Escolar Documentos
Profissional Documentos
Cultura Documentos
TABLE OF CONTENTS
J. SCOPE AND LIMITATION OF TAXATION. 16
J.1. INHERENT LIMITATIONS .................. 16
J.2. CONSTITUTIONAL LIMITATIONS .....20
K. REQUISITES OF A VALID TAX ................ 27
L. TAX AS DISTINGUISHED FROM OTHER
FORMS OF EXACTIONS .............................. 28
L.1. TARIFF .............................................. 28
L.2. TOLL................................................. 28
L.3. LICENSE FEE .................................... 28
L.4. SPECIAL ASSESSMENT ................... 29
L.5. DEBT ................................................ 30
L.6. PENALTY.......................................... 30
M. KINDS OF TAXES ................................... 30
M.1. AS TO OBJECT ................................. 30
M.2. AS TO BURDEN OR INCIDENCE ......31
M.3. AS TO TAX RATES ............................31
M.4. AS TO SCOPE (OR AUTHORITY
IMPOSING THE TAX) ................................ 31
M.5. AS TO GRADUATION ...................... 32
A. INCOME TAX SYSTEMS .......................... 33
A.1. GLOBAL TAX SYSTEM ...................... 33
A.2. SCHEDULAR TAX SYSTEM .............. 33
A.3. SEMI-SCHEDULAR OR SEMI-GLOBAL
TAX SYSTEM ........................................... 33
B. FEATURES OF THE PHILIPPINE INCOME
TAX LAW ..................................................... 33
C. CRITERIA IN IMPOSING PHILIPPINE
INCOME TAX............................................... 34
C.1. CITIZENSHIP OR NATIONALITY
PRINCIPLE .............................................. 34
C.2. RESIDENCE PRINCIPLE ................... 34
C.3. SOURCE OF INCOME PRINCIPLE .... 34
D. TYPES OF PHILIPPINE INCOME TAX...... 34
E.1. INSTANCES WHEREBY SHORT
ACCOUNTING PERIOD ARISES .............. 34
E.2. WHEN CALENDAR YEAR SHALL BE
USED IN COMPUTING TAXABLE INCOME:
................................................................ 35
F. KINDS OF TAXPAYERS ........................... 35
F.1. DEFINITION OF EACH KIND OF
TAXPAYER .............................................. 35
F.2. INDIVIDUAL TAXPAYERS ................ 36
F.3. CORPORATIONS .............................. 36
F.4. PARTNERSHIP ................................. 37
F.5. ESTATES AND TRUSTS ................... 37
TAXATION LAW 1
I. GENERAL PRINCIPLES OF TAXATION ...........1
A. DEFINITION AND CONCEPT OF
TAXATION .....................................................1
A.1. TAXATION ...........................................1
A.2. TAXES .................................................1
B. UNDERLYING THEORY AND BASIS OF
TAXATION .....................................................1
C. NATURE OF THE POWER OF TAXATION ..1
C.1. SCOPE OF TAXATION......................... 2
C.2. EXTENT OF THE LEGISLATIVE
POWER TO TAX ........................................ 2
D. ESSENTIAL CHARACTERISTICS OF TAX
.................................................................. 3
E. POWER OF TAXATION COMPARED WITH
OTHER POWERS .......................................... 4
F. PURPOSE OF TAXATION .......................... 5
F.1. REVENUE-RAISING ............................ 5
F.2.
NON-REVENUE/SPECIAL
OR
REGULATORY ........................................... 5
G. PRINCIPLES OF SOUND TAX SYSTEM..... 6
G.1. FISCAL ADEQUACY ............................ 6
G.2. ADMINISTRATIVE FEASIBILITY ......... 6
G.3. THEORETICAL JUSTICE OR EQUALITY
.................................................................. 6
H. THEORY AND BASIS OF TAXATION ......... 6
H.1. LIFEBLOOD THEORY ......................... 6
H.2. NECESSITY THEORY ......................... 6
H.3. BENEFITS-PROTECTION THEORY
(SYMBIOTIC RELATIONSHIP) ................... 6
H.4. JURISDICTION OVER SUBJECT AND
OBJECTS ................................................... 7
I. DOCTRINES IN TAXATION ........................ 7
I.1. PROSPECTIVITY OF TAX LAWS ........... 7
I.2. NON-RETROACTIVITY OF RULINGS
(SEC. 246) ................................................. 7
I.3. IMPRESCRIPTIBILITY .......................... 7
I.4. DOUBLE TAXATION ............................ 8
I.5. ESCAPE FROM TAXATION .................. 9
I.6. EXEMPTION FROM TAXATION ......... 10
I.7. COMPENSATION AND SET-OFF ........12
I.8. COMPROMISE ...................................12
I.9. TAX AMNESTY ...................................12
I.10.
CONSTRUCTION
AND
INTERPRETATION OF: ............................. 13
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TABLE OF CONTENTS
F.6. CO-OWNERSHIP.............................. 37
G. INCOME TAXATION................................ 37
G.1. DEFINITION ...................................... 37
G.2. NATURE .......................................... 37
G.3. GENERAL PRINCIPLES .................... 38
H. INCOME.................................................. 38
H.1. DEFINITION ...................................... 38
H.2. NATURE .......................................... 38
I. GROSS INCOME ...................................... 43
I.1. DEFINITION ....................................... 43
I.2. CONCEPT OF INCOME FROM
WHATEVER SOURCE DERIVED .............. 43
I.3. GROSS INCOME VIS--VIS NET
INCOME VIS--VIS TAXABLE INCOME ...44
I.4. CLASSIFICATION OF INCOME AS TO
SOURCE ..................................................44
I.5. SOURCES OF INCOME SUBJECT TO
TAX .........................................................44
SOURCE RULES IN DETERMINING INCOME
FROM WITHIN AND WITHOUT ................... 66
SITUS OF INCOME TAXATION ................68
EXCLUSIONS FROM GROSS INCOME ........68
(A)
EXCLUSIONS
UNDER
THE
CONSTITUTION ...................................... 69
(B) EXCLUSIONS UNDER THE TAX CODE
(SEC. 32, NIRC) ....................................... 69
(C) UNDER SPECIAL LAWS ..................... 72
DEDUCTIONS FROM GROSS INCOME ....... 73
ITEMIZED DEDUCTIONS ........................ 74
EXPENSES .............................................. 74
INTEREST ............................................... 78
TAXES .................................................... 80
LOSSES ................................................... 82
BAD DEBTS.............................................84
DEPRECIATION ......................................85
CHARITABLE
AND
OTHER
CONTRIBUTIONS....................................86
CONTRIBUTIONS TO PENSION TRUSTS 87
DEDUCTIONS UNDER SPECIAL LAWS ... 87
OPTIONAL STANDARD DEDUCTION .....88
EXEMPT CORPORATIONS ...................... 91
TAXATION OF RESIDENT CITIZENS, NONRESIDENT CITIZENS AND RESIDENT ALIENS
.................................................................... 93
TAXATION ON COMPENSATION INCOME . 95
TAXATION
OF
BUSINESS
INCOME/INCOME FROM PRACTICE OF
PROFESSION ..........................................98
TAXATION OF PASSIVE INCOME............98
TAXATION OF CAPITAL GAINS.............. 101
TAXATION OF NON-RESIDENT ALIENS
ENGAGED IN TRADE OR BUSINESS ........ 105
GENERAL RULES.................................. 105
CASH AND/OR PROPERTY DIVIDENDS
.............................................................. 105
CAPITAL GAINS .................................... 106
NON-RESIDENT ALIENS NOT ENGAGED IN
TRADE OR BUSINESS .............................. 106
INDIVIDUAL TAXPAYERS EXEMPT FROM
INCOME TAX............................................. 107
SENIOR CITIZENS ................................. 107
MINIMUM WAGE EARNERS ................. 107
EXEMPTIONS
GRANTED
UNDER
INTERNATIONAL AGREEMENTS (SEC.
32(B)) .................................................... 107
TAXATION OF DOMESTIC CORPORATIONS
.................................................................. 107
TAX PAYABLE ....................................... 107
REGULAR TAX ...................................... 107
MINIMUM CORPORATE INCOME TAX
(MCIT) ................................................... 108
CORPORATIONS EXEMPT FROM THE
MCIT: (BIPTENG) .................................... 112
ALLOWABLE DEDUCTIONS ...................... 112
ITEMIZED DEDUCTIONS........................ 112
TAXATION OF PASSIVE INCOME .............. 112
PASSIVE INCOME SUBJECT TO TAX...... 112
PASSIVE INCOME NOT SUBJECT TO TAX
............................................................... 113
TAXATION OF CAPITAL GAINS ................. 114
INCOME FROM SALE OF SHARES OF
STOCK.................................................... 114
INCOME FROM THE SALE OF REAL
PROPERTY
SITUATED
IN
THE
PHILIPPINES .......................................... 114
TAX ON PROPRIETARY EDUCATIONAL
INSTITUTIONS
AND
NON-PROFIT
HOSPITALS................................................ 114
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TAX ON GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS, AGENCIES
OR INSTRUMENTALITIES ......................... 114
FOR GOCCS: .......................................... 114
FOR
INSTRUMENTALITIES
AND
AGENCIES OF GOVERNMENT: .............. 115
TAXATION
OF
RESIDENT
FOREIGN
CORPORATIONS ....................................... 115
GENERAL RULE ..................................... 115
WITH RESPECT TO THEIR INCOME FROM
SOURCES WITHIN THE PHILIPPINES .... 116
MINIMUM CORPORATE INCOME TAX .. 116
TAX ON CERTAIN INCOME ........................ 116
TAXATION OF NON-RESIDENT FOREIGN
CORPORATIONS ....................................... 118
GENERAL RULE ..................................... 118
TAX ON CERTAIN INCOME .................... 118
IMPROPERLY ACCUMULATED EARNINGS
OF CORPORATIONS .............................. 121
TAX EXEMPT CORPORATIONS .................123
TAXATION OF PARTNERSHIPS .................123
CLASSIFICATION OF PARTNERSHIPS FOR
TAX PURPOSES .....................................123
TAXATION OF GENERAL PROFESSIONAL
PARTNERSHIPS ................................... 125
WITHHOLDING TAX.................................. 126
CONCEPT .............................................. 126
KINDS .................................................... 127
WITHHOLDING OF VAT ........................ 128
FILING OF RETURN AND PAYMENT OF
TAXES WITHHELD ................................ 128
FINAL WITHHOLDING TAX AT SOURCE129
CREDITABLE WITHHOLDING TAX ......... 131
TIMING OF WITHHOLDING ....................135
TAXATION LAW 2
I. ESTATE TAX ............................................... 137
A. BASIC PRINCIPLES................................ 137
B. DEFINITION .......................................... 137
C. NATURE ................................................ 137
D. PURPOSE OR OBJECT .......................... 137
E. TIME AND TRANSFER OF PROPERTIES
.................................................................. 138
F. CLASSIFICATION OF DECEDENT ..........139
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TABLE OF CONTENTS
J. VALUATION OF GIFTS MADE IN
PROPERTY ............................................... 164
K. TAX CREDIT FOR DONORS TAXES PAID
IN A FOREIGN COUNTRY ......................... 165
L. EXEMPTIONS OF GIFTS FROM DONORS
TAX ........................................................... 166
M. PERSON LIABLE .................................. 166
N. TAX BASIS ............................................. 167
SUMMARY OF TRANSFER TAXES............ 169
III. VALUE-ADDED TAX (VAT) ........................ 174
A. CONCEPT .............................................. 174
B. CONSTITUTIONALITY OF VAT............... 174
C. CHARACTERISTICS/ELEMENTS OF A
VAT-TAXABLE TRANSACTION .................. 174
D. IMPACT OF TAX V. INCIDENT OF TAX .. 176
E. TAX CREDIT METHOD ........................... 176
F. DESTINATION PRINCIPLE ..................... 177
G. PERSONS LIABLE ................................. 177
G. VAT ON SALE OF GOODS OR
PROPERTIES ............................................. 178
I. ZERO-RATED SALES OF GOODS OR
PROPERTIES, AND EFFECTIVELY ZERORATED SALES OF GOODS OR PROPERTIES
................................................................... 181
J. TRANSACTIONS DEEMED SALE (SEC. 106
(B) ............................................................. 184
K. CHANGE OR CESSATION OF STATUS AS
VAT-REGISTERED PERSON (SEC 106 C) .. 185
L. VAT ON IMPORTATION OF GOODS ..... 186
M. VAT ON SALE OF SERVICE AND USE OR
LEASE OF PROPERTIES ........................... 186
N. ZERO-RATED SALE OF SERVICES....... 189
O. VAT EXEMPT TRANSACTIONS ............ 190
P. INPUT TAX AND OUTPUT TAX, DEFINED
.................................................................. 195
Q. SOURCES OF INPUT TAX..................... 195
R. PERSONS WHO CAN AVAIL OF INPUT
TAX CREDIT .............................................. 196
S. DETERMINATION OF OUTPUT/INPUT
TAX; VAT PAYABLE; EXCESS INPUT TAX
CREDITS .................................................... 197
S.1. DETERMINATION OF OUTPUT TAX 197
S.2. DETERMINATION OF INPUT TAX
CREDITABLE .......................................... 197
TABLE OF CONTENTS
COMMON LIMITATIONS ON THE TAXING
POWERS OF LGUS ...................................288
COLLECTION OF BUSINESS TAX .............289
TAX PERIOD AND MANNER OF PAYMENT
..............................................................289
ACCRUAL OF TAX .................................289
TIME OF PAYMENT ...............................289
PENALTIES ON UNPAID TAXES, FEES OR
CHARGES .............................................289
AUTHORITY
OF
TREASURER
IN
COLLECTION AND INSPECTION OF
BOOKS ..................................................289
TAXPAYERS REMEDIES ..........................289
PERIODS
OF
ASSESSMENT
AND
COLLECTION OF LOCAL TAXES, FEES OR
CHARGES .............................................289
PROTEST OF ASSESSMENT ................ 290
CLAIM FOR REFUND OF TAX CREDIT FOR
ERRONEOUSLY
OR
ILLEGALLY
COLLECTED TAX, FEE OR CHARGE .... 290
CIVIL REMEDIES BY THE LGU FOR
COLLECTION OF REVENUES .................. 290
LOCAL GOVERNMENTS LIEN FOR
DELINQUENT TAXES, FEES OR CHARGES
............................................................. 290
CIVIL REMEDIES, IN GENERAL ............ 290
PROCEDURE FOR ADMINISTRATIVE
ACTION ................................................ 290
PROCEDURE FOR JUDICIAL ACTION ... 291
B. REAL PROPERTY TAXATION ............... 291
A. FUNDAMENTAL PRINCIPLES (CAPUE)
.............................................................. 291
B. NATURE OF REAL PROPERTY TAX .. 291
C. IMPOSITION OF REAL PROPERTY TAX
.............................................................. 292
C.1. COVERAGE ..................................... 292
FOR A PROVINCE, OR A CITY OR
MUNICIPALITY WITHIN METRO MANILA
.............................................................. 292
SPECIAL LEVY ON IDLE LANDS............ 292
SPECIAL LEVY FOR PUBLIC WORKS .... 292
SPECIAL EDUCATION FUND (SEF) ....... 292
C.2. EXEMPT FROM REAL PROPERTY TAX
.............................................................. 292
TABLE OF CONTENTS
D. FLEXIBLE TARIFF CLAUSE ................... 303
E. REQUIREMENTS OF IMPORTATION ....304
E.1. BEGINNING AND ENDING OF
IMPORTATION ......................................304
E.2. OBLIGATIONS OF IMPORTER .......304
I. CARGO MANIFEST.............................304
II. IMPORT ENTRY.................................305
III. DECLARATION OF CORRECT WEIGHT
OR VALUE .............................................306
IV. LIABILITY FOR PAYMENT OF DUTIES
..............................................................306
V. LIQUIDATION OF DUTIES .................306
VI. KEEPING OF RECORDS ................... 307
F. IMPORTATION IN VIOLATION OF TCC 308
F.1. SMUGGLING .................................. 308
F.2. OTHER FRAUDULENT PRACTICES
............................................................. 308
G. CLASSIFICATION OF GOODS ...............309
G.1. TAXABLE IMPORTATION ...............309
G.2. PROHIBITED IMPORTATION .........309
G.3.
CONDITIONALLY-FREE
IMPORTATION ...................................... 310
H. CLASSIFICATION OF DUTIES ................316
H.1. ORDINARY/REGULAR DUTIES.......316
I. AD VALOREM; METHODS OF
VALUATION ...........................................316
II. SPECIFIC ............................................319
H.2. SPECIAL DUTIES ............................319
I. REMEDIES ..............................................319
I.1. GOVERNMENT .................................319
I. ADMINISTRATIVE/EXTRAJUDICIAL ...319
II. JUDICIAL ............................................321
I.2. TAXPAYER .......................................321
I. PROTEST ............................................321
II. ABANDONMENT ................................ 321
III. ABATEMENT AND REFUND ............ 322
X. JUDICIAL REMEDIES ................................ 328
A. JURISDICTION OF THE COURT OF TAX
APPEALS .................................................. 328
A.1. CIVIL TAX CASES ............................ 328
I. EXCLUSIVE ORIGINAL JURISDICTION
.............................................................. 328
II. EXCLUSIVE APPELLATE JURISDICTION
.............................................................. 328
CTA DIVISION ....................................... 328
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TABLE OF CONTENTS
C.3. REQUISITES FOR CHALLENGING THE
CONSTITUTIONALITY OF A TAX MEASURE
OR ACT OF TAXING AUTHORITY .......... 334
I. CONCEPT OF LOCUS STANDI AS
APPLIED IN TAXATION ......................... 334
II. DOCTRINE OF TRANSCENDENTAL
IMPORTANCE ....................................... 335
III.
RIPENESS
FOR
JUDICIAL
DETERMINATION ................................. 336
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TAXATION LAW 1
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I. General Principles of
Taxation
TAXATION LAW
A.2. TAXES
(a) are enforced proportional contributions
from persons and property levied by the
law-making body of the State by virtue of its
sovereignty for the support of the
government and all public needs.
(b) The enforced proportional and pecuniary
contributions from persons and property
levied by the law-making body of the state
having jurisdiction over the subject of the
burden for the support of the government
and public needs.
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TAXATION 1
businesses,
transactions,
rights,
or
privileges. A state is free to select the
subject of taxation and it has been
repeatedly held that that inequalities which
result from a singling out of one particular
class for taxation or exemption infringe no
constitutional limitation so long as such
exemption is reasonable and not arbitrary.
(see Lutz vs. Araneta, 98 Phil. 148; Sison, Jr.
vs. Ancheta, 130 SCRA 654 [1984])
C.2. EXTENT OF
POWER TO TAX
THE
TAXATION LAW
LEGISLATIVE
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been extinguished
prescription.
TAXATION 1
by
reason
of
TAXATION LAW
implementation of tax laws. The legislature
possesses the sole power to prescribe the
mode or method by which the tax shall be
collected, and to designate the officers
through whom its will shall be enforced as
well as the remedies which the State or the
taxpayer may avail in connection therewith.
privileges, or transactions.
(5) It is levied by the State which has
jurisdiction or control over the subject to be
taxed.
(6) It is levied by the law-making body of the
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TAXATION 1
TAXATION LAW
2. As to scope
3. As to authority
4. As to purpose
Taxation
Police Power
Eminent Domain
Power
to
enforce
contribution to raise
government funds
Plenary, comprehensive
and supreme
Exercised
only
by
government
or
its
political subdivisions
Money is taken to support
the government
Continuous
protection
and organized society
8. As to amount Generally no limit
of imposition
9.
As
importance
10.
As
relationship
Constitution
11.
As
limitation
to Inseparable
for
the
existence of a nation it
supports police power
and eminent domain
to Subject to Constitutional
to and Inherent limitations.
Inferior
to
nonimpairment clause.
to Constraints
by
Constitutional
and
Inherent limitations
Can
be
expressly
delegated to the local
government units by the
law making body
Operates
on
the
particular
private
property of an individual
Healthy
economic Market value of the
standard of society
property expropriated
Cost
of
regulation, No imposition
license
and
other
necessary expenses
Protection, safety and Common necessities and
welfare of society
interest of the community
transcend
individual
rights in property
Relatively
free
from Superior to and may
Constitutional
override Constitutional
limitations.
impairment
provision
Superior
to
non- because the welfare of
impairment clause.
the State is superior to
any private contract
Limited by the demand Bounded
by
public
for public interest and purpose
and
just
due process
compensation
[Valencia and Roxas, Income Taxation 6th Edition (2013-2014), Valencia Educational Supply, pp. 9-10]
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TAXATION 1
F. PURPOSE OF TAXATION
F.1. REVENUE-RAISING
Primary purpose of taxation is to provide funds
or property with which to promote the general
welfare and protection it its citizens.
Fees may be properly regarded as taxes even
though they also serve as an instrument of
regulation... If the purpose is primarily revenue,
or if revenue is, at least, one of the real and
substantial purposes, then the exaction is
properly called a tax. [PAL v. Edu, G.R. No. L41383 August 15, 1988
F.2.
NON-REVENUE/SPECIAL
REGULATORY
TAXATION LAW
OR
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TAXATION 1
G.3.
THEORETICAL
EQUALITY
JUSTICE
TAXATION LAW
OR
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TAXATION 1
TAXATION LAW
Exceptions:
(1) Where the taxpayer deliberately misstates
or omits material facts from his return or
any document required of him by 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)
I. DOCTRINES IN TAXATION
I.1. PROSPECTIVITY OF TAX LAWS
General rule: Tax laws are prospective in
operation. Reason: Nature and amount of the
tax could not be foreseen and understood by
the taxpayer at the time the transaction.
Exception: Tax laws may be applied
retroactively provided it is expressly declared
or clearly the legislative intent.(e.g increase
taxes on income already earned)
when retroactive application would be so
harsh and oppressive (Republic v. Fernandez,
G.R. No. L-9141. September 25, 1956).
I.3. IMPRESCRIPTIBILITY
Unless otherwise provided by the tax itself,
taxes are imprescriptible. (CIR v. Ayala
Securities Corporation)
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TAXATION 1
TAXATION LAW
Government
Code-
prescribes
prescriptive periods for the assessment (5
years) and collection (5 years) of taxes. (see
Sections 194 and 270, Rep. Act No. 7160).
authority;
(5) within the same territory, jurisdiction or
taxing district;
(6) during the same taxing period; and
(7) of the same kind or character of tax.
ii. Broad
Taxation)
sense
(Indirect
Duplicate
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TAXATION 1
TAXATION LAW
ii. Transformation
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TAXATION 1
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cannot be
assigned or transferred without the consent
of the Legislature. The legislative consent to
the transfer may be given either in the
original act granting the exemption or in a
subsequent law
(2) General rule: revocable by the government.
