not traded thru a local stock exchange as
prescribed . . . shall file a return within thirty (30)
days after each transactions and a final
consolidated return of all transactions during the
taxable year on or before the fifteenth (15th) day
of the fourth (4th) month following the close of
the taxable year.
Withholding tax
Concept- based on a concept that the taxpayer
should pay the tax as it earns its income. The
State needs tax revenues to support its services.
It should not be made to wait till year-end to have
its source of funding; otherwise the government
operations would be paralyze. The withholding
tax provides this solution to ensure adequate
revenue for the government by providing a
systematic way of collecting revenue at source,
an indispensible method of collecting tax
throughout the year.
Alternative answer: The withholding tax
system is devised for three primary reasons; first,
to provide the tax payer a convenient manner to
meet its probable income tax liability; second, to
ensure the collection of income tax which can
otherwise be lost or substantially reduced
through failure to file corresponding return; and
third, to improve the government’s cash flow.
This results in administrative saving, prompt and
efficient collection of tax, prevention of
delinquency, and reduction of government effort
to collect tax.
Final withholding tax- it is the withholding of
the tax imposed under the NIRC by the payor of
specified income. The payee is no longer
required to file an ITR with respect to the said
income as it is already subjected to final tax. It is
not creditable against other income.
Creditable withholding tax- an advance tax
required to be withheld or deducted by the payor
on items of income payable natural or juridical
persons residing in the Philippines at the rate of
not less tha 1& but not more than 15% of the
income payment. The payor, as the withholding
afent is required to remit the tax directly to the
BIR. The amount deducted shall be credited
against the income tax liability of the payee for
the taxable year. The income upon which any
creditable tax is required to be withheld at source
shall be included in the return of the payee but
the excess of the amount o tax so withheld over
the tax due on his return shall be refunded; and if
the income tax collected at source is less than the
tax due on his return the difference shall be paid.
Expanded withholding tax- a tax imposed on
the items of income payable to a natural or
juridical person residing in the Philippines,
withheld by the payor whether individual or
corporation. It shall be credited against the
income tax liability of the payee for the taxable
year.
Withholding tax on compensation
Fringe benefits tax- A final tax imposed on the
grossed-up monetary value of fringe-benefits
furnished or granted to the employee by the
employer, whether individual or a corporation.
Duties of a withholding agent
Employer
• Deduct and withhold upon such
wages
• Remittance of the correct amount of
tax required to be deducted and
withheld
• Maintain separate account and not to
co-mingle it with any other funds
Tax withheld at source
• Withhold
• Maintain separate account and not to
co-mingle it with any other funds
• Remit the withheld tax to the
government
C. ESTATE TAX
1.
Basic principles,
definition
concept,
and
Estate Tax- it is a tax levied on the privilege to
transfer or transmit property upon the death of
the decedent to the latter’s heirs and
beneficiaries.
Economic objective is to prevent undue
concentration of wealth by limiting fortunes by
taxation and its imposition is justified on the
ground that it closely conforms to the principle of
ability to pay and minimal sacrifice.
2.
Classification of decedent
a) Citizens and resident alien decedent
b) Non-resident alien decedent
3.
Composition of gross estate
a.
Items to be included in
determining gross estate
i.
Decedent’s interest- property
at the time of death
ii.
Transfers in contemplation
of death- by trust or otherwise,
intended to take effect in possession
or enjoyment at or after death, or
under which he has retained for his
life or any period which does not in
fact end before his death: he
possession or enjoyment of, or the
right to the income from the
property, or the right either alone or
in conjunction with any person, to
designate the person who shall
possess or enjoy the property or the
income therefrom; except in case of
a bona fide sale for an adequate and
full consideration in money or
money’s worth.
iii. Revocable transfers- made
by trust or otherwise, where the
enjoyment thereof was subject at
the date of his death to any change
through the exercise of a power by
the decedent alone or in conjunction
with any other person to alter,
amend, revoke, or terminate, or
where any such power is
relinquished in contemplation of the
decedent’s death; except in the case
of a bona fide sale for an adequate
and full consideration in money or
money’s worth.
iv. Property passing under a
general power of appointment-
exercised by a decedent by will or
by deed executed in contemplation
of or intended to take effect in
possession or enjoyment at, or after
his/her death, or by deed under
which he has retained for his life or
any period not ascertainable
without reference to his death or for
any period which does not in fact
end before his death, the possession
or enjoyment of, or right to the
income from the property or the
right, either alone or in conjunction
with any person, to designate the
persons who shall possess or enjoy
the property or the income
therefrom; except in the case of a
bona fide sale for an adequate and
full consideration in money or
money’s worth.
v.
Proceeds of life insurancereceivable by the estate of the
deceased,
his
executor,
or
administrator, as insurance under
policies taken or by the decedent
upon his own life, irrespective of
whether or not the insured retained
the power of revocation, or to the
extent of the amount receivable by
any beneficiary designated in the
policy of insurance; except when it
is expressly stipulated that the
designation of the beneficiary is
irrevocable.
vi. Prior interests- on any
transfers made in contemplation of
death, revocable transfers, or
property passing under general
power appointment, whether made,
created, arising, existing, exercised,
or relinquished before or after the
effectivity of the NIRC
vii. vii. Transfers
for
insufficient considerationin
contemplation of death, revocable
transfers, and/ or property passing
under
general
power
of
appointment, hen made, created,
exercised, or relinquished for a
consideration in money or money’s
worth but is not a bona fide sale for
an adequate and full consideration
in money or money’s worth, these
shall be included in the gross estate
only in the excess of the FMV of the
transferred property at the time of
death, over the value of the
consideration received by the
decedent.
b.
Allowable deductions from
gross estate
1. Standard deduction of 5M
2. Claims against the estate
provided that the debt
instrument
was
duly
notarized and if the loan was
contracted within 3 yrs.
Prior to the death of the
decedent,
a
statement
showing the disposition of
the loan.
3. Claim against the insolvent
person provided the value of
the decedent’s interest
therein is included in the
gross estate, and it was
contracted bona fide and for
an adequate and full
consideration in money or
money’s worth;
4. Unpaid
mortgage
or
indebtedness in respect to
property where the value of
the decedent’s interest
therein, undiminished by
such
mortgage
or
indebtedness is included in
the gross estate and by is
contracted bona fide and for
an adequate and full
consideration in money or
money’s worth.
5. Loss from fire, storm,
shipwreck or other casualty
or from robbery theft, or
embezzlement
incurred
during the settlement of the
estate, not compensated for
by insurance or otherwise,
not claimed as deduction in
the ITR of the decedent, and
was incurred not later than
the last day for the payment
of the estate tax.
6. Property Previously Taxed
that forms part of the gross
estate situated in the
Philippines of any person
who died within 5 yrs prior
to the death of the decedent
7. Transfer for public use
8. Family Home equivalent to
the FMV of the decedent’s
family home but not to
exceed 10M
9. Amount received by the
heirs under RA No. 4917 as
a consequence of the death
of the decedent-employee,
provided the amount is
included in the gross estate
of the decedent.
c.
Exclusions from gross estate
and
exemptions
of
certain
acquisitions and transmissions
a) Exclusions:
1. Net share of the surviving spouse
in
the
conjugal/community
partnership
property
as
diminished by the obligations
properly chargeable to such
property. It shall be deducted
from the net estate of the
decedent.
2. PERA asset.
b) Exemptions
1. The merger of usufruct in
the owner of the naked title
2. The
transmission
or
delivery of the inheritance
or legacy by the fiduciary
heir or legatee to the
fideicommissary
3. The transmission form the
first heir, legatee, or done in
favour
of
another
beneficiary, in accordance
with the desire of the
predecessor
4. All bequest, devise, legacy
or transfer to social welfare,
cultural, and charitable
institutions, no part of the
net income of which inures
to the benefit of any
individual and not more
than 30% thereof shall be
used for administrative
purpose.
d.
Tax credit for estate taxes
paid to a foreign country- The
Philippine estate tax imposed shall be
credited with the amount of estate tax
paid to a foreign country, subject to
the following limitations:
a. The amount of the credit
in respect to the tax paid
to any country shall not
exceed
the
same
proportion of the tax
against which such
credit is taken, which the
decedent’s taxable net
estate situated within
such country bears to his
entire net estate
b. The total amount of the
credit shall not exceed
the same proportion of
the tax against which
such credit is taken,
which the decedent’s
taxable
net
estate
situated outside the
Philippines bears to his
entire net estate.
e.
Filing of estate tax returns
and payment of estate tax
Period for filing of the estate tax
returns : 1 year form decedent’s
death, extendible for a period not
exceeding 30 days in meritorious
cases as authorized by the CIR. Gross
estate exceeding 5M to be supported
with a statement duly certified by a
CPA
Payment: paid at the time it is filed
except:
a. When the CIR finds that the
payment on the due date of the
estate tax or of any part thereof
would impore undue hardship
upon the estate or any of the heirs,
the CIR may extend the time for
payment but not to exceed 5 yrs in
case of judicial settlement or 2 yrs
in case of extrajudicial settlement
b. When the available cash of the
estate is insufficient to pay the
total estate tax due, payment by
instalment is allowed within 2 yrs
from the due date for its payment
without civil penalty and interest
D. DONOR’S TAX
1.
Basic principles, concept, and
definition
Donor’s tax- it is a tax levied on the privilege
to transmit by any person, resident or nonresident, during his lifetime of a property by
gift, without consideration or for an
inadequate consideration, whether the
transfer is in trust or otherwise, whether the
gift is direct or indirect, and whether the
property is real or personal, tangible or
intangible.
2.
Requisites of a valid donation
a.
Capacity of the donor,
b.
Intent to donate
c.
Delivery of the subject matter
of the gift
d.
In writing except for donation
of movable property the value of
which does not exceed 5,000
e.
Acceptance of the done,
which is made known to the donor
during the lifetime of both parties
(IMPORTANT)
3.
Transfers which may be considered
as donation
a.
Sale, exchange, or transfer
of property for less than adequate
and full consideration;
The amount of which the FMV of
the property exceeded the value of
the consideration shall be deemed a
gift and shall be included in
computing the amount of gifts
made during the calendar year.
Exception: When the sale, exchange
or other transfer of property is made
in the ordinary course of business, in
a bona fide transaction, at arm’s
length and free from any donative
intent, the transfer is considered made
for an adequate and full consideration
in money or money’s worth.
b.
Condonation or remission
of debt- essentially gratuitous, and
may be made expressly or impliedly.
Express donation shall comply with
the forms of donation including the
acceptance by the debtor.
c.
Renunciation
of
inheritance;
exception- the renunciation should be
in general favour of all the heirs.
4.
Classification of donor
a.
Citizen and resident alien
b.
Non resident alien
5.
Determination of gross gift
a.
Composition of gross gift
1. Donor: citizen or resident alienall gift of real and personal
property, whether tangible or
intangible, mixed, wherever
situated.
2. Donor: non-resident- only real
and personal property situated in
the Philippines
b.
Valuation of gifts made in
property
1. Real property- the appraisal
value at the time of gift, FMV as
determined by the CIR or the
FMV shown in the schedule of
values fixed by Provincial or City
Assessors whichever is higher
2. Personal Property- FMV at the
time of donation
3. For shares of stock unlisted in
the stock exchange- BV for
common stock and PV for
preferred share
4. Share listed in the stock
exchange- FMV which is the
arithmetic mean between the
highest and lowest quotations at
the date nearest the date of
donation or on the date itself
5. Unit of participation in any
association,
recreation,
or
amusement clubbid price
nearest the date of donation
published in any newspaper or
publication of general circulation
or on the date of donation
6. Right to Usufruct, use or
habitation,
life
annuityprobable life of the beneficiary in
accordance with the basic
standard mortality rate table to be
approved by the SoF upon
recommendation of the Insurance
commissioner.
c.
Exemption of certain gifts
1. Gift made to or for the use of the
national government or any entity
created by any of its agencies
which is not conducted for profit,
or to any political subdivision of
the government
2. Gift in favour of an educational,
charitable, religious, cultural or
social
welfare
corporation,
institution accredited NGO, trust,
or philanthropic organization or
research
institution
or
organization, provided that not
more than 30% of gift shall be
used
by
the
done
for
administration purpose
3. Qualified contribution in cash or
in kind to any candidate, political
party or coalition of parties for
campaign purposes as provided
for under the Election Code., as
amended.
6.
Tax credit for donor’s taxes paid to
a foreign country- the donor’s tax imposed
upon a donor who was a citizen or a resident
citizen at the time of donation shall be
credited with the amount of any donor’s tax
of any character and description imposed by
the authority of a foreign country. The
amount of the tax credit is subject to each of
the following limitations:
a.
The amount of the tax credit
in respect to the tax paid to any
country shall not exceed the same
proportion of the tax against which
such credit is taken, which the net
gifts situated within such country
taxable under this Title bears his
entire net gifts,
b.
The total amount of the tax
credit shall not exceed the same
proportion of the tax against which
such credit is taken, which the donor’s
net gifts situated outside of the
Philippines bears his entire net gifts.
7.
Filing of return and payment
Filing of return- shall be filed within 30
days after the date the gift is made
Payment- at the time of filing
Where- city or municipality where the donor
is domiciled at the time of the transfer, or if
there be no legal residence in the Philippines,
with the office of the CIR. In case of gifts
made by non-resident, filed and paid at the
Philippine Embassy or consulate in the
country where he is domiciled at the time of
transfer.
--1. VALUE ADDED TAX-1. Nature and Characteristics of Value-added tax
Value Added Tax (VAT) – tax on a value added
by every seller to the purchase price or cost in
the sale or lease of goods, property or services in
the ordinary course of trade or business as well
as on importation of goods into the Philippines,
whether for personal or business use.
*Note VAT is a type of business tax
If a sale is exempt from tax, it may still be
subject to other percentage taxes except those
transactions exempt from business taxes such as
those made for subsistence or livelihood.
a. Tax on Value added
i. VAT is imposed on the vaueadded in each stage of production and
distribution process
• Value added – the
difference between total sales of the
taxpayer for the taxable quarter subject to
VAT and his total purchases for the same
period subject also to value added
ii. Tax on value added of a
taxpayer arising from the sales of goods,
properties or services during the quarter
b. Sales tax
i.VAT is a tax on the taxable sale, barter or
exchange or goods, properties or services.
ii.A barter or exchange has the same tax
consequence as a sale
iii.A sale may be an actual or deemed sale, or
an export sale or local sale
iv.Buyer is informed that the price includes
VAT and the consumption is shown in the
official receipt/sales invoice
c. Tax on consumption
i. VAT is a tax on consumption
levied on the sale, barter, or lease of goods
or properties and services in the Philippines
and on importation of goods into the
Philippines
•
It is the end user of
consumer goods or services which
ultimately shoulders the tax as a liability
from the provider of goods or services.
•
Thus, VAT forms a
substantial portion of consumer
expenditures
ii. Broad based Tax on consumption in the
Philippines – it is BROAD BASED becayse every
sale of goods, properties or services at the levels of
manufacturers or producers and distributors is
subject to VAT. However, the tax burden rests on
the final consumers.
iii. Excise tax based on consumption – it is
a tax on the privilege of engaging in the business of
selling goods or services, or the importation of
goods.
d. Indirect tax: impact and incidence of tax
i. It is an indirect tax where tax shifting is always
presumed
ii. The VAT is an indirect tax and the amount may
be shifted or passed on to the buyers, transferee
or lessee of the goods, properties or services as
part of the purchase price. (Sec 105 Tax Code;
Section 4, RR 16-2005)
iii. SELLER is the one staturorily liable to pay for
the payment of the tax but the amount of the tax
may be shifted or passed on the buyer or
transferee or lessee of the goods, properties or
services.
• In case of importation, the
importer liable for VAT
e. Tax credit method
i. Aka credit-invoice method; this
is used to compute the VAT
payable
• VAT payable is computed by deducting
the input vat from the output vat
a.
Output tax – VAT due on the sale, lease
or exchange of taxable goods or properties or
services by ayny person registered or required
to register under Section 236 of Tax Code
b.
Input Tax – vat due on or paid by a VAT
registered on importation of goods or local
purchase of goods, properties or services,
including lease or use of property in the
ordinary course of trade or business
ii. The providers of goods and
services passed on to the end users the liability
to pay the tax who in turn may credit their vat
liability from the vat payments they received
from the final consumer
•
This is because VAT is a
consumption tax levied on sales to be borne by
consumers with sellers acting simply as tax
collectors
f. Destination principle and cross-border
doctrine
i. Destination principle – goods and
services are taxed only in the country where these
are consumed.
ii. Cross border doctrine– no VAT shal be
imposed to form part of the cost of the goods
destined for consumption outside the territorial
border of the Philippine Taxing Authority
--2. PERSONS LIABLE TO VAT-g. Sale in the Ordinary Course
i. Any person who, in the course
of his trade or business, sells barters,
exchanges, or leases goods or properties or
renders services, and any person who
imports goods shall be liable to VAT
h. Importation:
i. The importer, whether an
individual or corporation and whether or not
made in the course of his trade or business, shall
be liable to VAT imposed in Sec 107 of the Tax
Code
i. Transfer made by a tax-exempt entity to
a non-tax exempt entity
i. Transfers made by a tax-exempt
person/entity, not enjoying indirect tax exemption,
shall be subject to VAT
ii. The non-exempt transferee shall
be considered as the importer and shall be liable
for the unpaid VAT pursuant to RA No. 9224 as
implemented by RR No. 25-03
--3. IMPOSITION OF VALUE-ADDED
TAX-j.
•
•
On sale of goods or properties
i.Tax base: gross selling price
GSP Means the total amount of money or its
equivalent which the purchaser pays or is
obligated to pay to the seller in consideration
of the sale, barter or exchange of the goods or
properties, excluding VAT. The excise tax, if
any, on such goods or properties shall form
part of the gross selling price.
Allowable deductions from gross selling
price
a. Discounts
b. Sales returns and allowances for which a
proper credit or refund was made during
the month or quarter to the buyer for sales
previously recorded as taxable sales
ii.Transactions deemed sale [CORD]
•
Before
considering
whether
the
transaction is “deemed sale”, it must first be
determined whether the sale was in the ordinary
course of trade or business or not. IF NOT, not
subject to VAT.
a.
Transfer, use or consumption not in the
course of business of goods or properties originally
intended for sale or for use in the course of business
(i.e., when a VAT-registered person withdraws
goods from his business for his personal use)
b. Distribution or transfer to:
i. Shareholders or investors as share in the
profits of the VAT-registered persons
ii. Creditors in payment of debt
c.
Consignment of goods if actual sale is not
made within sixty (60) days following the date such
goods were consigned.
d.
Retirement from or cessation of business
with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of
the date of such retirement or cessation, whether or
not the business is continued by the new owner or
successor (Sec. 106 (B) NIRC)
• Transactions that are considered
retirement or cessation of business
a.
Change of ownership of the
business. There is a change in the ownership of
the business when a single proprietorship
incorporates; or the proprietor of a single
proprietorship sells his entire business
b.
Dissolution of a partnership and
creation of a new partnership which takes over the
business (Sec. 4 106-7, RR 16-2005)
iii. Change or Cessation of Status
as value-added tax-registered
person
• The following change in or cessation of status
of a VAT registered person are subject to
VAT
a. Change of business activity from VAT taxable
status to VAT-exempt status.
b. Approval of a request for cancellation of
registration due to reversion to exempt status.
c. Approval of a request for cancellation of
registration due to a desire to revert to exempt
status after the lapse of 3 consecutive years
from the time of registration by a person who
voluntarily registered despite being exempt
under Sec 109 (2) of the NIRC.
d. Approval of a request for cancellation of
registration of one who commenced business
with the expectation of gross sales or receipt
exceeding P1,919,500 but who failed to exceed
this amount during the first 12 months of
operations.
• The following change in or cessation
of status of a VAT registered person
are NOT subject to Output Tax
a. Change of control in the corporation of as
corporation by the acquisition of controlling
interest of the corporation by another
stockholder or group of stockholders.
k. On importation of goods
•
Importation is an act of bringing goods
and merchandise into a country (Philippines) from
a foreign country.
• VAT is imposed on goods brought into
the Philippines, whether for use in business or not,
except those specifically exempted under Section
109(1) of the NIRC. [BIBOY NOTE: A-Z ang
enumerations sa 109(1), can’t put it here]
•
Purpose: This is to protect our local or
domestic goods or articles and to regulate the
entry or introduction of foreign articles to our
local market.
• Tax Base in importations
• GR: The tax base shall be based on the
total value used by the BOC in determining tariff
and customs duties plus customs duties, excise
taxes, if any, and other charges to be paid by the
importer prior to the release of such goods from
customs custody. (Transaction value)
• XPN: In case the valuation used by the
BOC in computing customs duties is based on
volume or quantity of the imported goods, the landed
cost shall be the basis for computing VAT.
• Landed cost consists of the invoice
amount, customs duties, freight, insurance and other
charges. If the goods imported are subject to excise
tax, the excise tax shall form part of the tax base.
l. On sale of services and use or lease of
properties
Sale or exchange of services, as well as
the use or lease of properties, shall be subject to
VAT, equivalent to 12% of the gross receipts
(excluding VAT)
It means the performance of all kinds of
services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or in
cash, including those performed or rendered by the
following:
§ Construction and service contractors;
§ Stock, real estate, commercial, customs and
immigration brokers;
§ Lessors of property, whether personal or real;
§ Transmission of electricity by electric
cooperatives
Requisites for the taxability of sale or
exchange of services or lease or use of
property (SPaCeVaN)
1. There is a sale or exchange of service or
lease or use of property enumerated in the law or
other similar services;
2. The service is performed or to be
performed in the Philippines;
3. The service is in the course of trade of
taxpayer’s trade or business or profession;
4. The service is for a valuable
consideration actually or constructively received;
and
5. The service is not exempt under the
NIRC, special law or international agreement.
**Absence of any of the requisites renders
the transaction exempt from VAT but may
be subject to other percentage tax under
Title V of the NIRC
--4. ZERO-RATED AND
EFFECTIVELY ZERO-RATED
SALES OF GOODS OR
PROPERTIES, AND SERVICES-• Zero-rated sale by a VAT-registered
person is a taxable transaction for VAT purposes
but the sale does not result in any output tax.
However, the input tax on the purchases of goods,
properties or services related to such zero-rated sale
shall be available as tax credit or refund.
• To be subject to zero tax-rate, however,
the seller must be a VAT-registered person because
if he is not VAT registered, the transactions entered
into by him are exempt from the tax.
• Purpose: To exempt the transaction
completely from VAT previously collected since
input taxes passes to him may be recovered as
refund or credits (Ingles, 2015)
• ZERO-RATED SALE OF GOODS
[FEE]
1. Export sales
2. Foreign currency denominated sale
3. Effectively zero-rated sales
• DIFFERENCE; VAT EXEMPT VS
ZERO-RATED
o the difference lies in the input tax. In
VAT-exempt transactions there is no input
tax credit allowed. In the case of 0% rated
transaction of a VAT registered person, the
sale of goods or properties is multiplied by
0% thus his output tax is P 0.00. If the person
is VAT registered, he may claim such input
tax as tax credit or refund.
--5. VALUE ADDED TAX EXEMPT
TRANSACTIONS-These refer to the sale of goods or properties and/or
services and the use or lease of properties that is not
subject to VAT (output tax) and the seller is not allowed
any tax credit of VAT (input tax) on purchases.
The person making the exempt sale of goods, properties
or services shall not bill any output tax to his customers
because the said transaction is not subject to VAT (Sec
4.109-1, R.R. No. 16-2005).
Exempt Party vs. Exempt Transaction
EXEMPT PARTY
EXEMPT TRANSACTION
A person or entity granted
Involves goods or services
VAT exemption under
which, by their nature are
the NIRC, special law or
specifically listed in and
international agreement to
expressly exempted from the
which RP is a signatory,
VAT under the NIRC,
and by virtue of which its
without regard to the tax
taxable transactions
status of the parties in the
become exempt from the
transactions.
VAT.
Such party is not subject
to the VAT, but may be Transaction is not subject to
allowed a tax refund or VAT, but the seller is not
credit of input tax paid, allowed any tax refund or
depending on its
credit for any input taxes
registration as a VAT or paid.
non-VAT taxpayer.
Exempt transactions, enumerated
-
Sale or importation of
o
o
agricultural and marine food
products in their original state,
livestock and poultry of
§ a. kind generally used as, or
yielding or producing foods
for human consumption; and
§ b. breeding stock and genetic
materials therefor
Livestock shall include cows, bulls and calves, pigs,
sheep, goats and rabbits. Poultry shall include fowls,
ducks, geese and turkey. Livestock or poultry does not
include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Marine food products shall include fish and crustaceans,
such as, but not limited to, eels, trout, lobster, shrimps,
prawns, oysters, mussels and clams.
Meat, fruit, fish, vegetables and other agricultural and
marine food products classified under this paragraph
shall be considered in their original date even if they
have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping,
including those using advanced technological means of
packaging, such as shrink wrapping in plastics, vacuum
packing, tetra-pack, and other similar packaging
methods.
Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be considered
as agricultural food products in their original state.
Sugar whose content of sucrose by weight, in the dry
state, has a polarimeter reading of 99.5o and above are
presumed to be refined sugar.
Cane sugar produced from the following shall be
presumed, for internal revenue purposes, to be refined
sugar:
(1) product of a refining process,
(2) products of a sugar refinery, or
(3) product of a production line of a sugar mill
accredited by the BIR to be producing and/or capable of
producing sugar with polarimeter reading of 99.5o and
above, and for which the quedan issued therefor, and
verified by the Sugar Regulatory Administration,
identifies the same to be of a polarimeter reading of
99.5o and above.
Bagasse is not included in the exemption provided for
under this section (Sec. 4.109-1(B)(1)(a), R.R. 16-2005).
-
Sale or importation of
o fertilizers;
o seeds, seedlings and fingerlings;
o fish, prawn, livestock and poultry feeds,
o including ingredients, whether locally
produced or imported, used in the
manufacture of finished feeds
o except specialty feeds for race
o horses, fighting cocks, aquarium fish,
zoo animals and other animals generally
considered as pets)
Amount in excess of the above threshold shall be
subject to tax.
-
Importation of
o professional implements, instruments
and
o wearing apparel,
o domestic animals, and
o personal household effects (except any
vehicle, vessel, aircraft, machinery and
other goods for use in the manufacture
and merchandise of any kind in
commercial quantity)
o belonging to persons coming to settle in
the Philippines or their families and
descendants who are now residents or
citizens of other countries, such as
OVERSEAS FILIPINO
o inquantities and of the class suitable to
the profession, rank, or position
o for their own use and
o not for sale, barter or exchange,
o accompanying such persons, or arriving
within a reasonable time
o upon the production of evidence
satisfactory to the Commissioner of
Internal Revenue, that such persons are
actually coming to settle in the
Philippines and that the change of
residence is bonafide;
-
Services subject to percentage tax
Specialty feeds refers to non-agricultural feeds or food
for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets.
-
Importation of personal and household effects
belonging to
o residents of the Philippines returning
from abroad, and
o non-resident citizens coming to resettle
in the Philippines;
Provided, that such goods are exempt from customs
duties under the Tariff and Customs Code of the
Philippines
Requisites under Sec. 800 of Customs Modernization
and Tariff Act of 2016
1. That the personal and household effects of returning
residents shall neither be in commercial quantities nor
intended for barter, sale or hire and that the total dutiable
value of which shall not exceed:
1. P350,000 – for those who have stayed in a
foreign country for at least 10 yrs, and has not
availed of this privilege within 10 years prior to
arrival
2. P250,000 – for those who have stayed for at
least 5 but not more than 10 yrs and has not
availed of this privilege within 5 years prior to
arrival
3. P150,000 – for those who have stayed for a
period of less than 5 yrs and has not availed of
this privilege within 6 months prior to arrival;
4. P150,000 – in case of returning OFWs. This
privilege is available once in a given calendar
year.
NOTE: Prior to the amendment of the Tariff and
Customs Code, the ceiling amount is P10,000.
Refer to discussion on percentage tax.
-
Services by
o agricultural contract growers, and
o milling for others of
§ palay into rice,
§ cornintogrits, and
§ sugar cane into raw sugar
Agricultural contract growers refer to those persons
producing for others poultry, livestock or other
agricultural and marine food products in their original
state.
-
Medical, dental, hospital and veterinary services,
except those rendered by professionals
Laboratory services are exempted. If the hospital or
clinic operates a pharmacy or drug store, the sale of
drugs and medicine is subject to VAT.
-
Educational services shall refer to academic, technical or
vocational education provided by private educational
institutions duly accredited by the DepED, the CHED
and TESDA and those rendered by government
educational institutions and it does not include seminars,
in-service training, review classes and other similar
services rendered by persons who are not accredited by
the DepED, the CHED and/or the TESDA.
-
-
-
exclusively in the production and/or processing
of their produce
Educational services
o rendered by private educational
institutions duly accredited by the
§ Department of Education
(DepED),
§ the Commission on Higher
Education (CHED), and
§ the Technical Education and
Skills Development Authority
(TESDA)
o and those rendered by government
educational institutions;
Services rendered by individuals pursuant to
an employer-employee relationship
Services rendered
o by regional or area headquarters
established in the Philippines by
multinational corporations
o which act as
§ supervisory,
§ communications and
§ coordinating centers for their
• affiliates,
• subsidiaries or
• branches in the Asia
Pacific Region, and do
not earn or derive
income from the
Philippines
Transactions which are exempt under
international agreements to which the
Philippines is a signatory or under special laws
except those granted under PD No. 529 which
refers to Petroleum Exploration Concessionaires
under the Petroleum Act of 1949
Sales by agricultural cooperatives duly
registered and in good standing with the
Cooperative Development Authority (CDA) to
their members, as well as sale of their produce,
whether in its original state or processed form, to
non-members; their importation of direct farm
inputs, machineries and equipment, including
spare parts thereof, to be used directly and
-
Gross receipts from lending activities by credit
or multi-purpose cooperatives duly registered
and in good standing with the Cooperative
Development Authority
-
Sales by non-agricultural, non-electric and noncredit cooperatives duly registered with and in
good standing with the CDA; Provided, That the
share capital contribution of each member does
not exceed Fifteen Thousand Pesos (P15,000.00)
and regardless of the aggregate capital and net
surplus ratably distributed among the members.
Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are
subject to VAT.
--6. INPUT AND OUTPUT TAX-Definition
Input tax – the VAT due on or paid by a VATregistered person on importation of goods or local
purchases of goods, properties, or services, including
lease or use of properties, in the course of his trade or
business.
•
It includes the transitional input tax and the
presumptive input tax as determined in
accordance with Section 111 of the Code.
•
It includes input taxes which can be directly
attributed to transactions subject to the VAT
plus a ratable portion of any input tax which
cannot be directly attributed to either the
taxable or exempt activity.
•
Input tax must be evidenced by a VAT invoice
or official receipt issued by a VAT-registered
person in accordance with Secs. 113 and 237 of
the Code. [RR 16-2005]
Output tax – the VAT due on the sale or lease of
taxable goods or properties or services by any person
registered or required to register under Section 236 of
the Code.
If at the end of any taxable month or quarter:
•
The output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person
•
The input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter
or
quarters [Sec. 110(B), NIRC]
Sources of Input Tax
a. Purchase or importation of goods (evidenced by
VAT invoice/receipt)
1.
For sale; or
2.
3.
4.
5.
For conversion into or intended to form part
of a finished product for sale including
packaging materials; or
For use as supplies in the course of business;
or
For use as materials supplied in the sale of service;
or
For use in trade or business for which deduction
for depreciation or amortization is allowed under
the Code.
b. Purchase of real properties for which VAT has
actually been paid
c. Purchase of services in which VAT has actually
been paid
d. Transactions deemed sale
materials and supplies, whichever is HIGHER, which
amount shall be creditable against the output tax of
VAT-registered person.
Tax base: The value allowed for income tax purposes on
inventories shall be the basis for the computation of the
2% transitional input tax, EXCLUDING goods that are
exempt from VAT under Sec. 109 of the Tax Code. [RR
16-2005]
Note: A real estate dealer is entitled to claim transitional
input VAT based on the value of the entire (including
the value of the land and the improvements thereon) real
property sold regardless of whether there was in fact
actual payment of VAT on the purchase of the real
property. At the time the purchase was made, there was
still no VAT imposed. [Fort Bonifacio Development
Corp. v. CIR, G.R. Nos. 158885 and 170680 (2009)]
Persons Who Can Avail of Input Tax Credit
Input tax on domestic purchase or importation of
goods or properties shall be creditable:
•
To the importer upon payment of the VAT
prior
to the release of the goods from the custody of
the Bureau of Customs.
•
To the purchaser upon consummation of sale
and
on importation of goods or properties;
Claims for Input Tax on Depreciable Goods
1.
The input tax on capital goods purchased or
imported in a calendar month for use in trade or
business for which deduction for depreciation is
allowed under the Code, shall be spread evenly
over the month of acquisition and the fifty-nine
(59) succeeding months (60 month period) if the
aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds
One million pesos (P1,000,000). If the aggregate
acquisition cost does not exceed P1,000,000, the
total input taxes will be allowable as credit against
output tax in the month of acquisition.
2.
However, if the estimated useful life of the capital
good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be
spread over such a shorter period
3.
The amortization of the input VAT shall only be
allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital
goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized:
e. Presumptive Input Tax [Sec. 111(B), NIRC]
Persons or firms engaged in the processing of (1)
sardines, (2) mackerel and (3) milk, and in
manufacturing (1) refined sugar, (2) cooking oil and (3)
packed noodle based instant meals, shall be allowed a
presumptive input tax, creditable against the output tax,
equivalent to FOUR PERCENT (4%) of the gross
value in money of their purchases of primary
agricultural products which are used as inputs to their
production.
“Processing” means pasteurization, canning and
activities which through physical or chemical process
alter the exterior texture or form or inner substance of a
product in such manner as to prepare it for special use to
which it could not have been put in its original form or
condition.
f. Transitional Input Tax [Sec 111(A), NIRC]
Who may avail: (i) By a person who becomes VATliable for the 1st time, or (ii) any person who elects to be
a VAT-registered person
Rate: 2% Input VAT of the value of the beginning
inventory on hand or actual VAT paid on such, goods,
Provided, That in the case of purchase of services,
lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or
fee. 70 [RR 13-2018]
•
To the purchaser of services or the lessee or
licensee upon payment of the compensation,
rental, royalty or fee.
Input tax on purchase of services, lease or use of
properties shall be creditable:
•
To the purchaser upon payment of the
compensation, royalty or fee
•
To lessee or licensee upon payment of the
compensation, royalty or fee
Claiming of input Tax on motor vehicles subject to
the following conditions:
•
Purchase of vehicle must be substantiated with
official receipts and other records;
•
•
•
to VAT, if the aggregate amount of actual gross
sales or receipts exceed Three Million Pesos
(Php3,000,000.00)
A person required to register as VAT taxpayer
but failed to register
Any person, whether or not made in the course of
his trade or business, who imports goods
Radio and/or Television broadcasting companies
whose annual gross receipts of the preceeding
year exceeds P10000000
b. Invoicing Requirements
Under Section 4.113-1 of Revenue Regulations (RR) 162005, a VAT-registered person shall issue: — (1) a VAT
invoice for every sale, barter or exchange of goods or
properties; and (2) a VAT official receipt for every lease
of goods or properties, and for every sale, barter or
exchange of services
The following information shall be indicated in VAT
invoice or VAT official receipt:
•
Taxpayer has to prove the direct connection of
the motor vehicle to the business;
(1) a statement that the seller is a VAT-registered person,
followed by his TIN;
•
Only one vehicle for land transport is allowed
for
the use of an official/employee with value not
exceeding P2.4 million;
(2) the total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the VAT; Provided, That:
•
No depreciation shall be allowed for yachts,
helicopters, airplanes
--7. Refund or tax credit of excess input
tax-Kinds of input tax
Related to sales subject
to 12% VAT
Related to 0% VAT
In case of cancellation
of VAT registration
Treatment
Carry-over
a. Carry-over
b. Refund
c. Convert to tax
credit certificate
a. Convert to tax
credit certificate
b. In case it has no
other tax liability,
refund.
(a)the amount of tax shall be shown as a separate
item in the invoice or receipt;
(b) if the sale is exempt from VAT, the term
“VAT-exempt sale” shall be written or printed
prominently on the invoice or receipt;
(c) if the sale is subject to zero percent (0
percent) VAT, the term “zero-rated sale” shall be written
or printed prominently on the invoice or receipt;
(d) if the sale involves goods, properties or
services some of which are subject to and some of which
are VAT zero-rated or VAT-exempt, the invoice or
receipt shall clearly indicate the break-down of the sale
price between its taxable, exempt and zero-rated
components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or
receipt. The seller has the option to issue separate
invoices or receipts for the taxable, exempt, and zerorated components of the sale.
a. Registration
•
Any person or entity who, in the course of his
trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject
In the case of sales in the amount of one thousand pesos
(P1,000) or more where the sale or transfer is made to a
VAT-registered person, the name, business style, if any,
address and TIN of the purchaser, customer or client,
shall be indicated in addition to the information required.
c. Filing of returns and payment
For the Monthly VAT return, the deadline is the 20th of
the following month of the applicable month. E.g., For
July VAT return deadline is August 20.
For Quarterly VAT return, the deadline is every 25th of
the next month of the applicable quarter. E.g., For the
second quarter ending June 30, the deadline is July 25
d. Withholding of final VAT on sales to Government
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall,
before making payment on account of each purchase of
goods and or services taxed at 12% VAT, deduct and
withhold a final VAT due at a rate of 5% of the gross
payment
This shall represent the net VAT payable to the seller.
The remaining 7% effectiviely accounts for the standard
input VAT of the seller, in lieu of the actual input VAT.
The difference between actual input VAT and standard
input VAT must be closed to expense or cost.
e. Administrative and penal sanctions
For failure to file the tax on a specific date, the penalty
of Pesos (P1,000.00) is imposed for each failure. Unless
it shows that this failure is due to some reasonable cause
and not to willful neglect.
An aggregate amount to be levied for all such failures
during a taxable year shall not exceed Twenty-Five
Thousand Pesos (P25,000.00).
C. ESTATE TAX
1.
2.
Basic principles, concepts and definition
 Estate tax - it is a tax levied on the privilege to transfer or transmit property upon the death of the decedent to
the latter’s heirs and beneficiaries.
 Economic objective: to prevent undue concentration of wealth by limiting fortunes by taxation and its
imposition is justified on the ground that it closely conforms to the principle of ability to pay and minimal
sacrifice.
Classification of decedent




