Based on UP and Ateneo Law Reviewers and PM Reyes Bar Reviewer Estate Tax Estate tax- graduated tax imposed upon in the privilege of the decedent to transmit property at death and is based on net estate, considered as a unit, and determined by subtracting allowable deductions from the gross estate. Nature 1. 2. 3. 4. 5. Excise of privilege tax Imposed on right to succeed, receive, take property Under a will or intestancy law Deed, grant or gift Become operative at or after death Purpose 1. Object of estate tax- tax shifting of economic benefits and enjoyment of property from dead to living 2. Give added income to the government Justification 1. Benefit received theory 2. Privilege theory or state partnership theory 3. Ability to pay theory 4. Redistribution of wealth theory Time Decedent’s interest is to its extent at the time of his death regardless if it is indicated in a will that selling or disposition of his property should be 10 years after his death. It should be measured by the value of the estate as it stood at the time of the decedent’s death, regardless if any postponement of actual possession or any subsequent increase or decrease in value. (Lorenzo vs. Posadas Taxable transfers 1. Transfer mortis cosa 2. Transfer inter vivos a. Contemplation of death b. Transfer with retention or reservation of certain rights c. Revocable transfers d. Transfer of property arising under general power of appointment e. Transfer for insufficient consideration Estate tax transfers without onerous consideration Tax on the privilege to transfer property upon one’s death (mortis causa) Max tax rate of 20% on net estates exceeding P10 million and the first P200,000 is exempt Donor Tax transfers without onerous consideration Tax on the privilege to transfer property during one’s lifetime (inter vivos) Max tax rate is 15% on the net gifts exceeding P10 million and first P100,000 is tax exempt Residence- permanent home Gross estate- value of all property, real or personal, tangible or intangible, actual and beneficial ownership of which was in the decedent at the time of his death Net estate= gross estate – all deductions Citizen/Resident Alien Within and without RP Non- Resident Alien Within RP only except: 1. Intangible personal property in the Philippines- unless exempted on basis of the principle of reciprocity 2. Intangible personal property outside the RP Intangible Properties within RP 1. Franchise exercised in RP 2. Share, obligation or bond issued by RP only 3. Share, obligation or bond issued by any foreign corporation 85% of business in RP 4. Share, obligations or bond issued by foreign corporation with business situs in RP 5. Share or rights in any business established in RP Reciprocity clause (there must be total reciprocity, CIR vs Fisher) Intangible personal property of a decedent who is a non-resident alien, with a situs in RP shall not form part of the gross estate if: 1. The decedent at that time of his death was a citizen and resident of a foreign country which at the time of his death a. Did not impose a transfer tax or death tax of any character b. In respect of the intangible personal property of citizens of the Philippines not residing in that foreign country 2. law of foreign country which the decedent was a citizen and resident at the time of his death: a. allow a similar exemptions from transfer taxes or death taxes of every character b. in respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country. Valuation Real property= FMV by Commissioner of FMV by assessors whichever is higher Personal Property= FMV at time of death Shares of stocks 1. Listed shares= average of highest and lowest quotation date nearest to death 2. Unlisted shares= common shares book value; preferred shares= par value 3. Right to usufruct, use or habitation annuity= DOF, IC approved ; latest basic standard maturity table Included in the gross esate 1. Actually and physically present properties at time of death 2. Decedent’s interest 3. Not physically present a. Transfer in contemplation of death b. Transfer with retention or reservation of certain rights c. Revocable transfers d. Property passing under a GPA e. Transfers for insufficient consideration f. Proceeds of life insurance g. Claims against insolvent persons h. Capital of surviving spouse Property owned actually and physically present at death- lands, buildings, shares of stocks, vehicles, bank deposits, etc. Decedent’s interest- dividends etc. Not physically present 1. Transfers in contemplation of death - Motivating factor or controlling motive is the thought of death - Not applicable if bona fide sale for an adequate 2. Transfers with retention/reservation of certain rights- transfer during life but still retain economic benefits; except bona fide sale Illustration- X transfers his property to Y in naked ownership and to Z in usufruct throughout Z’s lifetime. It is subject to the condition that if Z predeceases X, the property shall return to X. If X dies during X’s life, the value of the reversionary interest of X at death is includible in his gross estate. The transfer is taxable as intended to take effect at or after death because the possibility of reversion to X make Z’s interest conditional as long as X lives. Revocable transfers- Decedent’s transfer of only interest by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of power by the decedent ALONE or by the decedent IN CONJUNCTION WITH ANY OTHER PERSON, to ALTER, AMEND, REVOKE or TERMINATE such transfer or where such power which would bring the property in the taxable estate is relinquished in contemplation of the decedent’s death. Except: Bona fide sale for an adequate and full consideration Power to alter, amend or revoke exist even though: 1. Exercise of the power is subject to a precedent giving of notice or 2. Alteration, amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised.- if not given before date of death, it shall be considered as deemed given/exercised on date of death. GPA- appoint any person he pleases SPA- restricted or designated class of persons other than self- property by SPA excluded from gross estate Gross estate includes GPA if: 1. By will 2. By deed executed in contemplation of or intended to take effect in possession or enjoyment at, or after his death, or 3. By deed which he retained: a. Possession or enjoyment or right to the income from, property or b. Right, either alone or in conjunction which any person to designate the persons who shall possess or enjoy the property or the income therefrom Except: bona fide sale for an adequate and full consideration Transfer for insufficient consideration will be included if: (includible amount is excess of the FMV at the time of death over the value of the consideration received) 1. In contemplation of death 2. Revocable transfer 3. GPA property Otherwise it will be considered for donor’s tax computation Case A bonafide- no value shall be included in the gross estate Case B not bonafide excess of FMV part of Gross estate Case C proven fictitious/simulated- total value of property at time of death included in gross estate Proceeds of life insurance taxable 1. Beneficiary is the estate of the deceased, his executor or administrator, irrespective of whether or not the insured retained the power of revocation 2. Beneficiary is other than the decedent’s estate, executor or administrator, when designation of beneficiary not expressly made irrevocable Proceeds of life insurance not taxable 1. Accident insurance proceeds 2. Proceeds of a group insurance policy (Mortgage redemption insuranceMRI) taken out by a company for its employees 3. Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insured. The transfer is absolute and the insured did not retain any legal interest in the insurance 4. Proceeds of insurance policies issued by the GSIS to government officials and employees which are exempt from all taxes 5. Benefits accruing under the SSS law 6. Proceeds of life insurance payable to heirs of deceased members of military personnel Policy before marriage- sources of funds determine ownership of the proceeds of life insurance Policy taken during marriage a. Beneficiary is estate of the insured- presumed conjugal; ½ share of the surviving spouse is not taxable b. Beneficiary is 3rd person- proceeds are payable to beneficiary even if premiums were paid out of conjugal Prior interests I. transfer in contemplation of death Not a transfer in contemplation of death if: 1. desire to see his children enjoy the property while the donor is still alive 2. Save income or property taxes 3. Settle family disputes 4. Relieve donor from administrative burden 5. Reward services rendered 6. Provide independent income for dependents II. Revocable transfers III. Proceeds of life insurance Resident or citizen decedent Gross Estate (all properties within and without RP Less: Deductions 1. Ordinary deductions- ELIT (expenses, losses, indebtedness, taxes) a. Funeral b. Judicial c. Claims against estate d. Claims against insolvent person e. Unpaid mortgage and debt f. Taxes g. Losses 2. 3. 4. 5. Vanishing deductions Transfers for public use Amounts received under RA 4917 Special deductions a. Family Home b. Standard Deduction c. Medical Expenses 6. Share in conjugal property Non-resident alien decedent Gross Estate located in RP property Less: Deductions 1. Ordinary deductionsProportionate ELIT a. Funeral b. Judicial c. Claims against estate d. Claims against insolvent persons e. Unpaid mortgage and debt f. Taxes g. losses 2. vanishing deductions 3. transfers for public use 4. amount received under RA 4917 5. share in conjugal property *NRA= Gross estate phil/gross estate world X world expenses, losses, indebtedness, taxes, etc. Funeral Expense-not exceed P200,000 and whichever is lower in actual funeral expense or 5% of gross estate. 1. Mourning apparel 2. Expenses of the wake 3. Publication charges 4. Telecommunications expenses 5. Cost of burial plot, tombstones, monument or mausoleum 6. Interment and/or cremation fees and charges 7. Rites and ceremonies incident to interment Not deductible- after interment, borne or defrayed by relatives and friends, medical expenses Example: 1. 5% is P220,000 and actual amount is P215,000- max deductible if P200,000 2. 5%- P100,000 and total amount is P150,000 with P20,000 still unpaid – deductible is P100,000 Judicial expenses- With receipts and invoices or sworn statement of account 1. Inventory- taking or collection of assets 2. Comprising estate, their administration 3. During the settlement of estate but not beyond the last day prescribed by law or for filing of estate tax return Example of Judicial expenses 1. 2. 3. 4. Actual judicial or court expenses Fees or executor or administrator Attorney’s fees Expenses of administration such as: a. Accountant’s fees b. Appraiser’s fees c. Clerk hire d. Cost of preserving and distributing the estate e. Cost of storing or maintaining property of the estate f. Brokerage fees for selling property of the estate 5. Notarial fee Claims against estate 1. Debts or demands of a pecuniary nature 2. Could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgment 3. Contract, tort or operation of law 4. Duly notarized except if granted by financial institutions 5. Loan was contracted within 3 years before death of decedent, administrator or executor shall submit a statement under oath showing the disposition of the proceeds of the loan To be deductible it should be (PVNGF) 1 2 3 4 5 Personal obligation Good faith Valid in law Enforceable in court Non condoned or not prescribed Claims against insolvent persons 1. Not collectible 2. Should be proven although judicial declaration not required Unpaid mortgages 1. Gross estate must include fair market of property encumbered by such mortgage or indebtedness 2. Deduction shall be limited to the extent that they were contracted bona fie and for an adequate and full consideration in money or money’s worth, if such unpaid mortgages or indebtedness were founded upon to promise or an agreement Taxes- accrued and unpaid at death This deduction does not include income tax upon income received after death, or property taxes accrued after his death, or the estate tax due from the transmission of his estate Losses 1. 2. 3. 