Exception: if founded on a contract which is
protected from impairment. But the
contract must contain the essential
elements of other contracts. An exemption
provided for in a franchise, however, may be
repealed or amended pursuant to the
Constitution (see Sec. 11, Art. XII). A
legislative franchise is in the nature of a
contract.
(3) Implies a waiver on the part of the
government of its right to collect taxes due
to it, and, in this sense, is prejudicial
thereto. Hence, it exists only by virtue of an
express grant and must be strictly
construed.
(4) Not necessarily discriminatory, provided it
has reasonable foundation or rational basis.
Where, however, no valid distinction exists,
the exemption may be challenged as
violative of the equal protection guarantee
or the uniformity rule.
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TAXATION 1
TAXATION LAW
government, acting in its private capacity,
sheds its cloak of authority and waives its
governmental immunity.
policy.
(3) It may be created in a treaty on grounds of
reciprocity or to lessen the rigors of
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TAXATION 1
TAXATION LAW
I.8. COMPROMISE
(a) A contract whereby the parties, by making
reciprocal concessions avoid litigation or
put an end to one already commenced. (Art.
2028, Civil Code). It involves a reduction of
the taxpayers liability.
(b) Requisites of a tax compromise:
(1) The taxpayer must have a tax liability.
(2) There must be an offer (by the taxpayer
or Commissioner) of an amount to be
paid by the taxpayer.
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TAXATION LAW
Exceptions:
(1) The rule of strict construction as against the
government is not applicable where the
language of the statute is plain and there is
no doubt as to the legislative intent. (see 51
Am.Jur.368). In such case, the words
employed are to be given their ordinary
meaning. Ex. Word individual was
changed by the law to person. This clearly
indicates that the tax applies to both
natural and juridical persons, unless
otherwise expressly provided.
(2) The rule does not apply where the taxpayer
claims exemption from the tax.
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(Comm. V. Arnoldus Carpentry Shop, Inc.,
159 SCRA 19 [1988]).
The
Secretary
of
Finance,
upon
recommendation of the CIR, shall promulgate
all needful rules and regulations for the
effective enforcement of the provisions of the
NIRC. (Sec. 244)
520(1990)]
Exceptions:
(a) When the law itself expressly provides for a
liberal construction, that is, in case of doubt,
it shall be resolved in favor of exemption;
and
(b) When the exemption is in favor of the
government itself or its agencies, or of
religious, charitable, and educational
institutions because the general rule is that
they are exempt from tax.
(c) When the exemption is granted under
special circumstances to special classes of
persons.
(d) If there is an express mention or if the
taxpayer falls within the purview of the
exemption by clear legislative intent, the
rule on strict construction does not apply.
14
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TAXATION LAW
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J. SCOPE
TAXATION
AND
LIMITATION
TAXATION LAW
OF
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Exceptions
(1) Delegation to local governments - This
exception is in line with the general
principle that the power to create municipal
corporations for purposes of local selfgovernment carries with it, by necessary
implication, the power to confer the power
to tax on such local governments. (1 Cooley
190). This is logical for after all, municipal
corporations are merely instrumentalities of
the state for the better administration of the
government in respect to matters of local
concern. (Pepsi-Cola Bottling Co. of the Phil.
and Acosta]
General Rule: Delegata potestas non potest
delegari. The power to tax is exclusively vested
in the legislative body and it may not be redelegated.
Judge Cooley enunciates the doctrine in the
following oft-quoted language: "One of the
settled maxims in constitutional law is that the
power conferred upon the legislature to make
laws cannot be delegated by that department
to any other body or authority. Where the
sovereign power of the state has located the
authority, there it must remain; and by the
constitutional agency alone the laws must be
made until the Constitution itself is charged.
[People v. Vera, G.R. No. L-45685, November
16, 1937]
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TAXATION 1
TAXATION LAW
iii. Territorial
Rule: A state may not tax property lying
outside its borders or lay an excise or privilege
tax upon the exercise or enjoyment of a right or
privilege derived from the laws of another state
and therein exercise and enjoyed. (51 Am.Jur.
87-88).
Reasons:
(1) Tax laws (and this is true of all laws) do not
operate beyond a countrys territorial limits.
(2) Property which is wholly and exclusively
within the jurisdiction of another state
receives none of the protection for which a
tax is supposed to be a compensation.
Note: Where privity of relationship exists. - It
does not mean, however, that a person outside
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1. Income Tax
Taxpayer
Citizenship
Filipino
Filipino
Alien
Alien
Source of Income
Residency
Resident
Non-Resident
Resident
Non-Resident
Within Phils.
Taxable
Taxable
Taxable
Taxable
2. Property Tax
Kind of Property
Real property
Tangible Personal
property
Tangible Personal
property
Intangible personal
property (e.g., credits,
bills receivables, bank
deposits, bonds,
promissory notes,
mortgage loans,
judgments and
corporate stocks)
Without Phils.
Taxable
Non-Taxable
Non-Taxable
Non-Taxable
3. Excise Tax
Situs
Where it is located
(lex rei sitae)
Where property is
physically
located
although the owner
resides in another
jurisdiction.
Gen Rule: Domicile of
the owner. Mobilia
Income
Donors Tax
Estate
sequuntur personam
(movables follow the
person)
Situs
Source of the income,
nationality
or
residence of taxpayer
(Sec. 23, NIRC)
Location of property;
nationality
or
residence of taxpayer
Location of property;
nationality
or
residence of taxpayer
4. Business Tax
Situs
VAT
Where transaction is
made
Sale of Real Property
Where
the
real
property is located
Sale
of
Personal Where the personal
Property
property was sold
v. International Comity
Comity - respect accorded by nations to each
other because they are sovereign equals. Thus,
the property or income of a foreign state or
government may not be the subject of taxation
by another state.
Reasons:
(1) In par in parem non habet imperium. As
between equals there is no sovereign
(Doctrine of Sovereign Equality among
states under international law). One state
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Test of
Exemption
Nature of Use
Scope of
Exemption
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(3) All revenues and assets of non-stock, nonprofit educational institutions used actually,
directly, and exclusively for educational
purposes shall be exempt from taxes and
duties.
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educational purposes.
Property taxes
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Income, property,
and donors taxes
and custom duties.
Note:
(1) Local government units may, through
ordinances duly approved, grant tax
exemptions, incentives or reliefs under such
terms and conditions as they may deem
necessary. (Sec. 192, LGC)
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1. Due process
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3. Religious freedom
2. Equal protection
exercise clause)
No religious test shall be required for the
exercise of civil and political rights.
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L.1. TARIFF
Taxes
Tariff
L.2. TOLL
Taxes
Imposed on persons,
property
and
to
exercise a privilege.
Failure to pay does
not necessarily make
the act or business
illegal.
Toll
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License and
Regulatory Fee
Levied under the
police power of the
state.
Exacted primarily to
regulate
certain
businesses
or
occupations.
Should
not
unreasonably exceed
the
expenses
of
issuing the license
and of supervision.
Imposed only on the
right to exercise a
privilege
Failure to pay makes
the act or business
illegal.
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taking into account not only the costs of
direct regulation but also its incidental
consequences as well.
Taxes
Levied not only on
land.
Imposed regardless
of
public
improvements
Contribution of a
taxpayer
for
the
support
of
the
government.
It
has
general
application both as to
time and place.
Special Assessment
Levied only on land.
Imposed because of
an increase in value
of land benefited by
public improvement.
Contribution of a
person
for
the
construction of a
public improvement
Exceptional both as
to time and locality.
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L.6. PENALTY
Note: The term "special levy" is the name used
in the present Local Government Code (RA. No.
7160). A province, city, or municipality, or the
Taxes
L.5. DEBT
Taxes
Penalty
Debt
Based on laws
Generally based on
contract, express or
implied.
Generally cannot be Assignable
assigned
Generally paid in May be paid in kind.
money
Cannot be a subject Can be a subject of
of
set
off
or set
off
or
compensation
compensation
(see
Art. 1279, Civil Code)
A person cannot be Imprisonment is a
imprisoned for non- sanction for nonpayment of debt payment
of
tax,
(except when it arises except poll tax.
from a crime),
Governed by the Governed by the
special prescriptive ordinary periods of
periods provided for prescription.
in the NIRC.
Does
not
draw Draws interest when
interest except only it is so stipulated or
when delinquent
where
there
is
default.
Imposed only by Can be imposed by
public authority
private individual
M. KINDS OF TAXES
M.1. AS TO OBJECT
(1) Personal, Poll or Capitation Tax tax of a
fixed amount imposed on persons residing
within a specified territory, whether citizens
or not, without regard to their property or
the occupation or business in which they
may be engaged (e.g. community (formerly
residence) tax). Taxes of a specified amount
imposed upon each person performing a
certain act or engaging in a certain business
or profession are not, however, poll taxes.
(71 Am.Jur.2d 357).
(2) Property Tax tax imposed on property, real
or personal, in proportion to its value or in
accordance with some other reasonable
method of apportionment (e.g., real estate
tax). The obligation to pay the tax is
absolute and unavoidable and is not based
upon the voluntary action of the person
assessed.
(3) Privilege/Excise Tax any tax which does
not fall within the classification of a poll tax
or a property tax. Thus, it is said that an
excise tax is a charge imposed upon the
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AS TO PURPOSES
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M.5. AS TO GRADUATION
(1) Proportionate The rate of tax is based on a
fixed percentage of the amount of the
property, receipts or other basis to be taxed.
Example: real estate tax, value added tax,
and other percentage taxes.
(2) Progressive The rate of tax increases as
the tax base or bracket increases.
Example: income tax, estate tax, donors tax.
(3) Digressive A fixed rate is imposed on a
certain amount and diminishes gradually on
sums below it. The tax rate in this case is
arbitrary because the increase in tax rate is
not proportionate to the increase of tax
base.
(4) Regressive The rate of tax decreases as
the tax base or bracket increases. There is
no regressive tax in the Philippines.
Income Taxation
Income Tax is defined as a tax on all yearly
profits arising from property, professions,
trades, or offices, or as a tax on the persons
income, emoluments, profits and the like
(Fisher v. Trinidad, 43 Phil. 981).
It may be succinctly defined as a tax on
income, whether gross or net, realized in one
taxable year.
Income tax is generally classified as an excise
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Direct Tax
The tax burden is borne by the income
recipient upon whom the tax is imposed.
Progressive
The tax rate increases as the tax base
increases. It is founded on the ability to pay
principle and is consistent with Sec. 28, Art. VI,
1987 Constitution.
Comprehensive
The Philippines has adopted the most
comprehensive system of imposing income tax
by adopting the citizenship principle, the
residence principle, and the source principle.
Any of the three principles is enough to justify
the imposition of income tax on the income of
a resident citizen and a domestic corporation
that are taxed on a worldwide income.
A.3. SEMI-SCHEDULAR
GLOBAL TAX SYSTEM
OR
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SEMI-
National Tax
It is imposed and collected by the National
Government throughout the country.
Excise Tax
It is imposed on the right or privilege of a
person to receive or earn income. It is not a
personal tax or a property tax.
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C. CRITERIA IN IMPOSING
PHILIPPINE INCOME TAX
C.1. CITIZENSHIP
PRINCIPLE
OR
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NATIONALITY
E. TAXABLE PERIOD
The accounting periods used in determining
the taxable income of taxpayers are:
(a) Calendar Year - Accounting period of 12
months ending on the last day of December
(b) Fiscal Year - Accounting period of 12
months ending on the last day of any month
other than December (Sec. 22(Q), NIRC).
(c) Short Period- Accounting period which
starts after the first month of the tax year or
ends before the last month of the tax year
(less than 12 months).
SHORT
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F. KINDS OF TAXPAYERS
F.1. DEFINITION OF EACH KIND OF
TAXPAYER
Taxpayer - any person subject to tax imposed
by Title II of the Tax Code (Sec. 22(N), NIRC).
Primary Classification
Sub-Classification(s)
Residents citizens
Non-resident citizens
Residents
Engaged in Trade or
Business in the
Philippines
Non-residents
Not Engaged in Trade or
Business in the
Philippines
Citizens of the
Philippines
Individuals
TAXATION LAW
Aliens
Special Classes of
Individuals
Domestic Corporations
Corporations
Foreign Corporations
Co-ownerships
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Resident Corporations
Non-resident Corporations
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i. Citizens
ii. Aliens
F.3. CORPORATIONS
Includes all types of corporations, partnerships
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F.4. PARTNERSHIP
F.6. CO-OWNERSHIP
For income tax purposes, the co-owners in a
co-ownership report their share of the income
from the property owned in common by them
in their individual tax returns for the year and
the co-ownership is not considered as a
separate taxable entity or a corporation.
G. INCOME TAXATION
G.1. DEFINITION
Income Tax is defined as a tax on all yearly
profits arising from property, professions,
trades, or offices, or as a tax on the persons
income, emoluments, profits and the like
(Fisher v. Trinidad).
G.2. NATURE
Income tax is generally classified as an excise
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H. INCOME
H.1. DEFINITION
H.2. NATURE
Income includes earnings, lawfully or
unlawfully acquired, without consensual
recognition, express or implied, of an
obligation to repay and without restriction as
their disposition. (James v. US, 366 US 213)
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Within Without
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Capital
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Examples:
(1) Interest or rent income earned but not yet
received
(2) Rent expense accrued but not yet paid
(3) Wages due to workers but remaining
unpaid
Generally,
trade
and
manufacturing
businesses use accrual method while servicing
businesses use cash method. If the service
business opted to report on accrual basis, such
method can only be applied when it comes to
reporting of expense. To prevent tax evasion,
individual taxpayers whose business consists
of the sale of inventories cannot use cash
method. [Valencia and Roxas]
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Personal Property
Real Property
Dealer
Dealer in personal
property who
regularly sells in
installment plan:
Installment method
*held as ordinary
assetregardless of
Installment method;
Provided, initial
payments do not
exceed 25% of selling
price
If exceeds 25%-Deferred payment
method
amount of percentage
of initial payments
*held as inventory
Casual Sale
Installment method;
Provided:
(1) Selling price
exceeds php1,000
(2) Initial payments do
not exceed 25% of
selling price
If either of 2 or both
conditions not met
Deferred payment
method
*personal property
not considered
inventory
Sale by Individuals
Installment method;
Provided, initial
payments do not
Deferred Payment
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dividends are not income subject to
income tax on the part of the stockholder
when he merely holds more shares
representing the same equity interest in
the corporation that declared stock
dividends (Fisher v Trinidad).
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I.1. DEFINITION
Gross Income means the pertinent items of
income referred to in Section 32(A) of the Tax
Code. It includes all income derived from
whatever source (unless exempt from tax by
law), including, but not limited to, the
following items:
(1) Gross income derived from the conduct of
FROM
(6) Annuities
(7) Royalties
(8) Dividends
(9) Gains derived from dealings in property
(10) Pensions
(11) Partners distributive share from the net
income of the general professional
partnership (GPP) [Sec 32A, NIRC]
I. GROSS INCOME
(2)
(3)
(4)
(5)
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entertainment, medical services, or so
called courtesy discounts on purchases),
otherwise known as de minimis benefits
furnished or offered by an employer to his
employees generally, are NOT considered
as compensation subject to income tax and
therefore withholding tax if such facilities
are offered or furnished by the employer
merely as means of promoting the health,
goodwill, contentment, or efficiency of his
employees.
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Note:
Reasonable
amounts
of
reimbursements/advances for traveling and
entertainment expenses which are precomputed on a daily basis and are paid to an
employee while he is on an assignment or duty
are NOT subject to withholding tax on wages
and substantiation requirements.
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(10)
Life or health insurance and other nonlife insurance premiums or similar amounts
on excess of what the law allows.[Sec.
33(B)]
Definition
Fringe benefit means 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 rank and file employees) such as, but
not limited to the following:
(1) Housing
(2) Expense Account
(3) Vehicle of any kind
(4) Household personnel, such as maid, driver
and others
(5) Interest on loan at less than market rate to
the extent of the difference between the
market rate and actual rate granted.
(6) Membership fees, dues and other expenses
borne by the employer for the employee in
social and athletic clubs and similar
organizations
(7) Expenses for foreign travel
(8) Holiday and vacation expenses
(9) Educational assistance to the employee or
his dependents; and
Special Cases:
(a) For fringe benefits received by non-resident
alien not engaged in trade of business in the
Philippines (NRANETB), the tax rate is 25%
of the GMV. The GMV is determined by
dividing the actual monetary value of the
fringe benefit by 75% [100% - 25%].
(b) For fringe benefits received by alien
individuals and Filipino citizens employed
by regional or area headquarters, regional
operating headquarters, offshore banking
units (OBUs), or foreign service contractor
or by a foreign subcontractor engaged in
petroleum operations in the Philippines, or
by any of their Filipino individual employees
who are employed and occupying the same
positions as those occupied by the alien
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Housing
Housing Privilege
(1) LEASE of residential
property for the
residential use of
employees
(2) Assignment of
residential property
owned by employer for
use of employees
(3) Purchase of residential
property in installment
basis for the use of the
employee
(4) Purchase of residential
property and
ownership is
transferred in the
name of the employee
Motor Vehicle
Motor Vehicle
where MV =
monetary value of
the FB
MV= [5% (FMV or
ZV, whichever is
higher) x 50%]
MV= 5% x
acquisition cost
exclusive of
interest x 50%
MV= FMV or ZV,
whichever is
higher
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Professional Income
Refers to fees received by a professional from
the practice of his profession, provided that
there is NO employer-employee relationship
between him and his clients.
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Taxable
Net
Income
Ordinary
Net Income
Ordinary Asset
Net Capital
Gains (other
than those
subject to final
CGT)
Capital Asset
Capital Gain
Capital Loss
Types of Properties
Capital v. Ordinary Asset
Ordinary Assets
Capital Assets
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NIRC]
(5) Computation of the amount of Gain or Loss
For income tax purposes the following rules
should be observed regarding the cost and
expenses of the capital assets: (1) the costs and
expenses of the acquisition are to be
capitalized, and (2) the expenses of disposition
are to be treated as reduction from the selling
price. (Valencia)
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SUBSTITUTED
BASIS
OF
PROPERTY
TRANSFERRED:
The basis of the property transferred in the
hands of the transferee shall be the same as it
would be in the hands of the transferor
increased by the amount of the gain
recognized to the transferor on the transfer
[Sec. 40 (C)(5), NIRC].
Notes:
(a) The property received as boot shall have
as basis its FMV
(b) If as part of the consideration to the
transferor, the transferee of property
assumes a liability of the transferor or
acquires from the latter property subject to
a liability, such assumption or acquisition
(in the amount of liability), shall be treated
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Amount of Capital
Gain
Tax Rate
- 5%
- 10%
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3. Property dividend
Dividends are included in the gross income
of the stockholder, unless they are exempt
from tax or subject to tax at preferential
rate under the NIRC. Cash dividend and
TAXATION LAW
dividend income, but rather is treated in
effect, as a sale of shares of stock resulting
in capital gain or loss. The difference
between the cost or other basis of the stock
and the amount received in liquidation of
the stock is a capital gain or a capital loss.
Where property is distributed in
liquidation, the amount received is the
FMV of such property. The income is
subject to ordinary income tax rates and
NOT to the FWT on dividends.
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(3) If the advance payment is, in fact, a
pre-paid rental, received by the
lessor under a claim of right and
without restriction as to its use,
then such payment is income to
the lessor.
(4) Pre-paid rent must be reported in
full in the year of receipt,
regardless of the accounting
method used by the lessor.
Vessel
Aircraft,
machineries
and
other Equipment
Other assets
NonResident
Corporation
NonResident
Alien
4.5%
7.5%
25%
25%
30%
25%
Lessor
Tax Rate
Citizen
Resident Alien
Non-resident
alien
engaged in trade or
business
in
the
Philippines
Non-resident
alien
not engaged in trade
or business in the
Philippines
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Lessor
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Tax Rate
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Corporation
30%
corporate
income tax or its
gross income will be
subject to 2% MCIT
Non-resident Foreign Gross rental income
Corporation
from real property
located
in
the
Philippines shall be
subject
to
30%
corporate income tax,
such tax to be
withheld
and
remitted by the lessee
in the Philippines
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Forgiveness of indebtedness
The
cancellation
or
forgiveness
of
indebtedness may have any of three possible
consequences:
(a) It may amount to payment of income. If,
for example, an individual performs
services to or for a creditor, who, in
consideration thereof, cancels the
debt, income in that amount is realized
by the debtor as compensation for
personal services.
(b) It may amount to a gift. If a creditor
wishes merely to benefit the debtor,
and without any consideration
therefore, cancels the debt, the
amount of the debt is a gift to the
debtor and need not be included in the
latters report of income.
(c) It may amount to a capital transaction.
If a corporation to which a stockholder
is indebted forgives the debt, the
transaction has the effect of a payment
of dividend.
v. Pensions, retirement
separation pay
benefit,
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or
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Case A
Case B
Case C
500,000
(200,000)
400,000
(480,000)
500,000
(495,000)
300,000
(60,000)
5,000
(2,000)
(2,000)
(6,000)
298,000
(62,000)
(1,000)
2,000
6,000
Year 1
Gross Income
Less: Allowable Deductions
(before write-off of Uncollectible
Accounts/Debts)
Taxable Income (Net Loss)
before write-off
Deduction
for
Accounts
Receivable written off
Taxable Income (Net Loss) after
write-off
Year 2
2,000
5,000
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Dividends
Dividends received:
(1) from a domestic corporation; and
(2) from a foreign corporation, UNLESS
less than 50% of its gross income for the
previous 3-year period was derived from
sources within the Philippines [in which
case it will be treated as income partly
from within and partly from without].
The income which is considered as derived
from within the Philippines is obtained by
using the following formula:
Philippine Gross Income* x Dividend = Income
Within Worldwide Gross Income*
NOTE: * of the corporation giving the dividend
As a rule, the situs of dividend income is the
residence of the corporation declaring the
dividend.
Services
Compensation for labor or personal services
performed in the Philippines: As a rule, the
situs of compensation is the place of
performance of the services.
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Place of
PURCHASE
Philippines
TAXATION LAW
Place of
SALE
Abroad
Treatment**
Income from
Without
Abroad
Philippines Income from
Within
** in other words, the situs of the income from
the sale of personal property is the place of
sale.
Exceptions:
(1) Gain from the sale of shares of stock in
a domestic corporation
Treated as derived entirely from
sources
within
the
Philippines
regardless of where the said shares are
sold.
(2) Gains from the sale of (manufactured)
personal property:
(a) produced (in whole or in part) by
the taxpayer within and sold
without the Philippines, or
(b) produced (in whole or in part) by
the taxpayer without and sold
within the Philippines
Treated as derived partly from sources
within and partly from sources without
the Philippines.