Citizens and resident alien decedent
Non-resident alien decedent
Resident alien
Non-resident alien
Note: only natural persons can be held liable for estate tax. Domestic and foreign corporations cannot be
liable because they are not capable of death
3.
Composition of Gross Estate
 The total value of all property, real or personal, tangible or intangible, the actual and beneficial ownership of
which was in the decedent at the time of his death (Sec. 85, NIRC).
a. Items to be included in determining gross estate
i.
Decedent’s interest - property at the time of death
ii.
Transfers in contemplation of death- by trust or otherwise, intended to take effect in possession or
enjoyment at or after death, or under which he has retained for his life or any period which does not in
fact end before his death: he possession or enjoyment of, or the right to the income from the property,
or the right either alone or in conjunction with any person, to designate the person who shall possess
or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and
full consideration in money or money’s worth.
iii.
Revocable transfers- made by trust or otherwise, where the enjoyment thereof was subject at the date
of his death to any change through the exercise of a power by the decedent alone or in conjunction
with any other person to alter, amend, revoke, or terminate, or where any such power is relinquished
in contemplation of the decedent’s death; except in the case of a bona fide sale for an adequate and
full consideration in money or money’s worth
iv.
Property passing under a general power of appointment- exercised by a decedent by will or by deed
executed in contemplation of or intended to take effect in possession or enjoyment at, or after his/her
death, or by deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death, the possession or
enjoyment of, or right to the income from the property or the right, either alone or in conjunction with
any person, to designate the persons who shall possess or enjoy the property or the income therefrom;
except in the case of a bona fide sale for an adequate and full consideration in money or money’s worth.
v.
Proceeds of life insurance- receivable by the estate of the deceased, his executor, or administrator, as
insurance under policies taken or by the decedent upon his own life, irrespective of whether or not the
insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance; except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.
vi.
Prior interests- on any transfers made in contemplation of death, revocable transfers, or property
passing under general power appointment, whether made, created, arising, existing, exercised, or
relinquished before or after the effectivity of the NIRC
vii.
Transfers for insufficient consideration- in contemplation of death, revocable transfers, and/ or
property passing under general power of appointment, hen made, created, exercised, or relinquished
for a consideration in money or money’s worth but is not a bona fide sale for an adequate and full
consideration in money or money’s worth, these shall be included in the gross estate only in the excess
of the FMV of the transferred property at the time of death, over the value of the consideration
received by the decedent.
b. Allowable deductions from gross estate
i.
Standard deduction of 5M
ii.
c.
Claims against the estate provided that the debt instrument was duly notarized and if the loan was
contracted within 3 yrs. Prior to the death of the decedent, a statement showing the disposition of the
loan.
iii.
Claim against the insolvent person provided the value of the decedent’s interest therein is included in
the gross estate, and it was contracted bona fide and for an adequate and full consideration in money
or money’s worth;
iv.
Unpaid mortgage or indebtedness in respect to property where the value of the decedent’s interest
therein, undiminished by such mortgage or indebtedness is included in the gross estate and by is
contracted bona fide and for an adequate and full consideration in money or money’s worth.
v.
Loss from fire, storm, shipwreck or other casualty or from robbery theft, or embezzlement incurred
during the settlement of the estate, not compensated for by insurance or otherwise, not claimed as
deduction in the ITR of the decedent, and was incurred not later than the last day for the payment of
the estate tax.
vi.
Property Previously Taxed that forms part of the gross estate situated in the Philippines of any person
who died within 5 yrs prior to the death of the decedent 7. Transfer for public use
vii.
Family Home equivalent to the FMV of the decedent’s family home but not to exceed 10M
viii.
Amount received by the heirs under RA No. 4917 as a consequence of the death of the decedentemployee, provided the amount is included in the gross estate of the decedent.
Exclusions from gross estate and exemptions of certain acquisitions and transmissions
i.
Exclusions under Sec. 85 and 86 NIRC:
i. Exclusive property (capital/paraphernal) of surviving spouse (Sec. 85 [H], NIRC);
ii. Property outside Philippines of NRA decedent;
iii. Intangible personal property in the Philippines of NRA decedent provided there is reciprocity.
ii.
Exclusions under Sec. 87 NIRC:
i. The merger of the usufruct in the owner of the naked title
ii. The transmission or the delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary
iii. The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor
iv. All the bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, provided no part of the net income of which inures to the benefit of any individual
and that not more than 30% of the value given is used for administrative purposes.
iii.
iv.
Exclusions from estate under special laws:
i. Benefits received by members from the Government Service Insurance System (PD 1146) and
the Social Security System (RA 1161, as amended) by reason of death
ii. Amounts received from the Philippine and United States governments for damages suffered
during the last war (RA 227)
iii. Benefits received by beneficiaries residing in the Philippines under laws administered by the
U.S. Veterans Administration (RA 360)
iv. Grants and donations to the Intramuros Administration (PD 1616) (Mamalateo, 2014).
Exemptions:
i. The merger of usufruct in the owner of the naked title
ii. The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary
iii. The transmission form the first heir, legatee, or done in favour of another beneficiary,
in accordance with the desire of the predecessor
iv. All bequest, devise, legacy or transfer to social welfare, cultural, and charitable
institutions, no part of the net income of which inures to the benefit of any individual
and not more than 30% thereof shall be used for administrative purpose.
d. Tax credit for estate taxes paid to a foreign country
i.
The Philippine estate tax imposed shall be credited with the amount of estate tax paid to a foreign
country, subject to the following limitations:
i. The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent’s taxable net
estate situated within such country bears to his entire net estate
ii. PERThe total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the decedent’s taxable net estate situated outside the
Philippines bears to his entire net estate.
e. Filing of estate tax returns and payment of estate tax period for filing of the estate tax returns:
 1 year form decedent’s death, extendible for a period not exceeding 30 days in meritorious cases as