4. Incurred during settlement of estate Fortuitous events like fires, storms, etc Not compensated by insurance or otherwise Losses not claimed as a deduction for income tax purposes in an income tax return of the estate subject to income tax 5. Not later than the last day for payment of the estate tax (6 months after the death of the decedent) 6. Properly previously taxed- vanishing deductions Example: A died in December 2003, March 2003 B (A’s father died) and left A same properties as inheritance Vanishing deductions applicable as long as PINID a. Death b. Identity of the property c. d. e. f. Location of the property Inclusion of the property Previous taxation of the property No previous vanishing deduction Example: A inherited Subtract mortgage Initial basis P870000 70000 P800000/total amount * ordinary expenses* multiply with vanishing deduction rate Vanishing deduction rate 100% 1 yr prior to the death (inheritance or gift) of the present decedent More than 1 yr to 2 yr More than 2 yr to 3 yr More than 3 yr to 4 yr More than 4 yr to 5 yr 80% 60% 40% 20% Special deductions Family home- maximum of P1M 1. 2. 3. 4. 5. 6. 7. Dwelling house Actual residential home Value of family home part of gross estate FMV current not exceed P1M Married or head of the family Beneficiaries dwelling in family home Owned by decedent Beneficiaries of family home a. Husband, wife, head of family b. Parents, ascendants, descendants c. Brothers and sisters Medical expenses- max P500k a. 1 yr prior to death b. With receipts and documents Net share of surviving spouse in the conjugal partnership Property- ½ of 50% Transfer for Public Use 1. the disposition is in the last will and testament 2. take effect after death 3. in favor of the government of the Philippines or any political subdivision thereof 4. exclusive for public purpose 5. value of property given is included in the gross estate. Exemptions and exclusions from gross estate 1. Capital/paraphernal of surviving spouse 2. Property outside RP of non-resident alien decedent 3. Intangible personal property in the Philippines of a non-resident alien if there is reciprocity 4. Merger of usufruct of naked title owner 5. Transmission or delivery of inheritance or legacy by fiduciary heir to fideicomissary 6. Transmission from 1st heir, legatee or done in favor of another beneficiary 7. Bequests, devices, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individuals- not more than 30% used for administration purposes Exclusions under special laws 1. 2. 3. 4. Proceeds of life insurance benefits received by GSIS members SSS Damages from last war US Veterans Administration Tax Credit- remedy against international double taxation Notice of death to BIR- within 2 months Estate tax return a. Estate subject to estate tax b. Exceed P200K c. Registered/ registrable property (AAB, RDO, collection officer) Donor’s Tax Donor’s tax a. b. c. d. e. f. Inter vivos Made between living persons to take effect during the lifetime of the donor Supplements estate tax Completed gift before application Prevent avoidance of income tax through the device of splitting income among numerous donees, who are usually members of a family or into many trusts, with the donor thereby escaping effect of progressive rates of income tax Raise revenues, tax wealthy and reduce certain other excise taxes, discourage inter vivos transfers, reduce incentive to make gifts in order that distribution of future income Valid Donation (Requisites CIDA) a. b. c. d. Capacity to donate of donor Intent to donate delivery Acceptance of done Incomplete gift because of reserved powers become complete if donor renounces power or right to exercise reserved power ceases Pirovano vs. CIR doctrine-The donation is not remuneratory as A has been fully compensated for his services. A donation made by the corporation to the heirs of a deceased officer out of gratitude for the officer’s past services is considered a donation and is subject to donee’s gift tax. The fact that his services contributed in a large measure to the success of the company did not give rise to a recoverable debt, and the conveyances made by the company to his heirs remain a gift or donation. Valid donation of a movable 1. oral or writing (if more than P5000, donation and acceptance in writing) 2. delivery Valid donation of an immovable 1. public document 2. specified 3. Acceptance through a deed or similar instrument Transfer which may be constituted as donation a. Sale/exchange/transfer of property for insufficient consideration- property subject to final capital gains tax but transferred for less than an adequate and full consideration in money/money’s worth FMV of property> value of agreed or actual consideration or selling price Shall be deemed a gift b. Condonation/permission of debt- debtor did not render Service in favor of the creditor FMV> GSP- capital gains tax Real property considered capital assets are excepted Examples: 1. A sold his lot to his brother for P500,000. FMV P1M. A bought it for P100,000. Shares sold at P300,000; FMV P500,000 and bought P100,000.- Lot not subject to donor’s tax it is a real property classified as capital asset and subject to 6% CGT. Shares are subject to 30% donor’s tax based on the difference between the selling price and market value. 