Place of
PRODUCTION
Philippines
Place of
SALE
Abroad
Abroad
Philippines
Treatment
Partly within,
partly without
Partly within,
partly without
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Situs
Interest
Dividends
Services
Rentals
Royalties
Sale of Real
Property
Sale
of
Personal
TAXATION LAW
(a) Tangible
(1) Purchase and sale:
Location of Sale
(2) Manufactured
w/in
and sold w/o: Partly
w/in and partly w/o
(3) Manufactured
w/o
and sold w/in: Partly
w/in and partly w/o
(b) Intangible
General rule: Place of Sale
Shares
Stock
Domestic
Corporation
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(A)
EXCLUSIONS
CONSTITUTION
Taxpayer
Return of capital
THE
UNDER
Exclusion
TAXATION LAW
(b)
Return of premium paid.
General rule: The amount received by the
insured as a return of premiums paid by him
under life insurance, endowment, or annuity
contracts, either during the term or at the
maturity of the term mentioned in the contract
or upon surrender of the contract is a return of
capital and not income.
This refers to the cash surrender value of the
contract.
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(c)
Amounts received under life insurance,
endowment or annuity contracts. Amounts
received (other than amounts paid by reason of
the death of the insured and interest payments
on such amounts) under a life insurance,
endowment or annuity contracts are excluded
from gross income, but if such amounts (when
added to amounts already received before the
taxable year under such contract) exceed the
aggregate premiums of considerations paid
(whether or not paid during the taxable year),
then the excess shall be included in gross
income. However, in the case of a transfer for
valuable consideration, by assignment or
otherwise, of a life insurance, endowment , or
annuity contract, or any interest therein, only
the actual value of such consideration and the
amount of the premiums and other sums
subsequently paid by the transferee are
exempt from taxation.
Nontaxable
compensation
for
damages on account
of
Taxable
compensation
for
damages on account
of
Personal
(physical) Actual damages for
injuries or sickness
loss of anticipated
profits
Any other damages
recovered on account
of personal injuries or
sickness
for nondamages
(d)
Value of property acquired by gift,
bequest, devise or descent. Gifts, bequests
and devises (which are subject to estate or gift
taxes) are excluded from gross income, BUT
not the income from such property. If the
amount received is on account of services
rendered, whether constituting a demandable
debt or not, or the use or opportunity to use of
capital, the receipt is income (Pirovano v.
Commissioner G.R. No. L-19865, July 31, 1965).
(e)
Amount received through accident or
health
insurance
(Compensation
for
damages). As a rule, amounts received
through accident or health insurance or under
workmens
compensation
acts,
as
compensation for personal injuries or sickness,
plus the amount of any damages received,
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RA 7641
RPBP
Retiring
employee
must be in the service
of same employer
CONTINUOUSLY for
at least five (5) years
Retiring
employee
must be at least sixty
(60) years old but not
more than 65 years of
age at the time of
retirement
Availed of only once,
and only when there
is no RPBP
Retiring official or
employee must have
been in the service of
the same employer for
at least ten (10) years.
Retiring official or
employee must be at
least fifty (50) years
old at the time of
retirement
TAXATION LAW
Retiring
employee
shall
not
have
previously availed of
the privilege under a
retirement
benefit
plan of the same or
another employer
Plan
must
be
reasonable.
Its
implementation must
be fair and equitable
for the benefit of all
employees (e.g. from
president to laborer)
Plan
must
be
approved by BIR
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TAXATION LAW
whether held in the Philippines or
abroad, AND
(2) sanctioned by their national sports
associations
shall not be included in gross income and
shall be tax exempt. [Sec. 32 B7d, NIRC]
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TAXATION LAW
Types of deductions
There are three (3) types of deductions from
gross income:
(1) itemized deductions in Section 34(A) to (J)
and (M) available to all kinds of taxpayers
engaged in trade or business or practice of
profession in the Philippines;
(2) optional standard deduction in Section
34(L) available only to individual taxpayers
deriving business, professional, capital
gains and passive income not subject to
final tax, or other income; and
(3) the special deductions in Sections 37 and
38 of the NIRC, and in special laws like the
BOI law (E.O. 226).
General rules:
(a) Deductions must be paid or incurred in
connection with the taxpayers trade,
business or profession
(b) Deductions must be supported by
adequate receipts or invoices (except
standard deduction)
(c) Additional requirement relating to
withholding
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TAXATION LAW
Includes:
(a) Salaries, wages, and other forms of
compensation for personal services
actually rendered, including the grossedup monetary value of fringe benefits
furnished or granted by the employer to
the employee
(b) Travel expenses
(c) Rentals
(d) Entertainment, recreation and amusement
expenses
(e) Other expenses such as repairs or those
incurred by farmers and other persons in
agribusiness
ITEMIZED DEDUCTIONS
Requisites for deductibility of business
expenses.
(a) Ordinary AND necessary;
ORDINARY - normal and usual in relation
to the taxpayer's business and surrounding
circumstances; need not be recurring
NECESSARY - appropriate and helpful in
the development of taxpayer's business or
are proper for the purpose of realizing a
profit or minimizing a loss
(b) Paid or incurred during the taxable year;
(c) Others: (not in the SC syllabus)
(1) Paid or incurred in carrying on or which
are directly attributable to the
development, management, operation
and/or conduct of the trade, business
or exercise of profession;
(2) Substantiated by adequate proof
documented by official receipts or
adequate records, which reflect the
amount of expense deducted and the
connection or relation of the expense
to the business/trade of the taxpayer);
EXPENSES
Business expenses deductible from gross
income include the ordinary and necessary
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TAXATION LAW
Traveling expenses
This include transportation expenses and
meals and lodging [Sections 65 and 66, Rev.
Reg. No. 2]
(1) Expenses must be reasonable and
necessary.
(2) Must be incurred or paid while away from
home
(3) Tax home is the principal place of business,
when referring to away from home
(4) Incurred or paid in the conduct of trade or
business.
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TAXATION LAW
Entertainment/Representation expenses
These are entertainment, amusement and
recreation (EAR) expenses incurred or paid
during the year that are directly connected to
the development, management and operation
of the trade, business or profession of the
taxpayer.
All maintenance expenses on account of nondepreciable vehicles for taxation purposes are
disallowed in its entirely. [RR No. 12-2012]
Expenses under lease agreements
Requisites for deductibility:
(1) Required as a condition for continued use
or possession;
(2) For purposes of the trade, business or
possession;
(3) Taxpayer has not taken or is not taking title
to the property or has no equity other than
that of lessee, user, or possessor.
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TAXATION LAW
(b)
To deduct
depreciation thereof.
allowances
for
Advertising Expenses
The media advertising expenses which were
found to be inordinately large and thus, not
ordinary, and which were incurred in order to
protect the taxpayers brand franchise which is
analogous to the maintenance of goodwill or
title to ones property, are not ordinary and
necessary
expenses
but
are
capital
expenditures, which should be spread out over
a reasonable period of time. [CIR v. General
Foods Phils. Inc, GR No. 143672, April 24, 2003]
Training expenses
Under Section 30 of the Tax Code, as
implemented by Sec. 20 of the Revenue
Regulations No. 2, organization and preoperating expenses of a corporation (including
training expenses) are considered as capital
expenditures and are therefore, not deductible
in the year they are paid or incurred. But
taxpayers who incur these expenses and
subsequently enter the trade or business to
which the expenditures relate can elect to
amortize these expenditures over a period not
less than sixty (60) months. [BIR Ruling 102-97,
Sept. 29, 1997]
INTEREST
Requisites for deductibility.
(1) There is an indebtedness.
(2) The indebtedness is that of the taxpayer
(3) The indebtedness is connected with the
taxpayers trade, profession, or business.
(4) The interest must be legally due.
(5) The interest must be stipulated in writing.
(6) The taxpayer is LIABLE to pay interest on
the indebtedness.
(7) The indebtedness must have been paid or
accrued during the taxable year.
(8) The interest payment arrangement must
not be between related taxpayers
(9) The interest must not be incurred to
finance petroleum operations.
(10) In case of interest incurred to acquire
property used in trade, business or exercise
of profession, the same was not treated as
a capital expenditure,
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TAXATION LAW
(2) Fiduciary of a trust and fiduciary of
another trust if the same person is a
grantor with respect to each trust; or
(3) Fiduciary and Beneficiary
Related Taxpayers
(a) Between members of the family, i.e.
brothers and sisters (whether by the whole
or half-blood), spouse, ancestor, and lineal
descendants; or
(b) Except in case of distributions in
liquidation, between an individual and a
corporation, where the individual owns
directly or indirectly more than 50% of the
outstanding stock of the corporation
(c) Except in the case of distributions in
liquidation, between two corporations
where:
(1) Either one is a personal holding
company of a foreign personal holding
company with respect to the taxable
year preceding the date of the sale of
exchange; and
(2) More than 50% of the outstanding
stock of each is owned, directly or
indirectly, by or for the same individual;
or
(d) Between parties to a trust
(1) Grantor and Fiduciary; or
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TAXATION LAW
TAXES
Taxes Proper: Refers to national and local
taxes;
Requisites for deductibility.
Such tax must be:
(a) Paid or incurred within the taxable year;
(b) Paid or incurred in connection with the
taxpayers trade, profession or business;
(c) Imposed directly on the taxpayer.
(d) Not specifically excluded by law from being
deducted from the taxpayers gross income.
Non-deductible taxes.
General Rule: All taxes, national or local, paid
or incurred during the taxable year in
connection with the taxpayer's profession,
trade or business, are deductible from gross
income
Exceptions:
(1) Philippine income tax, except Fringe
Benefit Taxes;
(2) Income tax imposed by authority of any
foreign country, if taxpayer avails of the
Foreign Tax Credit (FTC)
Exception to exception: When the taxpayer
does NOT signify his desire to avail of the
tax credit for taxes of foreign countries, the
amount may be allowed as a deduction
from gross income of citizens and domestic
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TAXATION 1
Tax Credit
TAXATION LAW
Tax Deduction
Limit #2
Taxable
Income For
all Foreign
Countries
x
Worldwide
Taxable
Income
Phil.
=
Income Tax
Limit on
amount
of tax
credit
(World
Wide
Limit)
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TAXATION LAW
LOSSES
Requisites for deductibility.
(1) Loss must be that of the taxpayer (e.g.,
losses of the parent corp. cannot be
deducted by its subsidiary);
(2) Actually sustained and charged off within
the taxable year;
(3) Incurred in trade, business or profession;
(4) Of property connected with the trade,
business, or profession, if the loss arises
from fires, storms, shipwreck or other
casualties, or from robbery, theft, or
embezzlement;
(5) Sustained in a closed and completed
transaction;
(6) Not compensated for by insurance or other
form of indemnity;
(7) Not claimed as a deduction for estate tax
purposes;
(8) In case of casualty loss, filing of notice of
loss with the BIR within 45 days from the
date of the event that gave rise to the
casualty; and
(9) The taxpayer must prove the elements of
the loss claimed, such as the actual nature
and occurrence of the event and amount of
the loss.
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Other Losses:
(1) Abandonment
lossesin
petroleum
operation and producing well.
(2) Losses due to voluntary removal of
buildingincident
to
renewal
or
replacements are deductible from gross
income.
(3) Loss of useful value of capital assetsdue to
charges in business conditions is
deductible only to the extent of actual loss
sustained
(after
adjustment
for
improvement, depreciation and salvage
value)
(4) Losses from sales or exchanges of property
between
related
taxpayersare
not
recognized, but the gains are taxable.
TAXATION LAW
BAD DEBTS
Debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amounts
due the taxpayer actually ascertained to be
worthless and the corresponding receivable
should have been written off or charged off
within the taxable year.
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TAXATION LAW
Methods
of
allowance.
(1) Straight-line
computing
DEPRECIATION
An annual reasonable allowance to reduce the
wasteful value of the tangible fixed assets
resulting from wear and tear and normal
obsolescence
For intangible assets, the annual allowance to
rduce their useful value is called amortization.
85
depreciation
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CHARITABLE
CONTRIBUTIONS
TAXATION 1
AND
OTHER
TAXATION LAW
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TAXATION LAW
Statutory Limit:
(a) 10% in the case of an individual (individual
donor), and
(b) 5% in the case of a corporation (corporate
donor), of the taxpayer's/donors income
derived from trade, business or profession
computed before the deduction for
contributions and donations
The amount deductible is the actual
contribution or the statutory limit computed,
whichever is lower
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PARTNERSHIPS
(1) General Co-Partnership
For purposes of taxation, the Code
considers general co-partnerships as
corporations. Hence, rules on OSD for
corporations are applicable to general copartnerships.
Requisites:
(1) Taxpayer is a citizen or resident alien;
(2) Taxpayers income is not entirely from
compensation;
(3) Taxpayer signifies in his return his intention
to elect this deduction; otherwise he is
considered as having availed of the
itemized deductions.
(4) Election is irrevocable for the year in which
made; however, he can change to itemized
deductions in succeeding years.
Corporations, except non-resident foreign
corporations
The option to elect Optional Standard
Deduction granted is now granted to
corporations (domestic and resident foreign
corporations) by virtue of RA 9504.
(a) The OSD is 40% of its gross income.
(b) The domestic and resident foreign
corporation shall keep such records
pertaining to his gross income as defined
in Section 32 of the NIRC during the
taxable year, as may be required by the
rules and regulations promulgated by the
Secretary
of
Finance
upon
recommendation of the CIR.
(c) Corporations availing of OSD are still
required to submit their financial
statements when they file their annual ITR
and to keep such records pertaining to its
gross income. (RR 2-2010).
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Status-at-the-end-of-the-year rule
Change of Status [Sec 35(C), NIRC]
(1) If taxpayer marries during taxable year,
taxpayer may claim the corresponding BPE
in full for such year (i.e., no need to prorate the exemption).
(2) If taxpayer should have additional
dependent(s) during taxable year, taxpayer
may claim corresponding AE in full for such
year.
(3) If taxpayer dies during taxable year, his
estate may claim BPE and AE as if he died
at the close of such year.
(4) If during the taxable year
(a) spouse dies; or
(b) any of the dependents dies or marries,
turns 21 years old or becomes gainfully
employed, taxpayer may still claim
same exemptions as if the spouse or
any of the dependents died, or married,
turned 21 years old or became gainfully
employed at the close of such year.
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TAXATION LAW
EXEMPT CORPORATIONS
These are:
(1) Proprietary Educational Institutions
and hospitals
(2) Government owned and controlled
corporations
(3) Others
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TAXATION LAW
Note:
Notwithstanding the exemptions, income
of whatever kind and character of the
enumerated 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.
RA 9178 Act to Promote the Establishment
of Barangay Micro Business Enterprises
(BMBEs) implemented by DO 17-04, April 20,
2004
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TAXATION LAW
Recreational Clubs - RMC 35-2012 (August
3, 2012) clarifies taxability of clubs
organized exclusively for pleasure,
recreation and other non-profit purposes
(recreational clubs). Income from whatever
sources including but not limited to
membership fees, assessment dues, rental
income, and service fees are subject to
income tax and VAT.
Taxable Income
Basic Personal
Exemption
Additional Personal
Exemption
Tax Rates
Resident Citizen
Income from
sources within and
outside the
Philippines
Allowed
Allowed
5%-32%
Allowed
Allowed
5%-32%
Allowed
Allowed
5%-32%
No specific
provision
5%-32%
Not allowed
25%
Non-Resident Citizen
Resident Alien
Income from
sources within the
Philippines
Income from
sources within the
Philippines
Non-resident Alien
Engaged in Trade or
Business
Income from
sources within the
Philippines
Lower amount
between PE allowed
to Filipinos in the
foreign country
where he resides vs.
PE in the
Philippines
Income from
sources within the
Philippines
Not allowed
93
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(iii.)
TAXATION
INCOME
TAXATION 1
ON
TAXATION LAW
earnings
received
periodically for a regular work
other than manual labor, such as
monthly salary of an employee
(ii) Wages all remuneration (other
than fees paid to a public official)
for services performed by an
employee for his employer,
including the cash value of all
remuneration paid in any medium
other than cash. [Sec. 78A, NIRC]
(b) Separation pay/retirement benefit not
otherwise exempt
(i) Retirement pay a lump sum
payment received by an employee
who has served a company for a
considerable period of time and
has decided to withdraw from work
into privacy. [RR 6-82, Sec. 2b]
General rule: Retirement pay is
taxable
Exceptions:
(1) SSS or GSIS retirement pays.
(2) Retirement pay (R.A. 7641) due
to old age provided the
following requirements are
met:
(1) The retirement program is
approved by the BIR
Commissioner;
(2) It must be a reasonable
benefit plan. (fair and
equitable)
(3) The retiree should have
been employed for 10
years in the said company;
COMPENSATION
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TAXATION LAW
DEDUCTIONS
(1) Personal exemptions and additional
exemptions (See the Chapter on Deductions
for the full discussion of Personal and
additional exemptions)
(a) Basic Personal Exemptions
According to RA 9504 (effective July 6,
2008) basic personal exemption is
Fifty thousand pesos (P50,000) for
each individual taxpayer, regardless
whether single, married or head of the
family.
(b) Additional Exemptions (AE)- depends
on the number of qualified dependent
children
Amount allowed as a deduction
P25,000 per dependent child, but not
to exceed four children [RA 9504]
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TAXATION LAW
(1)
(2)
(3)
(4)
Interest income
Royalties
Dividends from domestic corporations
Prizes and other winnings
Interest income
(a) on any currency bank deposit, yield or any
other monetary benefit from deposit
substitutes, trust funds and similar
arrangements - 20% final tax
(b) under the expanded foreign currency
deposit system (EFCDS) - 7.5% final tax for
residents, exempt if non-residents
(c) Treatment of income from long-term
deposits
TAXATION
OF
BUSINESS
INCOME/INCOME FROM PRACTICE OF
PROFESSION
All income obtained from doing business
and/or engaging in the practice of a profession
shall be included in the computation of taxable
income. (5-32% For citizens, resident aliens &
NRA Engaged in trade or business; 25% in case
of NRANETB)
5%
12%
20%
Royalties
(See summary table)
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TAXATION LAW
the extent that it represents a distribution
of earnings or profits. [Sec. 73B, NIRC]
(1)
In other words, stock dividends are
generally not subject to tax as long
as there are no options in lieu of
the shares of stock.
(2)
On the other hand, a stock dividend
constitutes income if it gives the
shareholder an interest different
from that which his former
stockholdings represented.
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Citizens,
Residents
20%
NRAETB
NRANETB
20%
25%
20%
20%
25%
20%
20%
25%
20%
20%
25%
10%
10%
25%
20%
20%
25%
20%
20%
25%
Exempt
Exempt
Exempt
25%
5%
12%
20%
25%
25%
25%
NRAETB
NRANETB
10%
20%
25%
10%
20%
25%
10%
20%
25%
7 1/2%
Note: NRC
Exempt
(RR 12011)
Exempt
5%
12%
20%
Citizens,
Residents
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But should the holder of the certificate preterminate the deposit or investment before the
5th year, a final tax shall be imposed on the
entire income and shall be deducted and
withheld by the depository bank from the
proceeds of the long-term deposit or
investment certificate based on the remaining
maturity thereof:
(1) Four (4) years to less than five (5) years 5%;
(2) Three (3) years to less than four (4) years 12%; and
(3) Less than three (3) years - 20%.
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TAXATION LAW
[
] [
]
Tax rate
General rule: 6% ofwhichever is higher
(a) Gross selling price, or
(b) Fair market value (determined in
accordance with Sec. 6(E)).
Except
(1) In case of sales made to the government,
any of its political subdivisions or agencies,
or to GOCCs, it can be taxed either:
(a) Under Sec. 24(C)(1) 6% CGT, or
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new principal residence*
Adjusted cost bases of the new
principal residence
*Additional cost to acquire new
principal residence:
Cost to acquire new principal
residence
Less: Gross selling price of old
principal residence
Additional cost to acquire new
principal residence
TAXATION 1
TAXATION LAW
XXX
XXX
(XXX)
XXX
Determination of whether short- or longterm: If held for <12 mos, then short-term.
Otherwise, long-term.
excess
of
P100,000
Amount in
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Resident
CITIZEN
Category of Income
(1) Compensation / Business
Profession
(2)
(3) Prizes of P10,000 or less
All sources
TAXATION LAW
ALIEN
Non-Resident
CITIZEN
NRAETB
NRANETB
Within
the
Philippines
Within the
Philippines
Within the
Philippines
Within the
Philippines
GIW 25%
EXEMPT; However:
In case of pre-termination, with remaining maturity
of:
4 years to less than 5 years 5% on entire income
3 years to less than 4 years 12% on entire income
less than 3 years 20% on entire income
GIW
7.5%
Withholding Tax
Final
GIW- 20%
EXEMPT
EXEMPT
Net Capital Gains within:
Not Over P100,000 5% Final Tax
Amount in Excess of P100,000 plus 10% Final Tax on the excess
Gross Selling Price or FMV, whichever is higher
6% Final Withholding Tax
of 1% of the Selling Price (Stock Transaction Tax)
Note: Stock Transaction Tax is not an income tax, but a business
(percentage) tax
Schedular Income Tax Rates (Sec. 24 , NIRC)
(i.e, 5% to 32%)
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Computations
Pure Compensation Income
Less:
x
Less:
TAXATION
OF
NON-RESIDENT
ALIENS ENGAGED IN TRADE OR
BUSINESS
xx
GENERAL RULES
Subject to an income tax in the same manner
as an individual citizen and a resident alien
individual on taxable income from all sources
within the Philippines
xx
xx
xx
ADD:
Less:
x
Less:
Xx
Xx
Xx
Xx
Xx
Xx
Xx
Xx
Xx
Less:
x
Less:
TAXATION LAW
Xx
xx
xx
Xx
Xx
Xx
Xx
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EXCEPT:
(1) The following Royalties shall be subject to
a final tax of ten percent (10%) on the total
amount thereof:
(a) On books as well as other literary
works; and
(b) On musical compositions
(2) Cinematographic films and similar works
shall be subject to twenty-five percent
(25%) of the gross income
(3) Interest income from long-term deposit or
investment in the form of savings, common
or individual trust funds, deposit
substitutes, investment management
accounts and other investments evidenced
by certificates in such form prescribed by
the Bangko Sentral ng Pilipinas (BSP) shall
be exempt from the tax
But should the holder of the certificate preterminate the deposit or investment before the
fifth (5th) year, a final tax shall be imposed on
the entire income and shall be deducted and
withheld by the depository bank from the
proceeds of the long-term deposit or
investment certificate based on the remaining
maturity thereof:
(i) Four (4) years to less than five (5) years 5%;
(ii) Three (3) years to less than four (4) years 12%; and
(iii) Less than three (3) years - 20%.