authorized by the CIR. Gross estate exceeding 5M to be supported with a statement duly certified by a
CPA
Paument: paid at the time it is filed
i. EXCEPTIONS:
 When the CIR finds that the payment on the due date of the estate tax or of any part
thereof would impore undue hardship upon the estate or any of the heirs, the CIR
may extend the time for payment but not to exceed 5 yrs in case of judicial settlement
or 2 yrs in case of extrajudicial settlement
 When the available cash of the estate is insufficient to pay the total estate tax due,
payment by instalment is allowed within 2 yrs from the due date for its payment
without civil penalty and interest
D. DONOR’S TAX
1.
2.
3.
4.
5.
Basic Principles, Concept, and Definition
 Donor’s Tax – tax levied on the privilege to transmit by any person, resident or non-resident, during his lifetime
of a property by gift, without consideration or for an inadequate consideration, whether the transfer is in trust
or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or
intangible
Requisites of a valid donation
i. Capacity of the donor
ii. Intent to donate
iii. Delivery of the subject matter of the gift
iv. In writing except for donation of movable property the value of which does not exceed PHP 5000
v. Acceptance of the done which is made known to the donor during the lifetime of both parties
Transfers which may be considered as a donation (IMPORTANT)
 Sale, exchange or transfer of property for less than adequate and full consideration;
i. The amount of which the FMV of the property exceeded the value of the consideration shall be deemed
a gift and shall be included in computing the amount of gifts made during the calendar year
ii. EXCEPTION: when the sale, exchange or other transfer of property is madei nthe ordinary course of
business, in a bona fide transaction, at arm’s length and free from ay donative intent, the transfer is
considered made for an adequate and full consideration in money or money’s worth
 Condonation or remission of debt – essentially gratuitous, and may be made expressly or impliedly; express
donation shall comply with the forms of donation including acceptance by the debtor
 Renunciation of inheritance – the renunciation should be in general favour of all heirs (LOOK FOR EXCEPTION)
Classification of Donor
 Citizen and resident alien
 Non resident alien
Determination of Gross Gift
 Composition of gross gift – all property, real or personal, tangible or intangible that was given by the donor to
the done by way of gift, without the benefit of any deduction (Sec. 104, NIRC)
i. Donor: citizen or resident alien- all gift of real and personal property, whether tangible or intangible,
mixed, wherever situated.
ii. Donor: non-resident- only real and personal property situated in the Philippines
 Valuation of gifts made in property
i. Real property- the appraisal value at the time of gift, FMV as determined by the CIR or the FMV shown
in the schedule of values fixed by Provincial or City Assessors whichever is higher
ii. Personal Property- FMV at the time of donation
iii. For shares of stock unlisted in the stock exchange- BV for common stock and PV for referred share
iv. Share listed in the stock exchange- FMV which is the arithmetic mean between the highest and lowest
quotations at the date nearest the date of donation or on the date itself
v. Unit of participation in any association, recreation, or amusement club- bid price nearest the date of
donation published in any newspaper or publication of general circulation or on the date of donation
vi. Right to Usufruct, use or habitation, life annuity- probable life of the beneficiary in accordance with the
basic standard mortality rate table to be approved by the SoF upon recommendation of the Insurance
commissioner.
**If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration
**If there is an improvement, the value of the improvement is the construction cost per building permit and or
occupancy permit plus 10% per year after year of construction, or the market value per latest tax declaration.

6.
7.
Exemption of certain gifts
i. Gift made to or for the use of the national government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivision of the government
ii. Gift in favour of an educational, charitable, religious, cultural or social welfare corporation, institution
accredited NGO, trust, or philanthropic organization or research institution or organization, provided
that not more than 30% of gift shall be used by the done for administration purpose.
iii. Qualified contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes as provided for under the Election Code., as amended.
Tax credit for donor’s taxes paid to a foreign country - the donor’s tax imposed upon a donor who was a citizen or a
resident citizen at the time of donation shall be credited with the amount of any donor’s tax of any character and
description imposed by the authority of a foreign country. The amount of the tax credit is subject to each of the following
limitations:
 The amount of the tax credit in respect to the tax paid to any country shall not exceed the same proportion of
the tax against which such credit is taken, which the net gifts situated within such country taxable under this
Title bears his entire net gifts,
 The total amount of the tax credit shall not exceed the same proportion of the tax against which such credit is
taken, which the donor’s net gifts situated outside of the Philippines bears his entire net gifts.
Filing of return and Payment
 Filing of return- shall be filed within 30 days after the date the gift is made
 Payment- at the time of filing
 Where- city or municipality where the donor is domiciled at the time of the transfer, or if there be no legal
residence in the Philippines, with the office of the CIR. In case of gifts made by non-resident, filed and paid at
the Philippine Embassy or consulate in the country where he is domiciled at the time of transfer.
E. VALUE-ADDED TAX
1. Nature and Characteristics of Value-added tax
Value Added Tax (VAT) – tax on a value added by every seller to the purchase price or cost in the sale or lease
of goods, property or services in the ordinary course of trade or business as well as on importation of goods
into the Philippines, whether for personal or business use.
*Note VAT is a type of business tax
If a sale is exempt from tax, it may still be subject to other percentage taxes except those transactions exempt
from business taxes such as those made for subsistence or livelihood.
a. Tax on Value added
i. VAT is imposed on the vaue-added in each stage of production and distribution process
 Value added – the difference between total sales of the taxpayer for the taxable
quarter subject to VAT and his total purchases for the same period subject also to
value added
ii. Tax on value added of a taxpayer arising from the sales of goods, properties or services during
the quarter
b. Sales tax
i. VAT is a tax on the taxable sale, barter or exchange or goods, properties or services.
ii. A barter or exchange has the same tax consequence as a sale
iii. A sale may be an actual or deemed sale, or an export sale or local sale
iv. Buyer is informed that the price includes VAT and the consumption is shown in the official
receipt/sales invoice
c. Tax on consumption
i. VAT is a tax on consumption levied on the sale, barter, or lease of goods or properties and
services in the Philippines and on importation of goods into the Philippines
 It is the end user of consumer goods or services which ultimately shoulders the tax as
a liability from the provider of goods or services.
 Thus, VAT forms a substantial portion of consumer expenditures
ii. Broad based Tax on consumption in the Philippines – it is BROAD BASED becayse every sale of
goods, properties or services at the levels of manufacturers or producers and distributors is
subject to VAT. However, the tax burden rests on the final consumers.
iii. Excise tax based on consumption – it is a tax on the privilege of engaging in the business of
selling goods or services, or the importation of goods.
d. Indirect tax: impact and incidence of tax
i. It is an indirect tax where tax shifting is always presumed
ii. The VAT is an indirect tax and the amount may be shifted or passed on to the buyers,
transferee or lessee of the goods, properties or services as part of the purchase price. (Sec
105 Tax Code; Section 4, RR 16-2005)
iii. SELLER is the one staturorily liable to pay for the payment of the tax but the amount of the
tax may be shifted or passed on the buyer or transferee or lessee of the goods, properties or
services.
 In case of importation, the importer liable for VAT
e. Tax credit method
i. Aka credit-invoice method; this is used to compute the VAT payable
 VAT payable is computed by deducting the input vat from the output vat
ii. The providers of goods and services passed on to the end users the liability to pay the tax who
in turn may credit their vat liability from the vat payments they received from the final
consumer
 This is because VAT is a consumption tax levied on sales to be borne by consumers
with sellers acting simply as tax collectors
f. Destination principle and cross-border doctrine
i. Destination principle – goods and services are taxed only in the country where these are
consumed.
ii. Cross border doctrine– no VAT shal be imposed to form part of the cost of the goods destined
for consumption outside the territorial border of the Philippine Taxing Authority
2. Persons liable to VAT
a. Sale in the Ordinary Course
i. Any person who, in the course of his trade or business, sells barters, exchanges, or leases
goods or properties or renders services, and any person who imports goods shall be liable to
VAT
b. Importation:
i. The importer, whether an individual or corporation and whether or not made in the course of
his trade or business, shall be liable to VAT imposed in Sec 107 of the Tax Code
c. Transfer made by a tax-exempt entity to a non-tax exempt entity
i. Transfers made by a tax-exempt person/entity, not enjoying indirect tax exemption, shall be
subject to VAT
ii. The non-exempt transferee shall be considered as the importer and shall be liable for the
unpaid VAT pursuant to RA No. 9224 as implemented by RR No. 25-03
3. Imposition of value-added tax
a. On sale of goods or properties
i. Tax base: gross selling price


GSP Means the total amount of money or its equivalent which the purchaser pays or
is obligated to pay to the seller in consideration of the sale, barter or exchange of
the goods or properties, excluding VAT. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.
Allowable deductions from gross selling price
a. Discounts
b. Sales returns and allowances for which a proper credit or refund was made
during the month or quarter to the buyer for sales previously recorded as
taxable sales
ii. Transactions deemed sale [CORD]
 Before considering whether the transaction is “deemed sale”, it must first be
determined whether the sale was in the ordinary course of trade or business or not.
IF NOT, not subject to VAT.
a. Transfer, use or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business (i.e.,
when a VAT-registered person withdraws goods from his business for his
personal use)
b. Distribution or transfer to:
i. Shareholders or investors as share in the profits of the VAT-registered
persons
ii. Creditors in payment of debt
c. Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned.
d. Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the business is continued by the
new owner or successor (Sec. 106 (B) NIRC)
 Transactions that are considered retirement or cessation of business
a. Change of ownership of the business. There is a change in the ownership of
the business when a single proprietorship incorporates; or the proprietor of
a single proprietorship sells his entire business
b. Dissolution of a partnership and creation of a new partnership which takes
over the business (Sec. 4 106-7, RR 16-2005)
iii. Change or Cessation of Status as value-added tax-registered person
 The following change in or cessation of status of a VAT registered person are subject
to VAT
a. Change of business activity from VAT taxable status to VAT-exempt status.
b. Approval of a request for cancellation of registration due to reversion to
exempt status.
c. Approval of a request for cancellation of registration due to a desire to
revert to exempt status after the lapse of 3 consecutive years from the time
of registration by a person who voluntarily registered despite being exempt
under Sec 109 (2) of the NIRC.
d. Approval of a request for cancellation of registration of one who
commenced business with the expectation of gross sales or receipt
exceeding P1,919,500 but who failed to exceed this amount during the first
12 months of operations.
 The following change in or cessation of status of a VAT registered person are NOT
subject to Output Tax
a. Change of control in the corporation of as corporation by the acquisition of
controlling interest of the corporation by another stockholder or group of
stockholders.
b. On importation of goods
 Importation is an act of bringing goods and merchandise into a country (Philippines) from a
foreign country.
 VAT is imposed on goods brought into the Philippines, whether for use in business or not,
except those specifically exempted under Section 109(1) of the NIRC. [BIBOY NOTE: A-Z ang
enumerations sa 109(1), can’t put it here]
 Purpose: This is to protect our local or domestic goods or articles and to regulate the entry or
introduction of foreign articles to our local market.
 Tax Base in importations
 GR: The tax base shall be based on the total value used by the BOC in determining
tariff and customs duties plus customs duties, excise taxes, if any, and other charges
to be paid by the importer prior to the release of such goods from customs custody.
(Transaction value)
 XPN: In case the valuation used by the BOC in computing customs duties is based on
volume or quantity of the imported goods, the landed cost shall be the basis for
computing VAT.
 Landed cost consists of the invoice amount, customs duties, freight, insurance and
other charges. If the goods imported are subject to excise tax, the excise tax shall form
part of the tax base.
c. On sale of services and use or lease of properties
Sale or exchange of services, as well as the use or lease of properties, shall be subject to VAT,
equivalent to 12% of the gross receipts (excluding VAT)
It means the performance of all kinds of services in the Philippines for others for a fee, remuneration
or consideration, whether in kind or in cash, including those performed or rendered by the following:




Construction and service contractors;
Stock, real estate, commercial, customs and immigration brokers;
Lessors of property, whether personal or real;
Transmission of electricity by electric cooperatives
Requisites for the taxability of sale or exchange of services or lease or use of property (SPaCeVaN)
1. There is a sale or exchange of service or lease or use of property enumerated in the law
or other similar services;
2. The service is performed or to be performed in the Philippines;
3. The service is in the course of trade of taxpayer’s trade or business or profession;
4. The service is for a valuable consideration actually or constructively received; and
5. The service is not exempt under the NIRC, special law or international agreement.
**Absence of any of the requisites renders the transaction exempt from VAT but may be
subject to other percentage tax under Title V of the NIRC
4. Zero-rated and effectively zero-rated sales of goods or properties, and services
 Zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes but the sale does
not result in any output tax. However, the input tax on the purchases of goods, properties or services
related to such zero-rated sale shall be available as tax credit or refund.
 To be subject to zero tax-rate, however, the seller must be a VAT-registered person because if he is
not VAT registered, the transactions entered into by him are exempt from the tax.
 Purpose: To exempt the transaction completely from VAT previously collected since input taxes passes
to him may be recovered as refund or credits (Ingles, 2015)
 ZERO-RATED SALE OF GOODS [FEE]
1. Export sales
2. Foreign currency denominated sale
3. Effectively zero-rated sales
 DIFFERENCE; VAT EXEMPT VS ZERO-RATED
o the difference lies in the input tax. In VAT-exempt transactions there is no input tax credit
allowed. In the case of 0% rated transaction of a VAT registered person, the sale of goods or
properties is multiplied by 0% thus his output tax is P 0.00. If the person is VAT registered, he
may claim such input tax as tax credit or refund.
5. Value-added Tax exempt transactions
 These refer to the sale of goods or properties and/or services and the use or lease of properties that
is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on
purchases
 The person making the exempt sale of goods, properties or services shall not bill any output tax to his
customers because the said transaction is not subject to VAT (Sec.4.109-1 R.R. No.16-2005)
EXEMPT PARTY VS EXEMPT TRANSACTION
EXEMPT PARTY
EXEMPT TRANSACTION
A person or entity granted VAT exemption under the Involves goods or services which, by their nature are
NIRC, special law or international agreement to which specifically listed in and expressly exempted from the
RP is a signatory, and by virtue of which its taxable VAT under the NIRC, without regard to the tax status of
transactions become exempt from the VAT.
the parties in the transactions.
Such party is not subject to the VAT, but may be
allowed a tax refund or credit of input tax paid,
Transaction is not subject to VAT, but the seller is not
depending on its registration as a VAT or non-VAT allowed any tax refund or credit for any input taxes paid.
taxpayer.
Exempt transations, enumerated



Sale or importation of
 agricultural and marine food products in their original state,
 livestock and poultry of
a) kind generally used as, or yielding or producing foods for human consumption; and
b) breeding stock and genetic materials therefor
Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls, ducks,
geese and turkey. Livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.
Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps,
prawns, oysters, mussels and clams.





Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph shall
be considered in their original date even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping, including
those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing,
tetra-pack, and other similar packaging methods.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered
as agricultural food products in their original state.
Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5o and above are
presumed to be refined sugar.
Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:

Product of a refining process,

products of a sugar refinery, or
 Product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of
producing sugar with polarimeter reading of 99.5o and above, and for which the quedan issued
therefor, and verified by the Sugar Regulatory Administration, identifies the same to be of a polarimeter
reading of 99.5o and above.
Bagasse is not included in the exemption provided for under this section (Sec. 4.109-1(B)(1)(a), R.R. 16-2005).
Specialty feeds refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets.





Importation of personal and household effects belonging to
 residents of the Philippines returning from abroad, and
 non-resident citizens coming to resettle in the Philippines;
 Provided, that such goods are exempt from customs duties under the Tariff and Customs Code of the
Philippines
Requisites under Sec. 800 of Customs Modernization and Tariff Act of 2016
That the personal and household effects of returning residents shall neither be in commercial quantities nor
intended for barter, sale or hire and that the total dutiable value of which shall not exceed:
 P350,000 – for those who have stayed in a foreign country for at least 10 yrs, and has not availed of this
privilege within 10 years prior to arrival
 P250,000 – for those who have stayed for at least 5 but not more than 10 yrs and has not availed of this
privilege within 5 years prior to arrival
 P150,000 – for those who have stayed for a period of less than 5 yrs and has not availed of this privilege
within 6 months prior to arrival;
 P150,000 – in case of returning OFWs. This privilege is available once in a given calendar year.
NOTE: Prior to the amendment of the Tariff and Customs Code, the ceiling amount is P10,000.
Importation of
 professional implements, instruments and
 wearing apparel,
 domestic animals, and
 personal household effects (except any vehicle, vessel, aircraft, machinery and other goods for use in
the manufacture and merchandise of any kind in commercial quantity)
 belonging to persons coming to settle in the Philippines or their families and descendants who are now
residents or citizens of other countries, such as OVERSEAS FILIPINO
 inquantities and of the class suitable to the profession, rank, or position
 for their own use and
 not for sale, barter or exchange,
 accompanying such persons, or arriving within a reasonable time
 upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines and that the change of residence is bonafide;
Services subject to percentage tax
Refer to discussion on percentage tax.

Services by
 agricultural contract growers, and
 milling for others of
a) palay into rice,
b) cornintogrits, and
c)
sugar cane into raw sugar
Agricultural contract growers refer to those persons producing for others poultry, livestock or other agricultural
and marine food products in their original state.

Medical, dental, hospital and veterinary services, except those rendered by professionals
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs
and medicine is subject to VAT.

Educational services
 rendered by private educational institutions duly accredited by the
a) Department of Education (DepED),
b) the Commission on Higher Education (CHED), and
c) the Technical Education and Skills Development Authority (TESDA)
 and those rendered by government educational institutions;
Educational services shall refer to academic, technical or vocational education provided by private educational
institutions duly accredited by the DepED, the CHED and TESDA and those rendered by government educational
institutions and it does not include seminars, in-service training, review classes and other similar services
rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA.






Services rendered by individuals pursuant to an employer-employee relationship
Services rendered
 by regional or area headquarters established in the Philippines by multinational corporations
 which act as
a) supervisory,
b) communications and
c) coordinating centers for their
o affiliates,
o subsidiaries or
o branches in the Asia Pacific Region, and do not earn or derive income from the
Philippines
Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws except those granted under PD No. 529 which refers to Petroleum Exploration Concessionaires
under the Petroleum Act of 1949
Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development
Authority (CDA) to their members, as well as sale of their produce, whether in its original state or processed
form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or processing of their produce
Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority
Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing
with the CDA; Provided, That the share capital contribution of each member does not exceed Fifteen Thousand
Pesos (P15,000.00) and regardless of the aggregate capital and net surplus ratably distributed among the
members.
Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are subject to VAT.
6.
Input and Output Tax
a. Input tax – the VAT due on or paid by a VAT- registered person on importation of goods or local purchases of
goods, properties, or services, including lease or use of properties, in the course of his trade or business.
 It includes the transitional input tax and the presumptive input tax as determined in accordance with
Section 111 of the Code
 It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly attributed to either the taxable or exempt activity.
 Input tax must be evidenced by a VAT invoice or official receipt issued by a VAT-registered person in
accordance with Secs. 113 and 237 of the Code. [RR 16-2005]
b. Output Tax - the VAT due on the sale or lease of taxable goods or properties or services by any person registered
or required to register under Section 236 of the Code.
 If at the end of any taxable month or quarter:
1. The output tax exceeds the input tax, the excess shall be paid by the VAT-registered person
2. The input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter
or
quarters [Sec. 110(B), NIRC]
c. Persons Who Can Avail of Input Tax Credit
i. Input tax on domestic purchase or importation of goods or properties shall be creditable:
 To the importer upon payment of the VAT prior to the release of the goods from the custody
of the Bureau of Customs.
 To the purchaser upon consummation of sale and on importation of goods or properties;
Claims for Input Tax on Depreciable Goods
o The input tax on capital goods purchased or imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under the Code, shall be spread evenly over the month
of acquisition and the fifty-nine (59) succeeding months (60 month period) if the aggregate acquisition
cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000). If
the aggregate acquisition cost does not exceed P1,000,000, the total input taxes will be allowable as
credit against output tax in the month of acquisition.
o However, if the estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period
o The amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers
with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same
as scheduled until fully utilized: Provided, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee. 70 [RR 13-2018]
o To the purchaser of services or the lessee or licensee upon payment of the compensation, rental,
royalty or fee.
ii. Input tax on purchase of services, lease or use of properties shall be creditable:
1. To the purchaser upon payment of the compensation, royalty or fee
2. To lessee or licensee upon payment of the compensation,
royalty
or
fee
iii. Claiming of input Tax on motor vehicles subject to the following conditions:
1. Purchase of vehicle must be substantiated with official receipts and other records;
2. Taxpayer has to prove the direct connection of the motor vehicle to the business;
3. Only one vehicle for land transport is allowed for the use of an official/employee with value not
exceeding P2.4 million;
4. No depreciation shall be allowed for yachts, helicopters, airplanes
7. Refund or tax credit of excess input tax; procedure
Kinds of input tax
Related to sales subject to 12% VAT
Related to 0% VAT
In case of cancellation of VAT registration
a.
Treatment
Carry-over
a. Carry-over
b. Refund
c. Convert to tax credit certificate
a. Convert to tax credit certificate
b. In case it has no other tax liability,
refund.
Registration
 Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who imports goods
 Radio and/or Television broadcasting companies whose annual gross receipts of the
preceeding year exceeds P10000000
b. Invoicing Requirements
 Under Section 4.113-1 of Revenue Regulations (RR) 16-2005, a VAT-registered person shall
issue: — (1) a VAT invoice for every sale, barter or exchange of goods or properties; and (2) a
VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services
 The following information shall be indicated in VAT invoice or VAT official receipt:
1. a statement that the seller is a VAT-registered person, followed by his TIN;
2. the total amount which the purchaser pays or is obligated to pay to the seller with
the indication that such amount includes the VAT; Provided, That:
a. the amount of tax shall be shown as a separate item in the invoice or receipt;
b. if the sale is exempt from VAT, the term “VAT-exempt sale” shall be written
or printed prominently on the invoice or receipt;
c. if the sale is subject to zero percent (0 percent) VAT, the term “zero-rated
sale” shall be written or printed prominently on the invoice or receipt;
d. if the sale involves goods, properties or services some of which are subject to
and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt
shall clearly indicate the break-down of the sale price between its taxable,
exempt and zero-rated components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or receipt. The seller has the
option to issue separate invoices or receipts for the taxable, exempt, and
zero-rated components of the sale.
 In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or
transfer is made to a VAT-registered person, the name, business style, if any, address and TIN
of the purchaser, customer or client, shall be indicated in addition to the information required.
c. Filing of returns and payment
 For the Monthly VAT return, the deadline is the 20th of the following month of the applicable
month. E.g., For July VAT return deadline is August 20.
 For Quarterly VAT return, the deadline is every 25th of the next month of the applicable
quarter. E.g., For the second quarter ending June 30, the deadline is July 25
d. Withholding of final VAT on sales to Government
 The government or any of its political subdivisions, instrumentalities or agencies, including
GOCCs shall, before making payment on account of each purchase of goods and or services
taxed at 12% VAT, deduct and withhold a final VAT due at a rate of 5% of the gross payment
 This shall represent the net VAT payable to the seller. The remaining 7% effectiviely accounts
for the standard input VAT of the seller, in lieu of the actual input VAT.
 The difference between actual input VAT and standard input VAT must be closed to expense
or cost.
e. Administrative and penal sanctions
 For failure to file the tax on a specific date, the penalty of Pesos (P1,000.00) is imposed for
each failure. Unless it shows that this failure is due to some reasonable cause and not to willful
neglect.
 An aggregate amount to be levied for all such failures during a taxable year shall not exceed
Twenty-Five Thousand Pesos (P25,000.00).
F. PERCENTAGE TAXES: CONCEPT AND NATURE
Percentage Tax- It is a business and a sales tax imposed on persons and entities who are not VAT-registered, whose annual
gross sales or receipts from goods, properties, or services that does not exceed 3M, on lessor of residential units where
the monthly rental exceeds 15,000 but the total amount of rental does not exceed 3M and on persons engaged in specified
industries or transactions.
-tax imposed on sale, barter, exchange, or importation of goods or sales of services based upon gross sales, value
in money derived by percentage of the gross selling price or receipts (Tabag)
-Percentage tax is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127
of the National Internal Revenue Code of 1997 (also known as Tax Code), as amended, and as required under
special laws.
Note: if the tax is subject to percentage tax, it is NO LONGER SUBJECT TO VAT
Percentage taxes however may still be imposed together with Excise Tax
Other Percentage Taxes (OPT) are found in Sec. 116-127 of the Tax Code
(HONESTLY DON’T THINK NEED PA NI ANG SPECIFICS SA 116-127 BUT GN BUTANG KO NA LANG IN CASE KAY KA SHORT
SA REVIEWERS, FROM TABAG NI – ANNE)
Sec. 116: Tax on Persons Exempt from Value-Added Tax
 Requisites
o Taxpayer is not VAT registered
o Transaction is not a VAT exempt transaction
o The amount of sales in < 3M
o Transaction is not subject to OPT under Sec. 117-127
Under Train Law: any person whose sales or receipts are exempt from VAT under Section 109(1)(BB) of the Tax Code, as
amended, shall pay a tax equivalent to 3% of his quarterly gross sales or receipts

Provided, that the following are exempted:
 Cooperatives; and
 Self-employed individuals and professionsals availing of the 8% tax on gross sales and/or receipts and
other non-operating income under Sections 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of the Tax Code, as amended
 Self-employed – sole proprietor or an independent contracts who reports income earned from
self-employment.
o Controls who he/she works for, how the work is done, and when it is done
o Includes professionals whose income is derived purely from the practice of
profession and not under an employer-employee relationship
 Professional – a person formally certified by a professional body belonging to a specific profession
by virtue of having complete a required course of studies and/or practice, whose competence can
usually be measured against an established set of standards.
o Also refers to a person who engages in some art or sport for money, as a means
of livelihood, rather than as a hobby.
Section 117: Percentage Tax on Domestic Carriers and Keepers of Garages
 Exceptions:
o Owners of:
 Bancas
 Animal drawn two-wheeled vehicles
Note: Sec. 117 of the Tax Code refers to domestic common carriers engaged in the transport of PASSENGERS by LAND
 Common carriers (Art. 1732 NCC) – persons, corporations, firms, or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.
Section 118: Percentage Tax on International Carriers
Gross receipts – include but not limited to, the total amount of money or its equivalent representing the contract,
freight/cargo fees, mail fees, deposits applied as payments advance payments and other service charges and fees actually
or constructively received during the taxable quarter and/or mail, organization from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the passage documents.
Note: international air carriers and international shipping carriers shall not be subject to VAT for the reason that VAT is
applicable only on sale of goods or services rendered in the Philippines.
Section 119: Percentage Tax on Franchises
 Types of Franchises included:
o Radio/Television Broadcasting Companies
 Whose annual gross receipts of the precending year do not exceed PHP 10M; and
 Did not opt to register as VAT taxpayer
o Gas and Water Utilities
Note: The Franchise Tax under PD 1869, (for PAGCOR) as amended, is different from Franchis Tax under Sec. 119
Section 120: Percentage Tax on Overseas Dispatch, Message or Conversation originating from the Philippines
 Exceptions
o Government – amounts paid for messaged transmitted by the Government of the Republic of the
Philippines or any of its political subdivisions or isntrumentalities
o Diplomatic Services – amounts paid for messages transmitted by an embassy and consular offices of a
foreign government
o International Organizations – amounts paid for messages transmitted by a public international
organization or any of its agencies based in the Philippines enjoying privileges, exemptions, and immunites
which the PH government is committed to recognize pursuant to an International Agreement
o News Services – amounts paid for messages from any newspaper, press association, radio or television
newspaper, broadcasting agency, or news exclusively with the collection of news items, for or the
dissemination of the news item through, public press, radio or television broadcasting, or a news service
furnishing a general news service similar to that of a public press
Section 121: Tax on Banks and non-bank financial intermediaries performing quasi-banking functions
There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank
financial intermediaries in accordance with the schedule provided by Section 121
Bank – means every banking institution defined in Sec 2 of the General Banking Act
-persons or entities engaged in the lending of funds obtained from the public through the receipt of deposits or
the sale of bonds, securities, or obligations of any kind, and all entities regularly conducting such operations.
-may be a commercial bank, thrift bank, development bank, rural bank, or a specialized government bank
Non-bank financial intermediary – a financial intermediary (Sec. 2 (D)(d) of the General Banking Act) authorized by BSP to
perform quasi-banking activities
 Quasi-banking activities – refer to the borrowing of funds from 20 or more personal or corporate lenders at any
one time, through the issuance, endorsement, or acceptance of debt instrumnts of any kind other than deposits
for the borrower’s own account, or through the issuance of certificated of assignment or similar intruments, with
recourse, or of repurchase agreements for the purposes of relending or purchasing receivables and other similar
obligations
o Provided, however, that commercial industrial, and other non-financial companies which borrow funds
through any of these means for the limited purpose of financing their own needs or the needs of their
agents or dealers, shall not be considered as performing quasi-banking functions
Financial Intermediaries – persons or entities whose principal functions include the lending, investing, or placement of
funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise course through them,
either for their own account or for the account of others
Section 122: Tax on Other Non-Bank financial intermediaries
Section 123: Tax on Life Insurance Premiums
 Used to be 5% (now 2% because of RA 10001)
Note that Pres. GMA vetoed Sec. 4 of RA 10001 (exempting life insurance from percentage tax)
 Her reasons for VETO:
o Exemption of life insurance premiums from taxes violates the Constitution’s guarantee of uniform and
equitable taxes since other financial instruments will continue to be taxable.
o Exemption might also set a precedent for other players in the financial sector to clamor for the same
treatment, which could further put government revenues at risk.
o It would deprive the government of revenues that can be spent on services that benefit the poor the most,
not to mention that insurance is consumed more by the middle-high income earners
Section 124: Tax on agents of foreign investment companies
Section 125: Amusement Taxes
 May include:
o Night and day clubs
o Cabarets
o Videoke bars, karaoke bars, karaoke telvisions and boxes
o Music lounges
Gross receipts – embraces all receipts of the proprietor, lessee or operator of the amusement place irrespective of whether
or not any amount is charged for admission.
Section 126: Tax on Winnings
For persons who win in horse races
Section 127: Tax on Sale, Barter or Exchange of Shares of Stock Listen and Traded through the Local Stock Exchange or
through Initial Public Offering
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange
(B) Tax on Shares of Stock Sold or Exchanged through Initial Public offering
Closely held corporation – any corporation at least 50% in value of the outstanding capital stock at east 50% of the total
combined voting power of all classes of stock entitled to vote is owned directly or indirectly y or for not more than 20
individuals

Percentage Tax for Transactions Involving Shares of Stocks under Section 127 of the Tax Code, as
amended
Who are required to file?
1. Every stock broker who effected a sale, barter or exchange of shares of stock listed and traded through
the local stock exchange other than the sale by a dealer in securities, which tax shall be paid by the
seller/transferor
2. A corporate issuer, engaged in the sale, exchange or other disposition through Initial Public Offering
(IPO) of shares of stock in closely-held corporations
3. A stock broker who effected a sale, exchange or other disposition through secondary public offering of
shares of stock in closely-held corporations
G. EXCISE TAX: CONCEPT AND NATURE
Excise Tax- It is a tax on goods manufactured or produced in the Philippines for domestic sale, consumption, or any other
disposition, and on goods imported. It is a specific tax when the tax is compute based on specific unit or measurement of
the goods, or an ad valorem tax when the tax is computed based on the selling price or value of the goods.
APPLICABILITY


On goods manufactured or produced in the Philippines for domestic sale or consumption or for any other
disposition; and
On goods imported.
PURPOSES OF IMPOSING EXCISE TAX:
 To curtail consumption of certain commodities which are considered as harmful to the individual or to the
community
 To protect the domestic industries from competition posed by similar imported products
 To distribute the tax burden in proportion to the benefit derived from a particular government service.
TYPES OF EXCISE TAX:
1. Specific Tax- refers to the excise tax imposed which is based on weight or volume capacity or any other physical unit of
measurement
2. Ad Valorem Tax- refers to the excise tax which is based on selling price or other specified value of the goods/articles
MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND RELATED CODAL SECTION:
1. Alcohol Products (Sections 141-143)
a. Distilled Spirits (Section 141)
b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150)
c. Non-essential Service (Section 150-A) - RA 10963 [TRAIN Law))
d. Sweetened Beverages (Section 150-B)-(RA 10963 [TRAIN Law])
5. Mineral Products (Sections 151)
PERSONS LIABLE TO EXCISE TAX:
In General:
a. On Domestic or Local Articles
 Manufacturer
 Producer
 Owner or person having possession of articles removed from the place of production without the
payment of the tax
b. On Imported Articles
 Importer- any person who brings goods into the Philippines, whether or not made in the course
of trade or business.
 Owner
 Person who is found in possession of articles which are exempt from excise taxes other than those
legally entitled to exemption
Note: Importation is not a sale of goods, yet it is subject to vat because vat is a consumption tax levied on sales to be
borne by consumers with sellers acting simply as tax collectors.
Others:
On Indigenous Petroleum
Note: For the purpose of this Subsection, “indigenous petroleum” shall include locally-extracted mineral oil,
hydrocarbon gas, bitumen, crude asphalt. mineral gas and all other similar or naturally associated substances with the
exception of coal, peat, bituminous shale and/or stratified mineral deposits."