2. Creditors A, B and C condoned debt of XYZ corporation due to restructuring- Not subject to donor’s tax since condonation was not implemented with a donative intent but only for business consideration. Restructuring not result of mutual agreement bet debtor and creditor but through court action of debt rehab plan. 3. Transfer through special purpose vehicle (SPV)- not subject to donation 4. Renunciation of hereditary share of B in A’s estate for X who is a special child- Yes donor’s tax. Renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of other heirs in the hereditary estate. If not specifically or categorically done, not subject to donor’s tax. Intangible property rules (same with that in Estate) Classifications a. Citizen/resident- all within and without RP b. Non-resident alien- within RP only Reciprocity and intangible property rules- see Estate Determination of Gross Gift a. Real and personal property gifts b. Real and tangible personal property gifts Composition of gross gift- inter vivos donations 1. Transfer is in trust or otherwise 2. Gift is direct or indirect 3. Real, personal, tangible or intangible Valuation of gifts; amount of gift= FMV at time of donation Real property= zonal value or latest schedule of values of the provincial and city assessor- whichever is higher Improvement- construction cost per building permit and/or occupancy permit plus 10% per year after year of construction of FMV per latest tax declaration Computation of donor’s tax Gross gift made -deductions from gross gifts Net gifts made *multiplied by applicable rate Donor’s tax on the net gifts If several gifts Gross gifts made or this date Less: Deductions from gross gifts Net gifts made on this date Add: all prior net gifts during the year Aggregate net gifts Multiplied by applicable rate Donor’s tax on the aggregate net gifts Less: donor’s tax paid on prior net gifts Donor’s tax due on the net gifts to date Tax rate applicable= graduated, however if stranger, then 30% of net gifts Stranger is 1. Not a brother, sister (whole/half-blood), spouse, ancestor or lineal descendant 2. Not a relative consanguinity in the collateral line within 4 th degree of relationship Limitations on tax credit: 1. Net gift (foreign country)/ entire net gifts * Philippine donor’s tax 2. Net gift (all foreign countries)/ entire net gifts * Philippine donor’s tax Exemptions 1. Dowries or donations made (max P10k) a. On account of marriage b. Before its celebration or within 1 yr c. By parents to each of their legitimate, recognized, natural or adopted children d. To the extent of the 1st P10k e. Not be availed by non-resident alien If both parents donated= ½ to each donor spouse (separate filing) 2. National government use 3. Educational, charitable, religious, cultural or social welfare (not more than 30% for administration purpose) File within 30 days- donor’s tax return VAT Concept 1. Percentage tax on sale, barter, exchange or lease of goods, properties, services 2. Output- input tax= VAT 3. Excise tax= privilege tax 4. Ad valorem tax= gross value or GSP in money of goods and services Characteristics 1. Tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goofs into RP 2. Indirect tax 3. Not oppressive, arbitrary and confiscatory 4. Uniform 5. Equitable 6. Regressive Impact of taxation- statutory payer, seller or importer, one whom government collects Incidence of taxation- bears burden; final consumer Tax credit method- input taxes shifted by the sellers to the buyer are credited against the buyer’s output taxes when he in turn sells the taxable goods, properties or services Destination Principle- jurisdictional reach of VAT, where country they are consumed Cross Border Doctrine- no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority Persons liable: 1. sells, barters, or exchanges goods or properties (seller or transferor) 2. leases goods or properties (lessor) 3. Renders services (service provider) 4. Import goods (importer), whether or not made in the course of trade or business Absence of this will not be subject to VAT reimbursable (CIR vs Sony) Sale of parking lot not included in sale of condominium unit (RR 13-2012) Ecozones 1. 2. 3. 4. Separate customs authority Legal fiction of foreign territory Zero-rated Same treatment with customs territory- also 0% VAT 2 types of Zero-rated transactions 1. Automatic- refers to export sale of goods, properties and supply of services by a VAT-registered person 2. Effective- refers to local sale of goods and properties by a VAT-registered person to a person or entity who was granted direct and indirect tax exemption under special laws or international agreements To be entitled to refund as in the case of Sitel vs CIR: 1. zero-rated or effectively zero-rated sales 2. input taxes were incurred or paid 3. such input taxes are directly attributable to zero-rated or effectively zero-rated sales 4.input taxes were not applied against any output VAT liability and 5. claim for refund was filed within the 2-year prescriptive period Customs territory- national territory of the Philippines outside of the proclaimed boundaries of the ECOZONEs except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports a. Sale of services by ecozone enterprise, to another ecozone enterprise (intraecozone), enterprise (sale of service) - PEZA registered subject to 5% special tax regime (exempt from VAT) - If PEZA registered subject to tax under NIRC= 0% VAT under CROSS BORDER DOCTRINE b. VAT-Exempt supplier from customs territory to a PEZA registered enterpriseexempt from VAT c. PEZA registered enterprise- technical importation, imposed with corresponding VAT d. Sale of Services by a PEZA registered enterprise to a buyer from the customs territory- 12% VAT e. Sale of Goods by a PEZA registered enterprise to another PEZA registered enterprise-exempt from VAT In the course of trade or business- regular conduct or pursuit of a commercial or any economic activity including transactions incidental thereto - Non-residents who perform service in RP deemed making sales in the course of trade or business Membership fees and association dues collected by clubs, condominium corporations (subject to VAT) Except if: 1. Gross annual sales and/or receipts do not exceed P1,919,500 2. Taxpayer is not a VAT- registered person -taxpayer should by 3% tax equivalent of his gross monthly sales/receipts -marginal income earners- not subject to business taxes because they are not considered as engaged in trade or business -not exceeding P100,000 gross sales or receipts per year IMPORTERS SHOULD PAY VAT VAT ON SALE OF GOODS OR PROPERTIES (12% VAT) Goods or Properties 1. 2. 3. 4. 5. Real properties Patent copyright et.al. Right to use RP of any industrial, commercial, or scientific equipment Right or privilege to use motion picture films, film tapes/discs Radio, tv, satellite transmission and cable tv time Requisites 1. 2. 3. 