NON-RESIDENT
ALIENS
NOT
ENGAGED IN TRADE OR BUSINESS
(1) Alien individuals employed by:
(a) Regional or Area Headquarters
(RAHQ) and Regional Operating
Headquarters (ROHQ) established in
the Philippines by multinational
companies
Multinational company, defined a
foreign firm or entity engaged in
international trade with affiliates or
subsidiaries or branch offices in the
Asia-Pacific Region and other foreign
markets
(b) Offshore Banking Units established in
the Philippines
(2) Alien individuals who are permanent
residents of a foreign country but who are
employed and assigned in the Philippines
by a foreign service contractor or by a
foreign service subcontractor engaged in
petroleum operations in the Philippines
CAPITAL GAINS
Capital gains realized from sale, barter or
exchange of shares of stock in domestic
corporations not traded through the local stock
exchange, and real properties shall be subject
to the similar tax prescribed on citizens and
resident aliens.
(a) Sale, barter or exchange of Shares of stock
in domestic corporation not traded
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INDIVIDUAL TAXPAYERS
FROM INCOME TAX
TAXATION LAW
EXEMPT
EXEMPTIONS
GRANTED
UNDER
INTERNATIONAL AGREEMENTS (SEC.
32(B))
See RMC No, 31-2013, April 12, 2013 taxation
of compensation income of Philippine
nationals and alien individuals employed by
foreign governments/embassies/diplomatic
missions and international organizations
situated in the Philippines
TAXATION
OF
CORPORATIONS
DOMESTIC
TAX PAYABLE
Taxes payable are:
(1) Regular tax
(2) Minimum Corporate Income Tax
REGULAR TAX
Normal Corporate Income Tax Rate: 30% of
Taxable Income (effective January 1, 2009)
Gross Income
Less: Allowable Deductions
Taxable Income
SENIOR CITIZENS
Who covered: any resident citizen
(a) At least 60 years old, and
107
XXX
XXX
XXX
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XXX
XXX
& XXX
XXX
TAXATION LAW
XXX
XXX
Pointers.
MCIT is in the nature of a tax credit, not an
allowable deduction. Its purpose is to prevent
corporations from escaping being taxed by
including frivolous expenses in their statement
of income.
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Illustration.
A domestic corporation had the following data
on computations of the normal tax (NT) and
the minimum corporate income tax (MCIT) for
five years.
MCIT
NT
Yr 4
80K
20K
Yr 5
50K
30K
Yr 6
30K
40K
Yr 7
40K
20K
Yr 8
35K
70K
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MCIT
NT
Year 4
80,000
20,000
NT is higher
n/a
Less:
MCIT
carry-fwd
TAXATION 1
Year 5
50,000
30,000
Year 6
30,000
40,000
40,000
n/a
TAXATION LAW
Year 7
40,000
20,000
Year 8
35,000
70,000
70,000
n/a
>
> (40,000)*
>
(20,000)
(20,000)
From Year 4
From Year 5
From Year 7
Tax Due
80,000
50,000
40,000
30,000
20% of GNP
40%
4% of GNP
0.90%
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Gross Sales
Less: Sales Returns
SalesDiscounts&
Allowances
Cost of Goods Sold
GI
TAXATION 1
XXX
XXX
XXX
XXX
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XXX
XXX
ALLOWABLE DEDUCTIONS
ITEMIZED DEDUCTIONS
(1) Bad debts
(2) Expenses
(3) Losses
(4) Taxes
(5) Depreciation
(6) Interest
(7) Depletion of oil and gas wells and mines
(8) Charitable and other contributions
(9) Research and development
(10) Pension trusts
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Inter-corporate dividends
Dividends received from another domestic
corporation - exempt
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TAX
ON
PROPRIETARY
EDUCATIONAL INSTITUTIONS AND
NON-PROFIT HOSPITALS
TAX ON GOVERNMENT-OWNED OR
CONTROLLED
CORPORATIONS,
AGENCIES OR INSTRUMENTALITIES
FOR GOCCS:
General rule: GOCCs are taxable as any other
corporation engaged in similar business,
industry or activity, except:
(1) Government Service Insurance System
(GSIS)
(2) Social Security System (SSS)
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FOR
INSTRUMENTALITIES
AGENCIES OF GOVERNMENT:
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concept. Thus, the income from sources
within the Phils. of the foreign head office
shall thus be taxable to the Philippine
branch.
AND
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INTERNATIONAL CARRIER
Tax Rate and Base 2.5% on Gross Philippine
Billings (GPB)
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What is GPB.
In the case of International Air Carriers, GPB
refers to the amount of:
(a) gross revenue derived from carriage of
persons, excess baggage, cargo and mail
originating from the Philippines in a
continuous and uninterrupted flight,
irrespective of the place of sale or issue
and the place of payment of the ticket or
passage document
(b) gross revenue from tickets revalidated,
exchanged and/or indorsed to another
international airline if the passenger
boards a plane in a port or point in the
Philippines
(c) for flights which originate from the
Philippines,
but
transshipment
of
passenger takes place at any port outside
the Philippines on another airline, the
gross revenue consisting of only the aliquot
portion of the cost of the ticket
corresponding to the leg flown from the
Philippines to the point of transhipment
transshipment [RR 15-2002]
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(2) business planning and coordination
(3) sourcing and procurement of raw
materials and components
(4) corporate finance advisory services
(5) marketing control and sales promotion
(6) training and personnel management
(7) logistic services
(8) research and development services
and product development
(9) technical support and maintenance
(10) data processing and communications,
and
(11) business development.
TAXATION
OF
NON-RESIDENT
FOREIGN CORPORATIONS
GENERAL RULE
Except as otherwise provided, the tax is 30% of
the gross income (except certain passive
income)received during each taxable year from
all sources within the Philippines, such as
interests (except interests on foreign loans,
dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities,
emoluments or other fixed or determinable
annual, periodic or casual gains, profits and
income, and capital gains EXCEPT capital
gains on the sale of shares of stock (not listed
and traded through a local stock exchange), of
a domestic corporation which are subject to
the tax rates prescribed for individuals and
resident foreign corporations.
INTERCORPORATE DIVIDENDS
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(b) On any amount in excess of P100,000
plus Final Tax of 10% on the excess
Exclude:
(1) Film rentals and other payments to nonresident cinematographic film owner,
lessor or distributor
Final tax of 25% of gross income from all
sources within the Philippines
(2) Rental, lease and charter fees payable to
non-resident owner or lessor of vessels
chartered by Philippine nationals
Final tax of 4.5% of gross rentals, lease or
charter fees from leases or charters to
Filipino citizens or corporations, as
approved by the Maritime Authority
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Tax
Rate
Tax Base
Domestic Corporations
Proprietary Educational Institutions and Hospitals
Taxable Income from all sources
(Non-profit)
Depository Banks (Foreign Currency Deposit Units)
(1) With respect to income derived under the Exempt (except that net income
expanded foreign currency deposit system from from such transactions is subject
certain foreign currency transactions
to the regular income tax payable
(2) With respect to interest income from foreign by banks)
currency loans to residents other than offshore
units in the Philippines or other depository banks Amount of interest income
under the expanded system
Resident Foreign Corporations
International Carriers
Gross Philippine Billings
Offshore Banking Units
(1) With respect to income derived by offshore Exempt (except that net income
banking units from certain foreign currency from such transactions is subject
transactions
to the regular income tax payable
(2) With respect to interest income derived from by banks)
foreign currency loans granted to residents other
than offshore banking units or local commercial Amount of interest income
banks
Resident Depository Bank (Foreign Currency Deposit
Units)
Exempt (except that net income
(1) With respect to income derived under the from such transactions is subject
expanded foreign currency deposit system from to the regular income tax payable
certain foreign currency transactions
by banks)
(2) With respect to interest income from foreign
currency loans to residents other than offshore
Amount of interest income
units in the Philippines or other depository banks
under the expanded system
Regional or Area Headquarters
Exempt
Regional Operating Headquarters of Multinational Taxable Income from within the
Companies
Philippines
Non-resident Foreign Corporations [EXCLUDED]
Non-resident cinematographic film owners, lessors or Gross
Income
from
the
distributors
Philippines
Non-resident Owner or Lessor of Vessels Chartered by Gross Rentals, Lease and Charter
Philippine Nationals
Fees from the Philippines
Non-resident Owner or Lessor of Aircraft, Machineries Gross Rentals, Charges and Fees
and Other Equipment
from the Philippines
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10%
10%
2.5%
10%
10%
10%
25%
4.5%
7.5%
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IMPROPERLY
ACCUMULATED
EARNINGS OF CORPORATIONS
TAXATION LAW
Composition
The following constitute accumulation of
earnings for the reasonable needs of the
business:
(1) Allowance for the increase in the
accumulation of earnings up to 100% of
the paid-up capital of the corporation as of
Balance Sheet date,
(2) inclusive of accumulations taken from
other years;
(3) Earnings reserved for definite corporate
Expansion projects or programs requiring
considerable capital expenditure as
approved by the Board of Directors or
equivalent body;
(4) Earnings reserved for Building, Plant or
Equipment Acquisition as approved by the
Board of Directors or equivalent body;
(5) Earnings reserved for compliance with any
Loan Covenant or pre-existing obligation
established under a legitimate business
agreement;
(6) Earnings required by Law or applicable
regulations to be retained by the
corporation or in respect of which there is
legal prohibition against its distribution;
(7) In the case of subsidiaries of foreign
corporations in the Philippines, all
undistributed earnings intended or
reserved for Investments within the
Philippines as can be proven by corporate
records and/or relevant documentary
evidence.
Covered Corporations
Only domestic corporations classified as closelyheld corporations are liable for IAET.
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reason of the application of (a) or (c) shall,
for purposes of applying (1) or (2), be
treated as actually owned by such person.
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TAXATION OF PARTNERSHIPS
CLASSIFICATION OF
FOR TAX PURPOSES
PARTNERSHIPS
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RULES
(1) A GPP is a partnership formed by persons
for the purpose of exercising their common
profession, no part of the income of which
is derived from engaging in trade or
business. A GPP as such shall not be subject
to the income tax. It is not a taxable entity
for income tax purposes.
(2) The partners shall only be liable for income
tax only in their separate and individual
capacities.
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WITHHOLDING TAX
WITHHOLDING AGENT
Any person or entity who is required to deduct
and remit the taxes withheld to the
government.
(a) In general, any juridical person, whether or
not engaged in trade or business;
(b) An individual, with respect to payments
made in connection with his trade or
business. However, insofar as taxable sale,
exchange or transfer of real property is
concerned, individual buyers who are not
engaged in trade or business are also
constituted as withholding agents. In any
case,
no
Certificate
Authorizing
Registration
(CAR)/Tax
Clearance
Certificate (TCL) shall be issued to the
buyer unless the withholding tax due on
the sale, transfer or exchange of real
property has been duly paid; ac. All
government offices, including GOCCs, as
well as local government units.
CONCEPT
Withholding tax is a method of collecting
income tax in advance from the taxable income
of the recipient of income. It is a systematic
way of collecting taxes at source, an
indispensable method of collecting taxes to
ensure adequate revenue for the government.
The withholding of income tax on
compensation income, on certain income
payments made to resident taxpayers, and on
income payments made to non-resident
taxpayers is very important for all taxpayers,
because the obligation to withhold and remit
the tax is mandatory and prescribed by law.
In the operation of the withholding tax system,
the payee is the taxpayer, the person on whom
the tax is imposed, while the payor, a separate
entity, acts no more than an agent of the
government for the collection of the tax in
order to ensure its payment. The amount
thereby used to settle the tax liability is
deemed sourced from the proceeds
constitutive of the tax base. In an ad valorem
tax, the tax paid or withheld is not deducted
from the tax base, except when the law clearly
spells out in defining the tax base.
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(3)
(4)
(5)
(6)
(7)
(8)
TAXATION 1
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KINDS
WITHHOLDING OF FINAL TAX OF CERTAIN
INCOMES
Subject to rules and regulations the Secretary
of Finance may promulgate, upon the
recommendation of the Commissioner,
requiring the filing of income tax return by
certain income payees, the tax imposed or
prescribed by specific section of the NIRC on
specified items of income shall be withheld by
payor-corporation and/or person and paid in
the same manner and subject to the same
conditions as provided in Section 58 of the
NIRC.
WITHHOLDING OF CREDITABLE TAX AT
SOURCE
The Secretary of Finance may, upon the
recommendation of the Commissioner, require
the withholding of a tax on the items of income
payable to natural or juridical persons, residing
in
the
Philippines,
by
payorcorporation/persons as provided for by law, at
the rate of not less than one percent (1%) but
not more than thirty-two percent(32%), which
shall be credited against the income tax
liability of the taxpayer for the taxable year.
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employers to pay or deposit the taxes
deducted and withheld at more frequent
intervals, in cases where such requirement
is deemed necessary to protect the interest
of the Government.
WITHHOLDING OF VAT
(1) On gross payments for the purchase of
goods
(2) On gross payments for the purchase of
services
(3) Payments made to government public
works contractors
(4) Payments for lease or use of property or
property rights to non-resident owners
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(c)
(d)
(e)
(f)
Interest on loans
Expenses for foreign travel
Holiday and vacation expenses
Educational assistance to employees
or his dependents
(g) Membership fees, dues and other
expense in social and athletic clubs or
other similar organizations Health
insurance
(h) Informers Reward
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TIMING OF WITHHOLDING
The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
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I. ESTATE TAX
TAXATION LAW 2
A. BASIC PRINCIPLES
...death is the generating source from which
the taxing power takes its being, and that it is
the power to transmit or the transmission from
the dead to the living on which the tax is more
immediately based. Hence it accrues as of the
death of the decedent by operation of law.
Lorenzo v Posadas (1937)
D. PURPOSE OR OBJECT
Purpose: To tax the shifting of economic
benefits and enjoyment of property from the
dead to the living.
Taxable objects/subjects:
(1) Right/privilege of the deceased person to
transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death;
(2) on certain transfers, during his lifetime,
which are made by law as equivalent to
testamentary disposition.
4 Justification Theories for the Imposition of
Estate Tax
(1) Benefit received theory The State collects
the tax because of the services it renders in
the distribution of the estate of the
decedent, either by law or in accordance
with his will.
(2) Privilege theory or state partnership theory
Succession to the property of a deceased
person is not a right but a privilege granted
by the State and consequently, the
legislature can constitutionally burden
such succession with a tax. The State
collects the tax because of the protection it
provides in the acquisition of large estates.
Hence, the State is a silent or passive
partner in the accumulation of said large
property.
(3) Ability to pay theory Receipt of
inheritance, which is in the nature of
unearned wealth or windfall, places assets
into the hands of the heirs and
beneficiaries. This creates an ability to pay
B. DEFINITION
ESTATE TAX is tax on the (i) right to transmit
property at death and on certain transfers by
the decedent during his lifetime OR (ii) those
which are made by the law equivalent of
testamentary dispositions. There must be a
transfer of ownership or quantifiable interest
or economic benefits from the decedent to the
living person.
C. NATURE
Estate tax is not a direct tax on property.
Neither is it a capitation tax; that is, the tax is
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E. TIME AND
PROPERTIES
TRANSFER
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OF
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F. CLASSIFICATION OF DECEDENT
Estate Tax applies only to individuals. The decedent
may be classified into:
(1) Citizen (RC/NRC)
(2) Resident alien (RA); or
(3) Non-resident alien (NRA).
Residence
and
domicile
are
used
interchangeably without distinction. For
purposes of estate taxation, residence refers
to the permanent home, the place to which
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Net Estate
NRA
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RC/NRC/RA
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NRA
Ordinary deductions1
(1) Proportionate deductions for expenses, losses,
indebtedness, taxes. (ELIT)2
(a) Funeral expenses
(b) Judicial expenses
(c) Claims against the estate
(d) Claims against insolvent persons
(e) Unpaid mortgage and debt
(f) Taxes
(g) Losses
(2) Vanishing deductions
(3) Transfers for public use
No Amounts received under R.A. 4917
No special deductions
Share in conjugal property
1 No deduction shall be allowed for NRA, if the executor, administrator, or anyone of the heirs, DID NOT include in the return required to be
filed under Section 90 of the Code the value at the time of the decedents death of that part of his gross estate NOT situated in the
Philippines. [Sec. 86 (D), NIRC; Sec 7, RR 2-2003]
2
Formula for Proportionate Deductions of NRA: Allowable Deduction =
ELIT
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Real Property
(1) Appraised value, whichever is higher
between:
(a) FMV, as determined by the
Commissioner (zonal value) or
(b) FMV, as shown in the schedule of
values fixed by the Provincial or City
Assessor.
If there is no zonal value, the taxable
base is the FMV that appears in the
latest tax declaration.
(2) If there is an improvement, the value of
improvement is the construction cost per
building permit or the fair market value per
latest tax declaration.
Personal Property
(1) FMV at the time of death. If none,
acquisition cost for recently acquired
properties or the current market price for
the previously acquired properties. (Sec
40(B)
(2) Stocks, bonds, and other securities.
(a) If listed and traded stocks = value is
the mean between the highest and
lowest quoted selling prices at the date
of death; if none, nearest the date of
death (Sec 5 RR02-2003)
(b) If unlisted stocks = (ordinary common
shares) book value at time of death or
(preferred shares) par value
NB: Bonds, mortgages, and Certificates of
Stocks are taxable at the place where they
are physically located.
(3) Proceeds of Life Insurance with Revocable
Beneficiary: face value of policy (not cash
surrender value)
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Over
Case
A
FMV, transfer
FMV, death
Consideration received
2,000 800
Case
B
Case
C
1,200 2,000
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Not deductible
(a) Compensation paid to a trustee of the
decedents estate for his services rendered
for the purpose of managing the
decedents real estate for the benefit of the
testamentary heirs (Lorenzo v. Posadas)
(b) Expenses incurred by the presumptive heir
and that of her witnesses for appearance
at the trial to oppose the probate of a will.
(c) Attorneys fees incident to litigation
incurred by the heirs in asserting their
respective rights, or claims as to who are
entitled to the estate left by the deceased.
(d) Premiums paid by the administrator on his
bond, being exclusively used for his
account, since the giving of the bond is in
the nature of a qualification for the office
and not necessary in the settlement of his
estate.
Substantiation Requirements
In case of simple loan (including advances):
(1) The debt instrument must be duly
notarized at the time the indebtedness was
incurred, such as promissory note or
contract of loan, except for loans granted
by financial institutions where notarization
is not part of the business practice/policy
of the financial institution-lender.
(2) Duly
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creditor of his capacity to lend at the
time when the loan was granted,
authenticated or certified to as such by
the tax authority of the country where
the non-resident creditor is a resident;
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Unpaid Taxes
Requisites for Deductibility
(a) Taxes which have accrued as of or before
the death of the decedent (if it was
incurred after, it is chargeable to the
income of the estate), and
(b) Unpaid as of the time of his death,
regardless of whether or not it was
incurred in connection with trade or
business
Additional Requirements:
(a) The incapacity of the debtor to pay his
obligation should be proven, although a
judicial declaration of insolvency is not
required;
(b) The full amount owed by the insolvent
must first be included in the decedents
gross estate; and
(c) If the insolvent could only pay a partial
amount, the full amount owed shall be
included in the gross estate, and the
amount uncollectible shall be allowed as a
deduction.
Not included:
(a) Income tax upon income received after
death, or
(b) Property taxes not accrued before his
death, or
(c) The estate tax due from the transmission
of his estate
Casualty Losses
Requisites for Deductibility
(a) Incurred during the settlement of the
estate
(b) Arising from fires, storms, shipwreck, or
other casualties from robbery, theft, or
embezzlement
(c) Not compensated by insurance or
otherwise
(d) At the filing of the estate tax return, such
losses have not been claimed as a
deduction for income tax purposes in an
income tax return
(e) Incurred not later than the last day for the
payment of the estate tax as prescribed by
law.
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1. B. PROPERTY PREVIOUSLY
TAXED/PPT (SEC. 86(A)(2))
ALSO CALLED AS VANISHING
DEDUCTIONS
This is an amount allowed to reduce the
taxable estate of a decedent where property:
(1) Received by him from a prior decedent by
gift, bequest, device, or inheritance
(2) Transferred to him by gift, has been the
object of previous transfer transaction
Limitations
(1) Value of property The deduction is
limited by the value of property previously
taxed or the aggregate value of such
property if more than one item, as finally
determined for the purpose of the prior
estate tax (or gift tax) or the value of such
property in present decedents gross estate,
whichever is lower.
(2) Deduction for mortgage or lien The initial
value (in number 1 above) shall be reduced
by the total amount paid, if any, by the
present decedent on any mortgage or
other lien on the property where a
deduction was allowed, by reason of the
payment, of such mortgage or other lien
from the gross estate of the prior decedent,
or gift or donor, in determining the estate
tax of the prior decedent or the donors tax.
(3) Deductions for expenses, etc. The value
as reduced in #2 shall be further reduced
by an amount which bears the same ratio
to the amounts allowed as deductions for:
(a) Expenses, losses, indebtedness, and
taxes (ordinary deductions), and
(b) Transfers for public use as the amount
otherwise deductible for property
previously taxed bears to the value of
the decedents gross estate; and
(4) Percentage of deductions The vanishing
deduction shall be the value (final basis) in
#3 multiplied by the ff. percentages:
Conditions
(1) There must be 2 deceased persons and the
first one is the donor
(2) The second decedent dies within 5 years
after the death of a prior decedent, or in
case of gift, the decedent-donee dies
within the same period after the date of the
gift.
Requisites
(1) Death The present decedent died within
5 years from the date of the prior decedent
OR date of gift.
(2) Identity of the property The property with
respect to which deduction is sought can
be identified as the one who received from
prior decedent, or from the donor, or as the
property acquired in exchange for the
original property so received.
(3) Inclusion of the property The property
must have formed part of the gross estate
situated in the Philippines of the prior
decedent, or have been included in the
total amount of the gifts of the donor made
within 5 years prior to the present
decedents death.
(4) Previous taxation of property The estate
tax on the prior succession, or the donors
tax on the gift must have been finally
VD
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Rate
100% Within one (1) year prior to the death of
the present decedent
80% More than one year but not more than
two years prior to the death of the
decedent
60% More than two years but not more than
three years
40%
20%
( + )
SPECIAL DEDUCTIONS
(A) Family Home (Sec. 86(A)(4))
It is the dwelling house, including the land on
which it is situated, where the husband and
wife, or a head of the family, and members of
their family reside, as certified to by the
Barangay Captain of the locality. It is deemed
constituted on the house and lot from the time
it is actually occupied as the family residence
and considered as such for as long as any of its
beneficiaries actually resides therein. (Arts. 152
and 153, Family Code)
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Limitation: P 1,000,000.00
(B) Standard Deduction (Sec. 86(A)(5), Sec.