Local Sale, Barter or Transfer
o First buyer, purchaser or transferee
Exportation
o Owner, lessee, concessionaire or operator of the mining claim
TIME OF PAYMENT:
 On domestic products- Before removal from the place of production
 On imported products- Before release from the customs' custody
H. DOCUMENTARY STAMP TAX: CONCEPT AND NATURE
Documentary Stamp Tax- It is a tax on documents, instruments, loan agreements and papers evidencing the acceptance,
assignment, sale or transfer if an obligation, right, or property incident thereto. It is an excise tax on the exercise of a right
or privilege to transfer obligations, rights, or properties incident thereto. It is computed as a percent of the value or
consideration appearing in the documents or papers.
 Liability to pay DST
o Paid by the person making, signing, issuing, accepting, or transferring the documents.
 EXCEPTION: Whenever one party to the taxable document enjoys exemption from the tax, the
other party thereto who is not exempt shall be the one directly liable for the tax
 Filing and payment
o
Shall be filed and the tax due be paid at the same time within 10 days after the close of the month when
the taxable document was signed, issued, accepted or transferred.
o May be paid either though DST stamp and actual affixture, or by imprinting a secured stamp on the taxable
document through the web-based Electronic DST (eDST) System
 Effect of Failure to Pay DST
o Failure to stamp a taxable document shal not invalidate the same
 However, it shall not be recorded or admitted or used as evidence in any court until the requisite
stamp is affixed thereto and cancelled
 AND No notary or other officer authorized to administer oaths shall add his jurat or
acknowledgement to the document unless the proper documentary stamp is affixed thereto and
cancelled
 EXEMPTIONS FROM DST (SECTION 199, NIRC)
a) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association
or cooperative company, operated on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of each member and not for profit.
b) Certificates of oaths administered to any government official in his official capacity or of acknowledgment
by any government official in the performance of his official duties, written appearance in any court by
any government official, in his official capacity; certificates of the administration of oaths to any person
as to the authenticity of any paper required to be filed in court by any person or party thereto, whether
the proceedings be civil or criminal; papers and documents filed in courts by or for the national, provincial,
city or municipal governments; affidavits of poor persons for the purpose of proving poverty; statements
and other compulsory information required of persons or corporations by the rules and regulations of the
national, provincial, city or municipal governments exclusively for statistical purposes and which are
wholly for the use of the bureau or office in which they are filed, and not at the instance or for the use or
benefit of the person filing them; certified copies and other certificates placed upon documents,
instruments and papers for the national, provincial, city, or municipal governments, made at the instance
and for the sole use of some other branch of the national, provincial, city or municipal governments; and
certificates of the assessed value of lands, not exceeding Two hundred pesos (P200) in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of title to land.
c) Borrowing and lending of securities executed under the Securities Borrowing and Lending Program of a
registered exchange, or in accordance with regulations prescribed by the appropriate regulatory
authority: Provided, however, That any borrowing or lending of securities agreement as contemplated
hereof shall be duly covered by a master securities borrowing and lending agreement acceptable to the
appropriate regulatory authority and which agreement is duly registered and approved by the Bureau of
Internal Revenue. (BIR).
d) Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty
thousand pesos ( P250,000) or any such amount as may be determined by the Secretary of Finance,
executed by an individual for his purchase on installment for his personal use or that for his family and
not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture: Provided,
however, That the amount to be set by the Secretary of Finance shall be in accordance with a relevant
price index but not to exceed ten percent (10%) of the current amount and shall remain in force at least
for three (3) years.
e) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange.
f) Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of
any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in
the maturity date or remaining period of coverage from that of the original instrument.
g) Fixed income and other securities traded in the secondary market or through an exchange.
h) Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse
repurchase agreements shall be treated similarly as derivatives.
i) Interbank or interdepartmental advances within the same legal entity.
j)
All forebearances arising from sales or service contracts including credit card and trade receivables:
Provided, That the exemption be limited to those executed by the seller or service provided.
k) Bank deposit accounts without a fixed term or maturity.
l) All contracts, deeds, documents, documents and transactions related to the conduct of business of the
Bangko Sentral ng Pilipinas.
m) Transfer of property pursuant to Section 40 (C) (2) of the National Internal Revenue Code of 1997, as
amended.
n) Interbank call loans with maturity of not more than seven (7) days to cover deficiency in reverses against
deposit liabilities including those between or among banks and quasi-banks.
I. TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE CODE
1. Assessment of internal revenue taxes
a. Procedural due process in tax assessments
i. Letter of authority and tax audit
Letter of Authority- It is a document in writing issued by the CIR to the taxpayer, empowering the revenue officer to
conduct a tax examination of the books of account and other accounting records of the taxpayer for the purpose of
collecting the correct amount of tax. It must specify only one taxable year under audit. Without this, the revenue officer
cannot conduct further assessment and examination of the financial records of the taxpayer.
Alternative Answer:
A letter of authority is the authority given to the appropriate revenue officer assigned to perform accessory functions. It
empowers or enables said revenue officers assigned to perform assessment functions. It empowers or enables said
revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax.
ii. Informal conference
The informal conference is conducted within 30 days from receipt of the NIC by the taxpayer. If it is found that the
taxpayer is still liable for deficiency tax after presenting its side, but the taxpayer is not amendable to the findings of the
revenue officer, the RDO, or the Chief of the special investigation division of the revenue regional office, or the chief of
division in the national office shall endorse the case within 7 days from the conclusion of the informal conference to the
assessment division of the revenue regional office or to the CIR or his duly authorized representative for issuance of a
deficiency assessment.
Relate with an NIC:
NIC- it is a written statement informing the taxpayer of the findings of liability for deficiency tax made by the revenue
officer who examined the its tax records and stating therein the findings and assessment for deficiency tax. It is issued
for the purpose of affording the taxpayer a forum where he/she.it has the opportunity to refute the assessment and to
present his/her/its side by presenting documents during the course of an informal conference, which must be made
within 30 days from the receipt of the NIC by the taxpayer.
iii. Preliminary assessment notice
PAN- it is a notice issued by the Assessment Division of the BIR to the taxpayer, done after a review is conducted of the
case submitted by the revenue officer, finding that there exists sufficient basis to assess the taxpayer with deficiency tax.
The proposed statement shall show in details the facts, rules and regulations, jurisprudence, and law on which the
proposed assessment is based. The taxpayer is given 15 days from receipt of the PAN to respond; otherwise, it shall be
considered in default.
iv. Formal letter of demand and final assessment notice
FLD- it is a demand for the payment of the taxpayer’s deficiency tax liability inclusive of penalties, stating the facts,
jurisprudence, and law in which the assessment was based, specifying therein also the payment due date of the tax. The
payment due date signals the time when the delinquency interests begin to accrue against the taxpayer. It is issued 15
days from the date of receipt by the taxpayer of the PAN, whether the same was protested or not.
FLA- it is a declaration of deficiency taxes issued to a taxpayer who fails to respond to the PAN within 15 days from date
of receipt or whose reply to the PAN was found to be without merit. It is issued by the BIR within 15 days from the filing
or submission of the taxpayer’s response or from the lapse of the 15 days’ notice for the taxpayer to respond.
It is issued 15 days from the date of receipt by the taxpayer of the PAN, whether the same was protested or not.
v. Dispute assessment
- A dispute assessment is when a taxpayer does not accept the assessment indicated in the FAN/FLD, he/she must file a
protest disputing the assessment within 30 days from receipt thereof, by requesting for reconsideration or
reinvestigation. In the latter case, all supporting documents must be submitted within 60 days from the date of filing of
the protest. If no protest ids filed, the assessment is considered accepted by the taxpayer, and the same becomes final
and due for payment/ collection.
vi. Administrative decision on a disputed assessment
The administrative decision is the communication made to the taxpayer of the decision of the CIR on the protest it filed
to the issued FAN/FLD, whether the taxpayer’s protest is accepted or denied, partially or wholly. It shall state the facts,
the applicable law, rules, and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall
be void and the same shall is the CIR’s final decision.
vii. Appeal from an administrative decision on disputed assessment
From the receipt of the FDDA, the taxpayer has 30 days to appeal by way of the petition for review to the CTA. Or, in the
event the BIR did not act on the protest within the 180 day period granted by ;aw to the BIR to decide, the taxpayer
may, within 30 days after the expiration of the 180 day period, also file an appeal by way of petition for review to the
CTA.
b. Requisites of a valid assessment
1. The LOA is issued to the taxpayer
2. There must be a NIC and the conduct of an Informal Conference
3. The PAN is issued to the taxpayer, subject to certain exceptions
4. The FAN is issued within the period of limitation
5. The FAN shall state the fact, the law, rules and regulations, or jurisprudence, on which the assessment is based,
6. There must be a FLD calling for payment of the taxpayer’s deficiency.
7. A FDDA is issued on the disputed assessment within 180 days from the filing of protest, or the 180 day had lapsed
without any FDDA issued.
c. Tax delinquency and tax deficiency
Tax Deficiency- it is the amount by which the tax imposed exceeds the amount shown as the tax paid by the taxpayer
upon his return. It is the amount still due and collectible from a taxpayer upon audit or investigation by the BIR.
Tax Delinquency- it is the amount of the tax due on any return required to be filed but was not filed, or the amount of
tax due for which no return is required, or the amount due as indicated appearing in the FAN and FLD of the CIR.
d. Prescriptive period for assessment
i. General rule
A. With Prior assessment – Within 5 years from issuance of FAN
B. Without Prior Assessment
taxes shall be assessed within 3 years after the last day prescribed by law for the filling of the return, or from the day the
return was actually filled, whichever comes later. Return filed before the last day prescribed by law shall be considered
filed on such last day.
Exceptions: in the case of flase return, fraudulent return, or failure to file a return, the tax may be assessed at any time
within 10 years after the discovery of the falsity, fraud, or omission, and if before the expiration of the time prescribed
for the assessment of the tax, both the CIR and the taxpayer have agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed upon.
ii. Distinguish: false returns, fraudulent returns, and non-filing of returns
False Return- is one that involves the deviation from the truth, whether intentional or not.
Fraudulent return- is one that is done with willful intent and deceit to evade the payment of the taxes due. A return was
considered fraudulent when there is a deliberate and substantial understatement of taxable sales, receipts or income, or
overstatement of allowable deductions or business expenses by more than 30% of the actual sales or deductions.
Non Filing- is the omission by the taxpayer to file a return when one is required to do so.
iii. Suspension of statute of limitations
The running of the Statute of Limitations is suspended;
1. for the period during which the CIR is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for 60 days thereafter,
2. when the taxpayer requests for a reinvestigation which is granted by the CIR
3. When the taxpayer cannot be located in the address given by him in the return filed, upon which a tax is being
assessed or collected. If the taxpayer informs the CIR of any change in address, the running of the Statute of
Limitations will not be suspended.
2. Taxpayer’s remedies
a. Protesting an assessment
i. Period to file protest - 30 days from date of the receipt of the FAN
ii. Kinds of protest –request for reconsideration or reinvestigation
Request for reconsideration – refer to a plea of re-evaluation of an assessment on the basis of existing records without
need of additional evidence. It may involve both a question of fact or of law or both.
Request for Reinvestigation – refer to a plea of re-evaluation of an assessment on the basis of newly discovered or
additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or of
law or both.
All protests shall be considered a request for reconsideration unless it is clearly indicated that it is for reinvestigation.
iii. Submission of supporting documents
◦ Submit all supporting documents within 60 days from filing of protest (in case of request for reinvestigation)
iv. Effect of failure to file protest
Failure to file a valid protest against the FLD/FAN within the 30-day period shall render the deficiency tax assessment
final, executory and demandable, with no recourse for request for reconsideration or re-investigation.
Protests shall be considered void without the following:
1. Date of assessment notice,
2. Nature of the protest, whether for reconsideration or for re-investigation, and
3. Applicable laws, rules and regulations on which the protest is based
v. Action of the Commissioner on the protest filed
a) Period to act upon or decide on protest filed
180 days (if not acted upon within 180 from date of submission, considered indirectly denied)
b) Remedies of the taxpayer in case of denial or inaction of the Commissioner
Direct denial
Indirect denial
File an appeal with the CTA Division within 30 days
from receipt of letter of denial
File an appeal with the CTA Division within 30 days
from the lapse of the 180 day period. OR
Await the final decision of the CIR or his duly
authorized representative and appeal such final
decision to the CTA within 30 days after the
receipt of a copy of such decision
c) Effect of failure to appeal - said deficiency tax assessment shall become final, executory and demandable.
b. Recovery of tax erroneously or illegally collected
i. Grounds, requisites, and periods for filing a claim for refund or issuance of a tax credit certificate
Section 204 of the Tax Code, as amended, empowers the Commissioner of Internal Revenue to credit or refund taxes
erroneously or illegally received or penalties imposed without authority, provided that the taxpayer files a written
claim for credit or refund within two years after the payment of the tax or penalty.
Requisites:
1. A tax was erroneously or illegally collected by the BIR;
2. The taxpayer should file a written claim for refund or tax credit with the CIR WITHIN 2 YEARS FROM THE DATE
OF PAYMENT of the tax or penalty; and
3. If the claim for refund is denied by the CIR, file a petition for refund with the CTA:
a. Within 30 days from receipt of denial; AND
b. Within 2 years from the date of payment of the tax or penalty
ii. Proper party to file claim for refund or tax credit
In the Procter & Gamble case, the Supreme Court ruled that a withholding agent is a proper party to file a claim for
refund of the erroneously withheld taxes. According to the Supreme Court:, the withholding agent, P&G-Phil., is directly
and independently liable for the correct amount of the tax that should be withheld from the dividend remittances.
iii. Distinguish from input value-added tax refund
(hehe not sure) refund is getting paid back. Tax credit is a deduction that can be applied to tax payables.
c. Power of Commissioner of Internal Revenue to compromise
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may (A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax;
and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be
composed of the Commissioner and the four (4) Deputy Commissioners.
(B) Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.
· The compromise is bilateral. It must be accepted by the Commissioner.
· In compromise on the ground of financial incapacity, there is a requirement under Section 6 (F) of the NIRC that you
have to show your bank accounts. You must execute a waiver of the Secrecy of Bank Deposits Law.
d. Non-retroactivity of rulings
The principle of non-retroactivity of rulings under Section 246 of the Tax Code provides that any revocation,
modification, or reversal of any rules and regulations promulgated in accordance with the Tax Code (e.g., revenue
regulations) shall not be given retroactive effect if the revocation, modification, or reversal will be prejudicial to the
taxpayer.
In an SC decision, the high court applied a particular RR retroactively — the RR promulgated in 1999 was applied to a
transaction in 1995 — and noted that “while revenue regulations as a general rule have no retroactive effect, if the
revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have retroactive
operation as to affect past transactions, because a wrong construction of the law cannot give rise to a vested right that
can be invoked by the taxpayer.”
3. Government remedies for collection of delinquent taxes
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue
taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and
other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real
property and interest in rights to real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the
collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the
amount of tax involve is not more than One hundred pesos (P100).
The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of
the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or
criminal action, including the preservation or transportation of personal property distrained and the advertisement and
sale thereof, as well as of real property and improvements thereon.
a. Requisites
b. Prescriptive periods; suspension of running of statute of limitation
SECTION 281. Prescription for Violations of any Provision of this Code – 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 the violation of the law, and if the same be not
known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to
run again if the proceedings are dismissed for reasons not constituting jeopardy.
The term of prescription shall not run when the offender is absent from the Philippines.
The prescriptive period for assessment and the beginning of distraint or levy or a proceeding in court for the collection
of any tac deficiency may be suspended under the following situations:
1.
2.
3.
4.
Taxpayer’s request for reinvestigation was granted;
Taxpayer cannot be located in the address given in the return;
No property of the taxpayer can be located;
The taxpayer is out of the country.
Note: The suspension shall be for the duration of the situation plus 60 days thereafter.
c. Administrative remedies
i.
ii.
Tax lien
Section 219
· A TAX LIEN is a legal claim or charge of the government against the property of the taxpayer.
· It is a legal claim or charge on property, whether real or personal, established by law as a security in the
default of the payment of taxes.
· There is no such thing as an automatic operation of a tax lien under NIRC
· The Commissioner of the BIR has to annotate and enforce the tax lien against the property of the taxpayer.
The office of the CIR must go to the ROD and annotate the tax lien.
· If there is already an existing encumbrance or an existing real estate mortgage, then the claim of the
government will become inferior.
· In real property taxation or the Tariff and Customs Code, there is an automatic operation of a tax lien.
· When a delinquency arises on real property tax, a tax lien arises also and a claim arises on the real property
by the local government. Such that the lien of the government there is superior to all other claims or charges.
In real property taxation, even if there is an existing encumbrance or mortgage annotated on the title of the
property, if there is a delinquency that arises, that property can be sold at a public auction.
· The same way in Tariff and Customs Code – when the importer would not pay the duties, taxes and other
charges on account of the importation, a tax lien on the imported articles arises. These articles are now in the
custody of Customs. The government will dispose the articles and the proceeds will be applied to the unpaid
duties and taxes of the imported.
· In the NIRC, the operation of the tax lien is not automatic. It must be enforced by registering the claim over
the properties of the taxpayer.
· If there is an existing claim or encumbrance, the claim of the government becomes inferior.
Distraint and levy
Distraint – the seizure by the government of personal property, tangible or intangible to enforce the payment of
taxes.
a. Actual Distraint – personal property is physically seized by the BIR and offered for sale at public auction. The
property is sold to the highest bidder and the proceeds of the sale are applied to the payment of the tax
due.
Garnishment – distraint of bank accounts
b. Constructive distraint – the person in possession of personal property is made to sign a receipt, undertaking
that he will preserve the property and will not dispose of the property without the express authority of the
BIR.
May be availed of in the following cases:
a.
b.
c.
d.
Taxpayer is retiring from any business subject to tax.
He intends to leave the Philippines.
He removes his property therefrom.
He performs any act tending to obstruct the proceeding for the collection of the tax due or which may be due
from him
Levy- the seizure by the government of real properties and interest in or rights to such properties in order to enforce the
payment of taxes.
iii.
Forfeiture of real property
SECTION 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any
sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of
real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.
· Forfeiture proceedings are proceedings in rem. They are directed on the property subject of the forfeiture.
· Like in customs, the defense of lack of knowledge that the vessel, motor vehicle or the aircraft has been used
for smuggling or the vessel, motor vehicle or aircraft has been used to bring in untaxed items is not a valid