4. Actual or deemed sale In the course of trade or business RP consumption Not exempt from VAT GSP 1. If real property- sales document or FMV a. CIR zonal value b. Assessor real property tax declaration 2. Sale of residential lot> P1,919,500 3. House and lot/other residential dwelling> P3,199,200 4. Lease of residential until > P12,800/mo or P1,919,500/year Exclusive of VAT and also if not billed separately, exclusive of VAT as well Not taxable 1. 2. 3. 4. 5. 6. 7. 8. 9. Not primarily for sale Low cost or socialized housing Residential lot < P1,919,500 House and lot/dwelling< P3,199,200 Lease < P12,800/mo or P1,919,500 per year Transmission of a trustee Transfer to corporation in exchange of stocks Advance payment by lessee Security deposits for lease agreements 1. Installment plan- initial payments before execution of sale, including downpayments, etc - Do not exceed 25% of GSP - Taxable only or payment actually or constructively received 2. Deferred Payment- initial payments exceeds 25% of GSP -treated as cash sale and the entire selling price is taxable on the month of sale Zero-rated goods a. A zero-rated sale by a VAT-registered person is a taxable transactions for VAT purposes, but shall not result in any output tax b. However, input tax on purchases of goods, properties or services related to such zero-rated shall be available as tax credit or refund Export sales a. Sale and actual shipment of goods from RP to other country b. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export oriented enterprise c. Sale of raw material/packaging materials whose export sales exceed 70% of annual production d. Sale of gold to BSP e. Those considered export sales under the Omnibus Investment Code of 1987 Constructive Exports 1. 2. 3. 4. 5. Sales to bonded manufacturing warehouses of export-oriented manufacturing Sales to export processing zones Sale to registered export traders Sale to diplomatic mission and other agencies Sale of goods, supplies equipment fuels- another export sale Foreign Currency Denominated Sales (FCDS) 1. Sale to a nonresident of goods, except those mentioned in Sections 149 and 150 for delivery to a resident in the Philippines paid in acceptance foreign currency and accounted for in accordance with the rules and regulations of the BSP 2. Sales of locally manufactured or assembled goods for household and personal use to Filipino abroad and other non-resident of RP Transactions deemed sale= 12% VAT, fair market value and acquisition cost (applicable in San Roque vs CIR) 1. Consignment of goods if actual sale not made within 60 days- not deemed sold 2. Distribution or transfer to shareholders, investors, or creditors 3. transfer, use or consumption not in the course of business of goods/properties originally intended for sale or use in the course of business 4. Retirement or cessation of person or business= 12% Exempt: 1. Change or control of a corporation 2. Merger or consolidation 3. Change in the trade or corporate name Gross receipts- total amount of money or its equivalent representing the contract price, compensation, service fee et.al. actually or constructively received Constructive receipts- money consideration or its equivalent is placed at the control of the person who rendered service without restrictions by the payor - Deposits in banks, issuance by debtor of notice to accept, transfer of amounts retained by contractee to account of the contractor Requisites for a taxability 1. 2. 3. 4. Performed in the course of trade or business in RP Valuable consideration actually or constructively received Service is not exempt under Tax Code, special law or international agreement Person selling or rendering service is liable to VAT Meaning of sale/exchange of services 1. Contractors 2. lessors 3. brokers 4. warehousing services 5. cinematographic films 6. milling, processing, manufacturing 7. movie houses 8. eating places 9. dealers in securities 10.lending 11.transportation 12.common carriers 13.electricity 14.franchise grantees 15.non-life insurance 16.others 17.copyright et.al. Zero-rated sale of services 1. 2. 3. 4. 5. 6. 7. 8. 9. VATable But no output tax Input tax for tax credit or refund For other persons doing business outside RP Person engaged in business conducted outside the RP or a nonresident person not engaged in RP Exemption under special laws or international agreements Subcontractors and/or contractors Transport of passenger and cargo Sale of power or fuel generated through renewable sources of energy VAT exempt (see previous pages for not taxable) 1. Agricultural 2. Fertilizers 3. Percentage tax services 4. Medical, dental, hospital 5. Employer-employee 6. International agreement 7. Agri coop 8. Educational 9. CDA 10.Non-agri CDA 11.Low cost housing 12.Social housing 13.> P1,919,500 or P3,199,200 Input tax- VAT due on or paid by a VAT-registered person or importation of goods or local purchases of goods, properties or services including lease or use of property in course of his trade or business Sources of input tax: a. Transitional input tax-2% of value of beginning inventory on hand or actual VAT paid on such goods, material and supply whichever is higher b. Purchase or importation of goods 1. for sale 2. for conversion into or intended to form part of a finished product for sale, including packaging materials 3. supplied in the course of business 4. use of raw materials supplied in the sale of services or 5. use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code c. Purchase of real properties for which VAT has actually been paid d. Transactions deemed sale e. Presumptive Input tax - 4% of gross value in money of their purchases of primary agricultural products which are used as input to their production - Engaged in processing of sardines, mackerel and milk, refined sugar, cooking oil, packed noodle-based instant meals f. Transitional input tax credits allowed under the transitory and other provisions of these Regulations g. Creditable Withholding VAT on payments to non-residents h. Purchases of services in which a VAT has been actually paid Taxpayer Importer Purchaser of domestic goods or properties Purchaser of services or the lessee or licensee To the purchaser of real property under: Cash/Deferred payment basis Installment basis Time to claim input tax Upon payment of VAT prior to the release of goods from customs custody Upon consummation of sale Upon payment of the compensation, rental, royalty or fee Upon consummation of sale Upon every installment payment Output tax- VAT due on sale or lease of taxable goods or properties or services by any person registered or required to register under Sec 236 of Code. Creditable against output tax Tax Remedies Assessment (self, deficiency and jeopardy) - Computation of tax liabilities and demand for payment within the prescriptive period - Law and facts on which the assessment is made; otherwise, the assessment shall be void Constructive receipt- if credited or segregated in favor of a person. Constructive methods of income determination 1. percentage method 2. net worth method 3. bank deposit method 4. cash expenditure method 5. unit and value method 6. 3rd party information or access to records method 7. surveillance and assessment method Tax deficiency- amount by which tax imposed exceeds the amount shown as the tax by the taxpayer upon his return Tax delinquent- self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only partially paid or deficiency tax assessed by the BIR became final and executory. Powers of CIR 1. Examination of returns and determination of tax due 2. Use of best evidence obtainable 3. Authority to conduct inventory-taking, surveillance, and to prescribe additional procedural or documentary requirements and presumptive gross sales and receipts 4. terminate taxable period 5. real estate values 6. inquire into bank deposits 7. accredit and register tax agents Period of assessment and collection General rule: 3 years from last day of filing of return 1. If return filed before last day- 3years counted from last day of filing 2. If return filed after the last day- 3 yrs counted from last day of actual (late) filing Exceptions- 10 years from date of discovery of: a. Non-filing of return b. Filing of false or c. Filing of fraudulent return with intent to evade tax April 15- count of 3 yrs Period of collection 1. 5 yrs from assessment 2. 10 yrs without assessment, in case of false or fraudulent return with intent to evade tax or failure to file return BIR 2 options 1. Assess correct tax liability within 10 yrs from discovery and collect on said assessment within 5 yrs from assessment 2. File a proceeding in court for collection within 10 years from date of discovery of falsity, fraudulent or omission without assessment Fraud 1. Question of fact that cannot be presumed but must be sufficiently established 2. Understatement not tantamount to fraud; should be at least 30% underdeclaration of income prove intention and substantial understatement of tax liability 3. Fictitious expenses 4. Alleged and proved in court 5. Actual and not constructive, wrong doing with sole object of avoiding tax Suspension 3 years- not fixed -extended or suspended -If TP and BIR execute waiver - CIR prohibited from collecting on the tax, such as when TP appeals the decision of the CIR on disputed assessment on CTA -TP requests for reinvestigation granted by CIR -TP cannot be located -warrant of distraint or levy is duly served and no property could be located -TP is out of the Phil. -Taxpayer’s remedies- administrative protest, refund, CTA appeal RMO 12-99 1. Filing of return 2. 3. 4. 5. 6. 7. 8. 9. LOA Informal conferece PAN FAN Administrative protest Final decision Appeal to CIR Judicial appeal New Rule 1. 2. 3. 4. 5. 6. PAN FLD/FAN within 3 yr period Administrative protest FDDA Appeal Judicial 15 days to respond from receipt PAN not required (MDECP) 1. 2. 3. 4. Mathematical error Discrepancy between tax withheld and account actually remitted Excise tax not paid Taxpayer who opted to claim refund or tax credit of excess CWT carried over the amount 5. Article locally purchased or imported by an exempt person has been sold or traded to non-exempt persons Claim for excess and unutilized creditable withholding tax 1. 2. 3. 4. Within 2 yr Copies of the certificate of tax withheld Part of gross income of taxpayer Excess and unutilized CWT not carried over FAN 1. 2. 3. 4. 5. 6. In writing Name, address, TIN, basic tax, period, penalties, date tax must be paid Facts, laws, rules, regulations or jurisprudence Personal delivery or registered mail Signed by CIR or authorized representative Covered by LOA Administrative Protest 1. Within 30 days 2. 3. 4. 5. 6. Reconsideration Re-evaluation Reinvestigation- with new evidence and within 60 days Appeal to Commission CTA within 30 days Judicial appeal- 30 days or 30 days from last 180 Government Taxation Remedies- tax being final A. Administrative 1. Tax Lien -legal claim or charge on property in favor of government - not valid against any mortgagee, purchaser or judgment creditor -government lien superior to mortgage in good faith generally 2. Actual distraint- enforced on goods, chattels, effects other than personal property 3. Constructive distraint -retiring any business subject to tax -intending to leave Philippines -removing his property -intending to perform to obstruct proceeding 4. Levy of real property- seizure 5. Forfeiture to government- no bidder/insufficient bid to pay taxes, penalties and costs 6. An injunction not available to restrain collection of tax- CIR decision as an exception B. Judicial/Civil & Criminal 1. Approved of CIR in case of fraud and filing of tax evasion 2. Can file criminal case immediately 3. 25% surcharge- failure to file any return late payment 4. 