6(E), RR 2-2003)
An amount equivalent to one million pesos
(P1,000,000) shall be deducted from the gross
estate without need of substantiation.
6(F), RR 2-2003)
All medical expenses (cost of medicine,
hospital bills, doctors fees, etc.) incurred
(whether paid or unpaid).
Requisites for Deductibility
1. The expenses were incurred by the decedent
within 1 year prior to his death
2. The expenses are duly substantiated with
receipts and other documents in support
thereof
Limitation Provided, that in no case shall the
deductible medical expenses exceed Five
Hundred Thousand Pesos (P500,000).
Not allowed as deduction: (i) Any amount of
medical expenses incurred within one year
from death in excess of P500,000 shall no
longer be allowed as a deduction under this
subsection. Neither can (ii) any unpaid amount
thereof in excess of the P500,000 threshold
nor (iii) any unpaid amount for medical
expenses incurred prior to the one-year period
from date of death be allowed to be deducted
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(1) Benefits received by members from the GSIS and the SSS by reason of death
(2) Amounts received from the Philippines and US governments for damages suffered during the last
war.
(3) Benefits received by beneficiaries residing in the Philippines under laws administered by the US
Veteran Administration
(4) Bequests, legacies, or donations mortis causa to social welfare, cultural, or charitable
organizations. Bequests to be used actually, directly and exclusively for educational purposes are
also exempt from tax.
(5) Grants and donations to the Intramuros Administration
Limitations on Credit
A. For Estate Taxes paid to one foreign country (Specific Country Limitation)
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 net estate situated within such
country taxable under the tax code bears to his entire net estate.
( )
( )
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Compare the tax credit allowed under Limitation A and Limitation B. The lower of the two amounts is
the final allowable tax credit. In this case, the amount computed under Limitation A (4,400) is lower,
thus it becomes the final allowable tax credit.
If there is only one foreign country involved, both Limitations will yield the same answer.
The resulting amount will be compared to the actual tax paid to the foreign country. The lower
amount will be the final allowable tax credit.
Illustration:
Net Estate Philippines (reduced by all allowable P1,050,000
deductions, except standard deduction)
Country G Net Estate
300,000
150,000
Tax paid/incurred:
Philippines
Country G
Country H
15,000
5,000
1,400
3,000
5,000
Country H
(150/1500 x 15,000)
1,500
1,400
3,000
1,400
156
Allowed
(whichever
is
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(1) Apply Formula B. The result after applying the formula above is compared to the tax actually paid
in total to foreign countries.
(2) The lower of the two amounts will be added to get the total tax credit allowed under Limitation B.
Amount Allowed (Lower)
450/1500 x 15,000
4,500
P 4,400
from tax, the value of the gross estate exceeds
P20,000.
N. EXEMPTION OF CERTAIN
ACQUISITIONS AND
TRANSMISSIONS
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Contents
The executor, or the administrator, or any of
the legal heirs, as the case may be, shall file a
return under oath in duplicate, setting forth:
(1) The value of the gross estate of the
decedent at the time of his death, or in
case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate
situated in the Philippines;
(2) The deductions allowed from gross estate
in determining the net taxable estate; and
(3) Such part of such information as may at
the time be ascertainable and such
supplemental data as may be necessary to
establish the correct taxes.
(4) For estate tax returns showing a gross
value exceeding P2,000,000 - there must
be a statement duly certified to by a
Certified Public Accountant containing the
following:
(a) Itemized assets of the decedent with
their corresponding gross value at the
time of his death, or in the case of a
non-resident, not a citizen of the
Philippines, of that part of his gross
estate situated in the Philippines;
(b) Itemized deductions from gross estate
allowed in Section 86; and
(c) The amount of tax due whether paid or
still due and outstanding.
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Tax Rates:
If the Net Estate is
Over
P 200,000.00 500,000.00
Plus
Exempt
5%
P 200,000.00
8%
500,000.00
11 %
2,000,000.00
15 %
5,000,000.00
10,000,000.00
20 %
10,000,000.00
500,000.00
2,000,000.00 P 15,000.00
1,215,000.00
A. BASIC PRINCIPLES
The donors tax is imposed on donations inter
vivos or those made between living persons to
take effect during the lifetime of the donor. It
supplements the estate tax by preventing the
avoidance of the latter through the device of
donating the property during the lifetime of the
deceased.
B. DEFINITION
A donors tax is levied, assessed, collected and
paid upon the transfer by any person, resident
or nonresident, of the property by gift. (Sec.
98(A), NIRC). It shall apply 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. [Sec. 98(B), NIRC]
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(1)
(2)
(3)
(4)
(5)
C. NATURE
Donors tax is not a property tax but a tax
imposed on the transfer of property by way of
gift inter vivos. [Sec 11, RR 2-2003 citing Lladoc
v. CIR (1965)]
(2)
D. PURPOSE OR OBJECT
(1)
TAXATION LAW 2
Taxable transaction/object/event
: gratuitous transfer of property between two
or more persons who are living at the time of
the transfer, 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
NB: If donor is RC/NRC/RA = liable for donors
tax REGARDLESS of where the gift was made
or where property is located
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H. CLASSIFICATION OF DONOR
Donors Tax applies to individuals and
corporations (in their secondary purpose). They
may be classified into:
(a) Residents (RC/RA/DC/RFC)
(b) Non-Residents (NRC/NRA/NRFC)
Such classification is important in determining
the deductions from the gross gift of the donor,
and in filing the return.
Situs of Intangible Personal Properties
General Rule: Mobilia Sequuntur Personam
Principle: Taxation of intangible personal
properties (such as credits, bills, bank deposits
promissory notes, and corporate stocks)
follows the residence/domicile of owner
thereof. Situs is the domicile or residence of
the owner. (Collector v Fisher)
Exceptions:
(1) When it is inconsistent with express
provisions of law
(2) When justice does not demand that it
should be, as where the property in fact
has a situs elsewhere
Intangible Properties which are considered
situated in the Philippines (Sec 104)
(1) Franchise which must be exercised in the
Philippines
(2) Shares, obligations or bonds issued by any
corporation or sociedad anonima organized
or constituted in the Philippines in
accordance with its laws
(3) Shares, obligations or bonds issued by any
foreign corporation 85% of the business of
which is located in the Philippines
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Rule of Reciprocity
There is reciprocity if the foreign country of
which the decedent was a citizen and resident
at the time of his death:
Nonresident
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Resident
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Nonresident
Deductions (These are exempt donations but are Deductions (These are exempt donations but are
deductible from, and not treated as exclusions deductible from, and not treated as exclusions
from the gross gift)
from the gross gift)
(1) Dowries or donations made:
(a) On account of marriage
(b) Before its celebration or within one year
thereafter
(c) By parents to each of their legitimate,
recognized natural, or adopted children
(d) To the extent of the first P10,000
(2) Gifts 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 said
Government.
(3) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation,
institution,
accredited
nongovernment organization, trust or
philanthropic organization or research
institution or organization, Provided not more
than 30% of said gifts will be used by such
donee for administration purposes.
Common Exemptions
(1) Encumbrances on the property donated if
assumed by the donee in the deed of
donation.
(2) Donations made to entities exempted under
special laws
Note:
NOT SUBJECT TO DONORS TAX
(1) Contributions to candidate or political
party for campaign purposes duly reported
to COMELEC
(2) Gift to Parish Priest or Church (applies only
to real property tax)
(3) Onerous Donations or Donations in
exchange for goods/services (since they
are subject to income tax)
Homeowners
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Thus, what the seller avoids in
the payment of the donors tax, it pays
for in the capital gains tax.
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2. Worldwide Limit
( )
personal, tangible or intangible. (Sec. 98,
NIRC)
M. PERSON LIABLE
(see Classification of Donor)
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Net Gifts
(a) The net economic benefit from the transfer
that accrues to the donee.
(b) Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon
the donee the obligation to pay the
mortgage liability, then the net gift is
measured by deducting from the fair
market value of the property the amount of
the mortgage assumed. (Sec. 11, RR 22003)
General Formula
Gross Gifts
Less: Deductions from gross gifts
----------------------------------------------------Net gifts
Multiply by: Tax rate
----------------------------------------------------= Estate Tax Due
Less: Tax Credit, if any
----------------------------------------------------= Donors Tax Due, if any
Non-residents
(1) The Philippine Embassy or Consulate in
the country where he is domiciled at the
time of the transfer, or
(2) Directly
with the Office of the
Commissioner.
N. TAX BASIS
The tax for each calendar year shall be
computed on the basis of the total net gifts
made during the calendar. (Sec. 99, NIRC)
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Tax Rate
(1) IF NOT A STRANGER
Plus
Of the Excess
Over
100,000.00
Exempt
100,000.00
200,000.00
2%
100,000.00
200,000.00
500,000.00
P 2,000.00
4%
200,000.00
500,000.00
1,000,000.00
14,000.00
6%
500,000.00
1,000,000.00
3,000,000.00
44,000.00
8%
1,000,000.00
3,000,000.00
5,000,000.00
204,000.00
10%
3,000,000.00
5,000,000.00
10,000,000.00
404,000.00
12%
5,000,000.00
10,000,000.00
and over
1,004,000.00
15%
10,000,000.00
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Donors Tax
Resident
GR: to AAB of the RDO having jurisdiction over the place of
the domicile of the donor at the time of the transfer.
Exception:
(1) If no AAB = to the RCO or duly Authorized City or
Exception: If NRA/NRC,
Municipal Treasurer where the donor was domiciled at
If w/ Aor, Eor in Phil = to the AAB of the RDO where such
the time of the transfer,
Aor,Eor is registered/domiciled, if not yet registered with
the BIR.
(2) If no legal residence in Phil or NRA = with Revenue
If w/o Aor,Eor in Phil = to AAB under the jurisdiction of
District No. 39 - South Quezon City or with the
RDO No. 39
Philippine Embassy or Consulate in the country where
donor is domiciled at the time of the transfer.
Non-resident
(1) The Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or
(2) Directly with the Office of the Commissioner.
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COMMUNITY
Gross Estate4
Add:
Taxable Transfers & Others
Revocable Transfers/Donation Mortis Causa
Transfers in contemplation of death
Property passing under GPoA
Transfers for insufficient consideration5
Decedents Interest Accrued6
Proceeds of Life Insurance w/
revocable beneficiary7
Family Home
Claims against an Insolvent Person8
Amount received by heirs
TOTAL
VANISHING DEDUCTION
**Proportionate Deduction
Net Estate
Less: (Special Deductions10)
Standard Deduction
Family Home
Medical Expenses
Amounts received by heirs
Net Taxable Estate (before share of surviving spouse)
Less: Share of Surviving Spouse
( + )
Accrued before his death but only received after his death, e.g. dividends declared on/before, and received after death; partnerships profit
earned on/before and received after, accrued interest and rents on/before and collected after death
7 Beneficiary must be the estate of the decedent, Eor/Aor or a third person. If premiums are paid using conjugal funds, part of conjugal
funds.
8 Full amount of the receivable. However, the uncollectible amount may be deducted from GE under ELIT.
9 If NRA, Allowable Deduction wrt ELIT =
10
These are not allowable deductions when TP is NRA.
11
Applies only to RC/NRC/RA
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DONORS TAX
ON FIRST DONATION
Gross Gift
Less: Deductions (those not beneficial
to the done e.g. mortgage)
xxx
Net Gift
Less: Exemptions, if applicable
xxx
xxx
xxx
xx%
xxx
xxx
xxx
xxx
xxx
xxx
/ /
Credit
/ /
Net Gift
Less: Exemptions, if applicable
xxx
xxx
xxx
xxx
xxx
xx%
xxx
xxx
xxx
xxx
xxx
12
13
172
OR
/
/ /
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ESTATE TAX
GR: w/in 6m after death
E: extension of 30d
DEATH
ESTATE
TAX
RETURN
+
PAYMENT
(NB: Date of
payment may
be
extended,
5yrs or 2yrs), if
estate exceeds
200,000php
CANCEL TIN
Transfer
properties to
the heirs
DONORS TAX
NO TAX RETURN
NECESSARY
Full Exemption
COMPLETION/
PERFECTION OF
DONATION
Exempt
Partial Exemption
w/in 30d after
gift was made
DONORS
TAX
RETURN + PAYMENT
(NB: Date of payment
may be extended 6
months)
Liable
173
No Notice of
Donation
Necessary
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A. CONCEPT
VAT is a consumption tax imposed at every
stage of distribution process on (i) the sale,
barter, exchange, or lease of goods or
properties and (ii) rendition of services in the
course of trade or business, or the (iii)
importation of goods, whether such imported
goods are for use in business or non-business
purposes. (Sec. 4.105-2, RR 16-2005)
The taxpayer (seller) determines his tax liability
by computing the tax on the gross selling price
or gross receipt (output tax), and subtracting or
crediting the earlier VAT on the purchase or
importation of goods or on the purchase of
service (input tax) against the tax due on his
own sale
(e)
(f)
B. CONSTITUTIONALITY OF VAT
(g)
TAXATION LAW 2
limitation on the creditable input tax, 5year amortization of input tax on purchase
of capital goods, or the 5% final
withholding tax by the government.
It is equitable: The law is equipped with a
threshold margin (P1.5M). Also, basic
marine and agricultural products in their
original state are still not subject to tax.
Congress also provided for mitigating
measures to cushion the impact of the
imposition of the tax on those previously
exempt.
Excise taxes on petroleum
products and natural gas were reduced.
Percentage tax on domestic carriers was
removed.
Power producers are now
exempt from paying franchise tax.
VAT, by its very nature, is regressive. BUT
the Constitution does not really prohibit the
imposition of indirect taxes (which is
essentially regressive).
What it simply provides is that Congress
shall evolve a progressive system of
taxation.
In Tolentino v. Sec. of Finance (1995), the
Court said that direct taxes are to be
preferred, and as much as possible,
indirect taxes should be minimized but
not avoided entirely because it is difficult, if
not impossible, to avoid them.
C. CHARACTERISTICS/ELEMENTS OF
A VAT-TAXABLE TRANSACTION
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the regulations of the Bangko Sentral ng
Pilipinas
General Characteristics/Nature:
(1) Privilege/Percentage Tax imposed by
law directly not on the thing or service but
on the ACT (sale, barter, exchange, lease,
importation, or perfrormance of service)
(2) Ad Valorem Tax the amount is based on
the gross selling price or gross value in
money of the goods or service, including
the use or lease or properties.
(3) Indirect Tax it may be shifted or passed
on to the buyers, transferee, or lessee of
the goods, properties or services as part of
the purchase price.
(4) Excise Tax - a tax on the privilege of
engaging in the business of selling goods
or services, or in the importation of goods
but unlike excise, it is not applied only to a
few selected goods
General Features:
(1) VAT uses the Tax Credit Method
(2) All goods, properties and services (except
exempt) including goods subject to excise
taxes, and use or lease of properties,
whether real or presonal, are subject to tax
at all levels of distribution.
(3) Although tax is levied at all stages, the
total value of the goods is subject to tax
only once.
(4) VAT, as a general rule, follow the
destination principle (goods and services
are taxed only in the country where they
are consumed). Therefore, no VAT shall be
imposed to form part of the cost of goods
destined for consumption outside the
territorial border of the taxing authority.
EXCEPTIONS:
(a) The service is performed in the Philippines;
(b) The service falls under any of the
categories provided in Section 102(b) of the
Tax Code; and
(c) It is paid for in acceptable foreign currency
that is accounted for in accordance with
14 Sec
175
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D. IMPACT OF TAX
TAX
16
Impact
Incidence
The
impact
of
taxation is on the
statutory
taxpayer,
the one from whom
the
government
collects.
Seller/Importer
Seller/Importer is the
one who collects the
tax and pays to the
government
Buyer/Final
Consumer
the
buyers is the one who
bears the burden of
the taxation.
15
Residential
House and
Lot
INCIDENT OF
Residential
Lot
V.
Sale of Services16
(i) for
a
valuable
consideration
(actually/constructively received)
(ii) performed ICTB in the Phil.
(iii) not exempt from VAT (NIRC, special
law, special agreement)
(iv) person rendering service is VAT-liable
(v) no ee-er relationship
Casual
Sale
(Capital Assets)
Regular Sales
(Ordinary
Assets)
Commercial
Property
(Sale/Lease)
Residential
Units
(Lease)
TAXATION LAW 2
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.
Sec 108
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(2) the service falls under any of the
categories provided in Section 102(b) of
the Tax Code; and
(3) it is paid for in acceptable foreign
currency that is accounted for in
accordance with the regulations of the
BSP.
F. DESTINATION PRINCIPLE
G. PERSONS LIABLE
Persons Liable:
Any persons who sells, barters, exchanges, or
leases goods or properties, or who renders
services, in the course of trade or buesiness,
and any person who imports goods, whether or
not in the course of business, is liable to pay
either VAT or 3% percentage tax.
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Requirements
(1) Done in the course of trade or business
(w/n profit-oriented): rule of regularity +
incidental thereto (including isolated
transactions)
(2) Gross sales or receipts for the past 12
months or the next 12 months >
1,919,500php
OR there are reasonable grounds to
believe that gross sales or receipts for the
past 12 months or the next 12 months will
exceed 1,919,500php.
(3) Additional Requirements depending on the
nature of property:
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Goods/Personal Properties
(i) Actual/deemed sale for a valuable
consideration
(ii) for use or consumption in the Phil
(regardless of the payment arrangements)
(iii) not exempt from VAT (NIRC, special law,
special agreement)
17
Casual Sale
(Capital Assets)
Regular Sales
(Ordinary
Assets)
Commercial
Property
(Sale/Lease)
Residential
Units
(Lease)
Residential
Lot
Residential
House and
Lot
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18
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consideration, the additional VAT shall
be paid accordingly (RMC 03-96)
IF DEFERRED21
GSP = entire selling price or
zonal/FMV, whichever is higher
Thus, subsequent receipt of unpaid
balance is NOT subject to VAT
Note: CIR has the power to determine
the appropriate tax base in 1) SBE in
deemed sales and 2) when GSP is
unreasonably lower than AMV22
20
21
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(b) The value of goods or properties sold
and subsequently returned or for which
allowances were granted by a VATregistered person may be deducted
from the gross sales or receipts for the
quarter in which a refund is made or a
credit memorandum is issued.
Rate: 0% VAT
Transactions: Every sale, barter or exchange, or
transactions deemed sale of taxable goods or
properties (RR 16-2005)
Zero-Rated Sales on Goods or Property (RR 162005)
A zero-rated sale of goods or properties by a
VAT-registered person is a taxable transaction
for VAT purposes, but shall not result in any
output tax. However, the input tax on
purchases of goods, properties or services,
23 Please
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Consignment of goods
Consigned goods returned by the consignee
within the 60-day period are not deemed sold.
(RR 16-2005)
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 ARE
CONSIDERED DEEMED SALES
Examples: change of ownership of the business
(e.g. when a sole proprietorship incorporates,
or the proprietor sells his entire business) and
dissolution of a partnership and creation of a
new partnership which takes over the business.
(RR 16-2005)
K. CHANGE OR CESSATION OF
STATUS
AS
VAT-REGISTERED
PERSON (SEC 106 C)
Rate: 12% VAT
Basis: the acquisition cost or the current
market price of the goods or properties,
whichever is LOWER.
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Rate: 12%
Basis: Gross receipts derived from the sale or
exchange of services, including the use or lease
of properties.
24
SUBJECT TO VAT
Pre-Paid Rental
Security deposit when applied
to the rental
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Insurance
and
reinsurance
commissions, as opposed to premiums,
whether life or non-life, are subject to VAT
while non-life insurance premiums are
subject to VAT.
(16) Similar services regardless of whether or
not the performance thereof calls for the
exercise or use of the physical or mental
faculties
Lease of Properties: subject to the VAT
imposed irrespective of the place where the
contract of lease or licensing agreement was
executed if the property is leased or used in the
Philippines.
(1) The lease or the use of or the right or
privilege to use any copyright, patent,
design or model, plan secret
(2) formula or process, goodwill, trademark,
trade brand or other like property or right
(3) The lease of the use of, or the right to use
of any industrial, commercial or scientific
equipment
(4) The supply of scientific, technical,
industrial or commercial knowledge or
information
(5) The supply of any assistance that is
ancillary and subsidiary to and is furnished
as a means of enabling the application or
enjoyment of any such property, or right as
is mentioned in #2 or any such knowledge
or information as is mentioned in #3
(6) The supply of services by a nonresident
person or his employee in connection with
the use of property or rights belonging to,
or the installation or operation of any
brand, machinery or other apparatus
purchased from such nonresident person
(7) The supply of technical advice, assistance
or services rendered in connection with
technical management or administration
of any scientific, industrial or commercial
undertaking, venture, project or scheme
(8) The lease of motion picture films, films,
tapes and discs
188
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Government or the private sector
for the underprivileged and
homeless citizens which shall
include
sites
and
services
development, long-term financing,
liberated terms on interest
payments, and such other benefits
in accordance with the provisions
of RA No. 7279 and RA No. 7835
and RA No. 8763.
"Socialized housing" shall also
refer to projects intended for the
underprivileged and homeless
wherein the housing package
selling price is within the lowest
interest rates under the Unified
Home Lending Program (UHLP) or
any equivalent housing program of
the Government, the private sector
or non-government organizations.
(d) Sale of residential lot valued at
P1,919,500 and below, or house & lot
and other residential dwellings valued
at P3,199,200 and below
If two or more adjacent residential
lots are sold or disposed in favor of
one buyer, for the purpose of
utilizing the lots as one residential
lot, the sale shall be exempt from
VAT only if the aggregate value of
the lots does not exceed
P1,919,500. [RR 13-2012]
Adjacent residential lots, although
covered by separate titles and/or
separate tax declarations, when
sold or disposed to one and the
same buyer, whether covered by
one or separate Deed of
Conveyance, shall be presumed as
a sale of one residential lot. [RR
16-2005]
Sale, transfer or disposal within a
12-month period of 2 or more
adjacent residential lots, house
and lots or other residential
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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.
(1) It includes the transitional input tax and
the presumptive input tax as determined in
accordance with Section 111 of the Code.
(2) 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.
(3) Input tax must be evidenced by a VAT
invoice or official receipt issued by a VATregistered person in accordance with Secs.
113 and 237 of the Code. [RR 16-2005]
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Transitional tax
The following persons shall be allowed INPUT
TAX in his beginning inventory of goods,
materials and supplies an equivalent to TWO
PERCENT (2%) of the value of such inventory;
OR the actual VAT paid on such goods,
materials and supplies, whichever is HIGHER,
which shall be creditable against the OUTPUT
TAX.