defense in forfeiture proceedings. That is a defense available in a criminal action that may be separately
instituted agains the owner of the vessel, motor vehicle or the aircraft.
· The purpose of forfeiture is to take control and custody of the seized items in favor of the state
· Once the state has custody and control over the seized items, the personal property may either be sold or
destroyed. In case of real property, they will be sold.
· In forfeiture proceedings, all the proceeds will go to the government. Nothing will be returned to the
taxpayer or the owner of the seized items or properties.
· There is no such thing as to apply the proceeds to the delinquency. That is only done in case there is a prior
assessment and the assessment has become final.
· In forfeiture, there is a violation made and the item is seized.
SECTION 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixtures shall
be effected, so far as practicable, in the same manner and under the same conditions as the public notice and
the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of
taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used
in or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the
Commissioner, when the sale of the same for consumption or use would be injurious to public health or
prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been manufactured or removed in violation of this Code,
as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or
purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the
Commissioner.
Forfeited property shall not be destroyed until at least twenty (20) days after seizure.
iv.
Suspension of business operation v. Judicial remedies
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The Commissioner or his
authorized representative is hereby empowered to suspend the business operations and temporarily close the business
establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. –
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts
for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236.
The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only
upon compliance with whatever requirements prescribed by the Commissioner in the closure order.
Judicial remedies:
A. Civil Action – collection for sum of money
· This is filed before the regular courts, depending on the jurisdictional amount
· When we go to the jurisdiction of the CTA, tax collection cases may be filed directly with the CTA when the
amount exceeds P 1,000,000
· Lower than that, you can file the collection case before the regular courts, depending on the jurisdictional
amounts
· In the filing of a collection case (civil action), there is no more reopening of the assessment. The assessment
has become final and executory. The taxpayer cannot question there (in the civil action) the legality or the
validity of the assessment. That should have been done administratively when the taxpayer received the notice
of assessment. The assessment cannot be questioned on the civil action.
B. Criminal Action · In connection with the filing of a criminal case, you have the principle in criminal procedure and criminal law
that in the criminal action, the civil action is deemed instituted (arising from the offense)
· In that criminal action, the accused will either be convicted or acquitted in that tax case
· It is required that since the filing of a criminal case is a collection remedy, whether there is a judgment of
conviction or acquittal, there must be an adjudication of a civil liability where the accused is made to pay the tax
or not.
· Important and basic in criminal actions: it requires no prior assessment!
· In the pursuit of collection remedies administratively, by distraint or levy or a civil action, these collection
remedies cannot be pursued without a prior assessment. You could not collect on the taxpayer unless there is a
prior assessment, but not in a criminal action.
· This has been the ruling in the case of UNGAB vs. QC (97 SCRA 877) – no need or prior assessment for
purposes of criminal action
· In the institution of the criminal action, the judgment should include the adjudication of the civil liability –
the payment of taxes, fees and other charges.
d. No injunction rule; exceptions
SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to grant an injunction
to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.
As an exception to the “no injunction rule,” Section 11 of RA 1125, as amended, provides and empowers the CTA to
suspend the collection of a tax if based on its opinion, the collection thereof may jeopardize the interest of the
government and/or the taxpayer.
If there are grounds to suspend the collection, the CTA may, at any stage of the proceeding, suspend the collection and
require the taxpayer to either deposit the amount claimed, or file a surety bond for not more than double the amount.
4. Civil penalties
e. Delinquency interest and deficiency interest
Interest – 20% of any unpaid amount of tax from the date prescribed for payment until the amount is fully paid.
Deficiency interest – imposed on the amount still due and collectible from a taxpayer after audit or investigation.
Delinquency interest – for failure of the taxpayer to pay the ff:
a. The amount of tax due on any return required to be failed;
b. The amount of the tax due for which no return is required; or
c. A deficiency tax, or any surcharge or interest there-on on the due date appearing in the notice and demand of the
CIR.
f. Surcharge
A 25% surcharge shall be collected in any of the ff cases:
1. Failure to file any return and pay the tax due on time
2. Filing a return with an internal revenue officer other than those with whom the return is required to be filed, unless
authorized by the Commissioner of Internal Revenue.
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
4. Failure to pay the full or part of the amount of tax shown on any return, or the full amount of tax due for which no
return is required to be filed.
g. Compromise penalty
On the other hand, the BIR collects an Annual Registration Fee (ARF) of PHP500 for every separate place of business, on
or before the 31st of January each year. A compromise penalty of PHP1,000 plus a 25% surcharge and 12% annual
interest will be imposed in case of delay or failure to pay.
In accordance with Revenue Memorandum Order (RMO) No. 7-15, a compromise penalty not exceeding PHP50,000 will
be imposed in case of failure to keep books of account or records, depending on the level of gross sales, earnings, or
receipts. On the other hand, a maximum penalty of PHP25,000 will be imposed in case of failure to timely submit the
books of account for both CAS and loose-leaf books of accounts.
h. Fraud penalty
NIRC SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and
Refund Excess Taxes Withheld on Compensation. - Any person required under this Code or by rules and regulations
promulgated thereunder to pay any tax make a return, keep any record, or supply correct the accurate information,
who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or
withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by
law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished
by a fine of not less than Ten Thousand Pesos (P 10,000) and suffer imprisonment of not less than one (1) year but not
more than ten (10) years.
Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or
actually files a return or statement and subsequently withdraws the same return or statement after securing the official
receiving seal or stamp of receipt of internal revenue office wherein the same was actually filed shall, upon conviction
therefor, be punished by a fine of not less than Ten Thousand Pesos (P 10,000) but not more than Twenty Thousand
Pesos (P 20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years.
TAX REMEDIES
● On the part of the government- courses of action provided by or allowed in the law to
implement the tax laws or enforce tax collection
● On the part of the taxpayer- legal actions which a taxpayer can avail of to seek relief
from the undue burden or oppressive effect of tax laws, or as a means to check possible
excesses by revenue officers in the performance of their duties
Assessment Process:
● Tax Audit or Investigation
○ BIR conducts an audit by issuing a letter of authority
■ Letter of Authority- an official document that empowers a Revenue
Officer to examine and scrutinize taxpayer’s books of accounts and other
accounting records, in order to determine the taxpayer’s correct internal
revenue liabilities
○ Taxpayer has 10 days to provide necessary documents and schedules for audit
○ Failure= Letter of Informal Conference to inform the taxpayer on the initial
assessment based on the previously filed assets
○ Exceptions from LA
■ Cases involving civil or criminal tax fraud which fall under the jurisdiction
of National Investigation Division of BIR
■ Policy cases under audit by the special teams in the National Office
○ Effects of Issuance of LA
■ A tax return or declaration filed by a taxpayer may be modified, changed,
or amended within three (3) years from the date of filing
■ When an LA or investigation of such tax return, statement or declaration
has been actually served upon the taxpayer, amendment shall no longer
be allowed
● Issuance of Preliminary Assessment Notice (PAN)
○ PAN- a communication issues by the Regional Assessment Division of by the
Commissioner or his duly authorized representative informing a taxpayer who
has been audited of the findings of the revenue officer
○ GR: Issued prior to FAN- part of the due process requirement, absence if which
renders nugatory any assessment made by the tax authorities
○ EXCEPTION:
■ When the finding is a result of mathematical computation on the face of
return
■ When the discrepancy has been determined between the tax withheld
and the amount remitted by the withholding tax agent
■ When an excise tax due on excisable articles has not been paid
■ When an article locally purchased by an exempt person, has been sold to
non-exempt person
○ Taxpayer has 15 days to reply contesting finding in the PAN (upon receipt of
PAN
○ Failure to file= taxpayer is in default, BIR issues FAN (or taxxpayer requests for
extension)
●
●
●
●
●
Issuance of Formal Letter of Demand or Final Assessment Notice (FAN)
○ Issued When:
■ The taxpayer failed to respond to the PAN
■ The reply to the PAN was found to be without merit
○ Remedy of the taxpayer:
■ File a PROTEST to the CIR or hi authorized representative within 30 days
from the date of receipt of the FAN
● Types of Protest (RR-18-2013):
○ Request for Reconsideration- a plea for reinvestigation of
an assessment in the basis of existing records without
need of additional evidence. It may involve both a question
of fact or of law or both
■ Submit all supporting documents within 60 days
from filing of protest
○ Request for Reinvestigation- a plea of re-evaluation of an
assessment on the basis of nelly discovered or additional
evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or of
law or both
Denial of Protest
○ Direct Denial of Protest- BIR sends out formal letter declaring its denial
■ Remedy of taxpayer: file an appeal with the Court of Tax Appeal Division
within 30 days from receipt of the letter of denial
○ Indirect Denial of Protest- CIR or his duly authorized representative fails to act
on the taxpayer’s protest within 180 days from the date of submission, the protest
may be considered denied
■ Remedy:
● File an appeal with the CTA Division within 30 days from the lapse
of 180 day period
● Await the final decision of the CIR of his duly authorized
representative and appeal such final decision to the CTA within 30
days after the receipt of a copy of such decision.
Denial of Appeal by CTA Division
○ File a motion for reconsideration (MR) before the same CTA Division within 15
days from receipt of the decision (through formal letter)
○ If MTR is denied: file an appeal with the CTA En Banc within 15 days from
receipt of the decision
■ En Banc- group of all judges rather than selected panel of judges
Denial of Appeal by CTA En Banc
○ File MR before the CTA En Banc
○ File within an appeal within 15 days from receipt of the division
Denial of Appeal by SC Division
○ File MR before the same SC division within 15 days from receipt of the decision
○ File within an appeal within 15 days from receipt of the division
●
Denial of Appeal by SC En Banc
○ File MR before the SC En Banc within 15 days from receipt of the decision
○ If MR is denied, the taxpayer has no more remedy. The assessment shall
become final, executory and demandable
■ No other choice but to pay
○ Note: from the issuance of PAN, all the periods in availing the remedies are
mandatory, in which failure to comply shall result in the assessment being final,
executory, and demandable
SUMMARY:
10 days to provide
necessary
documents
15 days to reply
contesting finding
in the PAN
30 days from the
receipt of the FAN
ISSUANC
E OF LOA
ISSUANC
E OF PAN
ISSUANC
E OF FAN
*Letter of Informal
conference
DENIAL OF
APPEAL BY
*Request for
Reconsideration
*Request for
Reinvestigation
(60 days from filing
of protest)
DENIAL OF
APPEAL BY
DENIAL OF
APPEAL BY
DENIAL
OF
LOCAL GOVERNMENT TAXATION
Local Taxes – taxes that are imposed and
collected by the LGUs in order to raise
revenues to enable them to perform the
functions for which they have been
organized
FUNDAMENTAL PRINCIPLES
Requisites of Municipal Taxation (also
known as Fundamental Principles)
1. Taxation shall be uniform in each
local government unit.
a. The uniformity required is only
within territorial jurisdiction of
a province, city, municipality
or a barangay.
2. Taxes, fees, charges, and other
impositions shall:
a. Be equitable and based as far
as practicable, on the
taxpayer’s liability to pay;
b. Be levied and collected only
for public purposes
c. Not be unjust, excessive,
oppressive or confiscatory;
d. Not be contrary to law, public
policy, national economic
policy or in restraint of trade
3. Collection of local taxes, fees
charges and other impositions shall in
no case be let to any private person
4. The revenue collected shall inure
solely to the benefit of, and be subject
to the disposition by, the LGU levying
the tax, fee, charge, or other
imposition
unless
otherwise
specifically provided by this Rule
5. Each local government unit shall, as
far as practicable, evolve a
progressive system of taxation
Rationale of the Fundamental Principles:
*the fundamental principles serve as
limitations to the power of LGUs to levy and
collect taxes, fees, and charges
*they are guidelines to be observed in the
exercise of the taxing and revenue raising
powers of local government units
*they ensure that there is fairness in the
taxing process ad that the local government
unit does not abdicate its responsibility as the
taxing authority
*they serve as a standard to determine
whether a tax law or act of the taxing
authority is valid
Tests to determine the validity of local
government ordinances
• Formal Tests
o Whether the ordinance was
enacted with the corporate
powers of the LGU
o Whether it was passed in
accordance
with
the
procedure prescribed by law
• Substantive Tests
o The inherent merit, like the
conformity of the ordinance
§ With the limitation
under the Constitution
and the statues,
§ As well as with the
requirements
of
fairness and reason,
§ And its consistency
with public policy
Alternative statement of the tests (note that
this has been repeatedly ruled and reiterated
by the Court:
• For an ordinance to be valid though,
it must not only be within the
corporate powers of the LGU to enact
and must be passed according to the
procedure prescribed by law, it
should also conform to the following
requirements:
o Not
contrary
to
the
Constitution or any statues
o Not unfair or oppressive
o Not partial or discriminatory
o Not prohibit but may regulate
trade
o General and consistent with
public policy; and
o Not unreasonable
With regard to the taxing power of the LGU
• It is a fundamental principle that
municipal ordinances are inferior in
status and subordinate to the laws of
the States
Characteristics of the Taxing power of the
LGUS (from golden notes + domondon)
1. NOT INHERENT
a. May only be exercised if
delegated to them by national
legislature or conferred by the
Constitution itself
2. DIRECT GRANT FROM THE
CONSTITUTION
a. It is the Constitutional
mandate
that
Congress
should provide guidelines and
limitation for the exercise by
local governments of their
power to levy taxes, fees, and
other charges
3. NOT ABSOLUTE
a. The fundamental law did not
intend the grant to local
governments of the power to
tax to be absolute and
unconditional
b. The objective was to ensure
that, while local government
units are being strengthened
and made more autonomous,
the legislature must still see to
it that (THESE ARE ALSO
THE LIMITATIONS UPON
CONGRESSS WHEN IT
PROVIDES
GUIDELINES
AND LIMITATIONS ON THE
LGUs
POWER
OF
TAXATION:
i. A the taxpayer will not
be over-burdened with
multiple
and
unreasonable
impositions
ii. Each LGU will have its
fair share of available
resources
iii. The resources of the
national government
will not be unduly
disturbed
iv. Local taxation will be
fair, uniform, and just
c. Exercised by the Sanggunian
of the LGU concerned
through
an
appropriate
ordinance
d. Its application is bounded by
Geographical limits of the
LGU that imposes the tax
NATURE AND SOURCE OF TAXING
POWER
Nature of the Taxing Power of Local
Government Units
a. Merely a delegated power
• LGUs are able to legislate
only by virtue of a valid
delegation
of
legislative
power from the national
legislature
• Aka the power of subordinate
legislation
b. Limited because it subject to such
guidelines as Congress may provide
c. Exercised only by local legislative
bodies
d. Its application is bounded by the
territorial limits of the LGU concerned
e. Progressive in character
f. Uniform throughout the territorial
boundaries
of
imposing
local
government unit
g. Equitable
NOTE: The grant of The Constitution of the
taxing power of the LGUs is not all
encompassing as it subject to the limitation
states in Sec.5 Article X of the 1987
Constitution
Grant of Local Taxing Power Under the
LGC
Statutory basis of LGU’s power to tax or law
governing Local Government Taxation
• TITLE I, BOOK II RA 7160 or the
Local Government Code of 1991,
Sec. 128
• Spans from Sec. 128 – 196
• Sec 129 – “Each LGU shall exercise
its power to create its own sources
•
•
of revenue and to levy taxes, fees,
and charges consistent with the
basic policy of local autonomy. Such
taxes, fees, and charges shall
accrue exclusively to the LGUs”
Charter of Cities –additional taxing
authority exclusively granted to cities
include the power to impose
percentage tax and taxes on articles
subject to specific tax
Note that Sec. 534 (c) of the LGC
expressly repealed PD No. 231 of
the Local Tax Code
Legal Basis for the provision of the LGC on
local taxation
• Art. X, Sec. 3 of the Constitution –
enjoing the enactment of the Local
Government Code which shall,
among others, allocate to the
difference local government units
their powers and resources
• Art. X, Sec. 5 of the Constitution –
declaring that each LGU shall have
the power create its own sources of
revenue and to levy taxes subject to
such limitations as may be provided
by law
Authority to Prescribe Penalties for Tax
Violation
• The Sanggunian of a LGU is
authorized to prescribe fines or other
penalties for violation of tax
ordinances
Limitations on the authority to prescribe
penalties
• Limited as to the amount of imposble
fine as well as the length or period of
imprisonment
1. Those imposed by the Sanggunian
shall:
• Not be less than PHP 1000
• Not more than PHP 5000
• For imprisonment:
i. Not less than 1 month
ii. Not more than 6
months
2. Such fine or other penalty shall be
imposed at the discretion of the Court
3. The fine that a Sangguniang
Barangay may prescribe should be
not less than PHP 100 nor more than
PHP 1000
Authority to Grant Local Tax Exemptions
a. Tax ordinances granting local tax
exemptions and incentives
• Sec. 192, LGC: “Local
Government
Units
may,
through ordinances duly
approved,
grant
tax
exemption, incentives or
reliefs under such terms and
conditions as they may deem
necessary”
• Domondon: there is need for
this provision because some
exemptions
have
been
withdrawn by the provisions of
the LGC
Sangguniang panlalawigan, sangguniang
panglungsod, sangguniang bayan have
authority to grant tax exemption
From Golden notes: The guidelines for
granting tax exemptions incentives and
reliefs:
1. Tax Exemptions and Reliefs
a. May be granted in civil cases
of natural calamities, civil
disturbance, general failure of
crops or adverse economic
conditions such as substantial
decrease
in
prices
of
agricultural or agri-based
products
b. The grant shall be through an
ordinance
c. Any exemption or relief
granted to a type or kind of
business shall apply to all
businesses similarly situated
d. The same may take effect
only during the calendar year
not exceeding 12 months as
may be provided in the
ordinance
e. In case of shared revenues,
the relief or exemption shall
only extend to the LGU
granting such
2. Tax incentives
a. Shall be granted only to new
investments in the locality and
the ordinance shall prescribe
the terms and conditions
therefore
b. The grant shall be for a
definite period not exceeding
1 calendary year
c. The grant shall be through an
ordinance passed prior to the
1st day of January of any year
d. Tax incentive granted to a
type or kind of business shall
apply to all business similarly
Withdrawal of Exemptions
From Sec. 193 of LGC:
• General Rule: Tax exemptions or
incentives granted to or enjoyed by all
person, whether natural or juridical,
including government-owned or
controlled corporations are hereby
withdrawn upon the effectivity of the
Local Government Code
•
Exception
o Local Water Districts
o Cooperatives
Duly
Registered Under RA 6938
o Non-stock and non-profit
hospitals
o Educational Institutions
Note: withdrawal of tax exemption is not to
be construed as prohibiting future grants of
tax exemptions.
Person claiming the exemption has the
burden of proving its claim by clear grant of
exemption
Intention of the law in withdrawing tax
exemptions is to broaden the tax base of
LGU to assure them of substantial resources
of revenue
Authority to Adjust Local Tax Rates
•
LGUs have to power to adjust local
tax rates PROVIDED that the
adjustment of taxes as prescribed
herein should not be oftener than
once every 5 years, and in no case
shall such adjustment exceed 10% of
the rates fixed under the LGC
Residual Taxing Power of the LGU
•
Means LGUs may exercise the power
to levy taxes, fees or charges on any
base or subject not otherwise
specifically enumerated herein or
taxed under the:
o Local Government Code
o NIRC
o Other Applicable Laws (Sec.
186, LGC)
Conditions in the exercise of the residual
power of taxation
1. The tax base or subject is not taxed
under the NIRC or other applicable
laws
2. The taxes, fees, or charges are not
unjust,
excessive,
confiscatory,
oppressive, or contrary to the declare
national economic policy of the
government
3. A public hearing has been conducted
prior to the enactment of the
ordinance levying taxes, fees, or
charges
4. The procedures for the approval,
effectivity, and publication of tax
ordinance have been complied with
5. The residual power is subject to the
constitutional limitations on the taxing
power of LGUs as prescribed in
Section 133 of the Local Government
Code
6. Principle
of
Pre-emption
of
Exclusionary rule
a. Taxes Levied under the NIRC
b. Taxes Imposed under the
Tariff and Customs Code
c. Taxes under special laws
Pre-emption in the matter of taxation – an
instance where national government elects
to tax a particular area, impliedly withholding
from the local government the delegated
power to tax the same field
-this doctrine primarily rests upon the
intention of Congress.
-conversely, should Congress allow
municipal corporations to cover fields
of taxation it already occupies, then