50% surcharge- willful neglect to file and return/filing fraud Compromise- reasonable doubt to the validity of the claim against the TP exists and financial position of TP demonstrates clear inability to pay the assessed tax; CIR discretionary power to compromise court cannot interfere Abatement- tax or any portion thereof appears to be unjustly or excessively assessed and administrative and collection costs involved does not justify the collection of the amount due Cannot be compromised: 1. Withholding tax cases 2. Criminal tax fraud cases confirmed as such by the CIR/duly authorized representative 3. Criminal violation already filed in court 4. Delinquent accounts with duly approved schedule of installment payments 5. Cases where final report of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and TP is agreeable to such decision by signing the required agreement form 6. Cases which become final and executor after final judgment of court where compromise is requested on basis of doubtful validity 7. Estate tax cases where compromise is requested on the ground of financial incapacity of the TP. Local Government Taxation Fundamental Principles (UEPIP) 1. 2. 3. 4. 5. Uniform Equitable for public purpose, not unjust and not contrary to law Inure to benefit of local government unit Shall not be let any private person Progressive Nature and Source of Taxing Power-Each LGU can: 1. 2. 3. 4. Create its own sources of revenue pursuant to ordinance Levy, taxes, fees and charges Accrue solely/exclusively to the LGU Can also grant tax exemptions, incentive or reliefs Penalties 1. Surcharge not exceeding 25% of amount of taxes, fees or charges not paid on time 2. Interest not exceeding 2% per month of the unpaid taxes, fees or charges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months Exemptions are withdrawn unless otherwise provided Adjust local tax rates- LGU can adjust rates not oftener than 1 every 5 years - Not exceed 10% Scope of Taxing Power Provinces 1. 2. 3. 4. 5. 6. 7. Transfer of real property ownership Business of printing and publication Franchise tax Tax on sand, gravel and other quarry resources Professional tax Amusement tax Annual fixed tax for every delivery truck or van Municipalities- ceiling is 50% 1. Business-based on gross receipts not gross revenue and does not include condominiums 2. Licensing/regulation of business and occupation 3. Sealing and licensing of weights and measures 4. Fishery rentals, fees and charges 5. Community tax 6. Real Property Tax (RPT) within Metro Manila Cities 1. Same with provinces and municipalities 2. Levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of LGC 3. Rates on levy made by the City may exceed the maximum rates allowed for the province or municipality by not more than 50% Exceptions- rates of professional and amusement taxes Barangays 1. 2. 3. 4. Taxes on stores or retailers Service fees or charges Barangay clearance Other fees and charges Community tax – cities or municipalities may levy to Individuals 1. 2. 3. 4. 5. 6. Inhabitants of the Philippine 18 y.o. or over Regularly employed or salary basis Business or occupation Owns real property with an aggregate assessed value of P1K or more Required by law to file an income tax return Juridical 1. Every corporation no matter how created or organized 2. Whether domestic or resident foreign 3. Engaged in or doing business in the Philippines Persons Exempt 1. Diplomatic and consular representatives 2. Transient visitors who stay in the Philippines for not more than 3 months Place where individual resides where principal office is located Accrue on 1st January of each year to be paid not later than February 24% interest if unpaid Common limitations on the taxing powers of LGUs (IDEC-GAPEP-GRR-ECN) 1. 2. 3. 4. Income tax except when levied on banks and financial institutions Documentary stamp tax Estate tax Customs duties, except wharfage on wharves constructed and maintained by the LGU concerned 5. Goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or otherwise 6. Agricultural and aquatic products when sold by marginal farmers and fishermen 7. Pioneer or non-pioneer business enterprises for 6 and 4 years respectively from dates of registration and certified by Board of Investments 8. Excise taxes or articles enumerated under NIRC as amended, taxes, fees and charges on petroleum products 9. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein. 10.Gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in the Code 11.Taxes on premiums paid by way or reinsurance or retrocession 12.Motor vehicle registration except tricycles 13.Philippine product exported 14.Cooperatives 15.National Government Remedies Taxpayers Remedies 1. Assessment within 5 years from date they become due 2. In case of fraud- 10 years from discovery of fraud or intent to evade payment 3. Collection: 5 yrs from the date of assessment by administrative or judicial action Prescription period suspended 1. Treasurer- legally prevented 2. Reinvestigation 3. Out of the country or cannot be located Protest- within 60 days from receipt of Notice of Assessment Claims for refund of tax credit for erroneously or illegally collected tax, fee or charge 1. Written claim 2. Within 2 years Civil Remedies by LGU 1. Non-payment of a tax, fee or charge creates a lien superior to all liens or encumberances in favor of any other person, enforceable by administrative or judicial action 2. Lien may only be extinguished upon full payment of the delinquent local taxes, fees and charges including related surcharges and interests Criminal Remedies 1. Administrative Action 2. Judicial Action Distraint of personal property 1. 2. 3. 4. 5. 6. Seizure of personal property Accounting of distrained goods Publication of time and place of sale and articles Release of distrained property upon payment prior to sale Procedure of sale Disposition of proceeds Levy of real property 1. 2. 3. 4. Duly authenticated certificate Written notice of levy Connotation of levy Advertisement and sale Exceptions (TOB-CUPLA) 1. 2. 3. 4. 5. 6. Tools and implements necessary for trade or employment One horse, cow, carabao or other beast Clothing and that of his family Furniture and fixtures and utensils used in household not exceeding P10000 Provisions, including crops sufficient for 4 months Libraries of doctors, engineers, one fishing boat and net not exceeding P10000 7. Any material or article for house or improvement of any real property Judicial Action 1. Local government may institution or ordinary civil action with regular courts of proper jurisdiction for the collection of delinquent taxes, fees, charges or other revenues 2. The civil action shall be filed by the local treasurer. Real Property Taxation Principles (CAPUE) 1. Current fair market value basis for assessment 2. Actual use 3. Private person cannot be left to appraisal, assessment, levy and collection of real property tax 4. Uniform classification within each local government unit 5. Equitable appraisal and assessment Nature (DAPSA) 1. 