(1) Any person liable for VAT or
(2) who elects to be a VAT-registered person
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S. DETERMINATION OF
OUTPUT/INPUT TAX; VAT PAYABLE;
EXCESS INPUT TAX CREDITS
There are four possible transactions a VATregistered person may enter into: (i) VAT
taxable, (ii) VAT-exempt, (iii) zero-rated VAT
and (iv) sale to governments.
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Illustration:
For a given taxable quarter ABC Corp. has
output VAT of 100 and input VAT of 80. Since
output tax exceeds the input tax for such
taxable quarter, all of the input tax may be
utilized to offset against the output tax. Thus,
the net VAT payable is 100 minus 80 = 20.
If the input tax inclusive of input tax carried over
from the previous quarter exceeds the output
tax, the input tax inclusive of input tax carried
over from the previous quarter that may be
credited in every quarter shall not exceed
seventy percent (70%) of the output tax;
Provided, That, the excess input tax shall be
carried over to the succeeding quarter or
quarters; Provided, however, that any input tax
attributable to zero-rated sales by a VATregistered person may at his option be
refunded or applied for a tax credit certificate
which may be used in the payment of internal
revenue taxes, subject to the limitations as
may be provided for by law, as well as, other
implementing rules.
Illustration:
For a given taxable quarter XYZ Corp. has
output VAT of 100 and input VAT of 110. Since
input tax exceeds the output tax for such
taxable quarter, the 70% limitation is imposed
to compute the amount of input tax which may
be utilized. The total allowable input tax which
may be utilized is 70 (70% of the output tax).
Thus, the net VAT payable is 100 less 70 = 30.
The unutilized input tax amounting to 40 is
carried over to the succeeding month.
In all cases where the basis for computing the
output tax is either the gross selling price or
the gross receipts, but the amount of VAT is
erroneously billed in the invoice, the total
invoice amount shall be presumed to be
comprised of the gross selling price/gross
receipts plus the correct amount of VAT. Hence,
the output tax shall be computed by
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(4) Input tax from payments made to nonresidents (such as for services, rentals and
royalties) shall be supported by a copy of
the Monthly Remittance Return of Value
Added Tax Withheld (BIR Form 1600) filed
by the resident payor in behalf of the nonresident evidencing remittance of VAT due
which was withheld by the payor.
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Example regarding the input tax on goods where deduction for depreciation is allowed from RR 162005
Illustration: LBH Corporation sold capital goods on installment on October 1, 2005. It is agreed
that the selling price, including the VAT, shall be payable in five (5) equal monthly installments. The
data pertinent to the sold assets are as follows:
Selling Price
Passed-on VAT
Original Cost of Asset
Accumulated Depreciation
at the time of sale
100,000.00
Accounting:
SELLER
BUYER
Oct. 1, 2005
Cash
P 1,100,000.00
Installment Receivable
4,400,000.00
Accumulated Depreciation 1,000,000.00
Output Tax
500,000.00
Asset
3,000,000.00
Gain on sale of asset
3,000,000.00
Oct. 1, 2005
Asset
Input Tax
------------
Output Tax
Input Tax
VAT Payable
P 5,000,000.00
500,000.00
Cash
Installment Payable
1,100,000.00
4,400,000.00
500,000.00
100,000.00
400,000.00
Cash
Installment Payable
Cash
1,100,000.00
Installment Receivable
1,100,000.00
1,100,000.00
1,100,000.00
* The input tax of P 500,000.00 on the bought capital goods worth P 5,000,000.00 shall be
spread evenly over a period of 60 months starting the month of purchase.
If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the
exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital
goods sold/transferred can be claimed as input tax credit during the month/quarter when the sale
or transfer was made but subject to the limitation prescribed under Sec. 4.110-7 of these Regulations.
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Example regarding the allocation of input tax on mixed transactions from RR 16-2005
Illustration: ERA Corporation has the following sales during the month:
Sale to private entities subject to 10%
Sale to private entities subject to 0%
Sale of exempt goods
Sale to govt. subjected to
5% final VAT Withholding
Total sales for the month
P100,000.00
100,000.00
100,000.00
100,000.00
P400,000.00
P5,000.00
3,000.00
2,000.00
4,000.00
P20,000.00
A. The creditable input tax for the month shall be computed as follows:
Input tax on sale subject to 10% P 5,000.00
Input tax on zero-rated sale
3,000.00
Ratable portion of the input tax not directly attributable to any activity:
Taxable sales (0% and 12%)
Total Sales
P100,000.00
400,000.00
X P20,000.00
- P5,000.00
B. The input tax attributable to sales to government for the month shall be computed as follows:
Input tax on sale to govt.
P 4,000.00
Ratable portion of the input tax not directly attributable to any activity:
Taxable sales to the government
Total Sales
P100,000.00 X P20,000.00
400,000.00
- P5,000.00
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P 9,000.00
C. The input tax attributable to VAT-exempt sales for the month shall be computed as
follows:
Input tax on VAT-exempt sales
P 2,000.00
Ratable portion of the input tax not directly attributable to any activity:
VAT-exempt sales
Total Sales
P100,000.00 X P20,000.00
400,000.00
P 5,000.00
P 7,000.00
The table below shows a summary of the foregoing transactions of ERA Corporation:
Output
VAT
Creditable
Input
VAT
Net VAT
Payable
Excess
Input
VAT for
carryover/
VAT for
refund
Unrecove
rable
VAT
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Requirements:(Summary)
(i) The claimant should be a VATregistered person
(ii) There should be an application
filed with the BIR or DOF center, as
the case may be, within 2yrs after
close of taxable quarter.
(iii) The claimed input tax must not
have been applied to any output
tax during the period covered and
subsequent periods covered by the
claim.
(iv) The claimed input tax must have
been deducted from the VAT
quarterly return.
(v) The claimed input tax are directly
attributable
to
0%-rated
transactions.
(vi) Acceptable
foreign
currency
exchange proceeds must have
been duly accounted for
(vii) Claimed input tax must be duly
supported by VAT invoices/receipts.
(viii)
VAT returns for the succeeding
quarters
must
have
been
submitted.
(2) Cancellation of VAT Registration.
(a) A person whose registration has been
cancelled due to (i) retirement from or
cessation of business, or due to
changes in or (ii) cessation of status
under Section 106(C) of the Code may,
within two (2) years from the date of
cancellation, apply for the issuance of
a tax credit certificate for any unused
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from the receipt of said denial or
inaction.
V. INVOICING REQUIREMENTS
(Sec 113)
Invoicing requirements in general
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
Only VAT-registered persons are required to
print their TIN followed by the word VAT in
their invoice or ORs. Said documents shall be
considered as a VAT Invoice or VAT official
receipt.
All
purchases
covered
by
invoices/receipts other than VAT Invoice/VAT
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Invoicing Requirement
Memorandum entry in the subsidiary sales journal to
record withdrawal of goods for personal use
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Retirement from or cessation of business An inventory shall be prepared and submitted to the
with respect to all goods on hand
RDO who has jurisdiction over the taxpayers principal
place of business not later than 30 days after
retirement or cessation from business. An invoice shall
be prepared for the entire inventory, which shall be the
basis of the entry into the subsidiary sales journal. The
invoice need not
enumerate the specific items appearing in the
inventory regarding the description of the goods. If the
business is to be continued by the new owners or
successors, the entire amount of output tax on the
amount deemed sold shall be allowed as input taxes.
Consequences of issuing erroneous vat invoice
or vat official receipt
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xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
12%
xxx
xxx
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MONTHLY RETURN
Gross Sales/Receipts for the Month
Multiplied by VAT rate
Output VAT
Less Input Taxes:
Transitional/Presumptive Input Tax
On taxable goods/services
Net VAT Payable
Add Penalties:
Surcharge
Interest
Compromise
Total Amount Payable
TAXATION LAW 2
xxx
12%
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
INVOLVING GOVERNMENT
When Actual Input VAT > Standard Input VAT: excess forms part of sellers expense/cost
When Actual Input VAT < Standard Input VAT: difference is treated as taxable other income
Sales xxx
Output VAT (Sales x 12%)
Purchases
Input VAT (Purchases x 12%)
xxx
xxx
xxx
209
xxx
xxx
xxx
xxx
xxx
xxx
xxx
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Sec 106
28
29
Residential Lot
Sec 108
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IF ON INSTALLMENT:
GSP = down payments received + interests + penalties + other charges amount of
mortgage (paid)
NB: If zonal/FMV, tax base =
( )
,
( )
Upon full collection, if a difference is uncovered because the zonal value or market
value at the date of sale is higher than the total receipts or collections based on the agreed
consideration, the additional VAT shall be paid accordingly (RMC 03-96)
IF DEFERRED
GSP = entire selling price or zonal/FMV, whichever is higher
NB: CIR has the power to determine the appropriate tax base in 1) SBE in deemed
sales and 2) when GSP is unreasonably lower than AMV32
It should be determined at the time of the sale, indicated in the invoice and granting does not depend on the happening of a future event
Initial payments does not include the amount of mortgage on RP sold (except excess when mortgage exceeds the cost of the property),
notes and other evidence on=f indebtedness issued by the purchaser at the time of the sale
32 GSP is unreasonably lower than the actual market value if it is lower than 30% of AMV of the same goods of the same quantity or quality
sold in the immediate locality or the nearest date of sale.
31
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construction projects (VAT + amounts earmarked for payments to unrelated 3rd party + amounts
received as reimbursement + monies/receipts held in trust w/c do not redound to the benefit of
taxpayer + universal charge passed on and collected by distribution companies and electric coop (if
sale of electricity) + receivables + local taxes)
IF DEALER IN SECURITIES: gross selling price cost of securities sold
(4) Total Value/Landed Cost (determined on the basis of quantity/volume of goods)
Total Value used by Customs: tariff and customs duties + custom duties +excise tax + charges
Landed Cost: invoice amount inc. cost of loading, shipping, unloading, + custom duties +
freight + insurance + other charges +excise tax expenses incurred after release of goods (e.g.
cost of delivery)
Customs duty: amount of customs duty legally due and paid by the importer
Charges: special import tax,foreign marginal fees, bank and arrastre charges, wharfage
dues, broker fees, other charges paid to complete importation
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Rates of VAT
(A) Output Tax (Sale/Barter/Exchange/Lease)
(1) 12% standard rate: applied directly to TB
(2) 0%: applied directly to TB
(B) Input Tax (Purchase from VAT-registered businesses/Importation of goods)
(1) 12% standard rate: applied directly to TB
(2) 0%: applied directly to TB
(3) 2% transitional VAT (: applied to the (inventory on hand) value of goods (exc. VAT-exempt
good) existing at the date a person commences business and/or becomes liable to VAT) or
12% actual input tax rate, higher
(4) 4% presumptive input tax rate: applies to purchases of VAT-exempt goods used as inputs by a
VAT-registered person in manufacturing or processing certain food products
(5) 7% FWT (standard input VAT, when government), 5% withholding
Creditable Input VAT Requirements
(1) Proper documentation
(2) No double input tax credit is allowed.
Input VAT on a particular purchase transaction can be claimed once only upon consummation
of the sale of goods and based on the entire GSP (whether paid on cash, credit or instalment)
(3) Ignore erroneous VAT rate. The correct rate of input VAT can still be claimed.
(4) Transactions should have been made with VAT-registered persons.
(5) IF MIXED TRANSACTIONS and input VAT cannot be directly attributable::
Formula
( )
( )
( )
( )
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0% VAT
Taxable transaction
No output VAT, but input VAT is available as
tax credit or refund
Total relief
All VAT is removed at whatever stage
SALE OF SERVICES
VAT-Exempt
0% VAT
NB: There are 31 VAT-exempt sales of (1) Processing, manufacturing, repacking goods to
services (Sec 109 and special laws)
non-resident (5)
(2) Processing, manufacturing, repacking goods to
(1) wrt lease of property =exempt
export-oriented (3)
if advance payment = loan, option (3) Services other than processing, manufacturing,
money, security deposit
repacking (4)
NB: if security deposit is applied to (4) Services to exempted persons (3): effectively 0rate
rental = VAT
(5)
Sale of power/fuel-generated through renewable
(2) wrt persons engaged in milling,
resources (3)
processing, manufacturing or repacking
(6) Services rendered to intl shipping/air transport
goods = exempt
(2)
if palay rice; corn corn grits;
(7) Transport of passengers and cargo by air from Phil
sugar cane raw sugar
to Foreign (3)
(3) wrt franchise grantees of electric utilities,
telephone and telegraph, radio and/or (8) Transactions of VAT-reg person to foreign
embassies (2)
television broadcasting = exempt
if annual gross receipts <= 10M;
franchise grantees of gas and
water utilities;
of telephone & telegraph
services, amounts received
for overseas dispatch from
Phil.
(4) wrt PREMIUMS of non-life insurance
companies = exempt
if life and disability insurance;
crop insurance;
health and accident insurance
(included are only those with exceptions)
Exceptions to the Exemptions (Subject to VAT)
(5) sale/import of agricultural & marine food (1) wrt livestock and poultry DOES NOT INCLUDE
products in their original state; livestock
fighting cocks, race horses, zoo animals and pets
and poultry (used/yield for human (2) DOES NOT INCLUDE vehicles, vessels, aircrafts,
consumption); breeding stock and
machineries, and other goods for use in
genetic materials
manufacturing in commercial quantities
(6) import of professional instruments, (3) DOES NOT INCLUDE those under Petroleum
implements, wearing apparel, domestic
Exploration Concessionaires under Petroleum Act
animals, and personal household effects
of 1949
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(7) Transactions exempt pursuant to special (4) Wrt sale by agricultural coops to non-members, if
laws
seller is the member = VAT
(8) Cooperatives
Wrt sale by non-agri, non-electric and non-credit,
importation of machineries and equipment = VAT
(9) Residential lots 1,919,500 & lot &
(5)
DOES NOT INCLUDE parking lot
dwellings 3,199,200
(6) If any portion of such goods are used for purposes
(10) lease of residential units,
other than those stated = VAT
if 12,800/unit/month (regardless of
aggregate amount);
if 12,800/unit/month (AND
aggregate amount is 1,919,500)
(11) importation of fuels, goods, supplies by
international shipping or air transport
Importation of Services
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SALE OF GOODS
VAT-Exempt
0% VAT
Real Property
Actual Export Sales (3)
(i) Not primarily held ICT/B
(ii) Low-cost or socialized housing
Deemed Export Sales
(iii) Residential lot <= 1,919,500
(i) Internal or constructive export sales
(iv) House and/or other residential dwellings <=
(a) Raw/Packaging materials to non-resident buyer
3,199,200
(5)
(v) Lease
(12,800/unit/year
or
total
(b) Raw/Packaging materials to export-oriented (3)
1,919,500/year)
(c) Phil. Port FOB value of export products (2)33
(vi) Transmission to a trustee
(d) Net selling price of export products (4)34
E: if transmission is deemed sale
(e) sales to bonded manufacturing warehouses (2)35
(vii) Transfer to corporation in exchange of SoS
(f) sales to export processing zones36
(viii)
Advance payments/Security Deposits in
(g) sales to enterprises duly accredited by Subic Bay
lease
Metropolitan Authority (2)
E: if applied to the rent
(h) sales to registered export traders (3)
(i) sales to diplomatic missions etc. (2)
As regards ecozones and PEZA-registered
(j) sale by VAT-supplier to manufacturer/producer
entities
whose products are 100% exported (3)
(i) Made by VAT-exempt supplier from customs (ii) Sale of gold to BSP
territory to any registered enterprise inside (iii) Sale of goods/supplies/equipment/fuel to persons
ecozone
engaged in intl shipping/air transport (4)
(ii) Intra-ecozone enterprise sale of service, if (iv) Docking/Undocking services to foreign vessels
PEZA registered seller is subject to 5%
special tax regime
Foreign currency denominated goods
(iii) Intra-ecozone sales of goods
(i) To a NRC/NRA of goods (5)
(ii) To a NRC/NRA of goods locally manufactured for
household and personal use (2)
E: automobiles and non-essential goods
Effectively-zero rated sales (3)
(i) Made by VAT registered supplier from customs
territory to any registered enterprise inside ecozone
(ii) Intra-ecozone enterprise sale of service, if PEZA
registered seller is subject to NIRC taxes
34
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Taxable Activity/Property
Actual SBE of Goods or Properties
Goods/ Personal Properties
Real Properties
IF sale is on instalment plan
AND
ZV/FMV
>
SP
(excluding VAT)
Deemed Sale Transactions
Not ICB/T, but originally
intended for sale/use ICB/T
Transfer to SH in share of profit
or Cr in payment of debt
Consignment after 60d
Retirement/Cessation
of
business
Sale of Services
Importation of Goods
In general
When custom duties are based
on quantity or volume
TAXATION 2
TAXATION LAW 2
TR
12%
Tax Base
Tax Payable
()
VAT Payable paid
by
seller/transferor
12%
12 %
12%
(1) Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input
tax credit beginning on the first day of the month following registration.
(2) The cancellation for registration will be effective from the first day of the following month the
cancellation was approved.
(3) What is the treatment for Withholding of VAT on Government Money Payments?
The government or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and/or services taxed at twelve percent (12%) VAT
pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a Final VAT due at the
rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the
seller. The remaining seven percent (7%) effectively accounts for the standard input VAT for
sales of goods or services to government or any of its political subdivisions, instrumentalities
or agencies including GOCCs in lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT attributable to sales to government
exceeds seven percent (7%) of gross payments, the excess may form part of the sellers'
expense or cost. On the other hand, if actual input VAT attributable to sale to government is
less than seven percent (7%) of gross payment, the difference must be closed to expense or
cost.
The government or any of its political subdivisions, instrumentalities or agencies including
GOCCs, as well as private corporation, individuals, estates and trusts, whether large or nonlarge taxpayers, shall withhold twelve percent (12%) VAT with respect to the following
payments:
(i) Lease or use of properties or property rights owned by non-residents; and
(ii) Other services rendered in the Philippines by non-residents.
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VAT-Exempt
Person
Optional Registration
Person
Liable for
VAT
TAXATION 2
Register
to
RDO for every
separate and
distinct
establishment
TAXATION LAW 2
VAT-registered
Person
(w/ TIN)
Certificate of
Registration
APPROVE
DENY
CANCELLATION/UPDATE OF VAT REGISTRATION
(registration of a taxpayer of a franchise grantee of radio and/or tv
broadcasting whose gross annual receipts 10,000,000 =
irrevocable)
Certificate of Non-VAT
Register
to
RDO for every
separate and
distinct
establishment
Cancellation/Update
necessitating cancellation
APPROVE
DENY
Minor change in
original registration
w/in
15d
from
change
Notice of Change (f
change of address)
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Direct Tax
Credit
Presumptive Input Tax
Transitional Input Tax
Actual Input Tax not related
to zero-rated sales
Carry-over
Tax Credit
VAT- registered
cancelling their
registration (regardless of
the source of input tax)
Application for
refund or TCC to
CIR +
supporting docs
GRANTED
DENIED
VAT-exempt Transactions
w/in 30 days
from receipt
of denial
Apply against
OUTPUT VAT
Non-VAT
Taxpayer
INACTION
w/in 30 days
from expiration
of 120-days
ISSUANCE
Appeal to CTA
NO INPUT TAX
Related OUTPUT
VAT shall be treated
as an operating
expense
GRANTED
Tax Credit
Certificate
220
Tax Refund
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of filing after it was due,
whichever is LATER
(ii)
Return filed was false or
fraudulent 10 years from date
of discovery of fraud or falsity
A. TAXPAYERS REMEDIES
Assessment
(1) JUDICIAL (CTA/RTC)
(a) Civil action
(i) Appeal to the CTA
(ii) Action to contest forfeiture of
chattel; and
(iii) Action for damages
(b) Criminal action
(i) Filing a criminal complaint against
erring BIR officials and employees
Periods:
Assessment
o Return was filed
(i)
Not false or fraudulent 3
years from date of filing of the
return OR date legally due or
actual date of filing after it wad
due, whichever is LATER
(ii)
False or fraudulent - 10
years from date the fraud or
falsity was discovered
o No return filed 10 years from the
discovery of omission
Collection
o Assessment made 3 years from
date of finality of assessment
o No assessment
(i)
With return filed which is
not false or fraudulent 3
years from date of filing of the
return OR date or actual date
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NB: Waiver
The taxpayer and the Commissioner may agree
in writing, before the expiration of the time
prescribed in Sec. 203, to extend the period of
assessment (Sec. 222(b), NIRC)
(1) The waiver of prescription must be
executed properly, otherwise, invalid and
results to prescription of the right to
assess/collect. (Philippine Journalists Inc.
vs. CIR, December 16, 2004)
(2) Requirements for a valid waiver under
RMO 20-90: i) definite agreed date, ii) date
of acceptance indicated, and iii) taxpayer
must be furnished with a copy of the waiver.
(a) Prescriptive period for assessment
(1) False, fraudulent, and non-filing of returns
(b) Suspension of running of statute of
limitations
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the tax fraud division of the Enforcement
Services, and Policy cases under audit by
the special teams in national offices
Assessment Process
[Sec. 228, NIRC; RR 12-99; RR 18-13]
(1) Tax Audit - a tax audit, revenue officers
examine the books of account and other
accounting records of taxpayers to
determine the correct tax liability. This is
through the issuance of a Letter of
Authority.
Letter of Authority: An official document
that empowers a Revenue Officer to
examine and scrutinize a taxpayers books
of accounts and other accounting records,
in order to determine the taxpayers correct
internal revenue tax liabilities.
Cases which need not be covered by a
valid LA: Cases involving civil/criminal tax
fraud which fall under the jurisdiction of
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TAXATION LAW
Protesting Assessment
Protest of assessment by taxpayer
Made within thirty (30) days from receipt of
the assessment.
Protest is either a request for
reconsideration or a request for
reinvestigation, or both
The protests shall state: (Failure to state
shall render protest null and void)
(1) Nature
of
protest,
whether
Reconsideration or reinvestigation,
specifying new or additional evidence if
request for reinvestigation
(2) Date of the assessment notice
(3) Applicable law, rules and regulations,
or jurisprudence on which his protest is
based.
In case of request for reinvestigation,
submission of documents within 60 days from
filing of protest
Within sixty (60) days from filing of the
protest, all relevant supporting
documents must be submitted,
otherwise the assessment shall
become final.
Relevant supporting documents
documents necessary to support the
legal and factual bases in disputing a
tax assessment as determined by the
taxpayer
Assessment shall become final
taxpayer is barred from disputing the
correctness of the issue assessment by
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(b) Inaction
Remedies of Taxpayer to Action by
Commissioner: In case of inaction within 180
days from submission of documents
If the protest is not acted upon by the
Commissioners
duly
authorized
representative within 180 days from filing
of the protest or from submission of
required documents, the taxpayer may
either:
(a) Appeal to the CTA within 30 days
after the expiration of the 180 days,
(b) Await the final decision of the
Commissioners duly authorized
representative.