the doctrine of pre-emption will not
apply
4. Powers
under
Provisions
Miscellaneous
LGUs CANNOT TAX THE NATIONAL
GOVERNMENT
General Rule: LGUs cannot impose taxes,
fees, or charges of any kind on the National
Government,
its
agencies
and
instrumentalities
Exception: when specific provisions
of the LGC authoritze the LGUs to
impose taxes, fees or charges on the
aforementioned entities
SCOPE OF TAXING POWER
Classification
of
Limitations/excluded impositions
Common
1. Taxes which are levied under the
NIRC unless otherwise provided by
the LGC – Items 1,2,3,8,9, & 10
2. Taxes, fees, and charges which are
imposed under the Tariff and
Customs Code – Item 4
3. Taxes, fees, and charges where the
imposition of which contravenes
existing governmental policies or
which are violative of the fundamental
principles of taxation – Items
5,6,7,11,13,14, & 15
4. Taxes, fees, and charges imposed
under special laws – Item 12
5. When Congress allows municipal
corporations to cover fields of
taxation it already occupies
6. It does not apply beyond a certain
level of sales or receipts for the
preceding year
7. If the subject of the taxes levied by
the national and local governments
are different from each other
Powers of Taxation of the LGUs
1. Common Revenue-Raising Powers
of the LGUs
2. Sepcific Powers of LGU to impose
taxes
3. Power to Levy Community Tax; and
1. Each LGU shall exercise its power to
create its own sources of revenue
and to levy taxes, fes, and charges,
consistent with the basic policy of
local autonomy. Such taxes, fees,
and charges shall exclusively accrue
to it. (Sec. 129, LGC)
2. All LGUs are granted general powers
to levy taxes, fees, or charges on any
base or subject not otherwise
specifically enumerated herein or
taxed under the provisions of the
NIRC or other applicable laws. The
levy must not be unjust, excessive,
oppressive, confiscatory or contrary
to a declared national economic
policy. (Sec. 186, LGC)
3. No such taxes, fees, or charges shall
be imposed without a public hearing
having been held prior to the
enactment of the ordinance (Sec.
187, LGC)
4. Copies of the provincial, city, and
municipal tax ordinances or revenue
measures shall be published in full for
three consecutive days in a
newspaper of local circulation or
posted in at least two conspicuous
and publicly accessible places (Sec.
188, LGC)
SPECIFIC TAXING POWER OF LOCAL
GOVERNMENT UNITS
B. REAL PROPERTY TAXATION
Real property tax is a direct tax on ownership of lands and buildings or other improvements
thereon not specially exempted, and is payable regardless of whether the property is used
or not, although the value may vary in accordance with such factor.
1. Fundamental Principles [CAULE]
i. Real property shall be appraised at its Current and fair market value.
ii. Real property shall be classified for assessment purposes on the basis of its Actual
use. (Doctrine of Usage)
NOTE: Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession of the property.
iii. Real property shall be assessed on the basis of a Uniform classification within each
LGU
iv. The appraisal, assessment, levy and collection of real property tax shall not be Let to
any private person.
v. The appraisal and assessment of real property shall be Equitable (Sec. 197, LGC)
2. Nature
i.
ii.
iii.
iv.
v.
Direct tax whose burden could not be shifted by the one who pays to other persons
Ad valorem tax based on the assessed value of the property
Local tax
Imposed on use and not ownership
Progressive in character pending to a certain extent on the use and value of the
property
3. Imposition
a. Power to levy
Provinces, cities, and municipalities do not only have the power to levy real estate taxes,
but they may also fix real estate tax rates. Sec. 233 of the LGC provides that they shall fix
a uniform rate of basic real property tax applicable to their respective localities.
the use of the words “may levy and collect” gives the impression that a province, city or
municipality within Metropolitan Manila Area, may or may not, at its discretion impose real
property tax.
Real properties subject to tax
1. For Basic Real Property Tax and Special Levy on Education Fund:
a. Land
b. Building
c. Machinery
d. Other improvements (Sec. 232, GC)
2. For Special Levy on Idle Lands and Special Levy on Public Works (Special
Assessments):
a. Land Only
Rates of levy
1. In a Province - at the rate not exceeding 1% of the assessed value of real property;
and
2. In a City or Municipality within the Metro Manila area - at the rate not exceeding 2% of
the assessed value of real property (Sec. 233, LGC).
b. Exemption from real property tax
1. Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise to a taxable person.
NOTE: This exemption shall not apply to real properties the beneficial use of which has been
granted, for consideration or otherwise, to a taxable person (Testate Estate of C.T. Lim v.
City of Manila, G.R. No. 90639, February 21, 1990).
2. Charitable institutions, churches, parsonages, or convents appurtenant thereto,
mosques, non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious, charitable, or
educational purposes.
NOTE: The tax exemption herein rests on the premise that they are actually, directly and
exclusively used by said entities or institutions for their stated purposes and not necessarily
because they are owned by religious, charitable or educational institutions.
3. All machineries and equipment that are actually, directly and exclusively used by
local Water utilities and government-owned or controlled corporations engaged
in the supply and distribution of water and/or generation and transmission of
electric power.
4. All real property owned by duly registered Cooperatives as provided for under RA
6938.
5. Machinery and equipment used for Pollution control and environmental protection
(Sec. 234, LGC).
NOTE: Pollution control and infrastructure devices refers to infrastructure, machinery,
equipment and/or improvements used for impounding, treating or neutralizing, precipitating,
filtering, conveying and cleansing mine industrial waste and tailings as well as eliminating or
reducing hazardous effects of solid particles, chemicals, liquids, or other harmful by-products
and gases emitted from any facility utilized in mining operations for their disposal (RA No.
7942, Sec. 3).
Except as herein provided, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or juridical,
including all government-owned or controlled corporations, are hereby withdrawn upon
the effectivity of the LGC.
A taxpayer claiming exemption must submit sufficient documentary evidence to
the local assessor within 30 days from the date of the declaration of real property;
otherwise, it shall be listed as taxable in the Assessment Roll (Sec. 206, LGC)
Other properties exempt from real property tax
1. Real property in any one city or municipality belonging to a single owner, the entire
assessed valuation of which is not in excess of P1,000.00.
2. Land acquired by grant, purchase, or lease from the public domain for conversion
into dairy farms for a period of 5 years from the time of such conversion.
3. Machinery of a pioneer and preferred industry as certified by the Board of
Investments used or operated for industry, agriculture, manufacturing, or mining
purposes, during the first 3 years of the operation of the machinery.
4. Perennial trees and plants of economic value except where the land upon which
they grow is planted principally to such growth.
5. Properties owned by non-stock or non-profit educational institutions, the total
assessed value of which does not exceed P3,000.00, including those owned by
Educational Foundations organized under R.A. No. 6055.
4. Appraisal and assessment
a. Classes of real property
Classes of real property for assessment purposes 1. Residential 2. Agricultural 3.
Commercial 4. Industrial 5. Mineral 6. Timberland 7. Special
Special classes of real property Lands, buildings, and other improvements thereon
which are: 1.Actually, directly and exclusively used for hospitals, cultural, or
scientific purposes; 2.Owned and used by local water districts; 3.Owned and used
by Government-owned or controlled corporations rendering essential public
services in the supply and distribution of water and/or generation and transmission
of electric power (Sec. 216, LGC).
b. Assessment based on actual use
Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof (Sec. 199[b], LGC).
NOTE: Unpaid realty taxes attach to the property and are chargeable against the
person who had actual or beneficial use and possession of it regardless of whether
or not he is the owner. (Estate of Lim vs. City of Manila, G.R. No. 90639, February
21, 1990).
The basis of taxing real property is actual use, even if the user is not the owner.
Real property shall be classified, valued, and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses it (Sec. 217,
LGC).
5. Collection
a. Date of accrual
Real property tax for any year shall accrue on the first day of January. From that
date it shall constitute a lien on the property superior to any other lien, mortgage,
or encumbrance of any kind whatsoever extinguished only upon the payment of
the delinquent tax (Sec. 246, LGC). (not on the date of the start of its commercial
operation)
b. Periods to collect
Both the Local Tax Code (LTC) and the Real Property Tax Code (RPTC) do not
have any provision on prescription of the assessment and collection of government
taxes and other revenues. However, the LTC does not prohibit the local
government from providing for prescription in its tax ordinances, and under Sec.
25 of RPTC, real properties declared for the first cannot be assessed for back taxes
for more than 10 years.
Period of collection of real property tax under local government code
GR: Within 5 years from the date taxes become due.
XPN: In case of fraud or intent to evade payment - within 10 years from discovery
of fraud or intent (Sec. 270, LGC).
Prescriptive period to collect is suspended The period of prescription within which to collect
shall be suspended for the time during which: [PRO]
1. The local treasurer is legally prevented from collecting the tax;
2. The owner of the property or the person having legal interest therein requests
for reinvestigation and executes a waiver in writing before the expiration of the
period within which to collect; and
3. The owner of the property or the person having legal interest therein is out of
the country or otherwise cannot be located.
c. Remedies of local government units
Issuance of delinquency notice for real property tax payment
When real property tax or other tax imposed becomes delinquent, the local
treasurer shall immediately cause a notice of the delinquency to be posted in a
publicly accessible and conspicuous place in each barangay of the LGU
concerned. Notice of delinquency shall also be published once a week for two (2)
consecutive weeks, in a newspaper of general circulation in the province, city, or
municipality.
Distraint of personal property - When notice of delinquency has been
accordingly posted and published, the local treasurer shall proceed to sell the
personal property of the delinquent taxpayer in order to satisfy his unpaid obligation
(Sec. 254, LGC)
LGU’s lien
Guidelines in the exercise of local government lien
1. A legal claim on the property subject on the real property tax as security for the
payment of tax obligation.
2. It is constituted on the property subject to the tax from the date the RPT
accrued, i.e., January 1 (Sec. 246, LGC).
3. It is superior to any lien, mortgage, or encumbrance of any kind whatsoever
(Sec. 246, LGC) in favor of any person, irrespective of the owner or possessor
thereof (Sec. 257, LGC).
4. It is enforceable by administrative or judicial action (Sec. 257, LGC).
5. It may be extinguished only upon payment of the tax and related interests and
expenses (Sec. 246 and 257, LGC).
Remedies of the LGUs for the collection of real property tax
1. Administrative action
a. Exercise of lien on the property subject to tax
i.
Superior to all liens, charges or encumbrances and is enforceable by
administrative or judicial action. It is extinguished only upon payment
of tax and other expenses (Sec. 257, LGC).
b. Levy on the real property subject of the tax
c. Distraint of personal property
2. Judicial action
6. Taxpayer’s remedies
a. Contesting an assessment
1. Dispute assessment (Protest)
a. Any owner or person having legal interest in the property who is not satisfied with
the action of the assessor in the assessment of his property; or
b. Any owner of real property affected by a special levy or any person having legal
interest therein may protest the assessment by filing an appeal to the LBAA within 60
days from receipt of notice of the assessment.
i.
Payment under protest; exceptions
1. No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words "paid under
protest" The protest in writing must be filed within 30 days from payment
of the tax to treasurer who shall decide the protest within 60 days from
receipt.
2. The tax or a portion paid under protest shall be held in trust by the
treasurer concerned.
3. In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant,
or applied as tax credit against his existing or future tax liability.
4. In the event that the protest is denied or upon the lapse of the 60-day
period, the taxpayer may avail appeal the assessment before the Local
Board of Assessment Appeals (Sec. 252, LGC).
5. In case there is adverse decision by the LBAA, the taxpayer may appeal
with the CBAA within 30 from receipt of the adverse decision by the LBAA.
XPN: The protest contemplated in Section 252 of the LGC is needed when
there is a question as to the reasonableness of the amount assessed, not
where the question raised is on the very authority and power of the
assessor to impose the assessment and of the treasurer to collect the tax
(Ty v. Trampe, G. R. No. 117577, December 1, 1995)
By posting the surety bond, a taxpayer may be considered to have
substantially complied with Section 252 of the LGC for the said bond
already guarantees the payment to the Office of the Local Treasurer of
the total amount of real property taxes and penalties due.
ii.
File protest with Treasurer
GR: The taxpayer must pay the real property tax assessed prior to protesting
a real property tax assessment (Sec. 252, LGC).
XPN: The payment of the tax prior to protest is not necessary where the
taxpayer questions the authority and power of the assessor to impose the
assessment and of the treasurer to collect the tax (Ty, et. al., v. Trampe, G.R.
No. 117577. December 1, 1995).
iii.
Refunds or credits of real property taxes
The taxpayer may file a written claim for refund or credit for taxes and interests
with the local treasurer, in case an assessment of RPT or any other tax under
Real Property Taxation (Title II, LGC) is found to be illegal or erroneous (Sec.
253, LGC).
filed with the local treasurer within two (2) years from the date the taxpayer is
entitled to such reduction or adjustment
b. Contesting a valuation of real property
Any owner or person having legal interest in the property not satisfied with the
action of the assessor in the assessment of his property may within 60 days from
the date of receipt of the written notice of assessment appeal to the Board of
Assessment Appeals of the provincial or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal (Sec. 226, LGC).
i.
Appeal to the Local Board of Assessment Appeals (LBAA)
LBAA has Jurisdiction to hear appeals of owners or persons having legal
interest in the property who are not satisfied with the action of the assessor on
an assessment of his property.
Composition of the LBAA
1. The Registrar of Deeds, as Chairman;
2. The provincial or city prosecutor as member;
3. The provincial or city engineer as a member (Sec. 227, LGC).
Period for the decision of an appeal
The LBAA shall decide the appeal within 120 days from the date of receipt of
such appeal. The Board, after hearing, shall render its decision based on
substantial evidence or such relevant evidence on record as a reasonable mind
might accept as adequate to support the conclusion (Sec 229[a], LGC).
ii.
Appeal to the Central Board of Assessment Appeals (CBAA)
The Board shall have appellate jurisdiction over all assessment cases decided by
the LBAA (Sec. 230, LGC). CBAA has NO authority to hear purely legal issues.
Such authority is lodged with the regular courts.
Composition of the CBAA
1. A Chairman; and
2. Two (2) members (Sec. 230, LGC).
Appeal to LBAA or CBAA do NOT suspend the collection of tax
An appeal on assessments of real property shall in no case, suspend the collection
of the corresponding realty taxes the property involved as assessed. This is without
prejudice to subsequent adjustment depending upon the final outcome of the appeal
(Sec. 231)
iii.
Effect of payment of taxes
Appeal on assessments of real property shall, in no case, suspend the
collection of the corresponding realty taxes on the property involved as
assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal (Sec. 231, LGC).
c. Compromising real property tax
assessment
Condonation of real property taxes (closest thing I could find abt the topic, unsure
about this)
Instances which the sanggunian may condone or reduce real property tax
The sanggunian by ordinance passed prior to the 1st day of January of any
year and upon recommendation of the local disaster coordinating council, may
condone or reduce, wholly or partially, the taxes and interest thereon for the
succeeding year or years in the city or municipality affected by the calamity in
cases of: [p-cal-cro]
1. General failure of crops;
2. Substantial decrease in the price of agricultural or agri-based products;
3. Calamity in any province, city or municipality.
President’s power to condone or reduce real property tax
The president may, when public interest so requires, condone or reduce the
real property tax and interest for any year in any province or city or a municipality
within the Metro (Sec. 277, LGC)
CUSTOMS MODERNIZATION AND TARIFF ACT OF 2016 (CMTA)
A new law, RA 10863, was passed by the Congress, which was signed by the
President on May 30, 2016 and published on June 1, 2016, modernizing the
Customs and Tariff Administration. The said law shall be known as the “Customs
Modernization and Tariff Act (CMTA)”.
1. Definitions
a. Tariff
It is the list or schedule of articles in which a duty is imposed upon the
importation into the country with the rates at which they are severally taxed.
It is the system of imposing duties or taxes on the importation of foreign
merchandise. It includes customs duties, toll or tribute payable upon
merchandise to the general government; rate of customs; or list of articles liable
to duties.
b. Customs Duties
It is the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country (Garcia v. Executive Secretary, G.R. No. 101273,
July 03, 1992).
NOTE: Tariffs and customs are used interchangeably.
2. Kinds or Classifications of Duties
a. Ordinary/Regular Tariff or Customs Duties
These are taxes imposed or assessed upon merchandise from, or
exported to, a foreign country for the purpose of raising revenues.
Kinds of Regular Customs Duties
1. Ad valorem duty – Customs duties that are computed on the
basis of value of imported article
2. Specific duty – Customs duties that are computed on the basis
of dutiable weight of good i.e. a unit of measure such as per
kilogram, per liter, etc.
3. Compound duty – Customs duties that impose both ad valorem
and specific customs duties. E.g. 10% ad valorem plus P100 per
liter.
4. Alternating duty – alternates between ad valorem and specific
b. Special tariffs or custom duties
These are additional import duties imposed on specific kinds of
imported articles under certain conditions. They are imposed for the
protection of consumers and manufacturers, as well as Philippine products
from undue competition posed by foreign made products.
i. Marking duty
ii. Anti-Dumping duty
Amount shall be equal to the margin of dumping on
such product, thereafter imported to the Philippines
under similar circumstances, in addition to ordinary
taxes/charges on the imported product.
Remedy when the importation threatens to
cause material injury to our domestic industry.
iii. Countervailing duty
3.
4.
5.
6.
iv. Safeguard
v. Discriminatory duty
Preferential Tariffs
It is the imposition of high customs duties which results to making
the foreign goods more expensive compared with locally produced
articles. This is to protect Philippine manufacturers from competition
posed by foreign manufacturers.
Customs valuation is a procedure for determining the customs value of
imported goods
There are two processes involved:
1. Classification of the articles into their appropriate tariff heading;
2. Determination of the valuation if the rate is ad valorem or mixed.
Kinds of Specific Subsidy
1. Bounty – cash award paid to an exporter or manufacturer.
2. Subsidy – financial incentives not in the form of direct or cash
award to encourage manufacturers or exporters.
3. Subvention – any assistance other than a bounty or subsidy
given by the government for the manufacture and/or exportation
of an article.
Flexible Tariff Clause
It refers to the power of the President upon recommendation of the
National Economic and Development Authority (NEDA to:
i. to increase, reduce or remove existing protective tariff rates of import
duty, but in no case shall be higher than 100% ad valorem;
ii. to establish import quota or to ban importation of any commodity as
may be necessary; and
iii. to impose additional duty on all import not exceeding 10% ad valorem,
whenever necessary.
a. Limitations imposed on the flexible tariff clause
i. the Commission shall conduct an investigation and hold a public
hearing to give reasonable opportunity for any interested party to be
produce evidence and be heard
ii. the corresponding ad valorem or specific equivalents of the duty shall
be based on the most recent representative period.
iii. Any order of the President shall take effect 30 days after, except in
tariffs not exceeding 10% ad valorem which shall take effect at his
discretion.
iv. shall be exercised only when Congress is not in session
v. may be withdrawn or terminated by Congress through a joint
resolution.
7. Applicability of tariff and customs law
Applicable after importation has begun but before importation is terminated. The
jurisdiction of BOC at the beginning of importation. BOC loses jurisdiction after
importation is deemed terminated.
1. Importation begins when the carrying vessel or aircraft enters the
Philippine territory with intention to unload therein.
2. Importation is deemed terminated when:
a. The duties, taxes and other charges due upon the goods have been
paid or secured to be paid at the port of entry and legal permit for
withdrawal has been granted; or
b. In case the goods are deemed free of duties, taxes and other charges,
the goods have legally left the jurisdiction of the Bureau (Sec. 103,
CMTA).
Tax-free goods are required to enter into a customs house even if the importer
will not pay a tax. The articles, whether subject to tax or not, shall be entered into a
customs house at a port of entry.
8. Meaning of “Entry” in Customs Law
It has a three-fold meaning:
1. The documents filed at the Customs house;
2. The submission and acceptance of the documents; and
3. Customs declaration forms or customs entry forms required to be
accomplished by passengers of incoming vessels or passenger planes as
envisaged under Sec. 2505 of the TCCP.
9. Cargo manifest
a. Unmanifested cargo is subject to forfeiture whether the act of
smuggling is established or not under the principle of res
ipsa loquitur
10. Import entry
It is a declaration to the BOC showing the description, value, tariff classification
and other particulars of the imported article to enable the customs authorities to
determine the correct customs duties and internal revenue taxes due on the
importation.
GR: All goods declaration for consumption shall be cleared through a formal
entry process. by a formal entry process shall be covered