2. 3. 4. 5. 6. Direct tax Ad valorem tax Proportionate Single/ indivisible obligation Attaches on the property Levied through/thru a delegated power Coverage 1. 2. 3. 4. Land Building Machinery Other improvements If province 1% of assessed value of real property, city or municipality within Metro Manila- 2% of real property If idle lands- 5% of assessed value of property+ basic tax Covered idle lands Agricultural lands- more than 1 ha suitable for cultivation, dairying, inland, fishery and other agricultural uses one-half ½ of which remain unutilized or unimproved. Other than agricultural- more than 1000 sqm in area ½ of which unutilized/unimproved Exempt idle lands 1. 2. 3. 4. Force majeure Civil disturbance Natural calamity Or any cause or circumstance which physically or legally prevents improving, utilizing or cultivating the same Special levy for public works - - With reasonable accuracy the nature, extent and location of the public works to be undertaken, the estimated costs, the metes and bounds by monuments and lines and the number of annual installments which should not be less than 5 nor more than 10 years Sanggunian may fix different rates for different parts or sections thereof, depending on whether such land is more or less benefited by the proposed work Special Education Fund (SEF) - Province, or city of municipality within Metro Manila may levy and collect an actual tax of one percent on the accessed value of real property which shall be in addition to the basic real property tax Exemption from real property tax (RPT)- RCWCE 1. Owned by Republic of the Philippines 2. Charitable institutions, churches et al actually, directly or exclusively used for religious, charitable or educational purposes 3. Local water utilities- actually, directly and exclusively machineries and equipment 4. Cooperatives- real property owned by Cooperative 5. Machinery and equipment used for pollution control and environmental protection Proof of Exemption (DA30T) 1. Documentary evidence 2. Give to local assessor 3. Within 30 days from date of declaration 4. Failure to file will be listed as taxable GOCC- not covered by exemption since exemption only refers to instrumentalities without personalities distinct from the government (MIAA and PPA cases) Lung Center vs QC- charitable institution/hospital use for its patients, paying or non-paying, are exempt -property leased to private entities are not exempt because it is not actually, directly and exclusively used for charitable purposes Administration of Real Property Tax 1. Declaration of real property by owner or administrator -sworn statement -sufficient description -1 every 3 years- January 1 to June 30 2. Declaration by any person acquiring real property or making improvement -sworn statement of true value of property -to provincial, city and municipal assessor within 60 days after acquisition or improvement 3. Declaration by the provincial or city or municipal assessor 4. Notice of transfer within 60 days; includes mode of transfer, description of the property alienated and name and address of the transferee 5. Listing of Real Property in the Assessment Rolls a. Real Property- name of owner, administrator or anyone having interest in the property; same with corporation, partnership or association b. Undivided real property- estate, heirs, devisees or one/more co-owners and same with corporation, partnership or association c. Real property owned by RP, instrumentalities, political subdivision, beneficial use has been granted to a taxable person. In the name of the possessor, grantee or the public entity if such property has been acquired or held for resale or lease Classes of Real Property 1. Residential 2. Agricultural 3. Commercial 4. Industrial 5. Mineral 6. Timberland 7. Special- all lands, buildings and other improvements actually, directly and exclusively used for hospital, cultural or scientific purposes, and those owned and used by local water districts and GOCCs rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power Machinery- FMV is acquisition cost - If imported- includes freight, insurance, bank and other charges, brokerage, arrastre ad handling, duties and taxes, plus cost of inland transpo, handling and installation charges at the present site Estimated economic life * replacement or reproduction cost Depreciation= 5% of original cost or replacement cost per year Remaining value fixed at not less than 20% of such original, replacement or reproduction costs as long as useful and in operation Assessment level- FMV taxable value of property, ordinance, every 3 years and every 1 January except: 1. 2. 3. 4. 5. - Partial or total deduction Major change in actual use Great and sudden inflation or deflation or real property values Gross illegality of the assessment when made Any other abnormal cause shall be made within 90 days from the date of any cause and shall take effect at the beginning of the quarter next ff. the reassessment Subject to back taxes= 10 yrs prior Notification- within 30 days Collection 1. 1 January accrual 2. Notice 1 wk for 2 consecutive weeks by local treasurer on or before 31 January 3. Local treasurer= collecting authority Prescription: a. Within 5 years from date they become due b. Within 10 years from discovery of fraud Suspension of Prescriptive Period 1. Legally prevented 2. Reinvestigation 3. Out of country or cannot be located Unpaid real property tax interest= 2% per month Condonation- Sanggunian, President of the Philippines Remedies of LGU for RPT Collection 1. Lien 2. Levy 3. Judicial 5-10 years by local treasurer Purchase by LGU forward of bidder 1. Local treasurer- within 2 yrs 2. Redemption- within 1 yr from date of forfeiture Redemption of taxpayer 1. Protest- administrative 2. Judicial- 30/60 days
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