If the Commissioner did not act upon the
petition within 180 days from the time the
documents were submitted, the taxpayer
may either:
(a) Appeal to the CTA within thirty days
from the lapse of the 180-day period
OR
(b) Wait until the Commissioner decides
before he elevates the case to the
CTA.
(a) Denial
Rendition of Decision by Commissioner
CIRs actions deemed equivalent to denial of
protest:
Filing of collection suit against
taxpayer (CIR v. Union Shipping)
Issuing a warrant of distraint and levy
(Commissioner v. Algue)
Where there is a request for
reconsideration, final demand letter
from BIR (CIR v. Isabela Cultural Corp)
Notice of delinquency (CIR v. Ayala
Securities)
Inaction by Commissioner - If the
protest is not acted upon within one
hundred eighty (180) days from
submission of documents, the inaction
by the Commissioner is considered as a
denial of protest.
Remedies of Taxpayer to Action by
Commissioner: In case of denial of protest
If the protest is denied, in whole or in
part, by the Commissioners duly
authorized representative, the taxpayer
may either:
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In case personal service is not practicable,
the notice shall be served by substituted
service or by mail.
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Collection
Kinds of Distraint:
(1) Constructive Distraint
(2) Actual Distraint
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Government. (NOTE: distraint of bank
accounts is called GARNISHMENT)
228
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Tax lien
Tax liens
(1) When a taxpayer neglects or refuses to pay
his internal revenue tax liability after
demand, the amount so demanded shall
be a lien in favor of the government from
the time the assessment was made by the
CIR until paid with interest, penalties, and
costs that may accrue in addition thereto
upon ALL PROPERTY AND RIGHTS TO
PROPERTY BELONGING to the taxpayer.
(2) HOWEVER, the lien shall not be valid
against any mortgagee, purchaser or
judgment creditor until NOTICE of such
lien shall be filed by the Commissioner in
the Office of the Register of Deeds of the
province or city where the property of the
taxpayer is situated or located. (Sec. 219,
NIRC)
Compromise
Authority of the Commissioner to compromise
and abate taxes
Compromise to reduce the amount of tax
payable
Grounds for a compromise
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XXX
JUDICIAL REMEDIES
Suit to recover tax based on false or fraudulent
returns
A proceeding in court for the collection of the
tax assessed may be filed without assessment
at any time within ten (10) years after the
discovery of the falsity, fraud or omission.
Provided, that in a fraud assessment which has
become final and executor, the fact of fraud
shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof.
(Sec. 222, NIRC)
A. Civil Action
Two ways by which civil liability is enforced:
(1) By filing a civil case for the collection of
sum of money with the proper regular
court; and
(2) By filing an answer to the petition for
review filed by the taxpayer with the Court
of Tax Appeals. (Mamalateo, 2008)
B. Criminal Action
Refund
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Civil Penalties
1. Surcharge
2. Interest
CIVIL PENALTIES
Surcharge
of
tax
A. GOVERNMENT REMEDIES
(1) Administrative remedies
(a) Tax lien
(b) Levy and sale of real property
(c) Forfeiture of real property to the
government for want of bidder
(d) Further distraint and levy
(e) Suspension of business operation
(f) Non-availability of injunction to
restrain collection of tax
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XXX
Interest
In General
20% per annum on the unpaid amount of tax,
interest at the rate of twenty percent (20%) per
annum from the date prescribed for payment
until the amount is fully paid. (Sec. 249(A),
NIRC)
Deficiency Interest
20% per annum on any deficiency in the tax
due from the date prescribed for its payment
until the full payment thereof. (Sec. 249(B),
NIRC)
Delinquency interest
20% per annum on the unpaid amount in case
of failure to pay:
(a) The amount of the tax due on any return
required to be filed; or
(b) The amount of the tax due for which no
return is required; or
(c) A deficiency tax, or any surcharge or
interest thereon on the due date appearing
in the letter of demand and assessment
notice (Sec. 249(C), NIRC)
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XXX
V. Organization and
Function of the Bureau
of Internal Revenue
POWERS OF THE COMMISSIONER
(A) To make assessments and prescribe
additional
requirements
for
tax
administration and enforcement (Sec. 6,
NIRC)
(1) Examination
of
Returns
and
Determination of Tax Due
(a) After a return has been filed, the
CIR may authorize the examination
of any taxpayer and the
assessment of the correct amount
of tax.
(b) Failure to file a return shall not
prevent the CIR from authorizing
the examination.
(2) Best evidence obtainable
The CIR shall assess the proper tax on
the best evidence obtainable when:
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(c)
(d)
(e)
OF
(f)
THE
XXX
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XXX
2. JUDICIAL (CTA/RTC)
(a) Civil action
(i) Appeal to the CTA
(ii) Action to contest forfeiture of
chattel; and
(iii) Action for damages
(b) Criminal action
(iv) Filing a criminal complaint against
erring BIR officials and employees
Note: Petition for declaratory Relief is not
under the jurisdiction of the CTA.
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Assessment
XXX
Concept of assessment
Assess means to impose a tax; to charge with a
tax; to declare a tax to be payable; to
apportion a tax to be paid or contributed, to fix
a rate; to fix or settle a sum to be paid by way
of tax; to set, fix or charge a certain sum to
each taxpayer; to settle determine or fix the
amount of tax to be paid (84 C.J.S 74-750)
An assessment is the notice to the effect that
the amount therein stated is due from a
taxpayer as a tax with a demand for payment
of the same within a stated period of time.
(Commissioner v. CTA, 27 SCRA 1159)
Formula
Increase in Net worth
Add: Non-deductible Item
Less: Non-taxable income or receipts
subjected to final tax transfer taxes
Taxable Net Income
Less: Personal and additional exemptions
NET INCOME SUBJECT TO TAX
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XXX
Jeopardy Assessment
A tax assessment made by an authorized
Revenue Officer (RO) without the benefit of
complete or partial audit, in light of the ROs
belief that the assessment and collection of
the deficiency tax will be jeopardized by delay
caused by the taxpayers failure to: i) comply
with audit and investigation requirements to
present his books of accounts and/or pertinent
records or ii.) substantiate all or any of the
deductions, exemptions or credits claimed in
his return.
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XXX
Rates of Surcharge:
There shall be imposed a penalty equivalent to
twenty-five percent (25%) of the amount due,
in the following cases:
(1) FAILURE TO FILE ANY RETURN and PAY
THE TAX DUE THEREON on the date
prescribed; or
(2) Filing a return with an internal revenue
officer than those with whom the return is
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XXX
In General
246
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XXX
247
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XXX
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XXX
Taxpayer
to
Action
by
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XXX
Requisites
When the government may avail of the
remedies of collection:
General Rule: When the assessment shall have
become final, executory and demandable.
Exception: In case of false or fraudulent return
with intent to evade tax or of failure to file a
return, a proceeding in court for collection may
be filed without assessment within 10 years
from discovery of falsity, fraud or omission.
(Sec. 222(a), NIRC)
Injunction not available
No court may grant injunction to restrain the
collection of any national internal revenue tax,
fee or charge. (Sec. 218, NIRC)
Exception:
When the all of the following conditions
concur:
(a) It is an appeal to the CTA from a decision
of the CIR, or Commissioner of Customs or
the RTC, provincial, city or municipal
treasurer or the Secretary of Finance, the
case may be, AND
(b) In the opinion of the Court of Tax Appeals,
the collection may jeopardize the interest
of the Government and/or the taxpayer.
(Sec. 11, R.A. 1125 as amended by R.A.
9282)
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XXX
Prescriptive periods
Collection
assessment
Collection
assessment
with
without
by distraint or levy, or by
judicial proceedings
prior should be made within 3 years
from the date of filing of return
or date return is due, whichever
is LATER (based on Sec. 203,
NIRC)
by judicial proceedings
Waiver of prescriptive period
If tax was assessed within the different period
agreed upon by the Commissioner and the
taxpayer, it may be collected by distraint or
levy or by a proceeding in court within the
period agreed upon in writing before the
expiration of the 5-yr period.(Sec. 222d, NIRC)
Judicial
Civil
Distraint
of Personal Property
Criminal
Distraint remedy enforced on the goods,
chattels, or effects, and other personal
property of whatever character including
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XXX
252
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XXX
(D) Sale
The sale shall be held either at the main
entrance of the municipal or city hall or on the
premises to be sold. Property will be awarded
to the highest bidder. In case the proceeds of
the sale exceeds the claim and costs of sale,
the excess shall be turned over to the owner of
the property. (Sec. 213, NIRC)
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XXX
Tax lien
Unless the Commissioner allows extension of
time to pay, in meritorious cases, the winning
bidder shall pay the full amount of his bid cash
or managers check within two days after
receipt of notice of award.
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XXX
Limits of the
compromise:
Commissioners
power
to
Compromise
Authority of the Commissioner to compromise
and abate taxes
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XXX
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XXX
Tax
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XXX
GOVERNMENT REMEDIES
Administrative remedies
Tax lien
Levy and sale of real property
Forfeiture of real property to the
government for want of bidder
Further distraint and levy
Suspension of business operation
Non-availability of injunction to restrain
collection of tax
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Judicial remedies
(a) Civil Action
(b) Criminal Action
XXX
Offender
Penalty
Offender
Penalty
Criminal Offenses
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Offense
XXX
Who is liable
Penalty
Fine:
P30,000
P100,000
AND
Imprisonment: 2-4 years
Plus other penalties
Any person required to pay any Fine: P10,000 or more
tax, make a return, keep any AND
record, or supply correct and Imprisonment:1-10 years
accurate information
Plus other penalties
Fine
P50,000
P100,000
AND
Imprisonment: 2-6 years
Fine:
P20,000
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Offense
Who is liable
XXX
Penalty
P100,000; AND
Imprisonment - 6 years 1
day - 12 years
Fine:
P20,000
P100,000; AND
Imprisonment - 6 years 1
day - 12 years
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Offense
Who is liable
Value of goods
but >P50,000
XXX
Penalty
Misdeclaration
Misrepresentation
Manufacturers
Subject
Excise Tax (Sec. 268)
or
of
to
Fine:
P50,000
P100,000
AND
Imprisonment: 10-12 years
Any person who, being required Fine: P 1,000 - P50,000
under Section 237 to issue AND
receipts or sales or commercial Imprisonment: 2- 4 years
invoices
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Offense
Goods (Sec. 268)
Who is liable
XXX
Penalty
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Offense
Who is liable
XXX
Penalty
return
knowledge or information to their superior
officer, or to report as otherwise required
by law; or
(i) without the authority of law, demand or
Accept or attempt to collect, directly or
indirectly, as payment or otherwise, any
sum of money or other thing of value for
the compromise, adjustment or settlement
of any charge or complaint for any violation
or alleged violation of law.
(d)
(e)
(f)
(g)
(h)
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Civil Penalties
(a) Surcharge
(b) Interest
XXX
In General
20% per annum on the unpaid amount of tax,
interest at the rate of twenty percent (20%) per
annum from the date prescribed for payment
until the amount is fully paid. (Sec. 249(A),
NIRC)
Surcharge
Surcharge - penalty imposed in addition to the
tax required to be paid (Sec. 248(A), NIRC)
Deficiency Interest
20% per annum on any deficiency in the tax
due from the date prescribed for its payment
until the full payment thereof. (Sec. 249(B),
NIRC)
Delinquency interest
20% per annum on the unpaid amount in case
of failure to pay:
(a) The amount of the tax due on any return
required to be filed; or
(b) The amount of the tax due for which no
return is required; or
(c) A deficiency tax, or any surcharge or
interest thereon on the due date appearing
in the letter of demand and assessment
notice (Sec. 249(C), NIRC)
Interest
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XXX
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XXX
Commissioner or
Regional Director
Issues Letter of
Authority (LA)
Is response w/n
15 days? Is it
meritorious?
NO to
either
Yes to
both
Assessment becomes
Final, Warrant of Distraint
& Levy Issued
RO sends notice
of informal
conference
Taxpayer
responds w/in
15 days
Taxpayer
responds w/in 15
days
Regional
Assessment
Division issues a
Preliminary
Assessment Notice
(PAN)
ASSESSMENT
ENDS
YES to
both
Commissioner decides on
protest within 180 days
NO to
either
Decision
favorable to
taxpayer?
YES
ASSESSMENT
ENDS
YES
Commissioner
decides w/n
180 days?
NO
NO
If MR is denied, appeal to
the CTA within remainder
of the 30 days
CTA decides on
the appeal
YES
Appeal made
on time?
NO
Appeal to
Supreme Court
270
Assessment
becomes Final,
Warrant of Distraint
& Levy Issued
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XXX
START
Delinquent tax
more than 1M?
No
RDO posts notice in at least 2 public
places in the municipality/city where
the distraint is made. One place of
posting must be at the mayors office.
Time of sale shall not be less than 20
days after the notice (Sec. 209)
Commissioner seizes
sufficient
personal property to satisfy the
tax, charge & expenses of seizure
(Sec. 207 (A))
Yes
RDO seizes
sufficient
personal property to satisfy
the tax, charges & expenses
of seizure (Sec. 207 (A))
Officer
conducts
public auction
Yes
Internal
revenue
officer,
designated by the Commissioner,
shall prepare a certificate with the
force of a nationwide legal
execution (Sec. 207 B)
Yes
No bidder or
highest bid
insufficient?
No, bid ok
The Commissioner may,
after 20 days notice, sell
property at public auction
or at private sale with
approval of the SoF.
Proceeds
shall
be
deposited with the National
Treasury (Sec. 216)
271
Excess of proceeds
of the sale over claim
and cost of sale shall
be turned over to the
owner (Sec. 213)
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OF
XXX
THE
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XXX
Exceptions:
Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by the BIR;
Where the facts subsequently gathered by the
BIR are materially different from the facts on
which the ruling is based; or
Where the taxpayer acted in bad faith.
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275
XXX
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VIII. LOCAL
GOVERNMENT CODE
OF 1991, AS AMENDED
XXX
276
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Required:
Not otherwise specifically enumerated in the
LGC or taxed under NIRC or other applicable
laws
XXX
LGU
Provinces
May levy only:
(Sec.
134, Transfer of Real Property
LGC)
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
Municipalitie May levy taxes, fees and
s
charges not otherwise levied
by provinces (Sec. 142, LGC)
Cities
May levy taxes, fees and
charges which the province or
municipality may impose (Sec.
151, LGC)
Barangays
May levy only:
Taxes on stores or retailers
Service fees or charges
Barangay clearance
Other fees and charges (Sec.
152, LGC)
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XXX
Province
Municipality
City
(135)
(151)
(136)
(137)
(138)
(139)
(140)
(141)
(143)
(147)
(148)
(149)
Barangay
(152a)
(152b)
(152c)
(152d)
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Tax Imposed
Rate/Amount
XXX
Base
Exemptions
Others
Total acquisition
price or fair
market value,
whichever
is
higher
Sale, transfer, or
other disposition of
real
property
pursuant to R.A.
6657
(Comprehensive
Agrarian Reform
Law)
Evidence of payment of
tax is to be required by
Register of Deeds as a
requisite to registration;
and by the provincial
assessor as a condition
for cancellation of old
tax declaration.
Tax must be paid 60
days from the date of
execution of deed or
from the date of
decedent's death.
started Not
exceeding
1/20 of 1%
Gross
annual
receipts for the
preceding
calendar year
Capital
investment
279
Receipts
from
printing
and/or
publishing
of
books and other
reading materials
prescribed by the
DECS as school
texts or references
In
the
succeeding
calendar
year,
regardless of when
business
started
operating, tax shall be
based on gross receipts
for preceding calendar
year, or any fraction
thereof.
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Rate/Amount
Newly-started
business
Base
XXX
Exemptions
Gross
annual
receipts for the
preceding
calendar
year
based on the
incoming
receipt,
or
realized, within
its
territorial
jurisdiction
In
the
succeeding
calendar
year,
regardless of when
business
started
operating, tax shall be
based on gross receipts
for preceding calendar
year, or any fraction
thereof.
Permit to extract sand,
gravel and other quarry
resources to be issued
exclusively
by
the
provincial
governor
pursuant
to
an
Ordinance
by
the
Sangguniang
Panlalawigan
Not
more
than 1/20 of Capital
1%
investment
Others
Fair
market
value in the
locality
per
cubic meter of
resources
referred to in
Column 1
Distribution of proceeds:
Province - 30%
Component
City/
Municipality
where
resources
were
extracted - 30%
Barangay
where
resources
were
extracted - 40%
Professional
Tax. Such amount Such
Provinces may levy as
the reasonable
280
Professionals
exclusively
To be paid to
province where
the
the
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Tax Imposed
Rate/Amount
annual professional
tax on each person
engaged
in
the
exercise
of
a
profession requiring
government
examination (Sec 139,
LGC)
Sangguniang
Panlalawiga
n
may
determine, in
no case to
exceed
P300.00
Base
XXX
Exemptions
Others
Amusement
Tax.
Collected
from
proprietors, lessees,
or
operators
of
theaters,
cinemas,
concert
halls,
circuses,
boxing
stadia, and other
places of amusement
(Sec 140, LGC)
Payable annually, on or
before Jan 31.
In case of theaters or
cinemas, tax shall first
be
deducted
and
withheld
by
their
proprietors, lessees and
operators
Not
more Gross receipts Holding of operas,
than
10% from admission concerts, dramas,
(amended by fees
recitals, painting,
RA
9640,
and art exhibitions,
2009)
flower
shows,
musical programs,
literary
and
oratorical
presentations
Proceeds to be shared
equally by the province
Exception
to and municipality where
exemption:
Pop, amusement places are
rock, or similar located.
concerts
Manufacturers,
producers, wholesalers,
dealers and retailers
referred to in column 1
shall be exempt from tax
on peddlers
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Rate/Amount
Base
XXX
Exemptions
Others
Other Information
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Rate/Amount and Base
nature
Exporters and on manufacturers,
millers, producers, wholesalers,
distributor, dealers or retailers of
essential
commodities
enumerated
below:
[RWCCLAPS]
(1) Rice and corn
(2) Wheat and or cassava flour,
meat, dairy products, locally
manufactured, processed or
preserved food, sugar, salt,
and
other
agricultural,
marine, and fresh water
products, whether in original
state or not
(3) Cooking oil and cooking gas
(4) Cement
(5) Laundry soap, detergents,
and medicine
(6) Agricultural
implements.
equipment and post-harvest
facilities,
fertilizers,
pesticides,
insecticides,
herbicides and other farm
inputs;
(7) Poultry feeds and other
animal feeds;
(8) School supplies
Retailers
Contractors
and
other
independent contractors
Banks and other financial
institutions
TAXATION LAW
Other Information
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FOR
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Illustration:
A company has a principal office in Valenzuela
and has its factory in Bulacan. It also has
branches selling merchandise in Muntinlupa,
Bacolod, Cebu.
(1) sales made in Muntinlupa, Bacolod and
Cebu will go to the said cities
(2) sales in all other places which do not have
a sales branch shall be distributed as
follows: 30% to Valenzuela and 70% to
Bulacan
Excise Tax: Allied Thread Co., Inc. v. City Mayor
of Manila [1984] Tax is imposed on the
performance of an act or occupation,
enjoyment of a privilege. The power to levy
such tax depends on the place in which the act
is performed or the occupation is engaged in;
not upon the location of the office.
E. COMMON
POWERS
REVENUE
RAISING
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(iii) Physically-handicapped
(iv) Disabled citizens who are sixty-five
(65) years or older. [Sec. 155, LGC]
F. COMMUNITY TAX
Who may levy Cities or municipalities
[Sec. 156, LGC]
(1) Individuals who are:
(a) Inhabitants of the Philippines
(b) Eighteen years of age or over
(c) Either:
(i) Regularly employed on a wage or salary basis for at least 30
consecutive working days during any calendar year
(ii) Engaged in business or occupation
(iii) Owns real property with an aggregate assessed value of P1,000 or
more
Persons
Liable
(iv) Is required by law to file an income tax return
[Sec. 157 &158, (2) Juridical Persons
LGC]
(a) Every corporation no matter how created or organized,
(b) Whether domestic or resident foreign,
(c) Engaged in or doing business in the Philippines
(1) Individuals
(a) Annual community tax of P5.00 PLUS annual additional tax of P1.00 per
P1,000.00 of income regardless whether from business, exercise of
profession or property
(b) Never to exceed P5000
(c) Husband and wife shall pay a basic tax of P5.00 each PLUS additional
tax based on total property owned by them and the total gross receipts or
earnings derived therefrom
(2) Juridical Persons
(a) Annual community tax of P500.00 PLUS annual additional tax of not
more than P10,000.00 according to the ff. schedule:
(i) P2.00 for every P5,000 worth of real property in the Philippines
owned during the preceding year based
Rates [Sec. 157
(ii) P2.00 for every P5,000.00 of gross receipts derived from business in
&158, LGC]
the Philippines during the preceding year.
(b) Dividends received by a corporation from another corporation shall be
deemed part of the gross receipts or earnings for purposes of computing
additional tax.
Persons Exempt (1) Diplomatic and consular representatives
[Sec. 159, LGC]
(2) Transient visitors who stay in the Philippines for not more than 3 months
287
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Place of Payment
[Sec. 160, LGC]
Time of Payment
[Sec 161, LGC]
Penalty
TAXATION 2
TAXATION LAW
Where individual resides, or where the principal office of the juridical entity is
located.
Accrues on the 1st day of January of each year to be paid not later than the last
day of February of each year
If unpaid within the prescribed period, an interest of 24% shall be added per
annum from the due date until payment. [Sec. 161, LGC]
COMMON LIMITATIONS ON
TAXING POWERS OF LGUS
THE
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AUTHORITY
COLLECTION
BOOKS
AND
MANNER
OF
TREASURER
AND INSPECTION
IN
OF
TAXATION LAW
OF
ACCRUAL OF TAX
General rule: Accrues on the first day of
January of each year
TAXPAYERS REMEDIES
PERIODS
OF
ASSESSMENT
AND
COLLECTION OF LOCAL TAXES, FEES OR
CHARGES
TIME OF PAYMENT
Within the 20 days of January or of each
subsequent quarter. [i.e., Jan 20, Apr 20, July
20, and Oct 20]. It may be extended by the
sanggunian for justifiable reasons, without
surcharges or penalties. Extension cannot
exceed 6 months. [Sec. 167, LGC]
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TAXATION LAW
PROCEDURE
ACTION
FOR
ADMINISTRATIVE
PROTEST OF ASSESSMENT
Within sixty (60) days from the receipt of the
notice of assessment, the taxpayer may file a
written protest with the local treasurer
contesting the assessment; otherwise it shall
become final and executory. [Sec. 195, LGC]
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Land
Building
Machinery
Other improvements not
exempted [Sec. 232, LGC]
TAXATION LAW
specifically
Lands covered
(1) Agricultural Lands
More than one hectare in area suitable for
cultivation, dairying, inland fishery, and
other agricultural uses, one-half of which
remain uncultivated or unimproved
(2) Other than Agricultural
More than one thousand square meters in
area one half of which remain unutilized or
unimproved [Sec. 236 and 237, LGC]
Exempt Idle Lands
Lands exempt by reason of force majeure, civil
disturbance, natural calamity or any cause or
circumstance which physically or legally
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Provision
SC Ruling
involved
LGC.
in Sec 234 (a).