1. by a letter of credit or any verifiable commercial document evidencing
payment or
2. in cases where there is no sale for export, by any commercial
document indicating the commercial value of the goods.
XPN: The following goods shall be cleared through an informal entry process;
(a) Goods of a commercial nature with Free on Board (FOB) or Free
Carrier At (FCA) value of less than ₱50,000. Secretary of Finance
shall adjust this every 3 years amount as provided herein to its
present value.
(b) Personal and household effects or goods, not in commercial quantity,
imported in a passenger’s baggage or mail. (Sec. 402, CMTA).
11. Persons authorized to make import entry
A declarant may be a consignee or a person who has the right to dispose
of the goods. The declarant shall lodge a goods declaration with the Bureau and
may be:
a. The importer, being the holder of the bill of lading; or
b. The exporter, being the owner of the goods to be shipped out (Note:
not applicable for import entry) or
c. A customs broker acting under the authority of the importer or from a
holder of the bill; or
d. A person duly empowered to act as agent or attorney-in-fact for each
holder.
In case the consignee or the person who has the right to dispose of the goods
is a juridical person, it may authorize a responsible officer of the company to sign
the goods declaration as declarant on its behalf.
12. Period for filing import entry
Goods declaration must be lodged within 15 days from the date of
discharge of the last package from the vessel or aircraft.
XPN: The period to file the goods declaration may, upon request, be
extended on valid grounds for another 15 days:
Provided, That the request is made before the expiration of the original period
within which to file the goods declaration.
13. Provisional goods declaration
Where the declarant does not have all the information or supporting
documents required to complete the goods declaration, the lodging of a
provisional goods declaration may be allowed.
It shall substantially contain the necessary information required by the
Bureau and the declarant undertakes to complete the information or submit the
supporting documents within 45 days from the filing of the provisional goods
declaration, which period may be extended by the Bureau for another 45 days for
valid reasons.
14. Declaration of correct weight or value; liability for payment of duties;
liquidation of duties
1. Consumption entry: It is a government form accomplished by an importer
or his representative, which is ultimately submitted to the proper office of
the BOC as a basis for inspection of the importations of an importer and
for the computation of the correct customs duties and internal revenue
taxes due on importation.
2. Payment: the Philippines adopts the “self-assessment” system. Thus, it is
the importer which initially determines the customs duties and other
charges due from him and pays the same.
3. Liquidation: is the final computation and ascertainment by the Collector of
Customs of the duties due on imported merchandise based on official
reports as to the quantity, character and value thereof, and the Collector of
Customs' own finding as to the applicable rate of duty.
i. Assessment shall be deemed final 15 days after receipt of the
notice of assessment by the importer or consignee.
ii. The assessment shall be conclusive upon all parties three (3) years
from the date of final payment of duties and taxes, or upon
completion of the post clearance audit, in the absence of fraud.
iii. Tentative assessment: Assessment shall be deemed tentative if the
duties and taxes initially assessed are disputed by the importer.
The assessment shall be completed upon final readjustment, within
the period provided in Section 403 of CMTA, which is 45 days,
extendible for another 45 days.
15. keeping of records
1. The BOC shall examine, inspect and verify the books, records and
documents necessary or relevant for the purpose of collecting the proper
duties and taxes.
2. Any authorized officer of the BOC shall be given by the importer and
customs broker full and free access to the premises where the records are
kept, to conduct audit examination, inspection, verification, and
investigation of those records relevant to such investigation or inquiry.
i. The BOC may, in case of disobedience:
1. Invoke the aid of the proper RTC within whose jurisdiction
the matter falls. The court may punish contumacy or refusal
as contempt;
2. File a criminal case imposed by the CMTA;
3. Subject the importer/broker administrative sanctions that the
BOC may impose against contumacious importers under
existing laws and regulations including the authority to hold
delivery or release of their imported articles.
16. Effect of the failure to pay correct duties and taxes after post-entry audit
and investigation
shall be penalized according to two (2) degrees of culpability subject to
any mitigating, aggravating, or extraordinary factors that are clearly
established by available evidence as:
(a) Gross Negligence.— penalized with a fine equivalent
to 125% of the revenue loss;
(b) Fraud.— penalized with a fine equivalent to 6 times of
the revenue loss and/or imprisonment of not less than
2 years, but not more than 8 years. (Sec. 1005,
CMTA)
17. Accrual and payment of tax and duties
1. Articles: refer to goods, wares and merchandise and in general, anything
that may be the subject of importation or exportation.
2. Classification of articles subject to tariff and customs laws
i. Articles subject to duty
ii. Articles of prohibited importation
iii. Articles free from duties subject to conditions prescribed by law
(conditionally-free importation)
iv. Duty free articles- Enterprises located in special economic zones
are allowed to import capital equipment and raw materials free from
duties, taxes and other import restrictions.
GR: Except as otherwise provided, all goods imported into the Philippines
shall be subject to a duty upon importation, including goods previously
exported from the Philippines.
3. GR: There shall be no exemptions from the payment of customs duties
XPN:
i. Those provided under the Customs Modernization and Tariff Act;
ii. Those granted to government agencies, instrumentalities or
government-owned or controlled corporation with existing contracts,
commitments, agreements, or obligations (requiring such
exemptions) with foreign countries;
iii. International institutions, associations or organization entitled to
exemption pursuant to agreements or special laws;
iv.
Those that may be granted by the President upon recommendation
of the NEDA in the interest of national economic development (Sec.
102 (u), CMTA).
18. Dutiable importations: All goods, when imported into the Philippines, shall be
subject to duty upon importation, including goods previously exported from the
Philippines (Sec. 104, CMTA).
19. PROHIBITED importation and exportation
1. Written or printed articles in any form containing any matter advocating or
inciting treason, or rebellion, insurrection, sedition, against the
Government of the Philippines, or forcible resistance to any law of the
Philippines, or containing any threat to take the life of, or inflict bodily harm
upon any person in the Philippines;
2. Goods, instruments, drugs and substances designed, intended or adapted
for producing unlawful abortion, or any printed matter which advertises,
describes or gives direct or indirect information where, how or by whom
unlawful abortion is committed;
3. Written or printed goods, negatives or cinematographic film, photographs,
engravings, lithographs, objects, paintings, drawings, or other
representation of an obscene or immoral character;
4. Any article manufactured in whole or in part of gold, silver or other
precious metals or alloys and the stamp, brand or mark does not indicate
the actual fineness of quality of the metals or alloys.
5. Any adulterated or misbranded food or goods for human consumption or
any adulterated or misbranded drug in violation of relevant laws and
regulations;
6. Infringing goods as defined under the Intellectual Property Code and
related laws;and
7. All other articles and parts thereof, the importation and exportation are
explicitly prohibited by law or rules and regulations issued by competent
authority (Sec 118, CMTA).
20. RESTRICTED importation and exportation
1. Dynamite, gunpowder, ammunitions and other explosives, firearms, and
weapons of war, and parts thereof.
2. Roulette wheels, gambling outfits, loaded dice, marked cards, machines,
apparatus or mechanical devices used in gambling or distribution of
money, cigars, cigarettes, or other goods when such distribution is
dependent on chance, including jackpot and pinball machines or similar
contrivances, or parts thereof.
3. Lottery and sweepstakes tickets, except advertisements thereof and list of
drawings therein.
4. Marijuana, opium, poppies, coca leaves, heroin or any other narcotics or
synthetic drugs which are or may hereafter be declared habit forming by
the President of the Philippines, or any compound, manufactured salt,
derivative, or preparation thereof, except when imported by the
government of the Philippines or any person duly authorized by the
Dangerous Drugs Bard, for medicinal purposess;
5. Opium pipes or parts thereof, of whatever material; and 6. Any other
goods whose importation and exportation are restricted (Sec. 119, CMTA).
i. Upon reasonable cause, any person exercising police authority has
the power to stop, search, and examine any vehicle or carrier,
person or animal suspected of holding or conveying dutiable or
prohibited goods
ii. Prohibited goods shall not be released under any circumstance
21. qualifiedly prohibited importation
Where such conditions as to warrant a lawful importation do not exist, the
legal effects of the importation of the qualified prohibited articles are the
same as those absolutely prohibited articles.
22. De Minimis Importations
No duties and taxes shall be collected on goods with an FOB or FCA
value of P10,000.00 or below. The Secretary of Finance shall adjust the
de minimis value as provided herein, every 3 years after the effectivity of
this Act
23. Conditionally-Free and Duty-Exempt Importations
1. The amount of bond requirement conditioned for the exportation or
payment of the corresponding duties, taxes and other charges (DTO) of
certain importations has been reduced from 1 ½ times the ascertained
DTO to 100% of the ascertained DTO.
2. Returning residents shall refer to nationals who have stayed in a foreign
country for a period of at least 6 months (Sec. 800[f], CMTA).
3. Personal and household effects of returning residents or OFWs should
arrive with them or within a reasonable time after their arrival but not to
exceed 60 days after the owner’s return (previously 90 days) (Sec. 800[f],
CMTA).
4. To be free from tax and duty, the FCA or FOB value of the returning
residents’ personal and household effects and other goods expressly
allowed to be conditionally free should not exceed:
a. P350,000 for those who have stayed in the foreign
country for at least 10 years and have not availed of this
privilege within 10 years prior to arrival (previous amount
is P10,000);
b. P250,000 for those who have stayed in the foreign
country for at least 5 but not more than 10 years and
5.
6.
7.
8.
have not availed of this privilege within 5 years prior to
arrival (previous amount is P10,000);
c. P150,000 for those who have stayed in a foreign country
for a period of less than 5 years and have not availed of
this privilege within 6 months prior to arrival (previous
amount is P10,000);
Any amount in excess of the above-stated threshold
shall be subject to the corresponding duties and taxes
(Sec. 800[f], CMTA).
To be free from tax or duty, the FCA of the household effects or
duty-free appliances of a returning OFW should not exceed
P150,000 and this privilege may be availed only once in a given
calendar year (Sec. 800[f], CMTA).
OFWs shall be allowed to bring in balikbayan boxes free of
importation, provided the FCA value shall not exceed P150,000;
provided further that the boxes shall only contain personal and
household effects and shall neither be in commercial value nor
intended for sale or barter, etc. This privilege can only be
availed up to 3 times in a calendar year (Sec. 800(g), CMTA).
To be free of tax and duty, the FCA value of coffins or urns
containing human remains, bones or ashes, used personal and
household effects of the deceased should not exceed P150,000
(Sec. 800[q], CMTA).
To be free of tax and duty, the FCA value of commercial
samples of any kind should not exceed P50,000 (previous
amount is P10,000) (Sec. 800[r], CMTA
D. Remedies
1. Government
Doctrine of Primary Jurisdiction of the BOC
The BOC has exclusive administrative jurisdiction to conduct searches, seizures and
forfeitures of contraband without the interference from the courts. The BOC could
conduct searches and seizures without need of judicial warrant except if search is to
be conducted in a dwelling place. Also referred to as the Doctrine of Exclusive
Customs Jurisdiction over Customs Cases.
a. Administrative/extrajudicial
1) Enforcement of Tax lien (Sec. 405, CMTA)
Tax lien attaches on the goods regardless of ownership while still in
the custody of the Government and it is availed of when the importation is
neither prohibited nor improperly made.
The liability for duties, taxes, fees, and other charges attached to
importation constitutes a personal debt due and demandable against the
importer in favor of the government and shall be discharged only upon
payment of duties, taxes, fees and other charges. It also constitutes a lien
on the imported goods which may be enforced while such goods are under
customs' custody. (Sec. 405, CMTA)
GR: fine is payable in case of settlement of any seizure.
XPNs:
1. When importation is absolutely prohibited;
2. If release would be contrary to law;
3. When there is an actual and intentional fraud.
2) Compromise/reduction of customs duties (Sec. 1131, CMTA)
Subject to the approval of the Secretary of Finance, the COC may
compromise any case arising under the CMTA involving the imposition of
fines and surcharges, including those arising from the conduct of a post
clearance audit, unless otherwise specified by law. (Sec. 1131, CMTA).
Cases involving forfeiture proceedings shall however not be subject
to any compromise.
Administrative Fine and forfeitures Administrative fine and forfeiture
available only when the importation is unlawful and may be exercised
when the articles are no longer under the custody of BOC unless the
importation is merely attempted in which case it may be effected only
while the goods are still within the jurisdiction of the BOC or in the
hands of the person who is aware thereof.
3) Seizure and forfeiture (Sec. 1113, CMTA)
Requirements for Customs Forfeiture of Imported Goods [WFI]
1. The wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making
or delivery by the same persons of any invoice, letter or paper - all
touching on the importation or exportation of merchandise;
2. That such declaration, affidavit, invoice, letter or paper is false; and
3. An intention on the part of the importer/consignee to evade the
payment of the duties due (Republic, etc., v. CTA, et al., G.R. No.
139050, Oct. 2, 2001).
GR: Settlement of cases by fine or redemption is generally allowed.
XPNs:
i. The importation is absolutely prohibited;
ii. The release of the goods is contrary to law; or
iii. There is fraud
iv. The discrepancy in duties and taxes to be paid between what is
determined and what is declared amounts to more than 30%. (Sec.
1124, CMTA).
4) Distraint of goods, chattels, or effects, and other personal property of
whatever character, including stocks and other securities, debts, credits,
bank accounts, and interest in and rights to personal property, and by levy
upon real property and interest in rights to real property (Sec. 1132(a), CMTA)
5) Constructive distraint (Sec. 1133, CMTA)
6) Summary Remedies (Sec. 1134, CMTA)
i. Distraint of personal property
ii. Levy of real property
a. Search, seizure, forfeiture, arrest
Subject of customs search and seizure
1. Land or enclosure or any warehouse, store or other building, not
being a dwelling house (Sec. 219, CMTA)
2. Dwelling house (Sec. 220, CMTA)
3. Vessels or aircrafts and persons or articles conveyed therein (Sec.
221, CMTA)
4. Vehicles, beasts and persons (Sec. 222, CMTA)
5. Persons arriving from foreign countries (Sec. 223, CMTA).
NOTE: If the search and seizure is to be conducted in a dwelling place,
then a search warrant should be issued by the regular courts not the BOC.
Judicial search warrant is not necessary in case of customs search and
seizures.
b. Judicial
1. Civil action
It is availed of when the tax lien is lost by the release of the goods. The
government can seek payment of the tax liability through judicial action since the
tax liability of the importer constitutes a personal debt to the government.
If the decision of the Collector or the Commissioner in a protest is adverse to the
Government, the remedy is:
1. Automatic review by the Commissioner - If the Collector renders a
decision adverse to the Government (the importer’s protest is granted).
2. Automatic review by the Secretary of Finance - If the decision of the
COC is adverse to the Government.
Automatic review is necessary because nobody is expected
to appeal the decision of the Collector which is favorable to
the taxpayer and adverse to the Government.
ADMIN REMEDY: if the goods is still in the custody or control of the Government. In
the case, however, of importations which are prohibited or undeclared, the remedy
of seizure and forfeiture may still be exercised by the BOC even if the goods are no
longer in its custody.
JUDICIAL REMEDY: If the imported article could no longer be found, or if it has
perished, then judicial action through an ordinary suit for the collection of sum of
money is then filed.
2. Criminal action (Sec. 1132(b), CMTA)
2. Taxpayer
1. Administrative
a. Protest;
Parties and Application of a Protest 1. Any importer or interested party - if
dissatisfied with published value within 15 days from date of publication or
within 5 days from date the importer is entitled to refund in case payment is
rendered erroneous or illegal by events occurring after the payment. 2.
Taxpayer - within 15 days from assessment. Payment under protest is
necessary.
If the importer fails to file a formal protest, he could not obtain a refund of the
duties and other charges claimed to have been erroneously paid by him.
1. In Writing; 2. Points out the particular decision or ruling by the Collector of
Customs to which exception is taken or objection is made; 3. States the
Grounds relied upon for relief; 4. Limited to the subject matter of a single
adjustment; 5. Filed when the amount claimed is paid or within 15 days after
payment; 6. Sample of goods under protest must be furnished by the
protestant, when required.
Customs protest procedure
at the time when payment of the amount claimed to be due the government is made,
or within fifteen (15) days thereafter, a written protest setting forth the objection to
the ruling or decision in question and the reasons therefore.
the Commissioner shall render a decision within thirty (30) days from receipt of the
protest.
right to appeal within fifteen (15) days from receipt of the questioned decision or
order
Automatic Review in Forfeiture Cases (Sec. 1127, CMTA)
The Commissioner shall automatically review any decision by the District Collector
adverse to the government. The entire records of the case shall be elevated within 5
days from promulgation of the decision.
The Commissioner shall decide on the automatic review within 30 days or within 10
days in the case of perishable goods, from receipt of the records.
Automatic Review by the Secretary of Finance in Other Cases (Sec. 1128, CMTA)
In cases not involving protest or forfeiture, the Commissioner shall automatically review
any decision by the District Collector that is adverse to the government. Shall be
elevated to the Commissioner within 5 days from the promulgation of the decision.
The Commissioner shall decide on the automatic review within 30 days from receipt of
the records, or within 10 days in the case of perishable goods.
a. When no decision is rendered (by commissioner) within the prescribed
period
b. or when a decision adverse to the government is rendered by the
Commissioner involving goods with FOB or FCA value of P10M or more
c. shall be automatically elevated within 5 days for review by the Secretary of
Finance.
The decision issued by the Secretary of Finance, whether or not a decision was
rendered by the Commissioner within 30 days, or within 10 days in case of
perishable goods, from the receipt of the records, shall be final upon the
Bureau.
b. Abandonment
Abandonment in customs is the renunciation by an importer of all his interests
and property rights in the importer article.
Abandonment may be made expressly or impliedly.
EXPRESS: When the owner, importer, or consignee of the imported goods
expressly signifies in writing to the District Collector the intention to abandon the
same (Sec. 1129, CMTA).
IMPLIED:
1. When the owner, importer, consignee, or interested party after due notice,
fails to file the goods declaration within the prescribed period in Section 407
of CMTA in compliance with Section 403 of the same Act; or
2. Having filed such goods declaration, the owner, importer, consignee or
interested party after due notice, fails to pay the assessed duties, taxes and
other charges thereon, or, if the regulated goods failed to comply with
Section 117 of CMTA, within 15 days from the date of final assessment; or
3. Having paid the assessed duties, taxes and other charges, the owner,
importer or consignee or interested party after due notice, fails to claim the
goods within 30 days from payment; or
4. When the owner or importer fails to claim goods in customs bonded
warehouses within the prescribed period (Sec. 1129, CMTA)
Effects of abandonment
1. Ipso facto deemed the property of the government. (Sec. 1130,
CMTA)
2. Disposed of in accordance with the CMTA (Sec. 1130, CMTA)
3. Shall not relieve the owner from criminal liability which may arise in
connection with the importation.
c. Refund, drawback, abatement;
Abatement
It is the reduction or non-imposition of custom duties on certain imported
materials as a result of:
1. Damaged incurred during voyage;
2. Deficiency in contents of packages;
3. Loss or destruction of articles after arrival; or
4. Death or injury of animals.
Refund Arising from Correction of Errors
Errors in return of weight, measure and gauge, may be corrected in the computation
of duties, if such errors are discovered before the payments of duties, or if
discovered within one year after release from customs custody of imported goods
upon written request and notice of error from the importer, or upon statement of error
certified by the District Collector.
For the purpose of correcting errors specified in the next preceding paragraph, the
Bureau is authorized to make refunds within the statutory time limit
Application for refund
All claims and application for refund of duties and taxes shall be made in writing and
filed with the Bureau within 12 months from the date of payment of duties and taxes
(Sec. 913, CMTA)
All claims for refund of duties shall be made in writing and forwarded to the Collector
whom duties are paid;
d. Payment of fine or redemption;
e. Appeal to the Customs Commissioner
2. Judicial
a. Appeal to the CTA;
The appeal should be filed to the CTA, within 30 days from receipt of decision of
the COC or Secretary of Finance, as the case may be.
The Collector of Customs has exclusive jurisdiction over seizure and forfeiture
proceedings, and regular courts cannot interfere with his exercise thereof or
stifle or put it at naught.
Motion for Reconsideration from the decision of a division of the CTA is
mandatory prior to elevating the case to the CTA en banc.
b. Action to question the legality of seizure