Properties
exempt from
RPT:
real
properties
owned by the
Republic
or
any of its
political
subdivisions
Manila
Sec 133 (o), MIAA
falls
Airport
LGC
under
the
Authority
term
vs.
CA Sec 234 (a), instrumentality
(2006)
LGC
outside
the
scope of LGSs
local taxing
powers under
Sec 133[o].
Charitable Institutions
Lung Center of the Philippines vs. Quezon City
[G.R. No. 144104, June 29, 2004]: A charitable
institution doesn't lose its character and its
exemption simply because it derives income
from paying patients so long as the money
received is devoted to the charitable object it
was intended to achieve, and no money inures
to the benefit of persons managing the
institution.
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TAXATION LAW
Land
The assessor of the province, city or
municipality or his deputy may summon the
owners or persons having legal interest therein
and witnesses, administer oaths, and take
deposition concerning the property, its
ownership, amount nature, and value. [Sec. 213,
LGC]
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Allowance
Machinery
Brand New
II.
GENERAL
ASSESSMENTS
CLASSIFICATION
REVISIONS
OF
AND
PROPERTY
III.
DATE
OF
EFFECTIVITY
ASSESSMENT OR REASSESSMENT
OF
General
rule:
All
assessments
or
reassessments made after the first day of
January of any year shall take effect on the first
day of January of any year
Exceptions: reassessments due to
(1) partial or total destruction
(2) major change in actual use;
(3) great and sudden inflation or deflation of
real property values;
(4) gross illegality of the assessment when
made; or
(5) any other abnormal cause shall be made
within ninety (90) days from the date of
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IV.
ASSESSMENT
OF
SUBJECT TO BACK TAXES
TAXATION LAW
of general circulation in
the locality once a week
for
two
consecutive
weeks. [Sec. 249, LGC]
Within five years from the
date they become due
PROPERTY
Prescriptive
Periods
for Within ten years from
Collection
discovery of fraud, in case
there is fraud or intent to
evade
Local treasurer is legally
prevented to collect tax.
The owner or property
Instances for requests
for
Suspension
reinvestigation and writes
of
a waiver before expiration
Prescriptive
of period to collect.
Period
The owner of property is
out of the country or
cannot be located [Sec.
270, LGC]
The local treasurer.
Collecting
He may deputize the
Authority
barangay treasurer to
collect all taxes upon
filing of a bond. [Sec. 247,
LGC]
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II. INTERESTS
PROPERTY TAX
ON
UNPAID
TAXATION LAW
REAL
When
Available
E.2.
REMEDIES
OF
LGUS
FOR
COLLECTION OF REAL PROPERTY TAX
I. ADMINISTRATIVE
Local Governments Lien
The basic real property tax shall constitute a
lien on the property subject to tax, superior to
all liens, charges or encumbrances in favour of
any person, irrespective of the owner or
possessor
thereof,
enforceable
by
administrative or judicial action and may only
be extinguished upon payment of the tax and
the related interests and expenses. [Sec. 257,
LGC]
II. JUDICIAL
The LGU may enforce the collection by civil
action in any court of competent jurisdiction.
Must be filed by local treasurer within 5 to 10
years. [Sec. 266 in relation to Sec. 270, LGC]
Levy
Upon the failure to pay the tax when due, the
local treasurer shall issue a warrant levying the
real property subject to tax. The warrant shall
F. TAXPAYERS REMEDIES
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F.1. ADMINISTRATIVE
TAXATION LAW
Protest
Appeal to the Local Board of Assessment
Appeals (LBAA)
(1) Appeal must be filed within 60 days from
the date of receipt of the written notice of
assessment
(2) By filing a petition under oath in the form
prescribed for the purpose
(3) Copies of tax declarations and other
affidavits or documents must be submitted
[Sec. 226, LGC]
F.2. JUDICIAL
Question on the legality of a tax ordinance
Any question on the constitutionality or legality
of a tax ordinance may be raised on appeal
within 30 days from effectivity to the Secretary
of Justice who shall render a decision within 60
days from the date of receipt of the appeal.
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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Govt Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Owner declares real
property once every 3
years (sec. 202) w/n
Jan 1 to June 30
START
Submit documents
supporting exemption w/
in 30 days from
declaration (sec. 206)
Required
Documents
submitted w/in
30 days?
Property
proven as tax
exempt?
Yes
No
Property shall be
listed as taxable in
the assessment
roll (sec. 206)
Assessor prepares
assessment rolls
wherein real property
shall be listed, valued
and assessed (sec. 205)
Assessor declares
real property if owner/
administrator fails to
do so (sec. 204)
Yes
Yes
Is real property
tax exempt?
Property shall be
dropped from
assessment roll
(sec. 206)
No
END
No
END
Appeal to the
Supreme Court w/
in 15 days
300
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TAXATION LAW
START
Assessor submits
assessment roll to
local
treasurer
(sec. 248)
Amount of tax
protested shall be
refunded or
applied as tax
credit (Sec. 252)
Yes
LT grants
protest?
Yes
LT decides w/in
60 days?
LT must decide w/
in 60 days from
receipt of protest
(sec. 252)
No
Refund or tax credit must
be claimed with the local
treasurer w/in 2 years from
the date taxpayer is entitled
to such (sec. 253)
LT acts on claim
for refund/tax
credit w/in 60
days?
No
Yes
LT grants
refund/tax
credit?
Yes
Taxpayer happy.
END
No
No
END
Appeal to the
Supreme Court w/
in 15 days
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TAXATION LAW
Sale is held:
1. at the main entrance
of the LGU building, OR
2. on the property to be
sold, OR at
3. any other place
specified in the notice
Is there a
bidder?
Yes
Bidder pays & 30 days
after the sale, the LT
shall report the sale to
the sanggunian
LT shall deliver to
purchaser certificate
of sale
Proceeds of sale in
excess of delinquent
tax,
interest
&
expenses of sale
remitted to the owner
(sec. 260)
For purposes of this flowchart owner means owner or administrator of real property or any
person having legal interest thereto
Warrant of Levy issued
by the Local Treasurer
(LT), which has the force
of legal execution in the
LGU concerned. (sec.
258)
Warrant is mailed
to or served upon
the delinquent
owner (sec. 258)
No
LT returns to the
purchaser/bidder the
price paid + interest
of 2% per month
(sec. 261)
If property is not
redeemed, the local
treasurer
shall
execute a deed of
conveyance to the
purchaser (sec. 262)
Sanggunian
concerned
may, by ordinance sell
and dispose of the real
property acquired under
the preceding section at
public auction. (sec. 264)
END
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E.
REQUIREMENTS
IMPORTATION
OF
E.1. BEGINNING
IMPORTATION
OF
AND
ENDING
TAXATION LAW
EXCEPT:
Obvious clerical error or any other discrepancy
is committed in the preparation
Without fraudulent intent
Discovery would not have been made until
after examination of the importation is
completed
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Form
(1) signed by the importer, consignee or
holder of the bill, by or for whom the entry
is effected [Sec. 1305]
(2) in the required number of copies in such
form as prescribed by regulations; and
(3) shall contain the names of the importing
vessel or aircraft, port of departure and
date of a the number and mark of
packages, or the quantity, if in bulk, the
nature and correct commodity description
of the articles contained therein, and its
value as set forth in a proper invoice to be
presented in duplicate the entry [Sec. 1306]
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Classification
When article not specifically classified in the
Code, the interested party, importer or foreign
exporter may submit a sample with full
description of component materials in a
written request.
V. LIQUIDATION OF DUTIES
Value
Upon written application, Collector shall
furnish importer within 30 days the latest
information as to the DV of articles to be
imported.
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Exceptions:
(1) Within one year after payment of the duties,
upon statement of error in conformity with
seventeen hundred and seven hereof,
approved by the Collector
(2) Within fifteen days after such payment
upon request for reappraisal and/or
reclassification
addressed
to
the
Commissioner by the Collector, if the
appraisal and/or classification is deemed
to be low
(3) Upon request for reappraisal and/or
reclassification, in the form of a timely
protest addressed to the Collector by the
interested party if the latter should be
dissatisfied with the appraisal or return
(4) Upon demand by the Commissioner of
Customs after the completion of
compliance audit pursuant to the
provisions of this Code." [R.A. 9135, April 27,
2001]
to
TAXATION LAW
the
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(2)
(3)
(4)
(5)
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TAXATION LAW
G. CLASSIFICATION OF GOODS
G.1. TAXABLE IMPORTATION
All articles, when imported from any foreign
country into the Philippines, shall be subject to
duty upon each importation, even though
previously exported from the Philippines,
except as otherwise specifically provided for in
this Code or in other laws. [Sec. 100, TCC]
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(3)
(4)
(5)
(6)
310
TAXATION LAW
other charges thereon, conditioned for the
exportation thereof or payment of the
corresponding duties, taxes and other
charges within six [6] months from the
date of acceptance of the import entry:
Provided, That the Collector of Customs
may extend the time for exportation or
payment of duties, taxes and other charges
for a term not exceeding six [6] months
from the expiration of the original period;
Cost of repairs, excluding the value of the
article used, made in foreign countries
upon vessels or aircraft documented,
registered or licensed in the Philippines,
upon proof satisfactory to the Collector of
Customs [1] that adequate facilities for
such repairs are not afforded in the
Philippines, or [2] that such vessels or
aircrafts, while in the regular course of her
voyage or flight was compelled by stress of
weather or other casualty to put into a
foreign port to make such repairs in order
to secure the safety, seaworthiness or
airworthiness of the vessel or aircraft to
enable her to reach her port of destination;
Articles brought into the Philippines for
repair, processing or reconditioning to be
re-exported upon completion of the repair,
processing or reconditioning: Provided,
That the Collector of Customs shall require
the giving of a bond in an amount equal to
one and one-half times the ascertained
duties, taxes and other charges thereon,
conditioned for the exportation thereof or
payment of the corresponding duties, taxes
and other charges within six [6] months
from the date of acceptance of the import
entry;
Medals, badges, cups and other small
articles bestowed as trophies or prizes, or
those received or accepted as honorary
distinction;
Personal and household effects belonging
to residents of the Philippines returning
from abroad including jewelry, precious
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I. AD VALOREM;
VALUATION
TAXATION LAW
METHODS
OF
H. CLASSIFICATION OF DUTIES
H.1. ORDINARY/REGULAR DUTIES
Ordinary or regular duties refer to those that,
as a matter of course, are imposed on dutiable
articles [Sec. 104, TCC]
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(5)
(6)
(7)
(8)
TAXATION LAW
outstanding voting stock or shares of
bother seller and buyer;
One of them directly or indirectly controls
the other;
Both of them are directly or indirectly
controlled by a 3rd person;
Together they directly or indirectly control
a 3rd person; or
Related by affinity or consanguinity up to
4th civil degree.
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Deductive value
DV is determined on the basis of sales in the
Phil of goods being valued of identical or
similar imported goods less certain expenses
resulting from importation and sale of goods.
Less:
Less:
Less:
PRICE
COMMISSIONS/ADDITIONS
COSTS
DUTIES and TAXES
DEDUCTIVE VALUE
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DV is calculated by:
Determining aggregate of relevant costs,
charges and expenses or value of
(1) materials and
(2) production or processing costs
Costs*
containers,
packing,
assists,
engineering, artwork, plans and sketches
undertaken in Phil and charged to producer
profits and general expenses
cost of transport, insurance and charges to the
port or place of importation
I. REMEDIES
I.1. GOVERNMENT
I. ADMINISTRATIVE/EXTRAJUDICIAL
Search, seizure, forfeiture, arrest
Enforcement of Tax Lien
Tax Lien attaches upon the articles imported
which may be enforced while such are in
custody or subject to the control of the
government [Sec. 1204]
Sec. 1508.
When an importer has an outstanding and
demandable account with the Bureau of
Customs,
Collector shall hold the delivery of the article.
Upon notice, he may sell such importation or a
portion of it to satisfy the obligation.
Importer may settle his obligation anytime
before the sale.
Fallback value
If DV cannot be determined using any of the
above methods, use other reasonable means
consistent with principles and general
provisions of General Agreements on Tariffs
and Trade [GATT]
II. SPECIFIC
[Sec. 202, TCC]
Rates are based on units of weight number or
measurement
Kinds of weight:
Gross Weight weight of same, together with
the weight of all containers, packages, holders
and packings, of any kind, in which said articles
are contained, held or packed at the time of
importation
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Scope
Limited to the subject matter of a single
adjustment (refers to the entire content of one
liquidation including duties, fees, surcharges
and fines) or other independent transaction
Compromise
[Sec. 2316, TCC]
Commissioner may compromise any case
subject to approval by Secretary of Finance
Other requirements:
(1) Payment of the amount due and the
corresponding docket fee shall be made
before protest [Sec. 2308]
(2) Upon demand of Collector, the importer
shall furnish samples of the articles which
are the subject of the protest
II. JUDICIAL
Requisites for filing of criminal/civil case
[Sec, 2401, TCC]:
(1) Brought in the name of the government of
the Phil
(2) Conducted by Customs officers
(3) With approval from the Commissioner
Review of Commissioner
[Sec. 2313]
A person aggrieved by the decision or Collector
in any matter presented upon protest or by his
action in any case of seizure may, within days
after notification on writing by the Collector of
his actions or decisions, file a written notice to
the Collector with a copy furnished to the
Commissioner of his intention to appeal the
action or decision of the Collector to the
Commissioner
Automatic Review
Happens in case a decision is made adverse to
the Government
I.2. TAXPAYER
I. PROTEST
When made: at the time payment of the
amount claimed to be due is made within 15
days thereafter [Sec. 2308]
II. ABANDONMENT
When article deemed abandoned
(1) owner, importer or consignee expressly
signifies in writing to Collector his intention
to abandon
(2) after due notice, fails to file an entry within
30 days from date of discharge of last
package from vessel or aircraft
(3) after filing entry, fails to claim his
importation 15 days from date of posting of
Form
(1) Must be in writing
(2) Must point out the particular decision or
ruling of the Collector of Customs to which
exception is taken or objection made
(3) Must state the grounds relied upon for
relief [Sec. 2310, TCC]
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Effect
[Sec. 1802, TCC]
(1) deemed to have renounced his interest and
property rights
(2) ipso facto deemed property of the
Government
If the abandoned articles are transferred to a
customs bonded warehouse, the operator shall
be liable for the payment of duties and taxes in
the case of loss of the stored abandoned
imported articles [R.V. Marzan v. CA, GR No.
128064, March 4, 2004]
How claimed
(1) Claim made in writing
(2) Collector shall verify with the records in his
office
(3) Certify claim to Commissioner with his
recommendation and necessary papers
(4) Commissioner shall then cause the claim
to be paid if found correct
If the result of the refund would result to a
corresponding refund of the internal revenue
taxes on the same importation, Collector shall
certify to Commissioner who shall cause the
said excess to be paid, refunded or credited in
favor of the importer
322
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Collector determines
probable cause
(illegal importation)
Collectors
decision favorable
to taxpayer/
adverse to govt?
Yes
Amount
involved less
than 5M?
Yes
Collector conducts
hearing
Does
commissioner
decide w/in 30
days?
No
Taxpayer appeals
to Customs
Commissioner 15
days from receipt
of notice
Is
Commissioners
decision favorable
to taxpayer/
adverse to govt?
Yes
No
Inaction construed as affirmation
of Collectors decision
Does
Commissioner
decide w/n 30
days?
No
Yes
Yes
Automatic Review* by
the Secretary of
Finance (SOF) (Sec.
2313, CMO 3-2002)
Is SOFs
decision
favorable to
taxpayer/adverse
to govt?
No
No
Does SOF
decide within
30 days?
Yes
No
Yes
Decision becomes
final &
unappealable
END
Inaction construed
as affirmation of
Collectors
decision
Appeal to the
Court of Tax
Appeals within 30
days from notice
of decision
MR within 15 days
from receipt of
decision
Appeal to CTA en
banc 15 days from
receipt of decision
denying MR
Inaction construed as
affirmation of
commissioners decision
(or of collectors decision
in case of inaction by
commissioner)
Appeal to the
Supreme Court
No
Appeal
to CTA
END
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
323
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Discriminatory
[Sec. 304]
Whenever the
President finds
that the public
interest will be
served
thereby,
additional
customs duty
shall
be
imposed upon
articles wholly
or in part the
growth
or
product of, or
imported in a
vessel of, any
foreign
country
whenever he
shall find as a
fact that such
country
(1)
Imposes,
directly
or
indirectly,
upon any Phil
product
unreasonable
charge,
exaction,
regulation or
limitation
which is not
equally
enforced upon
the
like
articles
of
other foreign
countries; or
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Anti-Dumping
[Sec. 301, TCC
as amended by
RA 8752]
Countervailing
[Sec. 302 as
amended by
RA 8751]
of a domestic
industry
TAXATION 2
Marking
[Sec. 303]
Discriminatory
[Sec. 304]
TAXATION LAW
safeguard
(2)
measures will
Discriminates
be
in
the
in fact against public interest
the commerce
of
the
Philippines, as
to place the
commerce of
the Philippines
at
a
disadvantage
compared with
the commerce
of any foreign
country.
325
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AntiEquivalent
Dumping
the subsidy
Duty
=
Normal
Value
Export Price
TAXATION LAW
For
non- Secretary
of
agricultural
Agriculture
products:
Secretary of
Trade
and
Industry
For
agricultural
products:
Secretary of
Agriculture
tariff increase,
either
ad
valorem
or
specific,
or
both, to be
paid through
a cash bond
set at a level
sufficient to
redress
or
prevent injury
to
the
domestic
industry [Sec.
8, RA 8800]
For a]:
appropriately
set to a level
not exceeding
one-third
of
the applicable
out-quota
customs duty
on
the
agricultural
product under
consideration
in the year
when it is
imposed
For
b],
compute
as
follows:
0 - if price
difference is at
most 10% of
the
trigger
price
30% of the
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AntiDumping
[Sec. 301,
TCC as
amended by
RA 8752]
Countervailing
[Sec. 302 as
amended by RA
8751]
TAXATION 2
Marking
[Sec. 303]
TAXATION LAW
Discriminatory
[Sec. 304]
amount
by
which the price
difference
exceeds 10% of
the
trigger
price
50% - if it
exceeds 40%
but less than
60%
70% - if it
exceeds 60 but
at most 75%
90% - if it
exceeds 75%
obliterated, destroyed or permanently
concealed
Notes:
Exceptions to the Marking of Articles (in the
following situations, the containers shall be
the one subject to marking):
(1) Article is incapable of being marked
(2) Article cannot be marked prior to shipment
to the Philippines without injury
(3) Article cannot be marked prior to shipment
to the Philippines, except at an expense
economically prohibitive of its importation
(4) Marking of a container of such article will
reasonably indicate the origin of such
article
(5) Article is a crude substance
(6) Article is imported for use by the importer
and not intended for sale in its imported or
any other form
(7) Article is to be processed in the Philippines
by the importer or for his account
otherwise than for the purpose of
concealing the origin of such article and in
such manner that any mark contemplated
by this section would necessarily be
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X. Judicial Remedies
TAXATION LAW
A. JURISDICTION
OF
THE
COURT OF TAX APPEALS
B.
CTA EN BANC
(1) Decisions or resolutions on motions for
reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive
appellate jurisdiction over:
(2) Cases arising from administrative agencies
Bureau of Internal Revenue, Bureau of
Customs,
Department
of
Finance,
Department of Trade and Industry,
Department of Agriculture;
(3) Local tax cases decided by the Regional
Trial Courts in the exercise of their original
jurisdiction; and
(4) Tax collection cases decided by the
Regional Trial Courts in the exercise of
their original jurisdiction involving final
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(1) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
original jurisdiction over cases involving
criminal offenses arising from violations of
the National Internal Revenue Code or the
Tariff and Customs Code and other laws
administered by the Bureau of Internal
Revenue or Bureau of Customs;
(2) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
appellate jurisdiction over criminal
offenses mentioned in the preceding
subparagraph; and
(3) Decisions, resolutions or orders of the
Regional trial Courts in the exercise of their
appellate jurisdiction over criminal
offenses mentioned in subparagraph [f].
B. JUDICIAL PROCEDURES
B.1. JUDICIAL ACTION FOR COLLECTION
OF TAXES
I. INTERNAL REVENUE TAXES
The remedies for the collection of internal
revenue taxes, fees or charges, and any
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Court Official
In default or ex parte hearings, or in any case
where the parties agree in writing, the Court
may delegate the reception of evidence to the
Clerk of Court, the Division Clerks of Court,
their assistants who are members of the
Philippine bar, or any Court attorney. The
reception of documentary evidence by a Court
official shall be for the sole purpose of marking,
comparison
with
the
original,
and
identification
by
witnesses
of
such
documentary evidence. The Court official shall
have no power to rule on objections to any
question or to the admission of exhibits, which
objections shall be resolved by the Court upon
submission of his report and the transcripts
within ten days from termination of the hearing.
[Sec. 4, Rule 12, A.M. No. 05-11-07]
TAKING OF EVIDENCE
The Court may receive evidence in the
following cases:
(1) In all cases falling within the original
jurisdiction of the Court in Division
pursuant to Section 3, Rule 4 of these
Rules; and
(2) In appeals in both civil and criminal cases
where the Court grants a new trial
pursuant to Section 2, Rule 53 and Section
12, Rule 124 of the Rules of Court. [Sec. 2,
Rule 12, A.M. No. 05-11-07]
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INSTITUTION ON
CRIMINAL ACTION
TAXATION LAW
CIVIL
ACTION
IN
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As applied to taxation:
It is well-stated that the validity of a statute
may be contested only by one who will sustain
a direct injury in consequence of its
enforcement. Yet, there are many decisions
nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds,
upon the theory that "the expenditure of public
funds by an officer of the State for the purpose
of administering an unconstitutional act
constitutes a misapplication of such funds,"
which may be enjoined at the request of a
taxpayer. [Pascual v. Secretary of Public Works
(1960)]
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III.
RIPENESS
DETERMINATION
TAXATION 2
FOR
JUDICIAL
TAXATION LAW
336